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Hormel Foods Achieves Record Fourth Quarter and Full Year Results

Company Release - 11/22/2016 6:30 AM ET

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

All comparisons are to the fourth quarter or full year of fiscal 2015. The fourth quarter and full year of 2016 contains an extra week as compared to the prior year. All earnings per share measures are adjusted to reflect the two-for-one stock split distributed on February 9, 2016.

SUMMARY

Fourth Quarter

  • Record diluted earnings per share of $0.45, up 29 percent from 2015 GAAP EPS of $0.35; diluted EPS up 22 percent from non-GAAP1 adjusted diluted EPS2 of $0.37
  • Record net earnings of $244 million, up 30 percent from 2015 GAAP net earnings of $187 million; net earnings up 22 percent from non-GAAP1 adjusted net earnings2 of $200 million
  • Record dollar sales of $2.6 billion, up 9 percent; volume up 9 percent
  • Refrigerated Foods operating profit up 51 percent; volume up 9 percent; dollar sales up 8 percent
  • Jennie-O Turkey Store operating profit up 26 percent; volume up 32 percent; dollar sales up 29 percent
  • Grocery Products operating profit up 5 percent; volume up 12 percent (sales of JUSTIN’S® products contributed 2 percent to volume growth); dollar sales up 16 percent (sales of JUSTIN’S® products contributed 6 percent to sales growth)
  • International & Other operating profit down 16 percent; volume up 11 percent; dollar sales up 2 percent
  • Specialty Foods operating profit down 10 percent as compared to 2015 GAAP operating profit; operating profit down 42 percent as compared to 2015 non-GAAP1 adjusted segment operating profit2; volume down 29 percent ; dollar sales down 20 percent

COMMENTARY

“We had a strong finish to fiscal 2016, achieving record earnings for the fourteenth consecutive quarter,” said Jim Snee, president and chief executive officer. “Three of our five business segments delivered sales, volume, and earnings growth, again demonstrating our balanced business model. Refrigerated Foods and Jennie-O Turkey Store both had excellent quarters with growth coming from value-added, branded products and improved market conditions. Grocery Products enjoyed a strong quarter aided by the inclusion of the JUSTIN’S® specialty nut butter business in addition to strong results from SPAM® luncheon meat and SKIPPY® peanut butter,” Snee said.

“Specialty Foods sales declined, primarily due to the divestiture of Diamond Crystal Brands in May, while sales of MUSCLE MILK® protein products were strong,” mentioned Snee. “Specialty Foods earnings decreased primarily due to increased advertising. Our International segment had a tough quarter as the team continues to work through challenging market conditions in China.”

“Fiscal 2017 will mark the 51st consecutive year we have increased our dividend, an accomplishment few other companies can claim,” Snee said. “Effective in the new fiscal year the annual dividend will be $0.68 per share, a 17 percent increase.”

SEGMENT OPERATING HIGHLIGHTS – FOURTH QUARTER

Refrigerated Foods (47% of Net Sales, 44% of Total Segment Operating Profit)
Refrigerated Foods segment profit increased 51 percent driven by excellent results in our foodservice and retail channels in addition to lower input costs. Sales grew 8 percent on volume growth of 9 percent aided by foodservice products such as HORMEL® BACON 1TM fully cooked bacon and HORMEL® pepperoni, and retail products such as APPLEGATE® deli meats, HORMEL® NATURAL CHOICE® meats, and HORMEL GATHERINGS® party trays.

Jennie-O Turkey Store (21% of Net Sales, 24% of Total Segment Operating Profit)
Jennie-O Turkey Store segment profit increased 26 percent and sales increased 29 percent following the recovery from avian influenza in fiscal 2015. Increased earnings reflect improved live production results in addition to strong sales growth from JENNIE-O® branded foodservice products.

Grocery Products (19% of Net Sales, 22% of Total Segment Operating Profit)
Grocery Products sales increased 16 percent on the inclusion of JUSTIN’S® specialty nut butters along with strong sales of SPAM® luncheon meat and SKIPPY® peanut butter. Segment profit increased 5 percent. Grocery Products increased advertising for key products such as SKIPPY® P.B. Bites during the quarter.

International & Other (5% of Net Sales, 5% of Total Segment Operating Profit)

International segment profit decreased 16 percent while sales increased 2 percent. High pork raw material costs and soft retail demand continue to weigh on the China meat business.

Specialty Foods (8% of Net Sales, 5% of Total Segment Operating Profit)
Specialty Foods segment profit decreased 10 percent while sales were down 20 percent, primarily due to the divestiture of Diamond Crystal Brands in May. MUSCLE MILK® branded items posted double-digit sales growth with increases across many product lines including protein powders and ready-to-drink protein beverages.

