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Press Release

Hormel Foods Achieves Record Second Quarter Results and Raises Fiscal 2016 Guidance

Company Release - 5/18/2016 6:30 AM ET

AUSTIN, Minn.--(BUSINESS WIRE)-- Hormel Foods Corporation (NYSE: HRL) today reported record performance for the fiscal year 2016 second quarter.

All comparisons are to the second quarter of fiscal 2015. All earnings per share measures have been adjusted to reflect the two-for-one stock split distributed on February 9, 2016.

SUMMARY

  • Record diluted earnings per share of $0.40, up 21 percent from $0.33 per share.
  • Dollar sales of $2.3 billion, up 1 percent; volume down 1 percent.
  • Grocery Products operating profit up 21 percent; volume down 1 percent; dollar sales up 1 percent.
  • Refrigerated Foods operating profit up 13 percent; volume up 3 percent; dollar sales up 7 percent.
  • Jennie-O Turkey Store operating profit up 20 percent; volume down 5 percent; dollar sales down 4 percent.
  • Specialty Foods operating profit up 74 percent; volume down 2 percent; dollar sales down 5 percent.
  • International & Other operating profit down 33 percent; volume down 13 percent; dollar sales down 17 percent.

The company reported fiscal 2016 second quarter record net earnings of $215.4 million, up 20 percent from net earnings of $180.2 million last year. Diluted earnings per share for the quarter were $0.40, up 21 percent from $0.33 last year. Sales for the quarter were $2.3 billion, up 1 percent from last year.

COMMENTARY

“Hormel Foods delivered strong results this quarter, our twelfth consecutive quarter of record earnings, with four of five segments achieving double-digit increases in operating profits,” said Jeffrey M. Ettinger, chairman of the board and chief executive officer. “Excellent results in Refrigerated Foods and Grocery Products were driven by favorable pork operating margins and solid growth posted by value-added products such as HORMEL® NATURAL CHOICE® meats, HORMEL® pepperoni, HORMEL GATHERINGS® party trays, SKIPPY® peanut butter, HORMEL® chili and WHOLLY GUACAMOLE® dips. Specialty Foods has significantly enhanced its margin delivery through efficiency gains and increased branded sales, and continues to focus on innovation, highlighted by the recent launch of MUSCLE MILK® protein smoothies. Specialty Foods also finalized the sale of Diamond Crystal Brands in May,” commented Ettinger. “Jennie-O Turkey Store generated an impressive earnings performance despite lingering effects of turkey supply constraints, while International was challenged by weak exports and high pork costs in China.”

SEGMENT OPERATING HIGHLIGHTS – SECOND QUARTER

Grocery Products (17% of Net Sales, 20% of Total Segment Operating Profit)
Grocery Products segment profit increased 21 percent on favorable raw material costs and improved plant efficiencies. Sales increased 1 percent with growth from SKIPPY® peanut butter and HORMEL® chili offsetting decreases in our chunk meats business.

Refrigerated Foods (48% of Net Sales, 38% of Total Segment Operating Profit)
Segment profit for Refrigerated Foods increased 13 percent driven by strong pork operating margins, the addition of the Applegate business, and growth in many of our value-added products. Including Applegate, sales were up 7 percent led by foodservice sales of OLD SMOKEHOUSE® bacon and HORMEL® FIRE BRAISED™ meats and increased retail sales of HORMEL® NATURAL CHOICE® meats and HORMEL® pepperoni.

Jennie-O Turkey Store (18% of Net Sales, 27% of Total Segment Operating Profit)
Jennie-O Turkey Store segment profit increased 20 percent on improved product mix and favorable input costs. Sales decreased 4 percent reflecting volume shortfalls from the impact of highly pathogenic avian influenza in fiscal 2015.

Specialty Foods (12% of Net Sales, 11% of Total Segment Operating Profit)
Specialty Foods delivered a 74 percent increase in segment profit. Results were driven by lower input costs, a favorable comparison to the plant closure in the prior year, and operational synergies captured within the CytoSport and Century Foods supply chain. Dollar sales decreased 5 percent as increased sales of MUSCLE MILK® protein products were not able to offset reduced contract packaging sales.

International & Other (5% of Net Sales, 4% of Total Segment Operating Profit)
International segment profit declined 33 percent and sales declined 17 percent. Results were impacted by high pork input costs in China and soft demand for our U.S. export products.

OUTLOOK

“We are raising our fiscal 2016 earnings guidance range from $1.50 to $1.56 per share to $1.56 to $1.60 per share based on strong second quarter results and continued expectations for growth in the back half of the year,” stated James P. Snee, president and chief operating officer.

“We look for Refrigerated Foods and Grocery Products to continue driving earnings increases through growth in value-added products combined with favorable input costs,” stated Snee. “Jennie-O Turkey Store is well-positioned to drive sales and earnings growth as turkey production has returned to normalized levels.”

