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Press Release

Hormel Foods Achieves Record Third Quarter Results and Raises Full Year Guidance

Company Release - 8/18/2016 6:30 AM ET

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

All comparisons are to the third 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 $0.36, up 33 percent from $0.27 per share.
  • Record net earnings of $195.7 million, up 33 percent from net earnings of $146.9 million.
  • Record dollar sales of $2.3 billion, up 5 percent; volume up 1 percent.
  • Refrigerated Foods operating profit up 24 percent; volume up 3 percent; dollar sales up 9 percent.
  • Jennie-O Turkey Store operating profit up 59 percent; volume up 29 percent; dollar sales up 20 percent.
  • International & Other operating profit up 5 percent; volume up 10 percent; dollar sales up 5 percent.
  • Grocery Products operating profit flat; volume up 1 percent; dollar sales up 3 percent.
  • Specialty Foods operating profit down 13 percent; volume down 32 percent; dollar sales down 25 percent. Decreases reflect the impact from the divestiture of the Diamond Crystal Brands business.

COMMENTARY

“We are pleased to announce exceptional results this quarter with three of our five segments delivering volume, sales and earnings growth. This is also our thirteenth consecutive quarter of record earnings which is a testament to our balanced business model,” said Jeffrey M. Ettinger, chairman of the board and chief executive officer. “Excellent results in Refrigerated Foods were driven by the addition of the Applegate business, foodservice sales of OLD SMOKEHOUSE® bacon, HORMEL® BACON 1™ fully cooked bacon, and HORMEL® FIRE BRAISED™ meats, and retail sales of HORMEL® NATURAL CHOICE® meats. Jennie-O Turkey Store also returned to growth, posting strong double-digit sales and earnings increases,” stated Ettinger.

“Iconic brands such as SPAM® and SKIPPY® drove increased sales in our Grocery Products and International segments. We enjoyed strong growth from MUSCLE MILK® protein products led by innovative new items such as MUSCLE MILK® protein smoothies, though Specialty Foods did not show growth this quarter due to the sale of Diamond Crystal Brands,” commented Ettinger.

SEGMENT OPERATING HIGHLIGHTS – THIRD QUARTER

Refrigerated Foods (50% of Net Sales, 44% of Total Segment Operating Profit)
Refrigerated Foods segment profit increased 24 percent aided by the inclusion of the Applegate business, favorable market conditions, and growth in value-added products. Results reflect a favorable comparison to the prior year, which included Applegate transaction costs of $8.6 million. Sales increased 9 percent on continued success in foodservice products including OLD SMOKEHOUSE® bacon and HORMEL® FIRE BRAISED™ meats, and retail products such as HORMEL® NATURAL CHOICE® meats and HORMEL GATHERINGS® party trays. Brands experiencing declines in sales include retail deli products and LLOYDS® barbeque ribs.

Jennie-O Turkey Store (18% of Net Sales, 20% of Total Segment Operating Profit)
Jennie-O Turkey Store segment profit increased 59 percent and sales increased 20 percent following the recovery from highly pathogenic avian influenza in fiscal 2015. JENNIE-O® value-added foodservice and deli products contributed to sales growth during the quarter. Results reflect a $9.6 million mark-to-market loss on hedges.

International & Other (6% of Net Sales, 7% of Total Segment Operating Profit)
International segment profit increased 5 percent and sales increased 5 percent. Exports of fresh pork, SKIPPY® peanut butter, and the SPAM® family of products drove the improved results.

Grocery Products (17% of Net Sales, 19% of Total Segment Operating Profit)
Grocery Products segment profit was flat for the quarter due to an increase in advertising spend and transaction costs related to the Justin’s, LLC acquisition. Sales grew 3 percent led by the inclusion of JUSTIN’S® products in addition to increases in the SPAM® family of products, SKIPPY® peanut butter, and WHOLLY GUACAMOLE® dips.

Specialty Foods (9% of Net Sales, 10% of Total Segment Operating Profit)
Specialty Foods segment profit decreased 13 percent and sales decreased 25 percent. Continued growth in MUSCLE MILK® protein products did not offset reduced contract packaging sales and the divestiture of Diamond Crystal Brands.

PROVISION FOR INCOME TAXES
Income taxes for the quarter benefited from a $14 million reduction due to discrete tax events primarily related to an international entity restructuring.

