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Home > Newsroom > Press Releases > Hormel Foods Reports Fourth Quarter And Full Year Results

Hormel Foods Reports Fourth Quarter And Full Year Results

Nov 25, 2008

AUSTIN, Minn. – Hormel Foods Corporation (NYSE: HRL) today reported its performance for the fiscal 2008 fourth quarter and full year.

HIGHLIGHTS

Fourth Quarter

• Diluted EPS of $.50, down 32 percent from $.73 per share in 2007 ($.70 excluding the sale of assets)
• Segment operating profit decreased 5 percent from last year
• Dollar sales of $1.86 billion increased 12 percent from 2007 (up 10 percent excluding acquisitions)
• Volume up 3 percent from 2007
• Grocery Products operating profit down 3 percent; volume down 1 percent; dollar sales up 6 percent
• Refrigerated Foods operating profit up 12 percent; volume up 1 percent (flat excluding acquisitions); dollar sales up 11 percent (up 9 percent excluding acquisitions)
• Jennie-O Turkey Store operating profit down 44 percent; volume up 4 percent; dollar sales up 11 percent
• Specialty Foods operating profit up 49 percent; volume up 10 percent (up 4 percent excluding acquisitions); dollar sales up 20 percent (up 16 percent excluding acquisitions)
• All Other operating profit down 8 percent; volume up 30 percent; dollar sales up 34 percent
• Net Interest and Investment Income was down significantly, due to rabbi trust losses of $20.4 million

Fiscal Year

• Diluted EPS of $2.08, down 4 percent from $2.17 per share in 2007 ($2.14 excluding the sale of assets)
• Segment operating profit increased 6 percent from last year
• Dollar sales of $6.75 billion increased 9 percent from 2007 (up 7 percent excluding acquisitions)
• Volume up 5 percent
• Grocery Products operating profit up 5 percent; volume up 3 percent; dollar sales up 8 percent
• Refrigerated Foods operating profit up 22 percent; volume up 4 percent (up 1 percent excluding acquisitions); dollar sales up 8 percent (up 4 percent excluding acquisitions)
• Jennie-O Turkey Store operating profit down 27 percent; volume up 6 percent; dollar sales up 9 percent
• Specialty Foods operating profit up 14 percent; volume up 5 percent (up 3 percent excluding acquisitions); dollar sales up 12 percent (up 11 percent excluding acquisitions)
• All Other operating profit up 17 percent; volume up 16 percent; dollar sales up 27 percent
• Net Interest and Investment Income was down significantly, due to rabbi trust losses of $29.0 million

The company reported fiscal 2008 fourth quarter net earnings of $67.8 million, down 33 percent from earnings of $101.2 million a year earlier. Included in this year’s quarterly results is a $20.4 million investment loss in the company’s rabbi trust, compared with a $4.6 million gain a year ago. Diluted earnings per share for the quarter were $.50 this year compared to $.73 per share last year and sales totaled $1.86 billion, up from $1.66 billion in fiscal 2007.

For the twelve months ended October 26, 2008, net earnings were $285.5 million, or $2.08 per diluted share (down 4 percent), compared to $301.9 million a year ago, or $2.17 per diluted share. Included in this year’s annual results was a $29.0 million loss in the rabbi trust, compared with a gain of $6.9 million a year ago. Sales totaled $6.75 billion, up 9 percent, from $6.19 billion in the same period last year.

COMMENTARY

“As we previously announced, the recent substantial decline in global financial markets negatively impacted our rabbi trust investment performance. This, along with greater than expected cost pressures and unfavorable product mix changes in our Grocery Products segment, required us to lower our guidance to $2.03 to $2.09 from our earlier guidance range of $2.22 to $2.28 per share” said Jeffrey M. Ettinger, chairman of the board, president and chief executive officer. “A better than expected finish by our Refrigerated Foods segment allowed us to come in at $2.08 per share, near the high end of our revised guidance range.”

“The rabbi trust was established in 2003 to fund certain nonqualified supplemental executive retirement and deferred income plans. The trust assets are invested in equity and income securities and generally track the market. The trust assets are considered trading securities, accordingly, gains and losses are included in our quarterly earnings on a mark-to-market basis. These investment losses do not affect the company’s cash flow, nor does the company have any obligation to recapitalize the trust funds,” explained Ettinger.

“Despite strong sales of the SPAM family of products and other canned items, our Grocery Products segment had an off quarter. The lower results were driven primarily by higher beef and pork trim costs, but also as a result of a slowdown of our HORMEL COMPLEATS microwave meal business. Our Jennie-O Turkey Store segment continued to experience higher feed and fuel input costs during the quarter that they were unable to offset with increased pricing. An industry-wide over-supply of breast meat kept prices below our cost of production. We do not expect this situation will significantly improve until next spring,” Ettinger stated.

“For the full year, we generated strong volume and sales increases across each of our segments. In addition, four of our five segments had earnings up from a year ago, and total segment operating profits were up six percent from a year ago. We continue to grow our sales of new value-added products and remain on track to meet our goal of $2 billion of new product sales by 2012,” Ettinger commented.

