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Press release from Business Wire

Hormel Foods Reports Strong Second Quarter Results

Wednesday, May 25, 2011

Hormel Foods Reports Strong Second Quarter Results07:00 EDT Wednesday, May 25, 2011 AUSTIN, Minn. (Business Wire) -- Hormel Foods Corporation (NYSE: HRL) today reported its performance for the fiscal year 2011 second quarter. All comparisons are to the second quarter or first half of fiscal 2010. All per share results reported here have been adjusted to give effect to the two-for-one stock split, which was effective February 1, 2011. HIGHLIGHTSSecond Quarter Diluted EPS of $.40, up 18 percent from diluted adjusted EPS of $.34 Adjusted earnings in 2010 exclude the one-time charges amounting to $0.05 per diluted share that were incurred, relating to the Valley Fresh plant closing and the tax impact of the new health care laws Segment operating profit up 18 percent compared to adjusted operating profita year ago Dollar sales of $2 billion, up 15 percent Volume up 7 percent Refrigerated Foods operating profit up 27 percent; volume up 4 percent; dollar sales up 16 percent Jennie-O Turkey Store operating profit up 45 percent; volume up 17 percent; dollar sales up 25 percent Grocery Products operating profit down 9 percent compared to adjusted operating profit a year ago; volume up 2 percent; dollar sales up 1 percent Specialty Foods operating profit down 11 percent; volume up 6 percent; dollar sales up 4 percent All Other operating profit up 104 percent; volume up 24 percent; dollar sales up 45 percent The company reported fiscal 2011 second quarter net earnings of $109.6 million, up 20 percent from adjusted net earnings of $91.3 million a year earlier. For the six months ended May 1, 2011, net earnings were $258.4 million, up 28 percent from adjusted net earnings of $202.5 million the same period last year. Diluted net earnings per share for the six months ended May 1, 2011 were $.95, up 27 percent from diluted adjusted net earnings per share of $.75 last year. On a U.S. GAAP basis, the company's fiscal 2011 second quarter net earnings of $109.6 million were up 41 percent from net earnings of $77.9 million a year earlier. Diluted U.S. GAAP earnings per share for the quarter were $.40 this year, up 38 percent compared to $.29 per share last year. U.S. GAAP segment operating profit for the quarter was $183.6 million, up 25 percent from a year ago. Grocery Products U.S. GAAP segment operating profit for the quarter was $39 million, up 18 percent from a year ago. For the six months ended May 1, 2011, U.S. GAAP net earnings were $258.4 million or $.95 per diluted share (up 37 percent and 36 percent, respectively) compared to U.S. GAAP net earnings of $189.1 million or $.70 per diluted share from the same period last year. Sales for the quarter were $2 billion, up 15 percent from fiscal 2010. For the six months ended May 1, 2011, sales totaled $3.9 billion, up 13 percent from the same period last year. COMMENTARY “We are pleased to report double-digit growth in both earnings and sales for the quarter. Earnings growth was led by our Refrigerated Foods and Jennie-O Turkey Store segments, both of which had a strong quarter. We are also gratified to attain sales growth in all five of our segments,” said Jeffrey M. Ettinger, chairman of the board, president and chief executive officer. “Our Refrigerated Foods segment generated excellent results, benefitting from strong pork operating margins, and our Jennie-O Turkey Store segment delivered another outstanding quarter, aided by stronger commodity meat prices and improved efficiencies. Our international business in our All Other segment also achieved impressive results, driven by strong export sales. Both our Grocery Products and Specialty Foods segments were pressured by higher commodity costs during the quarter,” remarked Ettinger. SEGMENT OPERATING HIGHLIGHTS – SECOND QUARTERGrocery Products (13% of Net Sales, 21% of Total Segment Operating Profit)The Grocery Products segment operating profit declined 9 percent from adjusted segment operating profit a year ago, due to higher input costs. Net sales exceeded last year by 1 percent. Strong results from our core products, such as the SPAM® family of products, Hormel® bacon