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Press release from Business Wire

Hormel Foods Reports Solid Third Quarter Results

Thursday, August 25, 2011

Hormel Foods Reports Solid Third Quarter Results06:30 EDT Thursday, August 25, 2011 AUSTIN, Minn. (Business Wire) -- Hormel Foods Corporation (NYSE: HRL) today reported its performance for the fiscal year 2011 third quarter. All comparisons are to the third quarter or first nine months 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. HIGHLIGHTSThird Quarter Diluted EPS of $.36 up 13 percent from diluted EPS of $.32 Segment operating profit up 2 percent Dollar sales of $1.9 billion, up 10 percent, on flat volume Grocery Products operating profit up 19 percent; volume up 1 percent; dollar sales up 4 percent Jennie-O Turkey Store operating profit up 14 percent; volume down 3 percent; dollar sales up 11 percent Refrigerated Foods operating profit down 12 percent; volume down 1 percent; dollar sales up 10 percent Specialty Foods operating profit down 8 percent; volume flat; dollar sales up 11 percent All Other operating profit up 67 percent; volume up 22 percent; dollar sales up 35 percent The company reported fiscal 2011 third quarter net earnings of $98.5 million, up 15 percent from net earnings of $85.4 million a year earlier. For the nine months ended July 31, 2011, net earnings were $356.9 million, up 24 percent from adjusted1 net earnings of $287.8 million the same period last year. Diluted net earnings per share for the nine months ended July 31, 2011 were $1.31, up 24 percent from diluted adjusted1 net earnings per share of $1.06 last year. On a U.S. GAAP basis, net earnings for the nine months ended July 31, 2011 were $356.9 million or $1.31 per diluted share (both up 30 percent) compared to net earnings of $274.4 million or $1.01 per diluted share from the same period last year. Sales for the quarter were $1.9 billion, up 10 percent from the same period in fiscal 2010. For the nine months ended July 31, 2011, sales totaled $5.8 billion, up 12 percent from the same period last year. 1See explanation regarding adjusted earnings with table on page 4 of this release. COMMENTARY “We are pleased to report improved earnings per share and sales for the quarter, which were up 13 percent and 10 percent, respectively,” said Jeffrey M. Ettinger, chairman of the board, president and chief executive officer. “Earnings growth was led by our Grocery Products and Jennie-O Turkey Store segments, both of which had a strong quarter. Our international business in our All Other segment was also a strong contributor to our earnings results. Our Grocery Products segment generated solid results, benefitting from strong sales of Mexican products by our MegaMex Foods joint venture, and of our SPAM® family of products. I was pleased to see sales of our Hormel® Compleats® microwave mealsgrow nicely in the quarter. Our Jennie-O Turkey Store segment delivered another good quarter, aided by strong value-added sales and operational and supply chain efficiencies. Our international business in our All Other segment achieved impressive results, led by strong pork export sales. Lower pork operating margins hindered our Refrigerated Foods segment results and our Specialty Foods segment was pressured by higher than expected raw material costs during the quarter.” SEGMENT OPERATING HIGHLIGHTS – THIRD QUARTERGrocery Products (13% of Net Sales, 21% of Total Segment Operating Profit)The Grocery Products segment exceeded last year's profitability by 19 percent. Net sales increased over last year's results by 4 percent. Improved sales of our SPAM® family of products, as well as of Mexican food products by our MegaMex Foods joint venture helped offset higher commodity input costs. Sales of Hormel® Compleats® microwave mealsalso grewduring the quarter. Refrigerated Foods (55% of Net Sales, 38% of Total Segment Operating Profit)Refrigerated Foods segment profit declined by 12 percent, due primarily to lower pork operating margins. Net sales for the quarter increased 10 percent, with strong contributions from products such as Hormel® pepperoni, Hormel® bacon, Hormel® party trays, Hormel® Natural Choice® deli meats and Hormel® Country Crock® sides. Jennie-O Turkey Store (17% of Net Sales, 24% of Total Segment Operating