“Specialty Foods will continue to deliver increased sales of MUSCLE MILK® protein products but may not show year-over-year increases in segment sales and earnings as a result of the divestiture of Diamond Crystal Brands,” added Snee. “We expect International to return to growth in the back half of fiscal 2016 led by export sales of our SPAM® family of products and SKIPPY® peanut butter.”

“Today we announced that we have entered into a definitive agreement to acquire Justin’s, LLC, owner of the JUSTIN’S® brand and a pioneer in nut butter-based snacking,” stated Snee. “We are excited to work together with the Justin’s team to bring these great natural and organic products to even more consumers, leveraging key Hormel Foods resources to drive continued innovation and growth to this on-trend category.”

DIVIDENDS

Effective May 16, 2016, the company paid its 351st consecutive quarterly dividend, at the annual rate of $0.58.

CONFERENCE CALL

A conference call will be webcast at 7:00 a.m. CT on Wednesday, May 18, 2016. Access is available at www.hormelfoods.com. The call will also be available via telephone by dialing 800-346-0976 and providing the access code 2194984. An audio replay is available by going to https://jsp.premiereglobal.com/webrsvp and entering the access code 2194984. The webcast replay will be available at 10:00 a.m. CT, Wednesday, May 18, 2016, and will remain on our website for one year.

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. Hormel Foods, which 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, will celebrate its 125th anniversary in 2016. The company is a member of the Standard & Poor's (S&P) 500 Index, S&P 500 Dividend Aristocrats, and was named one of “The 100 Best Corporate Citizens” by Corporate Responsibility Magazine for the eighth year in a row. Hormel Foods also received a perfect score on the 2016 Human Rights Campaign Foundation’s Corporate Equality Index, was recognized on the 2016 Best for Vets Employers List by Military Times, and was named one of the 2016 Best Companies for Leaders by Chief Executive 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. For more information, visit http://www.hormelfoods.com and http://2014csr.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 30 - 35 in the company’s Form 10-Q for the fiscal quarter ended January 24, 2016, which can be accessed at www.hormelfoods.com under “Investors-SEC Filings.”

     

Segment Data

Fiscal 2016 Second Quarter Segment Operating Results (dollars in thousands

 

SECOND QUARTER – 13 WEEKS ENDED

 

NET SALES

April 24, 2016

   

April 26, 2015

   

% Change

Grocery Products $ 401,472 $ 397,265 1.1
Refrigerated Foods 1,092,479 1,022,511 6.8
Jennie-O Turkey Store 423,540 438,912 (3.5 )
Specialty Foods 272,484 287,424 (5.2 )
International & Other   110,260     133,233 (17.2 )
Total $ 2,300,235   $ 2,279,345 0.9  
 

OPERATING PROFIT

Grocery Products $ 67,110 $ 55,327 21.3
Refrigerated Foods 130,002 114,837 13.2
Jennie-O Turkey Store 89,678 74,596 20.2
Specialty Foods 36,853 21,144 74.3
International & Other   14,244     21,383 (33.4 )
Total segment operating profit 337,887 287,287 17.6
Net interest and investment (income) expense (380 ) 1,966 (119.3 )
General corporate expense 14,057 9,824 43.1
Noncontrolling interest   (13 )   234 (105.6 )
Earnings before income taxes $ 324,197   $ 275,731 17.6  
 
 
 

YEAR TO DATE – 26 WEEKS ENDED

 

NET SALES

April 24, 2016

April 26, 2015

% Change

Grocery Products $ 793,690 $ 807,016 (1.7 )
Refrigerated Foods 2,254,600 2,166,726 4.1
Jennie-O Turkey Store 795,606 878,931 (9.5 )
Specialty Foods 510,263 550,698 (7.3 )
International & Other   238,748     271,047 (11.9 )
Total $ 4,592,907   $ 4,674,418 (1.7 )
 

OPERATING PROFIT

Grocery Products $ 132,383 $ 96,702 36.9
Refrigerated Foods 296,910 215,989 37.5
Jennie-O Turkey Store 180,981 167,616 8.0
Specialty Foods 63,646 39,720 60.2
International & Other   38,531     35,767 7.7  
Total segment operating profit 712,451 555,794 28.2
Net interest and investment expense (income) 4,990 3,895 28.1
General corporate expense 29,189 13,077 123.2
Noncontrolling interest   93     946 (90.2 )
Earnings before income taxes $ 678,365   $ 539,768 25.7  
 
 

HORMEL FOODS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (In thousands, except per share amounts)
         

Thirteen Weeks Ended

Twenty-Six Weeks Ended

April 24, 2016

   

April 26, 2015*

April 24, 2016

   

