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Press Release

Hormel Foods Announces Third Quarter Results And Continued Progress Towards Key Strategic Initiatives

Full year guidance lowered due to high commodity price volatility

Company Release - 8/24/2017 6:30 AM ET

AUSTIN, Minn., Aug. 24, 2017 /PRNewswire/ -- Hormel Foods Corporation (NYSE: HRL) today reported results for the third quarter of fiscal year 2017. All comparisons are to the third 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 is excluded in the presentation of the non-GAAP adjusted measures below.

Hormel Foods corporate logo

SUMMARY – THIRD QUARTER

  • Record earnings before income tax of $278 million, up 1 percent compared to 2016 earnings before income tax of $274 million
  • Diluted earnings per share of $0.34, down 6 percent from 2016 EPS of $0.36
  • Income taxes up $17 million compared to 2016; tax rate of 34.3 percent compared to 28.6 percent in 2016
  • Sales of $2.2 billion, down 4 percent; Non-GAAP1 adjusted sales2 up 1 percent
  • Volume down 9 percent; Non-GAAP1 adjusted volume2 down 1 percent
  • Refrigerated Foods operating profit up 15 percent; volume down 16 percent; Non-GAAP1 adjusted volume2 down 1 percent; sales down 6 percent; Non-GAAP1 adjusted sales2 up 5 percent
  • Grocery Products operating profit up 10 percent; volume up 4 percent; Non-GAAP1 adjusted volume2 up 3 percent; sales up 6 percent; Non-GAAP1 adjusted sales2 up 3 percent
  • International & Other operating profit down 16 percent; volume up 1 percent; sales up 1 percent
  • Specialty Foods operating profit down 14 percent; volume down 8 percent; Non-GAAP1 adjusted volume2 up 2 percent; sales down 7 percent; Non-GAAP1 adjusted sales2 down 1 percent
  • Jennie-O Turkey Store operating profit down 20 percent; volume down 7 percent; sales down 9 percent

STRATEGIC INVESTMENTS

"We continue to make excellent progress towards our strategic growth initiatives outlined in our 2017 Investor Day," said Jim Snee, president and chief executive officer. "We separately announced three strategic investments which perfectly align with our path forward."

"The acquisition of Fontanini Italian Meats and Sausages complements our branded foodservice business and provides additional avenues for growth in the foodservice channel as well as much-needed production capacity for our pizza toppings business," Snee said. "This morning we also announced the acquisition of the Ceratti® brand, a premium value-added meats company in Brazil. This acquisition expands our global presence and is a platform for future acquisitions in South America. We are excited to welcome the Fontanini and Ceratti employees into the Hormel Foods family and look forward to their contributions going forward."

"Earlier this month we committed over $130 million to expand production capacity for precooked bacon at our Dold Foods facility in Wichita, Kansas," Snee said. "The demand for bacon, especially HORMEL® BACON 1TM fully cooked bacon, has been incredible. This strategic investment significantly increases our capacity and gives us runway for future growth in foodservice."

COMMENTARY – THIRD QUARTER

"We generated record pre-tax earnings this quarter even as we faced record-high input costs for two of our primary raw materials, pork bellies and beef trim," Snee said. "Nevertheless the results did not meet our expectations. Our team is working to mitigate the effects of volatile commodity markets through increased pricing, strategic promotional activity, and our on-going innovation efforts."

"Strong earnings growth in Grocery Products and Refrigerated Foods was able to offset lower earnings in our other three segments," Snee said. "Specialty Foods results are disappointing, primarily caused by a soft quarter for MUSCLE MILK® ready-to-drink protein products. As we anticipated, Jennie-O Turkey Store continues to navigate through unfavorable market conditions in the turkey industry."

