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Hormel Foods Announces Record First Quarter Results

Company lowers guidance due to unfavorable market conditions in the turkey industry

Company Release - 2/23/2017 6:30 AM ET

AUSTIN, Minn., Feb. 23, 2017 /PRNewswire/ -- Hormel Foods Corporation (NYSE: HRL) today reported results for the first quarter of fiscal year 2017. All comparisons are to the first quarter of fiscal year 2016. Results reflect the divestiture of the Diamond Crystal Brands business, the divestiture of the Farmer John business, and the acquisition of Justin's, LLC. The impact of these transactions are excluded in the presentation of the non-GAAP adjusted measures below.

SUMMARY

First Quarter

  • Record diluted earnings per share of $0.44, up 2 percent from 2016 EPS of $0.43
  • Net earnings of $235 million, flat compared to 2016 net earnings of $235 million
  • Sales of $2.3 billion, down 1 percent; Non-GAAP1 adjusted sales2 increased 3 percent
  • Volume down 2 percent; Non-GAAP1 adjusted volume2 up 5 percent
  • Refrigerated Foods operating profit up 4 percent; volume down 3 percent; Non-GAAP1 adjusted volume2 flat; sales down 3 percent; Non-GAAP1 adjusted sales2 down 1 percent
  • International & Other operating profit up 5 percent; volume down 1 percent; sales down 2 percent
  • Grocery Products operating profit up 1 percent; volume up 4 percent; Non-GAAP1 adjusted volume2 up 2 percent; sales up 7 percent; Non-GAAP1 adjusted sales2 up 3 percent
  • Specialty Foods operating profit flat; volume down 30 percent; Non-GAAP1 adjusted volume2 up 12 percent; sales down 19 percent; Non-GAAP1 adjusted sales2 up 10 percent
  • Jennie-O Turkey Store operating profit down 25 percent; volume up 22 percent; sales up 13 percent

COMMENTARY

"I'm proud of our team's ability to drive earnings growth for the 15th consecutive quarter," said Jim Snee, president and chief executive officer. "Our adjusted sales and volume performance for the quarter was solid with sales up 3 percent and volume up 5 percent."

"Earnings at Jennie-O Turkey Store declined compared to last year as turkey commodity prices were lower than we expected. However, demand for JENNIE-O® branded products continues to be strong," Snee said. "Refrigerated Foods was able to grow earnings four percent on excellent value-added sales growth despite the divestiture of the Farmer John business. Our International segment also delivered earnings growth fueled by strong pork exports."

SEGMENT OPERATING HIGHLIGHTS – FIRST QUARTER

Grocery Products (18% of Net Sales, 18% of Total Segment Operating Profit)
Grocery Products sales increased 7 percent on the addition of JUSTIN'S® specialty nut butters along with strong sales of WHOLLY GUACAMOLE® dips, SKIPPY® peanut butter products, and HERDEZ® salsa. Non-GAAP1 adjusted sales2 increased 3 percent. Segment profit was up 1 percent. Grocery Products increased advertising to support key brands such as WHOLLY GUACAMOLE® dips and HERDEZ® salsa.

Refrigerated Foods (49% of Net Sales, 48% of Total Segment Operating Profit)
Refrigerated Foods segment profit increased 4 percent driven by solid value-added product growth in our foodservice and retail channels. Sales declined 3 percent, primarily related to the divestiture of the Farmer John business in January 2017. Non-GAAP1 adjusted sales2 decreased 1 percent. Foodservice products such as HORMEL® pepperoni and HORMEL® BACON 1TM fully cooked bacon, and retail products such as HORMEL GATHERINGS® party trays and HORMEL® NATURAL CHOICE® meats had excellent sales growth this quarter.

Jennie-O Turkey Store (19% of Net Sales, 19% of Total Segment Operating Profit)
Jennie-O Turkey Store sales increased 13 percent and volume increased 22 percent while segment profit decreased 25 percent. Despite volume and sales increases of value-added products, segment profit declined primarily due to lower turkey commodity prices and increased operating expenses. Pricing pressure from competing proteins in the foodservice, deli and retail channels also affected the quarterly results.

Specialty Foods (8% of Net Sales, 8% of Total Segment Operating Profit)
Specialty Foods segment profit was flat and sales declined 19 percent, primarily due to the divestiture of Diamond Crystal Brands in May 2016. Non-GAAP1 adjusted sales2 increased 10 percent.

International & Other (6% of Net Sales, 7% of Total Segment Operating Profit)
International segment profit increased 5 percent while sales decreased 2 percent. Strong fresh pork exports offset declines in branded exports. High pork raw material costs continued to impact the profitability of our China meat business.