April 26, 2015*

 
Net sales $ 2,300,235 $ 2,279,345 $ 4,592,907 $ 4,674,418
 
Cost of products sold   1,773,876 1,819,789   3,508,537   3,770,257
 
GROSS PROFIT 526,359 459,556 1,084,370 904,161
 
Selling, general and administrative 211,144 189,733 421,092 370,032
Goodwill impairment charge 991 - 991 -
Equity in earnings of affiliates   9,593 7,874   21,068   9,534
 
OPERATING INCOME 323,817 277,697 683,355 543,663
 
Other income & expenses:
Interest & investment income (expense) 3,409 1,117 1,446 2,266
Interest expense   (3,029) (3,083)   (6,436)   (6,161)
 
EARNINGS BEFORE INCOME TAXES 324,197 275,731 678,365 539,768
 
Provision for income taxes 108,813 95,296 227,814 186,903
(effective tax rate)   33.56% 34.56%   33.58%   34.63%
 
NET EARNINGS 215,384 180,435 450,551 352,865
Less: net (loss) earnings attributable to

noncontrolling interest

 

(13)

234

 

93

 

946

NET EARNINGS ATTRIBUTABLE TO

HORMEL FOODS CORPORATION

$

215,397

$ 180,201

$

450,458

$

351,919

 
NET EARNINGS PER SHARE
Basic $ 0.41 $ 0.34 $ 0.85 $ 0.67
Diluted $ 0.40 $ 0.33 $ 0.83 $ 0.65
 
WEIGHTED AVG. SHARES OUTSTANDING
Basic 529,898 528,056 529,380 527,704
Diluted 543,769 540,888 543,253 540,505
 
DIVIDENDS DECLARED
PER SHARE $ 0.145 $ 0.125 $ 0.29 $ 0.25
 
* Shares and per share figures have been restated to give effect to the two-for-one stock split distributed on February 9, 2016.
 
       
HORMEL FOODS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands)
 

April 24, 2016

October 25, 2015

(Unaudited)

ASSETS

 
CURRENT ASSETS
Cash and cash equivalents $ 379,881 $ 347,239
Accounts receivable 548,497 605,689
Inventories 1,027,440 993,265
Income taxes receivable - 6,132
Deferred income taxes - 86,902
Prepaid expenses 13,908 14,383
Other current assets   5,356   9,422
 
TOTAL CURRENT ASSETS 1,975,082 2,063,032
 
DEFERRED INCOME TAXES 23,164 -
 
INTANGIBLES 2,521,500 2,526,703
 
OTHER ASSETS 541,669 538,357
 
PROPERTY, PLANT & EQUIPMENT, NET   1,048,930   1,011,739
 
TOTAL ASSETS $ 6,110,345 $ 6,139,831
 
 

LIABILITIES AND SHAREHOLDERS’ INVESTMENT

 
CURRENT LIABILITIES
Short-term debt $ - $ 185,000
Current liabilities excluding debt   937,384   1,029,025
 
TOTAL CURRENT LIABILITIES 937,384 1,214,025
 
LONG-TERM DEBT – LESS CURRENT MATURITIES 250,000 250,000
 
OTHER LONG-TERM LIABILITIES 613,322 674,413
 
SHAREHOLDERS’ INVESTMENT   4,309,639   4,001,393
 
TOTAL LIAB. & SHAREHOLDERS’ INVESTMENT $ 6,110,345 $ 6,139,831
 
       
HORMEL FOODS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In thousands)
 

Twenty-Six Weeks Ended

April 24, 2016

April 26, 2015

 
OPERATING ACTIVITIES
Net earnings $ 450,551 $ 352,865
Depreciation and amortization of intangibles 63,908 65,727
Goodwill impairment charge 991 -
(Increase) decrease in working capital (74,829 ) 17,477
Other   (31,486 )   9,668  
NET CASH PROVIDED BY OPERATING ACTIVITIES 409,135 445,737
 
INVESTING ACTIVITIES
Net purchases of property/equipment (97,143 ) (43,934 )
Decrease in investments, equity in affiliates, and other assets   12,178     5,379  
NET CASH USED IN INVESTING ACTIVITIES (84,965 ) (38,555 )
 
FINANCING ACTIVITIES
Principal payments on short-term debt (185,000 ) -
Dividends paid on common stock (142,878 ) (118,715 )
Share repurchase (6,358 ) -
Other   44,826     3,476  
NET CASH USED IN FINANCING ACTIVITIES (289,410 ) (115,239 )
Effect of exchange rate changes on cash   (2,118 )   (1,722 )
INCREASE IN CASH AND CASH EQUIVALENTS 32,642 290,221
Cash and cash equivalents at beginning of year   347,239     334,174  
CASH AND CASH EQUIVALENTS AT END OF QUARTER $ 379,881   $ 624,395  
 

Hormel Foods Corporation
Investor Contact:
Nathan Annis, 507-437-5248
npannis@hormel.com
Or
Media Contact:
Wendy Watkins, 507-437-5345
media@hormel.com

Source: Hormel Foods Corporation