SEGMENT OPERATING HIGHLIGHTS – THIRD QUARTER

Grocery Products (19% of Net Sales, 21% of Total Segment Operating Profit)
Grocery Products sales increased 6 percent aided by strong sales of WHOLLY GUACAMOLE® dips, an additional period of JUSTIN'S® specialty nut butters, and higher sales of SKIPPY® peanut butter products. Segment profit increased 10 percent as higher input costs for beef trim, pork trim, and avocadoes were offset by advertising reductions and incremental earnings from an additional period of JUSTIN'S® specialty nut butters.

Refrigerated Foods (49% of Net Sales, 49% of Total Segment Operating Profit)
Refrigerated Foods sales declined 6 percent, primarily related to the divestiture of the Farmer John business. Foodservice products such as HORMEL® BACON 1TM fully cooked bacon and HORMEL® pepperoni and retail products such as HORMEL® BLACK LABEL® bacon, HORMEL® pepperoni, and HORMEL GATHERINGS® party trays posted strong sales growth. Segment profit increased 15 percent as strong demand for pork and operational improvements offset higher input costs related to bellies, pork trim, and beef trim, along with the divestiture of Farmer John.

Jennie-O Turkey Store (17% of Net Sales, 16% of Total Segment Operating Profit)
Jennie-O Turkey Store sales declined 9 percent and segment profit declined 20 percent. These decreases are primarily due to lower turkey commodity prices, pricing pressure from competing proteins, and increased operating expenses. A reduction in harvest volume was the primary factor to the decline in sales and volume.

Specialty Foods (9% of Net Sales, 8% of Total Segment Operating Profit)
Specialty Foods sales declined 7 percent primarily related to one extra period of Diamond Crystal Brands in fiscal 2016 and lower sales of MUSCLE MILK® protein products. Segment profit declined 14 percent as pricing of contract packaging sales did not keep pace with input cost increases. Lower sales for MUSCLE MILK® ready-to-drink protein products also contributed to the decline in segment profit.

International & Other (6% of Net Sales, 6% of Total Segment Operating Profit)
International sales increased 1 percent and segment profit decreased 16 percent driven by lower results in China, reflecting startup costs for our Jiaxing production facility and the closing of our Shanghai facility.

OUTLOOK

"We expect continued earnings pressure from higher input costs for key raw materials such as bellies, pork trim, and beef trim," Snee said. "While we have communicated price increases in many categories, the increases will not be fully effective until late in the fourth quarter. Jennie-O Turkey Store continues to be adversely affected by unfavorable market conditions, as the industry has not returned to normalized turkey production levels. For these reasons, we are lowering our full year guidance to $1.54 - $1.58 per share from the low end of $1.65 to $1.71 per share. In the face of a challenging year, we are focused on our strategic initiatives and are committed to maintaining a long-term perspective on our decisions."

DIVIDENDS

Effective August 15, 2017, the company paid its 356th 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. Results below reflect only the incremental sales and tonnage through period 7 of fiscal 2017 for the Justin's, LLC acquisition and only through the date of divestiture, or period 7 of fiscal 2016, for the Diamond Crystal Brands divestiture. The tables below show the calculations to reconcile from the non-GAAP adjusted measures to the GAAP measures in the third quarter and third quarter year-to-date of fiscal 2016 and fiscal 2017.

 

3rd Quarter









Net Sales









(in thousands)

2017 
Net Sales

Justin's
Acquisition
(Pd 7, 2017)

2017
Non-GAAP
Net Sales 

2016
Net Sales

DCB
Divestiture
(Pd 7, 2016)

 Farmer
John
Divestiture

2016 
Non-GAAP
Net Sales 

Non-GAAP
% Change


Grocery Products

$     421,986

$              (8,679)

$               413,307

$         399,342

$                       -

$                  -

$            399,342

3.5%


Refrigerated Foods

1,086,546


1,086,546

1,155,297


(121,065)

1,034,232

5.1%


Jennie-O Turkey Store

369,078


369,078

403,953



403,953

(8.6%)


Specialty Foods

196,873


196,873

212,197

(13,171)


199,026

(1.1%)


International & Other

132,892


132,892

131,587



131,587

1.0%


Total Net Sales

$   2,207,375

$              (8,679)

$             2,198,696

$      2,302,376

$            (13,171)

$      (121,065)

$          2,168,140

1.4%












Tonnage (lbs.)







