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Hormel Foods Reports Strong Second Quarter Results

AUSTIN, Minn. | May 25, 2011

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.

HIGHLIGHTS

Second 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 profit a 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 QUARTER

Grocery 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 asHormel® 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 Expense

General 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 800-406-7325 and 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. GAAP Earnings

2010 Adjusted

Earnings

Valley Fresh Plant Closure

Tax items primarily related to health care laws

2010 U.S.

GAAP Earnings

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. GAAP Earnings

2010 Adjusted

Earnings

Valley Fresh Plant Closure

Tax items primarily related to health care laws

2010 U.S.

GAAP Earnings

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, visithttp://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 Follow

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Segment Data

Fiscal 2011 Second Quarter Segment Operating Results (dollars in thousands)

SECOND QUARTER – 13 WEEKS ENDED

NET SALES

May 1, 2011

April 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

   87,190

   60,162

    44.9 

Total

$   1,959,041

$   1,699,782

    15.3 

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

    8,444 

    4,133 

   104.3 

  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

      1,123 

      673 

   66.9 

Earnings before income taxes

$      167,548 

$      132,486 

   26.5 

YEAR TO DATE – 26 WEEKS ENDED

NET SALES

May 1, 2011

April 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

   165,285

   126,770

    30.4 

Total

$   3,880,599

$   3,427,229

    13.2 

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

    18,437 

    11,855 

   55.5 

  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

    2,332 

    1,735 

   34.4 

Earnings before income taxes

$      397,159 

$      302,044 

   31.5 

HORMEL FOODS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

Thirteen Weeks Ended

Twenty-Six Weeks Ended

5-1-2011

4-25-2010*

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 EARNINGS

110,702 

78,535 

260,737 

190,804 

Less: net earnings attributable to  

     noncontrolling interest

  

       1,123 

  

       673 

    

     2,332 

    

     1,735 

NET EARNINGS ATTRIBUTABLE TO

     HORMEL FOODS CORPORATION

$    109,579 

$    77,862 

$    258,405 

$    189,069 

NET EARNINGS PER SHARE

         Basic

$         .41 

$          .29 

$         .97 

$         .71 

         Diluted

$         .40 

$          .29 

$         .95 

$         .70 

WEIGHTED AVG SHARES O/S

         Basic

267,207 

267,187 

266,868 

267,182 

         Diluted

272,847 

271,157 

272,293 

270,941 

DIVIDENDS DECLARED

        PER SHARE

$     .1275 

$      .1050 

$      .2550 

$      .2100 

* Shares and per share figures have been restated to give effect to the two-for-one stock split, which was effective February 1, 2011.

HORMEL FOODS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

May 1, 2011

October 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

    17,937

    23,635

     TOTAL CURRENT ASSETS

2,287,204

1,858,166

INTANGIBLES

767,310

770,545

OTHER ASSETS

491,382

503,104

PROPERTY, PLANT & EQUIPMENT, NET

   905,521

   922,103

     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

2,643,248

2,406,639

    TOTAL LIAB. & SHAREHOLDERS’ INVESTMENT

$ 4,451,417

$ 4,053,918

HORMEL FOODS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Twenty-Six Weeks Ended

5-1-2011

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 

$  355,1

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