OUTLOOK

“In fiscal 2017, we expect to generate organic sales growth consistent with our long-term goal of five percent coupled with mid-single-digits earnings growth,” said Snee. “Grocery Products is positioned to deliver an excellent year aided by the inclusion of JUSTIN’S® specialty nut butters and contributions from branded products such as SKIPPY® peanut butter and HERDEZ® salsas. Jennie-O Turkey Store should benefit from favorable grain prices and increasing demand for JENNIE-O® branded products. We anticipate continued low input costs for our value-added products in Refrigerated Foods in addition to positive momentum in both retail and foodservice channels.”

“We expect the International segment to show growth through increased exports and improved results from our China business,” mentioned Snee. “Specialty Foods is expected to show year-over-year sales and earnings growth net of the Diamond Crystal Brands divestiture and will benefit from continued strong results from MUSCLE MILK® protein products.”

“Taking all these factors into account and considering the previous three years of strong double-digit earnings increases, we would have expected our fiscal 2017 earnings guidance range to be $1.71 to $1.77 per share,” commented Snee. “However, after excluding earnings from the Farmer John divestiture of approximately 3 cents per share, we are setting our fiscal 2017 earnings guidance range at $1.68 to $1.74 per share,” Snee said.

DIVIDENDS

Effective November 15, 2016, the company paid its 353rd consecutive quarterly dividend at the annual rate of $0.58.

CONFERENCE CALL

A conference call will be webcast at 8:30 a.m. CT on Tuesday, November 22, 2016. Access is available at www.hormelfoods.com. The call will also be available via telephone by dialing 877-627-6590 and providing the access code 5999118. An audio replay is available by going to https://jsp.premiereglobal.com/webrsvp and entering the access code 5999118. The webcast replay will be available at 11:30 a.m. CT, Tuesday, November 22, 2016, and will remain on the website for one year.

1 COMPARISON OF U.S. GAAP TO NON-GAAP FINANCIAL MEASUREMENTS

The non-GAAP adjusted financial measurements are presented to provide investors additional information to facilitate the comparison of past and present operations. The non-GAAP adjusted financial measurements are used for internal purposes to evaluate the results of operations and to measure a component of certain employee incentive plans in fiscal year 2015. 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 generally accepted accounting principles and may be different from non-GAAP measures used by other companies.

2 ADJUSTED FINANCIAL MEASURES

Adjusted segment operating profit, net earnings, and diluted net earnings per share exclude charges relating to the closure of the Stockton, California, manufacturing facility and the exit from international joint venture businesses in the first quarter of fiscal 2015, and charges relating to the goodwill impairment charge associated with the Diamond Crystal Brands business and an adjustment to the contingent consideration accrual for CytoSport in the fourth quarter of fiscal 2015. The tables below show the calculations to reconcile from the non-GAAP adjusted measures to the GAAP measures in both the fourth quarter and full year of fiscal 2015.

           

Fourth Quarter

(In thousands, except per share amounts)

2015 Non- Diamond CytoSport

 

GAAP Crystal Contingent
2016 Adjusted Brands Consideration 2015 GAAP
Earnings Earnings Impairment Adjustment Earnings
Grocery Products $ 82,734 $ 78,772 $ 78,772
Refrigerated Foods 168,040 111,287 111,287
Jennie-O Turkey Store 92,299 73,227 73,227
Specialty Foods 20,182 35,015 $ (21,537 ) $ 8,870 22,348
International & Other   19,570     23,300         23,300  
Total segment operating profit 382,825 $ 321,601 (21,537 ) 8,870 308,934
General corporate expense (17,325 ) (16,649 ) (16,649 )
Net interest & investment expense   (1,017 )   (3,341 )       (3,341 )
Earnings before income taxes 364,483 $ 301,611 (21,537 ) 8,870 288,944
Income taxes   (120,543 )   (101,713 )       (101,713 )
Net earnings attributable to Hormel Foods Corporation $ 243,940   $ 199,898   $ (21,537 ) $ 8,870 $ 187,231  
 
Diluted net earnings per share $ 0.45 $ 0.37 $ (0.04 ) $ 0.02 $ 0.35
 
               

Full Year

(In thousands, except per share amounts)

2015 Non- Diamond CytoSport

 

GAAP Stockton International Crystal Contingent

 

2016 Adjusted Plant Business Brands Consideration 2015 GAAP
Earnings Earnings Closure Exit Impairment Adjustment Earnings
Grocery Products $ 268,461 $ 239,108 $ (10,526 ) $ 228,582
Refrigerated Foods 585,652 424,968 424,968
Jennie-O Turkey Store 329,427 276,217 276,217
Specialty Foods 110,917 105,925 $ (21,537 ) $ 8,870 93,258
International & Other   78,409     87,864     $ (9,546 )       78,318  
Total segment operating profit 1,372,866 1,134,082 (10,526 ) (9,546 ) (21,537 ) 8,870 1,101,343
General corporate expense