(in thousands)

2017 
Tonnage

Justin's
Acquisition
(Pd 7, 2017)

2017 
Non-GAAP
Tonnage

2016
Tonnage

DCB
Divestiture
(Pd 7, 2016)

 Farmer
John
Divestiture

2016
Non-GAAP
Tonnage

Non-GAAP
% Change


Grocery Products

219,088

(1,114)

217,974

210,877



210,877

3.4%


Refrigerated Foods

503,296


503,296

596,389


(87,264)

509,125

(1.1%)


Jennie-O Turkey Store

200,143


200,143

215,447



215,447

(7.1%)


Specialty Foods

111,417


111,417

120,487

(11,697)


108,790

2.4%


International & Other

78,120


78,120

77,235



77,235

1.1%


Total Tonnage

1,112,064

(1,114)

1,110,950

1,220,435

(11,697)

(87,264)

1,121,474

(0.9%)






















Year to Date










Net Sales










(in thousands)

2017
Net Sales

Justin's
Acquisition
(Period 7,
2017 YTD)

 Farmer John
Divestiture

2017 
Non-GAAP
Net Sales 

2016 
Net Sales

DCB
Divestiture
(Pd 7, 2016
YTD)

 Farmer John
Divestiture

2016
Non-GAAP
Net Sales 

Non-GAAP
% Change

Grocery Products

$   1,271,936

$             (43,146)

$                          -

$      1,228,790

$         1,193,032

$                  -

$                       -

$    1,193,032

3.0%

Refrigerated Foods

3,237,071


(100,231)

3,136,840

3,409,897


(370,362)

3,039,535

3.2%

Jennie-O Turkey Store

1,178,304



1,178,304

1,199,559



1,199,559

(1.8%)

Specialty Foods

597,716



597,716

722,460

(140,084)


582,376

2.6%

International & Other

389,884



389,884

370,335



370,335

5.3%

Total Net Sales

$   6,674,911

$             (43,146)

$              (100,231)

$      6,531,534

$         6,895,283

$      (140,084)

$          (370,362)

$     6,384,837

2.3%











Tonnage (lbs.)







(in thousands)

2017
Tonnage

Justin's
Acquisition
(Period 7,
2017 YTD)

 Farmer John
Divestiture

2017
Non-GAAP
Tonnage

2016
Tonnage

DCB
Divestiture
(Pd 7, 2016
YTD)

 Farmer John
Divestiture

2016
Non-GAAP
Tonnage

Non-GAAP
% Change

Grocery Products

667,502

(6,430)


661,072

647,816



647,816

2.0%

Refrigerated Foods

1,633,211


(80,454)

1,552,757

1,834,852


(279,771)

1,555,081

(0.1%)

Jennie-O Turkey Store

620,343



620,343

610,486



610,486

1.6%

Specialty Foods

340,678



340,678

456,214

(133,733)


322,481

5.6%

International & Other

233,481



233,481

221,673



221,673

5.3%

Total Tonnage

3,495,215

(6,430)

(80,454)

3,408,331

3,771,041

(133,733)

(279,771)

3,357,537

1.5%

CONFERENCE CALL

A conference call will be webcast at 8:30 a.m. CT on Thursday, August 24, 2017. Access is available at www.hormelfoods.com. The call will also be available via telephone by dialing 800-263-0877 and providing the access code 9221656. An audio replay is available by going to www.hormelfoods.com and clicking on Investors. The webcast replay will be available at 11:00 a.m. CT, Thursday, August 24, 2017, and will remain on the website for one year.

About Hormel Foods Corporation – 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 ninth 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://csr.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 - 38 in the company's Form 10-Q for the quarter ended April 30, 2017, which can be accessed at www.hormelfoods.com under "Investors-SEC Filings."

