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Hormel Foods Reports Double-Digit Growth In Fourth Quarter Sales And EPS

Hormel Foods World Headquarters
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November 23, 2010

Austin, Minn.

Hormel Foods Corporation (NYSE: HRL) today reported its performance for the fiscal year 2010 fourth quarter and full year.

HIGHLIGHTS

Fourth Quarter

  • Diluted EPS of $.90, up 17 percent from $.77 per share in 2009
  • Segment operating profit increased 20 percent from last year
  • Dollar sales of $2.1 billion, increased 23 percent from 2009
  • Volume up 14 percent from last year
  • Grocery Products operating profit down 6 percent; volume up 22 percent; dollar sales up 24 percent
  • Refrigerated Foods operating profit up 22 percent; volume up 9 percent; dollar sales up 26 percent
  • Jennie-O Turkey Store operating profit up 90 percent; volume up 19 percent; dollar sales up 19 percent
  • Specialty Foods operating profit down 6 percent; volume up 12 percent; dollar sales up 12 percent
  • All Other operating profit down 3 percent; volume up 27 percent; dollar sales up 33 percent

Fiscal Year

  • Diluted EPS of $2.92, up 15 percent from $2.53 per share in 2009
  • Segment operating profit up 19 percent from last year
  • Dollar sales of $7.2 billion up 11 percent from 2009
  • Volume up 5 percent from last year
  • Grocery Products operating profit down 4 percent; volume up 14 percent; dollar sales up 13 percent
  • Refrigerated Foods operating profit up 22 percent; volume up 2 percent; dollar sales up 11 percent
  • Jennie-O Turkey Store operating profit up 65 percent; volume up 5 percent; dollar sales up 7 percent
  • Specialty Foods operating profit up 18 percent; volume up 8 percent; dollar sales up 10 percent
  • All Other operating profit down 5 percent; volume up 7 percent; dollar sales up 13 percent

The company reported fiscal 2010 fourth quarter net earnings of $121.1 million, up 17 percent from earnings of $103.9 million a year earlier. Diluted earnings per share for the quarter were $0.90 this year compared to $0.77 per share last year (up 17 percent). Sales totaled $2.1 billion, which was up 23 percent from fiscal 2009. Fiscal fourth quarter 2010 includes 14 weeks versus 13 weeks in 2009.

For the twelve months ending October 31, 2010, net earnings on a U.S. GAAP basis were $395.6 million, or $2.92 per diluted share, up from $2.53 a year earlier. On an adjusted basis1, net earnings were $409.0 million or $3.02 per diluted share. Sales totaled $7.2 billion, up 11 percent from last year’s $6.5 billion.

COMMENTARY

“We are pleased to report a strong finish this year, with both earnings and sales up double-digits this quarter. Earnings growth was driven by segment profit gains in our Jennie-O Turkey Store and Refrigerated Foods segments,” said Jeffrey M. Ettinger, chairman of the board, president and chief executive officer.

“Our Jennie-O Turkey Store segment led the way with robust earnings attributable to improved efficiencies across all areas of our business, aided by strong commodity turkey meat prices and lower grain costs. Our Refrigerated Foods segment also posted strong earnings,

benefiting from higher pork operating margins. Our Grocery Products segment had a difficult quarter, hampered by higher raw material input costs in comparison to very low input costs a year ago,” commented Ettinger.

“We hit the seven billion dollar mark in annual sales for the first time in our Company’s history, fueled by sales growth across all five of our segments. We were particularly gratified that sales grew across all of our branded, value-added product portfolios,” stated 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.

“This morning, we announced an $.18 per share increase to our annual dividend rate (or 21.4%), making the new dividend $1.02 per share. This is the 45th consecutive year in which we’ve increased our dividend,” Ettinger concluded.

SEGMENT OPERATING HIGHLIGHTS – FOURTH QUARTER

Grocery Products (14% of Net Sales, 21% of Total Segment Operating Profit)

The Grocery Products segment profit declined 6 percent due primarily to higher raw material costs. Sales grew 24 percent driven primarily by increased sales of HORMEL® chili and hash, COMPLEATS® microwave meals, and strong sales growth across much of the MegaMex Foods product portfolio. The SPAM® family of products also showed solid sales growth in the quarter.

Refrigerated Foods (53% of Net Sales, 42% of Total Segment Operating Profit)

Refrigerated Foods delivered another strong quarter, with segment operating profit up 22 percent, aided by strong pork operating margins. Sales grew 26 percent, led by sales of HORMEL® party trays and pepperoni, and NATURAL CHOICE® deli meats in the Meat Products group, and by sales of CAFÉ H® ethnic meats, NATURAL CHOICE® deli meats and AUSTIN BLUES® barbecue meats in the Foodservice group.

1See explanation regarding adjusted earnings with tables on page 5 of this release.