“This morning we announced a $.02 per share increase to our annual dividend, making the new dividend $.76 per share. This is the 43rd consecutive year in which we’ve increased our dividend,” Ettinger concluded.

SEGMENT OPERATING HIGHLIGHTS – FOURTH QUARTER

Grocery Products (14% of Net Sales, 28% of Total Segment Operating Profit)

The Grocery Products segment reported a 3 percent decrease in operating profit for the quarter compared to last year. Higher input costs and an unfavorable sales mix contributed to the decline. Sales of HORMEL COMPLEATS microwave meals also softened during the quarter, which appears to be consistent with trends in other convenient packaged meal segments. On the positive side, sales of our SPAM family of products, HORMEL chili and DINTY MOORE stews experienced double-digit increases during the quarter.

Refrigerated Foods (51% of Net Sales, 39% of Total Segment Operating Profit)

Segment operating profit for the Refrigerated Foods segment increased 12 percent for the quarter, primarily attributable to an improved spread between hog costs and primal values. The Meat Products business unit experienced increased sales for the quarter; however, pricing actions were unable to keep pace with rising input costs. Operating results for the Foodservice division declined for the quarter due to an industry-wide softness in away-from-home dining.

Jennie-O Turkey Store (20% of Net Sales, 16% of Total Segment Operating Profit)

Jennie-O Turkey Store experienced a 44 percent decline in operating profit for the quarter. Commodity meat sales profitability continued to suffer as the oversupply of breast meat in the market did not allow for adequate offset of higher feed and fuel costs, which increased $40 million from the same period last year.

Specialty Foods (11% of Net Sales, 13% of Total Segment Operating Profit)

The Specialty Foods segment completed an exceptional quarter with sales, volume and segment operating profit all experiencing double digit increases. The Specialty Products business unit achieved gains from contract packaging and savory products. The third quarter acquisition of Boca Grande Foods, Inc. enhanced the results of Diamond Crystal Brands. Century Foods International also achieved strong results, primarily with ready-to-drink products.

All Other (4% of Net Sales, 4% of Total Segment Operating Profit)

The All Other segment, which includes the International business unit, achieved double-digit increases in both sales and tonnage, primarily due to strong exports of fresh pork and the SPAM family of products. In spite of these gains, operating profit for the quarter decreased 8 percent, due to higher than expected raw material costs and a stronger dollar.

General Corporate Expense

Excluding a $4.8 million pretax gain on the 2007 sale of a company aircraft, general corporate expenses are at a normalized level for the quarter.

Net Interest and Investment Income

Net interest and investment income in the quarter declined significantly compared to last year due primarily to lower investment results on our rabbi trust investments. Additionally, fiscal year 2007 results reflect a $2.0 million pretax gain on the dissolution of our Patak’s joint venture.

OUTLOOK

“Looking forward to 2009, we see both challenges and opportunities. The challenges we face include an oversupply of turkey breast meat and higher commodity costs at Jennie-O Turkey Store, the prospect of increasing hog prices as supply gradually declines, and the uncertain economic environment affecting consumer demand. Opportunities include the flexibility that our strong balance sheet provides, the success of our value-added products and the stability of our balanced model. We anticipate a slow start to fiscal year 2009, with difficult comparisons from the first half of fiscal year 2008, and the opportunity to finish strong in the second half of the year. After assessing these factors and our business plans and prospects for the upcoming year, we are setting our fiscal 2009 guidance range at $2.15 to $2.25 per share,” Ettinger said.

“In light of tight capital markets and the pullback in consumer spending, we will continue to manage our capital conservatively, delaying any capital projects that are not time critical. Given the shift in consumer preferences, we now intend to use part of the capacity of the new Dubuque plant for additional production of canned products,” concluded Ettinger.

DIVIDENDS

Effective Nov 15, 2008, the Company paid its 321st consecutive quarterly dividend. The annual rate was $.74.

CONFERENCE CALL

A conference call will be Webcast at 8:30 a.m. CT on Tuesday, Nov. 25, 2008. Access is available at 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 800-366-3908. An audio replay is available by calling 800-405-2236 and entering access code 11122250. The audio replay will be available beginning at 10:30 a.m. CT on Tuesday, Nov. 25, 2008, through 11:59 p.m. CT on Wednesday, Dec. 10, 2008. The Webcast replay will be available at 10:30 a.m. CT, Tuesday, Nov. 25, 2008, and archived for one year.

ABOUT HORMEL FOODS CORPORATION

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 quality, value-added brands to the global marketplace. In each of the past nine years, Hormel Foods was named one of “The 400 Best Big Companies in America” by Forbes magazine. 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.

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 26-31 in the Company’s 10Q for the fiscal quarter ended July 27, 2008, which can be accessed at www.hormelfoods.com under “Investors-SEC Filings.”

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Segment Data

Fiscal 2008 Fourth Quarter Segment Operating Results (in Thousands)