OUTLOOK

“We expect a strong finish to fiscal 2016, led by valued-added sales in Refrigerated Foods, Jennie-O Turkey Store and International,” remarked James P. Snee, president and chief operating officer. “Franchises such as SKIPPY® peanut butter products, WHOLLY GUACAMOLE® dips, and MUSCLE MILK® protein products are positioned to drive sales growth for the fourth quarter,” stated Snee.

“As a result of another excellent quarter we are increasing our 2016 annual guidance to $1.60 to $1.64 per share from $1.56 to $1.60 per share,” commented Snee. “We expect to show sales and earnings growth in fiscal 2017 and will provide a more definitive guidance range on our fourth quarter conference call in November,” added Snee.

DIVIDENDS

Effective August 15, 2016, the company paid its 352nd consecutive quarterly dividend, at the annual rate of $0.58.

CONFERENCE CALL

A conference call will be webcast at 8:00 a.m. CT on Thursday, August 18, 2016. Access is available at www.hormelfoods.com. The call will also be available via telephone by dialing 800- 533-7619 and providing the access code 6233484. An audio replay is available by going to https://jsp.premiereglobal.com/webrsvp and entering the access code 6233484. The webcast replay will be available at 11:00 a.m. CT, Thursday, August 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, is celebrating 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://2015csr.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 which appear on pages 32 - 39 in the company’s Form 10-Q for the fiscal quarter ended April 24, 2016, which can be accessed at www.hormelfoods.com under “Investors-SEC Filings.”

Segment Data

Fiscal 2016 Third Quarter Segment Operating Results (dollars in thousands)

   

THIRD QUARTER – 13 WEEKS ENDED

       

NET SALES

July 24, 2016

July 26, 2015

% Change

Grocery Products $ 399,342 $ 388,094 2.9
Refrigerated Foods 1,155,297 1,056,125 9.4
Jennie-O Turkey Store 403,953 336,533 20.0
Specialty Foods 212,197 282,774 (25.0 )
International & Other   131,587   125,061 5.2  
Total $ 2,302,376 $ 2,188,587 5.2  
 

OPERATING PROFIT

Grocery Products $ 53,344 $ 53,108 0.4
Refrigerated Foods 120,702 97,692 23.6
Jennie-O Turkey Store 56,147 35,374 58.7
Specialty Foods 27,089 31,190 (13.1 )
International & Other   20,308   19,251 5.5  
Total segment operating profit 277,590 236,615 17.3
Net interest and investment expense (income) 673 2,941 (77.1 )
General corporate expense 2,922 5,473 (46.6 )
Noncontrolling interest   122   18 577.8  
Earnings before income taxes $ 274,117 $ 228,219 20.1  
 
 

YEAR TO DATE – 39 WEEKS ENDED

 

NET SALES

July 24, 2016

July 26, 2015

% Change

Grocery Products $ 1,193,032 $ 1,195,110 (0.2 )
Refrigerated Foods 3,409,897 3,222,851 5.8
Jennie-O Turkey Store 1,199,559 1,215,464 (1.3 )
Specialty Foods 722,460 833,472 (13.3 )
International & Other   370,335   396,108 (6.5 )
Total $ 6,895,283 $ 6,863,005 0.5  
 

OPERATING PROFIT

Grocery Products $ 185,727 $ 149,810 24.0
Refrigerated Foods 417,612 313,681 33.1
Jennie-O Turkey Store 237,128 202,990 16.8
Specialty Foods 90,735 70,910 28.0
International & Other   58,839   55,018 6.9  
Total segment operating profit 990,041 792,409 24.9
Net interest and investment expense (income) 5,663 6,836 (17.2 )
General corporate expense 32,111 18,550 73.1
Noncontrolling interest   215   964 (77.7 )
Earnings before income taxes $ 952,482 $ 767,987 24.0  
 
 
HORMEL FOODS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (In thousands, except per share amounts)
           

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

July 24, 2016

July 26, 2015*

July 24, 2016

   

July 26, 2015*

 
Net sales $ 2,302,376 $ 2,188,587 $ 6,895,283 $ 6,863,005
 
Cost of products sold   1,827,091     1,779,197     5,335,628     5,549,454  
 
GROSS PROFIT 475,285 409,390 1,559,655 1,313,551
 
Selling, general and administrative 206,876 184,627 627,968 554,659
Goodwill impairment charge - - 991 -
Equity in earnings of affiliates   6,381     6,396     27,449     15,930  
 