Jennie-O Turkey Store (19% of Net Sales, 23% of Total Segment Operating Profit)

Jennie-O Turkey Store had an excellent quarter, with segment operating profit up 90 percent, driven by efficiency gains throughout the entire supply chain and in its operations. Earnings were also aided by higher commodity turkey meat prices and an incremental gain of 7.3 million dollars, attributable to open grain positions in their hedging program that affected earnings during the quarter. Sales grew 19 percent, led by sales gains in each of the value-added businesses.

Specialty Foods (10% of Net Sales, 10% of Total Segment Operating Profit)

The Specialty Foods segment had a challenging quarter with segment profit down 6 percent, resulting from higher raw material costs in its Specialty Products business. These more than offset stronger results in the other two businesses led by sales of sugar, sugar substitutes and nutritional jars. Sales improved 12 percent, with gains across all three businesses.

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

Segment profit for the All Other segment, which consists primarily of Hormel Foods International, declined 3 percent, hindered by higher input costs associated with export sales. Sales grew 33 percent, driven primarily by higher export sales of the SPAM® family of products.

Net Interest and Investment Income

Net interest and investment income was flat with a year ago.

General Corporate Expense

General corporate expenses were higher due to an increase in the lower of cost or market inventory reserve and higher pension and insurance expenses.

OUTLOOK

“We have solid top-line momentum heading into fiscal 2011. We also expect to generate segment profit growth in all five segments. Pork operating margins and turkey fundamentals remain strong. We also face some headwinds during fiscal 2011 including continued higher raw material costs, higher commodity grain costs and a more difficult comparison with a 53 week year and the hedging gain. Taking all of these factors and others into account, we are setting our fiscal 2011 guidance range at $3.10 to $3.20 per share,” remarked Ettinger.

DIVIDENDS

Effective November 15, 2010, the Company paid its 329thconsecutive quarterly dividend. The annual rate for 2010 was $0.84.

CONFERENCE CALL

A conference call will be webcast at 8:00 a.m. CT on Tuesday, November 23, 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 877-941-2333 and you must provide the access code of 4384165. An audio replay is available by calling 800-406-7325 and entering access code 4384165. The audio replay will be available beginning at 10:30 a.m. CT on Tuesday, November 23, 2010, through 11:59 p.m. CT on December 7, 2010. The Webcast replay will be available at 10:30 a.m. CT, Tuesday, November 23, 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

Adjusted 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 twelve months ended October 31, 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.

“Country Crock” is a registered trademark of the Unilever Group of Companies and is used under license. All rights reserved.

Year to Date

2009 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 $ 162,531 $165,655 $ (9,733) $ 155,922
Refrigerated Foods 226,171 276,315 276,315
Jennie-O Turkey Store 86,909 143,644 143,644
Specialty Foods 68,484 80,727 80,727
All Other 27,631 26,126 26,126
Total segment operating profit 571,726 692,467 (9,733) 682,734
Net interest and investment income (8,432) (22,024) (22,024)
General corporate expense (38,312) (40,348) (40,348)
Earnings before income taxes 524,982 630,095 (9,733) 620,362
Income taxes (182,169) (221,110) 3,455 $ (7,120) (224,775)
Net earnings attributable to

Hormel Foods Corporation

$ 342,813 $ 408,985 $ (6,278) $ (7,120) $ 395,587
Diluted net earnings per share $ 2.53 $ 3.02 $ (0.05) $ (0.05) $ 2.92

Statements Follow

# # #

Segment Data

Fiscal 2010 Fourth Quarter Segment Operating Results (in Thousands)

