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Hormel Foods Reports Strong Third Quarter Results

Aug 20, 2010

AUSTIN, Minn.– Hormel Foods Corporation (NYSE: HRL) today reported its performance for the fiscal year 2010 third quarter.

HIGHLIGHTS

Third Quarter

• Diluted EPS of $0.63, up 11 percent from $0.57 per share in 2009
• Segment operating profit up 13 percent from last year
• Dollar sales of $1.7 billion, up 10 percent from 2009
• Volume up 2 percent from 2009
• Grocery Products operating profit down 23 percent; volume up 16 percent; dollar sales up 12 percent
• Refrigerated Foods operating profit up 11 percent; volume flat; dollar sales up 12 percent
• Jennie-O Turkey Store operating profit up 93 percent; volume down 6 percent; dollar sales flat
• Specialty Foods operating profit up 19 percent; volume up 12 percent; dollar sales up 12 percent
• All Other operating profit up 3 percent; volume down 3 percent; dollar sales up 13 percent

The company reported fiscal 2010 third quarter net earnings of $85.4 million, up 11 percent from net earnings of $77.2 million a year earlier. Diluted earnings per share for the quarter were $0.63 this year compared to $0.57 per share last year. Sales totaled $1.7 billion, up 10 percent from $1.6 billion in fiscal 2009.  

For the nine months ended July 25, 2010, adjusted¹ net earnings were $287.8 million, up 20 percent from the same period last year.  Diluted adjusted¹ net earnings per share were $2.13 compared to $1.76, up 21 percent compared to last year.  On a U.S. GAAP basis, the company reported net earnings of $274.4 million, up 15 percent from net earnings of $238.9 million a year earlier.  Diluted U.S. GAAP net earnings per share were $2.03 compared to $1.76, up 15 percent compared to last year. Sales for the nine months ended July 25, 2010, were $5.2 billion compared to $4.9 billion, up 6 percent from last year.

COMMENTARY

“We are pleased to report strong earnings and sales this quarter, which were up 11 percent and 10 percent, respectively. We are gratified by the continued strong sales growth, particularly in our branded and value-added product portfolios. Earnings growth was attributable to segment profit gains in four of our five segments, led by Jennie-O Turkey Store. This segment had an excellent quarter, showing continued strength in all areas of the business,” said Jeffrey M. Ettinger, chairman of the board, president and chief executive officer. 

“Our Refrigerated Foods segment had a strong quarter, benefiting from higher cutout margins, and our Specialty Foods segment continued its momentum this quarter on sales growth in all three of its business units. Our Grocery Products segment had a difficult quarter, hampered by higher raw material input costs,” commented Ettinger.

“We continue to be pleased with the excellent progress made with our new product lines in both our MegaMex Foods business and our Country Crock® side dish acquisition, both of which contributed to our positive results this quarter,” remarked Ettinger.

SEGMENT OPERATING HIGHLIGHTS – THIRD QUARTER

Grocery Products (13% of Net Sales, 18% of Total Segment Operating Profit)

The Grocery Products segment profit declined 23 percent due primarily to higher raw material costs.  Net sales, however, increased 12 percent for the quarter, driven primarily by increased sales of MegaMex Foods products, and by continued strong sales of Hormel® chili.

Refrigerated Foods (55% of Net Sales, 44% of Total Segment Operating Profit)

Refrigerated Foods delivered strong results, with double-digit increases achieved for both segment profit and net sales.  Lower returns due to higher raw material input costs in the value-added businesses were offset by strong pork operating margins.  Retail sales were strong, with notable increases achieved for the Hormel® party trays and Lloyd’s® barbeque products.  A nice contribution was made by the recently acquired Country Crock® side dish products, as well.

Jennie-O Turkey Store (17% of Net Sales, 21% of Total Segment Operating Profit)

Jennie-O Turkey Store completed an outstanding third quarter, with segment profit 93 percent greater than last year.  Overall improvement in operating efficiencies along with favorable commodity pricing contributed to the increased profitability.  Net sales for the quarter were flat, due to lower commodity meat sales. However, year-over-year increases of sales occurred in each of the value-added businesses.

Specialty Foods (11% of Net Sales, 14% of Total Segment Operating Profit)

The Specialty Foods segment posted excellent third quarter results, with positive contributions from each of the three business units.  Results were led by sales of sports nutrition products, private label canned products and sugar products. Overall sales revenues increased by 12 percent.

All Other (4% of Net Sales, 3% of Total Segment Operating Profit)

Segment profit for the All Other Segment, which consists primarily of Hormel Foods International, was up slightly for the third quarter.  Strong export sales of the SPAM® family of products were largely offset by higher raw material costs during the quarter.

Net Interest and Investment Income

Net interest and investment income was significantly lower this quarter, as expected, due to the lower returns on the rabbi trust investments. 

General Corporate Expense

Lower general corporate expenses were attributed to decreased employee-related costs compared to last year.

OUTLOOK

“As a result of our strong performance during the quarter, we are raising our full year guidance range from $2.75 to $2.85 per share to $2.85 to $2.91 per share, on an adjusted¹ basis. Both guidance ranges exclude the 10 cent per share impact of the one-time charges in our second quarter pertaining to the closing of the Valley Fresh plant and the reduced value of the deferred tax asset resulting from the new health care laws,” concluded Ettinger.

DIVIDENDS

Effective August 15, 2010, the Company paid its 328^th consecutive quarterly dividend, at the annual rate of $0.84.

CONFERENCE CALL

A conference call will be Webcast at 8:30 a.m. CT (9:30 a.m. ET) on Friday, August 20, 2010. 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 866-225-8754 and you must provide the access code of 4339593. An audio replay is available by calling 800-406-7325 and entering access code 4339593. The audio replay will be available beginning at 10:30 a.m. CT on Friday, August 20, 2010, through 11:59 p.m. CT on Friday, September 3, 2010. The Webcast replay will be available at 10:30 a.m. CT, Friday, August 20, 2010, 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

¹Adjusted net earnings excludes one-time charges in the second quarter of $6.3 million ($.05 per diluted share) relating to the closure of the Valley Fresh plant and an income tax charge of $7.1 million ($.05 per diluted share) primarily from the change in tax treatment of Medicare Part D reimbursements by the new health care laws.  Adjusted segment operating profit and Grocery Products adjusted segment operating profit for the nine months ended July 25, 2010 exclude 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.

Year to Date