OUTLOOK

"We are tempering our full year outlook for the Jennie-O Turkey Store segment given the shortfalls in the first quarter and the expected continuation of pricing pressure due to low commodity turkey prices. Improvements in our other segments are expected to offset some of the earnings headwinds from Jennie-O Turkey Store," Snee said.

The Company is lowering its fiscal 2017 guidance to $1.65 to $1.71 per share due to challenging market conditions in the turkey industry. "The balanced model we have intentionally built in our business will allow us to overcome the challenges at Jennie-O Turkey Store. I remain confident in our team's ability to deliver sales and earnings growth by supporting our brands, innovating, and making strategic investments," Snee said.

DIVIDENDS

Effective February 15, 2016, the company paid its 354th consecutive quarterly dividend at the annual rate of $0.68.

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 company believes these non-GAAP adjusted financial measurements provide useful information to investors because they are the measurements used to evaluate performance on a comparable year-over-year basis. 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 net sales and volume excludes the impact from the Justin's, LLC acquisition in May 2016, and the divestitures of the Diamond Crystal Brands business in May 2016, and the Farmer John business in January 2017. The tables below show the calculations to reconcile from the non-GAAP adjusted measures to the GAAP measures in first quarter of fiscal 2016 and the first quarter of fiscal 2017.

Net Sales














2017




2016



2017

Justin's

Farmer John

Non-GAAP

2016

DCB  

Farmer John

Non-GAAP

Non-GAAP

(in thousands)

Net Sales

Acquisition

 Divestiture

Net Sales 

Net Sales

Divestiture

 Divestiture

Net Sales

% Change

Grocery Products

$417,745

($13,335)


$404,410

$392,218



$392,218

3.1%

Refrigerated Foods

1,123,039


($100,231)

1,022,808

1,162,121


($132,901)

1,029,220

(0.6%)

Jennie-O Turkey Store

420,989



420,989

372,066



372,066

13.1%

Specialty Foods

192,629



192,629

237,779

($62,917)


174,862

10.2%

International & Other

125,825



125,825

128,488



128,488

(2.1%)

Total Net Sales

$2,280,227

($13,335)

($100,231)

$2,166,661

$2,292,672

($62,917)

($132,901)

$2,096,854

3.3%











Tonnage (lbs.)











2017




2016



2017

Justin's

Farmer John

Non-GAAP

2016

DCB  

Farmer John

Non-GAAP

Non-GAAP

(in thousands)

Tonnage

Acquisition

 Divestiture

Tonnage

Tonnage

Divestiture

 Divestiture

Tonnage

% Change

Grocery Products

225,963

(2,296)


223,667

218,265



218,265

2.5%

Refrigerated Foods

614,425


(80,454)

533,971

635,652


(100,774)

534,878

(0.2%)

Jennie-O Turkey Store

216,643



216,643

178,275



178,275

21.5%

Specialty Foods

112,829



112,829

161,445

(61,034)


100,411

12.4%

International & Other

75,049



75,049

75,518



75,518

(0.6%)

Total Tonnage

1,244,909

(2,296)

(80,454)

1,162,159

1,269,155

(61,034)

(100,774)

1,107,347

4.9%

CONFERENCE CALL

A conference call will be webcast at 8:00 a.m. CT on Thursday, February 23, 2017. Access is available at www.hormelfoods.com. The call will also be available via telephone by dialing 888-468-2440 and providing the access code 5626388. An audio replay is available by going to https://jsp.premiereglobal.com/webrsvp and entering the access code 5626388. The webcast replay will be available at 11:00 a.m. CT, Thursday, February 23, 2017, and will remain on the website for one year.

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 31 - 35 in the company's annual stockholders' report for the year ended October 30, 2016, which can be accessed at www.hormelfoods.com under "Investors-SEC Filings."

Statements Follow

HORMEL FOODS CORPORATION

SEGMENT DATA

(Unaudited) (In thousands)



FIRST QUARTER – 13 WEEKS ENDED





NET SALES

January 29, 2017

January 24, 2016

% Change

Grocery Products

$      417,745

$      392,218

6.5

Refrigerated Foods

1,123,039

1,162,121

(3.4)

Jennie-O Turkey Store

420,989

372,066

13.1

Specialty Foods

192,629

237,779

(19.0)

International & Other

125,825

128,488

(2.1)

  Total

$   2,280,227

$   2,292,672

(0.5)





OPERATING PROFIT




Grocery Products

$       65,627

$       65,273

0.5

Refrigerated Foods

173,808

166,908

4.1

Jennie-O Turkey Store

68,180

91,303

(25.3)

Specialty Foods

26,749

26,793

(0.2)

