Performance
Hormel Foods Reports Strong Second Quarter Results
Austin, Minn.
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 https://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 https://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.”