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Hormel Foods Reports Strong Second Quarter Results

Performance
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May 25, 2011

Austin, Minn.

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.

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

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

Statements Follow

# # #

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
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 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.”