toppings, Hormel®Mary Kitchen® hash and Dinty Moore® stew offset soft sales of our microwave products and imported canned meats. The MegaMex Foods business continued to grow sales. Refrigerated Foods (53% of Net Sales, 38% of Total Segment Operating Profit)The Refrigerated Foods segment exceeded last year's profitability by 27 percent, due primarily to higher pork operating margins. Net sales for the quarter increased 16 percent, with strong contributions from products such as Hormel® party trays, Hormel® Natural Choice® deli meats and Hormel® Cure 81® premium hams. Positive contributions from the new Hormel® Country Crock® business were also reflected in the results. Jennie-O Turkey Store (19% of Net Sales, 26% of Total Segment Operating Profit)Jennie-O Turkey Store had another excellent quarter, with segment operating profit up 45 percent from a year ago. Stronger commodity meat markets and improved efficiencies contributed to the good results. Net sales for the quarter rose 25 percent, and sales of our value-added products rose in all three trade channels. Specialty Foods (10% of Net Sales, 10% of Total Segment Operating Profit)The Specialty Foods segment operating profit declined 11 percent, due to higher raw material costs. Net sales grew 4 percent, as higher sales of private label canned meats, sugar and blended items offset softer nutritional jar sales. All Other (5% of Net Sales, 5% of Total Segment Operating Profit)The All Other segment, which consists primarily of Hormel Foods International, grew segment profit 104 percent, and grew net sales by 45 percent, driven mostly by stronger exports of fresh pork and the SPAM® family of products. General Corporate ExpenseGeneral corporate expenses were higher than last year due primarily to higher pension and insurance costs. OUTLOOK “Given our strong results in the second quarter, we are raising our full year guidance range to $1.67 to $1.73 per share from $1.62 to $1.68 per share. We anticipate seeing higher input costs during the remainder of the year, and our team will continue to drive efficiency gains and advance pricing to offset these higher costs. We believe our strong portfolio of brands and our balanced model will allow us to overcome those obstacles,” concluded Ettinger. DIVIDENDS Effective May 15, 2011, the Company paid its 331st consecutive quarterly dividend, at the annual rate of $.51. CONFERENCE CALL A conference call will be Webcast at 8:00 a.m. CT (9:00 a.m. ET) on Wednesday, May 25, 2011. Access is available at http://www.hormelfoods.com. If you do not have Internet access and want to listen to the call over the phone, the dial in number is 877-941-2332 and you must provide the access code of 4434269. An audio replay is available by calling 800-406-7325and entering access code 4434269. The audio replay will be available beginning at 10:30 a.m. CT on Wednesday, May 25, 2011, through 11:59 p.m. CT on Wednesday, June 8, 2011. The Webcast replay will be available at 10:30 a.m. CT, Wednesday, May 25, 2011, and archived for one year. COMPARISON OF U.S. GAAP TO NON-GAAP FINANCIAL MEASUREMENTS The non-GAAP adjusted financial measurements are provided to assist the investor in better understanding the Company's operating performance by excluding the impact of certain non-recurring items affecting comparability. Non-GAAP measurements are not intended to be a substitute for U.S. GAAP measurements in analyzing financial performance. These non-GAAP measurements are not in accordance with any generally accepted accounting principles and may be different from non-GAAP measures used by other companies. ADJUSTED EARNINGS Adjusted net earnings for 2010 (a non-GAAP financial measurement) exclude one-time charges of $6.3 million ($0.02 per diluted share) relating to the closure of the Valley Fresh plant and an income tax charge of $7.1 million ($0.03 per diluted share) primarily due to the change in tax treatment of Medicare Part D reimbursements by health care laws enacted in the prior year. Adjusted segment operating profit and Grocery Products adjusted segment operating profit exclude the one-time charges relating to the Valley Fresh plant closing. The tables below show the calculations to reconcile from adjusted earnings to U.S. GAAP earnings for 2010. Second Quarter   