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Hormel Foods Reports Solid Third Quarter Results

AUSTIN, Minn. | August 25, 2011

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.

HIGHLIGHTS

Third 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.

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

1See explanation regarding adjusted earnings with table on page 4 of this release.

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 meals grow 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 QUARTER

Grocery 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 meals also grew during 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 asHormel® 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 Taxes

General 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 800-406-7325 and 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

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

$ 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, 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 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 Follow

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Segment Data

Fiscal 2011 Third Quarter Segment Operating Results (in Thousands)

THIRD QUARTER – 13 WEEKS ENDED

NET SALES

July 31, 2011

July 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

    84,516

    62,415

  35.4

Total

$   1,910,592

$   1,730,451

    10.4

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

       8,043

       4,823

   66.8

  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

       1,483

         994

  49.2

Earnings before income taxes

$     141,338

$     134,431

   5.1

YEAR TO DATE – 39 WEEKS ENDED

NET SALES

July 31, 2011

July 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

   249,801

   189,185

   32.0

Total

$   5,791,191

$   5,157,680

   12.3

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

    26,480

    16,678

  58.8

  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

     2,729

   39.8

Earnings before income taxes

$     538,497

$     436,475

   23.4

HORMEL FOODS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

7-31-2011

7-25-2010*

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 EARNINGS

99,964 

86,364 

360,701 

277,168 

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 SHARE

         Basic

$          .37 

$         .32 

$         1.34 

$         1.03 

         Diluted

$          .36 

$         .32 

$         1.31 

$         1.01 

WEIGHTED AVG SHARES O/S

         Basic

266,925 

266,401 

266,887 

266,922 

         Diluted

272,759 

270,326 

272,449 

270,736 

DIVIDENDS DECLARED

        PER 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 CORPORATION

CONDENSED 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

    10,842

    23,635

     TOTAL CURRENT ASSETS

1,977,121

1,858,166

INTANGIBLES

765,037

770,545

OTHER ASSETS

511,476

503,104

PROPERTY, PLANT & EQUIPMENT, NET

   895,895

   922,103

     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

2,666,615

2,406,639

    TOTAL LIAB. & SHAREHOLDERS’ INVESTMENT

$  4,149,529

$  4,053,918

HORMEL FOODS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Thirty-Nine Weeks Ended

7-31-2011

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)

  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 

 

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