(49,436

)

(35,199 ) (35,199 )
Net interest & investment expense  

(6,680

)

  (10,177 )           (10,177 )
Earnings before income taxes

1,316,750

1,088,706 (10,526 ) (9,546 ) (21,537 ) 8,870 1,055,967
Income taxes   (426,698 )   (374,334 )   3,685     770         (369,879 )
Net earnings attributable to Hormel Foods Corporation $ 890,052   $ 714,372   $ (6,841 ) $ (8,776 ) $ (21,537 ) $ 8,870 $ 686,088  
 
Diluted net earnings per share

$

1.64

$

1.32

$

(0.01

)

$

(0.02

)

$

(0.04

)

$

0.02

$

1.27

 

About Hormel Foods – Inspired People. Inspired Food.™

Hormel Foods Corporation, based in Austin, Minn., is a global branded food company with over $9 billion in annual revenues across 75 countries worldwide. Its brands include SKIPPY®, SPAM®, Hormel® Natural Choice®, Applegate®, Justin’s®, Wholly Guacamole®, Hormel® Black Label® and more than 30 other beloved brands. The company is a member of the S&P 500 Index and the S&P 500 Dividend Aristocrats, was named one of “The 100 Best Corporate Citizens” by Corporate Responsibility Magazine for the eighth year in a row, and has received numerous other awards and accolades for its corporate responsibility and community service efforts. In 2016, the company celebrated its 125th anniversary and announced its new vision for the future - Inspired People. Inspired Food.™ - focusing on its legacy of innovation. For more information, visit 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 33 - 40 in the company’s Form 10-Q for the fiscal quarter ended July 24, 2016, which can be accessed at www.hormelfoods.com under “Investors-SEC Filings.”

 
Segment Data

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

     

FOURTH QUARTER

14 WEEKS ENDED

 

13 WEEKS ENDED

 

NET SALES

October 30, 2016

October 25, 2015

% Change

Grocery Products $ 491,724 $ 422,570 16.4
Refrigerated Foods 1,237,276 1,149,496 7.6
Jennie-O Turkey Store 541,409 420,312 28.8
Specialty Foods 216,674 269,887 (19.7 )
International & Other   140,858   138,593 1.6  
Total $ 2,627,941 $ 2,400,858 9.5  
 

OPERATING PROFIT

Grocery Products $ 82,734 $ 78,772 5.0
Refrigerated Foods 168,040 111,287 51.0
Jennie-O Turkey Store 92,299 73,227 26.0
Specialty Foods 20,182 22,348 (9.7 )
International & Other   19,570   23,300 (16.0 )
Total segment operating profit 382,825 308,934 23.9
Net interest and investment expense (income) 1,017 3,341 (69.6 )
General corporate expense 17,325 16,649 4.1
Less: Noncontrolling interest   250   212 17.9  
Earnings before income taxes $ 364,733 $ 289,156 26.1  
 

YEAR TO DATE

53 WEEKS ENDED

52 WEEKS ENDED

 

NET SALES

October 30, 2016

October 25, 2015

% Change

Grocery Products $ 1,684,756 $ 1,617,680 4.1
Refrigerated Foods 4,647,173 4,372,347 6.3
Jennie-O Turkey Store 1,740,968 1,635,776 6.4
Specialty Foods 939,134 1,103,359 (14.9 )
International & Other   511,193   534,701 (4.4 )
Total $ 9,523,224 $ 9,263,863 2.8  
 

OPERATING PROFIT

Grocery Products $ 268,461 $ 228,582 17.4
Refrigerated Foods 585,652 424,968 37.8
Jennie-O Turkey Store 329,427 276,217 19.3
Specialty Foods 110,917 93,258 18.9
International & Other   78,409   78,318 0.1  
Total segment operating profit 1,372,866 1,101,343 24.7
Net interest and investment expense (income) 6,680 10,177 (34.4 )
General corporate expense 49,436 35,199 40.4
Less: Noncontrolling interest   465   1,176 (60.5 )
Earnings before income taxes $ 1,317,215 $ 1,057,143 24.6  
 
 
HORMEL FOODS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (In thousands, except per share amounts)
         

Fourteen

Thirteen

Fifty-Three

Fifty-Two

Weeks Ended

Weeks Ended

Weeks Ended

Weeks Ended

October 30,

October 25,

October 30,

October 25,

2016

2015*

2016

2015*

 
Net sales $ 2,627,941 $ 2,400,858 $ 9,523,224 $ 9,263,863
 
Cost of products sold   2,029,421     1,905,828     7,365,049     7,455,282  
 
GROSS PROFIT 598,520 495,030 2,158,175 1,808,581
 
Selling, general and administrative 244,006 188,952 871,974 743,611
Goodwill impairment charge - 21,537 991 21,537
Equity in earnings of affiliates   11,236     7,957     38,685     23,887  
 