2011 U.S.GAAPEarnings   2010AdjustedEarnings   ValleyFreshPlantClosure   Tax itemsprimarilyrelated tohealthcare laws   2010 U.S.GAAPEarnings Grocery Products $ 39,048 $ 42,755 $ (9,733 ) $ 33,022 Refrigerated Foods 70,250 55,523 55,523 Jennie-O Turkey Store 46,703 32,169 32,169 Specialty Foods 19,164 21,508 21,508 All Other   8,444   4,133       4,133 Total segment operating profit 183,609 156,088 (9,733 ) 146,355 Net interest and investment expense (income) 5,215 5,151 5,151 General corporate expense   11,969   9,391       9,391 Earnings before income taxes 166,425 141,546 (9,733 ) 131,813 Income taxes   56,846   50,286   (3,455 ) $ 7,120     53,951 Net earnings attributable to Hormel Foods Corporation $ 109,579 $ 91,260 $ (6,278 ) $ (7,120 ) $ 77,862   Diluted net earnings per share $ 0.40 $ 0.34 $ (0.02 ) $ (0.03 ) $ 0.29   Year to Date   2011 U.S.GAAPEarnings   2010AdjustedEarnings   ValleyFreshPlantClosure   Tax itemsprimarilyrelated tohealthcare laws   2010 U.S.GAAPEarnings Grocery Products $ 87,610 $ 96,925 $ (9,733 ) $ 87,192 Refrigerated Foods 166,384 125,711 125,711 Jennie-O Turkey Store 120,528 65,436 65,436 Specialty Foods 36,442 41,138 41,138 All Other   18,437   11,855       11,855 Total segment operating profit 429,401 341,065 (9,733 ) 331,332 Net interest and investment expense (income) 11,353 11,269 11,269 General corporate expense   23,221   19,754       19,754 Earnings before income taxes 394,827 310,042 (9,733 ) 300,309 Income taxes   136,422   107,575   (3,455 ) $ 7,120     111,240 Net earnings attributable to Hormel Foods Corporation $ 258,405 $ 202,467 $ (6,278 ) $ (7,120 ) $ 189,069   Diluted net earnings per share $ 0.95 $ 0.75 $ (0.02 ) $ (0.03 ) $ 0.70   About Hormel Foods Hormel Foods Corporation, based in Austin, Minn., is a multinational manufacturer and marketer of consumer-branded food and meat products, many of which are among the best known and trusted in the food industry. The company leverages its extensive expertise, innovation and high competencies in pork and turkey processing and marketing to bring branded, value-added products to the global marketplace. The company is a member of the Standard & Poor's 500 Index, Dow Jones Sustainability Indexes, Maplecroft Climate Innovation Indexes, Global 1000 Sustainable Performance Leaders and was named one of "The 100 Most Trustworthy Companies” by Forbes in 2010. The company enjoys a strong reputation among consumers, retail grocers, foodservice and industrial customers for products highly regarded for quality, taste, nutrition, convenience and value. For more information, visit http://www.hormelfoods.com. FORWARD-LOOKING STATEMENTS This news release contains forward-looking information based on management's current views and assumptions. Actual events may differ materially. Please refer to the cautionary statement regarding Forward-Looking Statements and Risk Factors that appear on pages 27-33 in the company's Form 10-Q for the quarter ended January 30, 2011, which was filed with the SEC on March 11, 2011, and can be accessed at www.hormelfoods.com under “Investors-SEC Filings.” “Country Crock” is a registered trademark of the Unilever Group of Companies and is used under license. All rights reserved. Statements FollowSegment Data Fiscal 2011 Second Quarter Segment Operating Results (dollars in thousands)   SECOND QUARTER – 13 WEEKS ENDED     NET SALESMay 1, 2011April 25, 2010% Change Grocery Products $ 260,273 $ 256,665 1.4 Refrigerated Foods 1,040,624 893,470 16.5 Jennie-O Turkey Store 365,953 292,551 25.1 Specialty Foods 205,001 196,934 4.1 All Other 87,19060,16244.9   Total $1,959,041$1,699,78215.3       OPERATING PROFIT Grocery Products $ 39,048 $ 33,022 18.2 Refrigerated Foods 70,250 55,523 26.5 Jennie-O Turkey Store 46,703 32,169 45.2 Specialty Foods 19,164 21,508 (10.9 ) All Other 8,4444,133104.3   Total segment operating profit 183,609 146,355 25.5 Net interest and investment expense (income) 5,215 5,151 1.2 General corporate expense 11,969 9,391 27.5 Noncontrolling interest 1,12367366.9   Earnings before income taxes $167,548$132,48626.5         YEAR TO DATE – 26 WEEKS ENDED   NET SALESMay 1, 2011April 25, 2010% Change Grocery Products $ 537,172 $ 518,309 3.6 Refrigerated Foods 2,051,326 1,785,772 14.9 Jennie-O Turkey Store 730,470 