International & Other

25,463

24,287

4.8

  Total segment operating profit

359,827

374,564

(3.9)

  Net interest and investment expense (income)

577

5,370

(89.3)

  General corporate expense

4,621

15,132

(69.5)

  Less:  Noncontrolling interest

156

106

47.2

Earnings before income taxes

$     354,785

$     354,168

0.2

 

HORMEL FOODS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited) (In thousands, except per share amounts)




Thirteen Weeks Ended


January 29,
2017

January 24,
2016




Net sales

$ 2,280,227

$ 2,292,672




Cost of products sold

1,727,947

1,734,661




GROSS PROFIT

552,280

558,011




  Selling, general and administrative

210,217

209,948




  Equity in earnings of affiliates

13,299

11,475




OPERATING INCOME

355,362

359,538




Other income & expenses:



  Interest & investment income (expense)

2,449

(1,963)

  Interest expense

(3,026)

(3,407)




EARNINGS BEFORE INCOME TAXES

354,785

354,168




Provision for income taxes

119,482

119,001

  (effective tax rate)

33.68%

33.60%




NET EARNINGS

235,303

235,167

Less: Net earnings attributable to noncontrolling interest

156

106

NET EARNINGS ATTRIBUTABLE TO

     HORMEL FOODS CORPORATION

 

$    235,147

 

$    235,061




NET EARNINGS PER SHARE



         Basic

$          0.44

$          0.44

         Diluted

$          0.44

$          0.43




WEIGHTED AVERAGE SHARES OUTSTANDING



         Basic

528,585

528,862

         Diluted

540,064

542,737




DIVIDENDS DECLARED PER SHARE

$        0.170

$        0.145




 

HORMEL FOODS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(Unaudited) (In thousands)





January 29, 2017

October 30, 2016




ASSETS




CURRENT ASSETS



  Cash and cash equivalents

$     609,821

$     415,143

  Accounts receivable

530,851

591,310

  Inventories

958,130

985,683

  Income taxes receivable

-

18,282

  Prepaid expenses

15,356

13,775

  Other current assets

5,428

5,719




     TOTAL CURRENT ASSETS

2,119,586

2,029,912




DEFERRED INCOME TAXES

-

6,223




INTANGIBLES

2,709,468

2,737,755




OTHER ASSETS

502,069

490,728




PROPERTY, PLANT & EQUIPMENT, NET

1,035,275

1,105,449




     TOTAL ASSETS

$  6,366,398

$  6,370,067




 

LIABILITIES AND SHAREHOLDERS' INVESTMENT


CURRENT LIABILITIES

$      919,762

$  1,053,196




LONG-TERM DEBT – LESS CURRENT MATURITIES

250,000

250,000




DEFERRED INCOME TAXES

6,236

-




OTHER LONG-TERM LIABILITIES

615,103

615,465




SHAREHOLDERS' INVESTMENT

4,575,297

4,451,406




    TOTAL LIAB. & SHAREHOLDERS' INVESTMENT

$   6,366,398

$  6,370,067

 

HORMEL FOODS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (In thousands)




Thirteen Weeks Ended


January 29,
2017

January 24,
2016



OPERATING ACTIVITIES



  Net earnings

$  235,303

$  235,167

  Depreciation and amortization of intangibles

31,319

31,804

  (Increase) decrease in working capital

(76,887)

30,795

  Other

(12,116)

(19,075)

NET CASH PROVIDED BY OPERATING ACTIVITIES

177,619

278,691




INVESTING ACTIVITIES



  Proceeds from sale of business

135,944

-

  Net purchases of property/equipment

(33,969)

(32,069)

  Decrease in investments, equity in affiliates, and other assets

3,596

11,088

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES

105,571

(20,981)




FINANCING ACTIVITIES



  Net payments on short-term debt

-

(185,000)

  Dividends paid on common stock

(76,629)

(66,137)

  Share repurchase

(30,588)

-

  Other

25,028

23,663

NET CASH USED IN FINANCING ACTIVITIES

(82,189)

(227,474)

Effect of exchange rate changes on cash

(6,323)

(2,260)

INCREASE IN CASH AND CASH EQUIVALENTS

194,678

27,976

Cash and cash equivalents at beginning of year

415,143

347,239

CASH AND CASH EQUIVALENTS AT END OF QUARTER

$  609,821

$  375,215

 

INVESTOR CONTACT:

MEDIA CONTACT:

Nathan Annis        

Wendy Watkins

(507) 437- 5248

(507) 437-5345

ir@hormel.com

media@hormel.com

                                                                                                    

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/hormel-foods-announces-record-first-quarter-results-300412174.html

SOURCE Hormel Foods Corporation