Profit)Jennie-O Turkey Store had another solid quarter, with segment operating profit up 14 percent from a year ago. Increased value-added sales and improved efficiencies contributed to the good results. Net sales for the quarter rose 11 percent. Specialty Foods (11% of Net Sales, 12% of Total Segment Operating Profit)The Specialty Foods segment operating profit declined 8 percent, due to higher raw material costs. Net sales grew 11 percent, led by higher sales of private label canned meats and sugar. All Other (4% of Net Sales, 5% of Total Segment Operating Profit)The All Other segment, which consists primarily of Hormel Foods International, grew segment profit 67 percent and net sales by 35 percent, driven principally by stronger exports of fresh pork and improved results by our international joint ventures. General Corporate Expense and TaxesGeneral corporate expenses were lower due to a reduction in the lower of cost or market inventory reserve. Our effective tax rate for the third quarter of 2011 was favorably impacted by the resolution of tax matters with various federal and state tax jurisdictions. OUTLOOK “As a result of our solid results in the third quarter, we are raising our full year guidance range to $1.70 to $1.75 per share from $1.67 to $1.73 per share,” concluded Ettinger. DIVIDENDS Effective August 15, 2011, the Company paid its 332nd consecutive quarterly dividend, at the annual rate of $.51, marking its 83rd year of paying dividends. CONFERENCE CALL A conference call will be Webcast at 8:30 a.m. CT (9:30 a.m. ET) on Thursday, August 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 800-762-8779 and you must provide the access code of 4457047. An audio replay is available by calling 800-406-7325and entering access code 4457047. The audio replay will be available beginning at 10:30 a.m. CT on Thursday, August 25, 2011, through 11:59 p.m. CT on Thursday, September 8, 2011. The Webcast replay will be available at 10:30 a.m. CT, Thursday, August 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. The tables below show the calculations to reconcile from adjusted earnings to U.S. GAAP earnings for 2010. Year to Date         Tax items   Valley primarily 2011 U.S. 2010 Fresh related to 2010 U.S. GAAP Adjusted Plant health GAAP Earnings Earnings Closure care laws Earnings Grocery Products $ 118,038 $ 122,521 $ (9,733 ) $ 112,788 Refrigerated Foods 223,204 190,250 190,250 Jennie-O Turkey Store 155,379 96,100 96,100 Specialty Foods 54,583 60,841 60,841 All Other   26,480   16,678       16,678 Total segment operating profit 577,684 486,390 (9,733 ) 476,657 Net interest and investment expense (income) 16,837 17,452 17,452 General corporate expense   26,165   25,459       25,459 Earnings before income taxes 534,682 443,479 (9,733 ) 433,746 Income taxes   177,796   155,642   (3,455 ) $ 7,120     159,307 Net earnings attributable to  Hormel Foods Corporation $ 356,886 $ 287,837 $ (6,278 ) $ (7,120 ) $ 274,439   Diluted net earnings per share $ 1.31 $ 1.06 $ (0.02 ) $ (0.03 ) $ 1.01   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 33-39 in the company's Form 10-Q for the quarter ended May 1, 2011, which was filed with the SEC on June 10, 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 Third Quarter Segment Operating Results (in Thousands)   THIRD QUARTER – 13 WEEKS ENDED     NET SALESJuly 31, 2011July 25, 2010% Change Grocery Products $ 245,368 $ 235,034 4.4 Refrigerated Foods 1,045,874 950,075 10.1 Jennie-O Turkey Store 327,809 295,862 10.8 Specialty Foods 207,025 187,065 10.7 All Other 84,51662,41535.4   Total $1,910,592$1,730,45110.4       OPERATING PROFIT Grocery Products $ 30,428 $ 25,596 18.9 Refrigerated Foods 56,820 64,539 (12.0 ) Jennie-O Turkey Store 34,851 30,664 13.7 Specialty Foods 18,141 19,703 (7.9 ) All Other 8,0434,82366.8   Total segment operating profit 148,283 145,325 2.0 Net interest and investment expense (income) 5,484 6,183 (11.3 ) General corporate expense 2,944 5,705 (48.4 ) Noncontrolling interest 1,48399449.2   Earnings before income taxes $141,338$134,4315.1       YEAR TO DATE – 39 WEEKS ENDED   NET SALESJuly 31, 2011July 25, 2010% Change Grocery Products $ 782,540 $ 753,343 3.9 Refrigerated Foods 3,097,200 2,735,847 13.2 Jennie-O Turkey Store 1,058,279 908,364 16.5 Specialty Foods 603,371 570,941 