612,502 19.3 Specialty Foods 396,346 383,876 3.2 All Other 165,285126,77030.4   Total $3,880,599$3,427,22913.2       OPERATING PROFIT Grocery Products $ 87,610 $ 87,192 0.5 Refrigerated Foods 166,384 125,711 32.4 Jennie-O Turkey Store 120,528 65,436 84.2 Specialty Foods 36,442 41,138 (11.4 ) All Other 18,43711,85555.5   Total segment operating profit 429,401 331,332 29.6 Net interest and investment expense (income) 11,353 11,269 0.7 General corporate expense 23,221 19,754 17.6 Noncontrolling interest 2,3321,73534.4   Earnings before income taxes $397,159$302,04431.5     HORMEL FOODS CORPORATIONCONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share amounts)       Thirteen Weeks EndedTwenty-Six Weeks Ended5-1-20114-25-2010*5-1-2011   4-25-2010*   Net sales $ 1,959,041 $ 1,699,782 $ 3,880,599 $ 3,427,229   Cost of products sold   1,632,814   1,419,315   3,180,367   2,828,375   GROSS PROFIT: 326,227 280,467 700,232 598,854   Selling, general and administrative 160,136 146,782 305,297 292,314   Equity in earnings of affiliates   6,672   3,952   13,577   6,773   OPERATING INCOME: 172,763 137,637 408,512 313,313   Other income & expenses: Interest & investment income 1,972 1,423 2,413 1,866 Interest expense   (7,187)   (6,574)   (13,766)   (13,135)   EARNINGS BEFORE INCOME TAXES: 167,548 132,486 397,159 302,044   Provision for income taxes 56,846 53,951 136,422 111,240 (effective tax rate)   33.93%   40.72%   34.35%   36.83%   NET EARNINGS110,70278,535260,737190,804 Less: net earnings attributable to  noncontrolling interest   1,123   673   2,332   1,735NET EARNINGS ATTRIBUTABLE TO  HORMEL FOODS CORPORATION$109,579$77,862$258,405$189,069   NET EARNINGS PER SHAREBasic$.41$.29$.97$.71Diluted$.40$.29$.95$.70   WEIGHTED AVG SHARES O/SBasic 267,207 267,187 266,868 267,182 Diluted 272,847 271,157 272,293 270,941   DIVIDENDS DECLAREDPER SHARE$.1275$.1050$.2550$.2100   * Shares and per share figures have been restated to give effect to the two-for-one stock split, which waseffective February 1, 2011.   HORMEL FOODS CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION       May 1, 2011October 31, 2010 (in thousands) ASSETS   CURRENT ASSETS Cash and cash equivalents $ 913,704 $ 467,845 Short-term marketable securities 51,002 50,595 Accounts receivable 405,792 430,939 Inventories 810,388 793,771 Income taxes receivable 4,187 8,525 Deferred income taxes 71,438 70,703 Prepaid expenses 12,756 12,153 Other current assets 17,93723,635   TOTAL CURRENT ASSETS 2,287,204 1,858,166   INTANGIBLES 767,310 770,545   OTHER ASSETS 491,382 503,104   PROPERTY, PLANT & EQUIPMENT, NET 905,521922,103   TOTAL ASSETS $4,451,417$4,053,918     LIABILITIES AND SHAREHOLDERS' INVESTMENT   TOTAL CURRENT LIABILITIES $ 1,005,936 $ 1,101,213   LONG-TERM DEBT – LESS CURRENT MATURITIES 250,000 0   OTHER LONG-TERM LIABILITIES 552,233 546,066   SHAREHOLDERS' INVESTMENT 2,643,2482,406,639   TOTAL LIAB. & SHAREHOLDERS' INVESTMENT $4,451,417$4,053,918   HORMEL FOODS CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS   Twenty-Six Weeks Ended5-1-2011   4-25-2010 (in thousands) OPERATING ACTIVITIES Net earnings $ 260,737 $ 190,804 Depreciation and amortization of intangibles 62,281 61,471 Increase in working capital (35,822 ) (78,935 ) Other   (11,277)   5,998   NET CASH PROVIDED BY OPERATING ACTIVITIES 275,919 179,338   INVESTING ACTIVITIES Net sale (purchase) of securities 5,000 (50,000 ) Acquisitions of businesses/intangibles (7,207 ) (28,144 ) Net purchases of property / equipment (33,721 ) (37,755 ) Decrease (Increase) in investments, equity in affiliates, and other assets   3,465     (31,145)NET CASH USED IN INVESTING ACTIVITIES (32,463 ) (147,044 )   FINANCING ACTIVITIES Proceeds from long-term debt, net 247,657 0 Dividends paid on common stock (61,925 ) (53,400 ) Share repurchase (34,718 ) (29,826 ) Other   51,389     20,861   NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES   202,403     (62,365)INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 445,859 (30,071 ) Cash and cash equivalents at beginning of year   467,845     385,252   CASH AND CASH EQUIVALENTS AT END OF QUARTER$913,704   $355,181   Hormel Foods CorporationInvestor Contact:Kevin Jones, 507-437-5248kcjones@hormel.comorMedia Contact:Julie Craven, 507-437-5345media@hormel.com