FOURTH QUARTER ENDED
NET SALES October 31, 2010 October 25, 2009 % Change
Grocery Products $ 287,112 $ 232,043 23.7
Refrigerated Foods 1,082,941 857,178 26.3
Jennie-O Turkey Store 402,048 337,544 19.1
Specialty Foods 212,017 189,051 12.1
All Other 78,921 59,286 33.1
Total $ 2,063,039 $ 1,675,102 23.2
OPERATING PROFIT
Grocery Products $ 43,134 $ 46,004 (6.2)
Refrigerated Foods 86,065 70,440 22.2
Jennie-O Turkey Store 47,544 25,062 89.7
Specialty Foods 19,886 21,247 (6.4)
All Other 9,448 9,695 (2.5)
Total segment operating profit 206,077 172,448 19.5
Net interest and investment income (4,572) (4,481) (2.0)
General corporate expense (14,889) (10,294) (44.6)
Noncontrolling interest 1,460 730 100.0
Earnings before income taxes $ 188,076 $ 158,403 18.7
YEAR TO DATE ENDED
NET SALES October 31, 2010 October 25, 2009 % Change
Grocery Products $ 1,040,455 $ 924,682 12.5
Refrigerated Foods 3,818,788 3,436,242 11.1
Jennie-O Turkey Store 1,310,412 1,227,709 6.7
Specialty Foods 782,958 708,730 10.5
All Other 268,106 236,308 13.5
Total $ 7,220,719 $ 6,533,671 10.5
OPERATING PROFIT
Grocery Products $ 155,922 $ 162,531 (4.1)
Refrigerated Foods 276,315 226,171 22.2
Jennie-O Turkey Store 143,644 86,909 65.3
Specialty Foods 80,727 68,484 17.9
All Other 26,126 27,631 (5.4)
Total segment operating profit 682,734 571,726 19.4
Net interest and investment income (22,024) (8,432) (161.2)
General corporate expense (40,348) (38,312) (5.3)
Noncontrolling interest 4,189 3,165 32.4
Earnings before income taxes $ 624,551 $ 528,147 18.3
HORMEL FOODS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Quarter Ended Year Ended
10-31-2010 10-25-2009 10-31-2010 10-25-2009
Net sales $ 2,063,039 $ 1,675,102 $ 7,220,719 $ 6,533,671
Cost of products sold 1,708,066 1,370,908 5,981,977 5,434,800
GROSS PROFIT: 354,973 304,194 1,238,742 1,098,871
Selling, general and administrative 166,456 142,704 605,293 567,085
Equity in earnings of affiliates 4,131 1,394 13,126 4,793
OPERATING INCOME: 192,648 162,884 646,575 536,579
Other income & expenses:
Interest & investment income 2,389 2,178 4,565 19,563
Interest expense (6,961) (6,659) (26,589) (27,995)
EARNINGS BEFORE INCOME TAXES: 188,076 158,403 624,551 528,147
Provision for income taxes 65,468 53,797 224,775 182,169
(effective tax rate) 34.81% 33.96% 35.99% 34.49%
NET EARNINGS 122,608 104,606 399,776 345,978
Less: Net earnings attributable to

noncontrolling interest

1,460 730 4,189 3,165
NET EARNINGS ATTRIBUTABLE TO

HORMEL FOODS CORPORATION

$ 121,148 $ 103,876 $ 395,587 $ 342,813
NET EARNINGS PER SHARE
Basic $ .91 $ .78 $ 2.97 $ 2.55
Diluted $ .90 $ .77 $ 2.92 $ 2.53
WEIGHTED AVG SHARES OUT
Basic 133,102 134,003 133,366 134,227
Diluted 135,297 135,702 135,349 135,489
DIVIDENDS DECLARED
PER SHARE $ .21 $ .19 $ .84 $ .76
HORMEL FOODS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
October 31, 2010 October 25, 2009
(In Thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 467,845 $ 385,252
Short-term marketable securities 50,595 0
Accounts receivable 430,939 372,292
Inventories 793,771 722,371
Income taxes receivable 8,525 0
Deferred income taxes 70,703 66,435
Prepaid expenses 12,153 9,130
Other current assets 23,635 19,253
TOTAL CURRENT ASSETS 1,858,166 1,574,733
INTANGIBLES 770,545 761,009
OTHER ASSETS 503,104 403,600
PROPERTY, PLANT & EQUIPMENT, NET 922,103 952,713
TOTAL ASSETS $4,053,918 $3,692,055
LIABILITIES AND SHAREHOLDERS’ INVESTMENT
TOTAL CURRENT LIABILITIES $ 1,101,213 $ 685,029
LONG-TERM DEBT – LESS CURRENT MATURITIES 0 350,000
OTHER LONG-TERM LIABILITIES 546,066 532,705
SHAREHOLDERS’ INVESTMENT 2,406,639 2,124,321
TOTAL LIAB. & SHAREHOLDERS’ INVESTMENT $4,053,918 $3,692,055
HORMEL FOODS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended
10-31-2010 10-25-2009
(In Thousands)
OPERATING ACTIVITIES
Net earnings $ 399,776 $ 345,978
Depreciation and amortization of intangibles 125,591 127,138
(Increase) Decrease in working capital (65,683) 87,033
Other 25,848 (1,381)
NET CASH PROVIDED BY OPERATING ACTIVITIES 485,532 558,768
INVESTING ACTIVITIES
Net (purchase) sale of securities (50,000) 3,899
Acquisitions of businesses/intangibles (28,104) (701)
Net purchases of property/equipment (84,908) (91,958)
(Increase) Decrease in investments, equity in affiliates, and other assets (95,464) 3,532
NET CASH USED IN INVESTING ACTIVITIES (258,476) (85,228)
FINANCING ACTIVITIES
Net (payments on) proceeds from debt 0 (100,000)
Dividends paid on common stock (109,374) (101,376)
Share repurchase (69,574) (38,147)
Other 34,485 (3,543)
NET CASH USED IN FINANCING ACTIVITIES (144,463) (243,066)
INCREASE IN CASH AND CASH EQUIVALENTS 82,593 230,474
Cash and cash equivalents at beginning of year 385,252 154,778
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 467,845 $ 385,252
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 32-38 in the company’s Form 10-Q for the quarter ended July 25, 2010, which was filed with the SEC on September 3, 2010, and can be accessed at www.hormelfoods.com under “Investors-SEC Filings.”