OPERATING INCOME 365,750 292,498 1,323,895 1,067,320
 
Other income & expenses:
Interest & investment income 2,271 479 6,191 2,934
Interest expense   (3,288 )   (3,821 )   (12,871 )   (13,111 )
 
EARNINGS BEFORE INCOME TAXES 364,733 289,156 1,317,215 1,057,143
 
Provision for income taxes 120,543 101,713 426,698 369,879
(effective tax rate)   33.05 %   35.18 %   32.39 %   34.99 %
 
NET EARNINGS 244,190 187,443 890,517 687,264

Less: net earnings attributable to noncontrolling interest

 

250

   

212

   

465

   

1,176

 

NET EARNINGS ATTRIBUTABLE TO HORMEL FOODS CORPORATION

$

243,940

 

$

187,231

 

$

890,052

 

$

686,088

 
 
NET EARNINGS PER SHARE
Basic $ 0.46   $ 0.35   $ 1.68   $ 1.30  
Diluted $ 0.45   $ 0.35   $ 1.64   $ 1.27  
 
WEIGHTED AVG. SHARES OUTSTANDING
Basic 528,778 528,648 529,290 528,143
Diluted 541,312 541,793 542,473 541,002
 
DIVIDENDS DECLARED
PER SHARE $ 0.145   $ 0.125   $ 0.58   $ 0.50  
 
*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)
     

October 30, 2016

October 25, 2015

(Unaudited)

ASSETS

 
CURRENT ASSETS
Cash and cash equivalents $ 415,143 $ 347,239
Accounts receivable 591,310 605,689
Inventories 985,683 993,265
Income taxes receivable 18,282 6,132
Deferred income taxes - 86,902
Prepaid expenses 13,775 14,383
Other current assets   5,719   9,422
2,029,912 2,063,032
TOTAL CURRENT ASSETS
 
DEFERRED INCOME TAXES 6,223 -
 
INTANGIBLES 2,737,755 2,526,703
 
OTHER ASSETS 490,728 538,357
 
PROPERTY, PLANT & EQUIPMENT, NET   1,105,449   1,011,739
 
TOTAL ASSETS $ 6,370,067 $ 6,139,831
 
 

LIABILITIES AND SHAREHOLDERS’ INVESTMENT

 
CURRENT LIABILITIES
Short-term debt $ - $ 185,000
Current liabilities excluding debt   1,053,196   1,029,025
 
TOTAL CURRENT LIABILITIES 1,053,196 1,214,025
 
LONG-TERM DEBT – LESS CURRENT MATURITIES 250,000 250,000
 
OTHER LONG-TERM LIABILITIES 615,465 674,413
 
SHAREHOLDERS’ INVESTMENT   4,451,406   4,001,393
 
TOTAL LIAB. & SHAREHOLDERS’ INVESTMENT $ 6,370,067 $ 6,139,831
 
 
HORMEL FOODS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In thousands)
   

Fifty-Three

 

Fifty-Two

Weeks Ended

Weeks Ended

October 30, 2016

October 25, 2015

 
OPERATING ACTIVITIES
Net earnings $ 890,517 $ 687,264
Depreciation and amortization of intangibles 131,968 133,434
Goodwill impairment charge 991 21,537
(Increase) decrease in working capital (51,425 ) 131,095
Other   20,797     18,662  
NET CASH PROVIDED BY OPERATING ACTIVITIES 992,848 991,992
 
INVESTING ACTIVITIES
Proceeds from sale of business 110,149 -
Acquisitions of businesses/intangibles (280,889 ) (770,587 )
Net purchases of property/equipment (249,297 ) (125,562 )
Decrease (increase) in investments, equity in affiliates, and other assets   11,078     (4,798 )
NET CASH USED IN INVESTING ACTIVITIES (408,959 ) (900,947 )
 
FINANCING ACTIVITIES
Net (payments to) proceeds from short-term debt (185,000 ) 185,000
Dividends paid on common stock (296,493 ) (250,834 )
Share repurchase (87,885 ) (24,928 )
Other   59,732     20,135  
NET CASH USED IN FINANCING ACTIVITIES (509,646 ) (70,627 )
Effect of exchange rate changes on cash   (6,339 )   (7,353 )
INCREASE IN CASH AND CASH EQUIVALENTS 67,904 13,065
Cash and cash equivalents at beginning of year   347,239     334,174  
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 415,143   $ 347,239  
 

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