5.7 All Other 249,801189,18532.0   Total $5,791,191$5,157,68012.3       OPERATING PROFIT Grocery Products $ 118,038 $ 112,788 4.7 Refrigerated Foods 223,204 190,250 17.3 Jennie-O Turkey Store 155,379 96,100 61.7 Specialty Foods 54,583 60,841 (10.3 ) All Other 26,48016,67858.8   Total segment operating profit 577,684 476,657 21.2 Net interest and investment expense (income) 16,837 17,452 (3.5 ) General corporate expense 26,165 25,459 2.8 Noncontrolling interest   3,815   2,72939.8   Earnings before income taxes $538,497$436,47523.4     HORMEL FOODS CORPORATIONCONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per share amounts)       Thirteen Weeks EndedThirty-Nine Weeks Ended7-31-20117-25-2010*7-31-2011   7-25-2010*   Net sales $ 1,910,592 $ 1,730,451 $ 5,791,191 $ 5,157,680   Cost of products sold   1,612,737     1,445,536     4,793,104     4,273,911     GROSS PROFIT: 297,855 284,915 998,087 883,769   Selling, general and administrative 156,595 146,523 461,892 438,837   Equity in earnings of affiliates   5,562     2,222     19,139     8,995     OPERATING INCOME: 146,822 140,614 555,334 453,927   Other income & expenses: Interest & investment income 139 310 2,552 2,176 Interest expense   (5,623)   (6,493)   (19,389)   (19,628)   EARNINGS BEFORE INCOME TAXES: 141,338 134,431 538,497 436,475   Provision for income taxes 41,374 48,067 177,796 159,307 (effective tax rate)   29.27%     35.76%     33.02%     36.50%     NET EARNINGS99,96486,364360,701277,168 Less: Net earnings attributable to  noncontrolling interest   1,483     994     3,815     2,729   NET EARNINGS ATTRIBUTABLE TO  HORMEL FOODS CORPORATION$98,481   $85,370   $356,886   $274,439     NET EARNINGS PER SHAREBasic$.37   $.32   $1.34   $1.03   Diluted$.36   $.32   $1.31   $1.01     WEIGHTED AVG SHARES O/SBasic 266,925 266,401 266,887 266,922 Diluted 272,759 270,326 272,449 270,736   DIVIDENDS DECLAREDPER SHARE$.1275   $.1050   $.3825   $.3150     * Shares and per share figures have been restated to reflect the two-for-one stock split effected February 1, 2011.   HORMEL FOODS CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION       July 31, 2011   October 31, 2010 (In Thousands) ASSETS   CURRENT ASSETS Cash and cash equivalents $ 497,364 $ 467,845 Short-term marketable securities 76,125 50,595 Accounts receivable 427,927 430,939 Inventories 865,875 793,771 Income taxes receivable 16,830 8,525 Deferred income taxes 70,299 70,703 Prepaid expenses 11,859 12,153 Other current assets 10,84223,635   TOTAL CURRENT ASSETS 1,977,121 1,858,166   INTANGIBLES 765,037 770,545   OTHER ASSETS 511,476 503,104   PROPERTY, PLANT & EQUIPMENT, NET 895,895922,103   TOTAL ASSETS $4,149,529$4,053,918     LIABILITIES AND SHAREHOLDERS' INVESTMENT   TOTAL CURRENT LIABILITIES $ 700,963 $ 1,101,213   LONG-TERM DEBT – LESS CURRENT MATURITIES 250,000 0   OTHER LONG-TERM LIABILITIES 531,951 546,066   SHAREHOLDERS' INVESTMENT 2,666,6152,406,639   TOTAL LIAB. & SHAREHOLDERS' INVESTMENT $4,149,529$4,053,918   HORMEL FOODS CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS   Thirty-Nine Weeks Ended7-31-2011   7-25-2010 (In Thousands) OPERATING ACTIVITIES Net earnings $ 360,701 $ 277,168 Depreciation and amortization of intangibles 92,927 92,118 Increase in working capital (125,958 ) (101,817 ) Other   (8,245)   4,153   NET CASH PROVIDED BY OPERATING ACTIVITIES 319,425 271,622   INVESTING ACTIVITIES Net purchase of securities (20,000 ) (50,000 ) Acquisitions of businesses/intangibles (7,207 ) (27,978 ) Net purchases of property / equipment (52,757 ) (60,554 ) Decrease (Increase) in investments, equity in affiliates, and other assets   7,010     (30,970)NET CASH USED IN INVESTING ACTIVITIES (72,954 ) (169,502 )   FINANCING ACTIVITIES (Payments on) Proceeds from long-term debt, net (102,436 ) 0 Dividends paid on common stock (95,991 ) (81,429 ) Share repurchase (80,648 ) (53,171 ) Other   62,123     24,145   NET CASH USED IN FINANCING ACTIVITIES   (216,952)   (110,455)INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 29,519 (8,335 ) Cash and cash equivalents at beginning of year   467,845     385,252   CASH AND CASH EQUIVALENTS AT END OF QUARTER$497,364   $376,917   Hormel Foods CorporationInvestor Contact:Kevin Jones, 507-437-5248kcjones@hormel.comorMedia Contact:Julie Craven, 507-437-5345media@hormel.com