OPERATING INCOME 274,790 231,159 958,145 774,822
 
Other income & expenses:
Interest & investment income (expense) 2,474 189 3,920 2,455
Interest expense   (3,147 )   (3,129 )   (9,583 )   (9,290 )
 
EARNINGS BEFORE INCOME TAXES 274,117 228,219 952,482 767,987
 
Provision for income taxes 78,341 81,263 306,155 268,166
(effective tax rate)   28.58 %   35.61 %   32.14 %   34.92 %
 
NET EARNINGS 195,776 146,956 646,327 499,821

Less: net earnings attributable to noncontrolling interest

 

122

   

18

   

215

   

964

 

NET EARNINGS ATTRIBUTABLE TO HORMEL FOODS CORPORATION

$

195,654

 

$

146,938

 

$

646,112

 

$

498,857

 
 
NET EARNINGS PER SHARE
Basic $ 0.37   $ 0.28   $ 1.22   $ 0.94  
Diluted $ 0.36   $ 0.27   $ 1.19   $ 0.92  
 
WEIGHTED AVG. SHARES OUTSTANDING
Basic 529,660 528,516 529,473 527,975
Diluted 542,163 541,204 542,890 540,738
 
DIVIDENDS DECLARED
PER SHARE $ 0.145   $ 0.125   $ 0.435   $ 0.375  
 
* 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)
       

July 24, 2016

October 25, 2015

(Unaudited)

ASSETS

 
CURRENT ASSETS
Cash and cash equivalents $ 379,597 $ 347,239
Accounts receivable 564,922 605,689
Inventories 1,034,307 993,265
Income taxes receivable 7,015 6,132
Deferred income taxes - 86,902
Prepaid expenses 15,832 14,383
Other current assets   8,432   9,422
 
TOTAL CURRENT ASSETS 2,010,105 2,063,032
 
DEFERRED INCOME TAXES 13,875 -
 
INTANGIBLES 2,737,207 2,526,703
 
OTHER ASSETS 574,192 538,357
 
PROPERTY, PLANT & EQUIPMENT, NET   1,052,918   1,011,739
 
TOTAL ASSETS $ 6,388,297 $ 6,139,831
 
 

LIABILITIES AND SHAREHOLDERS’ INVESTMENT

 
CURRENT LIABILITIES
Short-term debt $ 145,000 $ 185,000
Current liabilities excluding debt   983,727   1,029,025
 
TOTAL CURRENT LIABILITIES 1,128,727 1,214,025
 
LONG-TERM DEBT – LESS CURRENT MATURITIES 250,000 250,000
 
OTHER LONG-TERM LIABILITIES 615,623 674,413
 
SHAREHOLDERS’ INVESTMENT   4,393,947   4,001,393
 
TOTAL LIAB. & SHAREHOLDERS’ INVESTMENT $ 6,388,297 $ 6,139,831
 
 
HORMEL FOODS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In thousands)
   

Thirty-Nine Weeks Ended

July 24, 2016

   

July 26, 2015

 
OPERATING ACTIVITIES
Net earnings $ 646,327 $ 499,821
Depreciation and amortization of intangibles 96,520 99,027
Goodwill impairment charge 991 -
(Increase) decrease in working capital (99,467 ) 66,769
Other   (22,685 )   24,628  
NET CASH PROVIDED BY OPERATING ACTIVITIES 621,686 690,245
 
INVESTING ACTIVITIES
Proceeds from sale of business 110,149 -
Acquisitions of businesses/intangibles (281,655 ) (768,339 )
Net purchases of property/equipment (163,238 ) (81,778 )
Decrease in investments, equity in affiliates, and other assets   6,865     3,424  
NET CASH USED IN INVESTING ACTIVITIES (327,879 ) (846,693 )
 
FINANCING ACTIVITIES
Net (payments) proceeds from short-term debt (40,000 ) 350,000
Dividends paid on common stock (219,744 ) (184,761 )
Share repurchase (44,976 ) -
Other   48,423     8,693  
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (256,297 ) 173,932
Effect of exchange rate changes on cash   (5,152 )   (2,489 )
INCREASE IN CASH AND CASH EQUIVALENTS 32,358 14,995
Cash and cash equivalents at beginning of year   347,239     334,174  
CASH AND CASH EQUIVALENTS AT END OF QUARTER $ 379,597   $ 349,169  
 

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

Source: Hormel Foods Corporation