INVESTOR CONTACT:                  

MEDIA CONTACT:

Nathan Annis

Wendy Watkins

(507) 437-5248 

(507) 437-5345

ir@hormel.com 

media@hormel.com

Statements Follow

HORMEL FOODS CORPORATION

SEGMENT DATA

(Unaudited) (In thousands)



THIRD QUARTER – 13 WEEKS ENDED





NET SALES

July 30, 2017

July 24, 2016

% Change

Grocery Products

$      421,986

$      399,342

5.7

Refrigerated Foods

1,086,546

1,155,297

(6.0)

Jennie-O Turkey Store

369,078

403,953

(8.6)

Specialty Foods

196,873

212,197

(7.2)

International & Other

132,892

131,587

1.0

  Total

$   2,207,375

$   2,302,376

(4.1)





OPERATING PROFIT




Grocery Products

$        58,780

$        53,344

10.2

Refrigerated Foods

138,314

120,702

14.6

Jennie-O Turkey Store

44,986

56,147

(19.9)

Specialty Foods

23,336

27,089

(13.9)

International & Other

17,111

20,308

(15.7)

  Total segment operating profit

282,527

277,590

1.8

  Net interest and investment expense

1,681

673

149.8

  General corporate expense

2,865

2,922

(2.0)

  Less:  Noncontrolling interest

43

122

(64.8)

Earnings before income taxes

$      278,024

$      274,117

1.4






YEAR TO DATE – 39 WEEKS ENDED





NET SALES

July 30, 2017

July 24, 2016

% Change

Grocery Products

$   1,271,936

$   1,193,032

6.6

Refrigerated Foods

3,237,071

3,409,897

(5.1)

Jennie-O Turkey Store

1,178,304

1,199,559

(1.8)

Specialty Foods

597,716

722,460

(17.3)

International & Other

389,884

370,335

5.3

  Total

$   6,674,911

$   6,895,283

(3.2)





OPERATING PROFIT




Grocery Products

$      201,894

$      185,727

8.7

Refrigerated Foods

442,316

417,612

5.9

Jennie-O Turkey Store

176,952

237,128

(25.4)

Specialty Foods

80,895

90,735

(10.8)

International & Other

62,191

58,839

5.7

  Total segment operating profit

964,248

990,041

(2.6)

  Net interest and investment expense

2,463

5,663

(56.5)

  General corporate expense

13,308

32,111

(58.6)

  Less:  Noncontrolling interest

159

215

(26.0)

Earnings before income taxes

$      948,636

$      952,482

(0.4)

 


HORMEL FOODS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

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





Thirteen Weeks Ended

Thirty-Nine Weeks Ended


July 30, 2017

July 24, 2016

July 30 2017

July 24, 2016






Net sales

$ 2,207,375

$ 2,302,376

$ 6,674,911

$ 6,895,283






Cost of products sold

1,754,966

1,827,091

5,183,302

5,335,628






GROSS PROFIT

452,409

475,285

1,491,609

1,559,655






  Selling, general and administrative

176,660

206,876

567,886

627,968

  Goodwill impairment charge

-

-

-

991

  Equity in earnings of affiliates

3,956

6,381

27,376

27,449






OPERATING INCOME

279,705

274,790

951,099

958,145






Other income & expenses:





  Interest & investment income

1,376

2,474

6,643

3,920

  Interest expense

(3,057)

(3,147)

(9,106)

(9,583)






EARNINGS BEFORE INCOME TAXES

278,024

274,117

948,636

952,482






Provision for income taxes

95,473

78,341

319,896

306,155

  (effective tax rate)

34.34%

28.58%

33.72%

32.14%






NET EARNINGS

182,551

195,776

628,740

646,327

Less: net earnings attributable to  

     noncontrolling interest

 

43

 

122

 

159

 

215

NET EARNINGS ATTRIBUTABLE TO

     HORMEL FOODS CORPORATION

 

$    182,508

 

$    195,654

 

$    628,581

 

$    646,112






NET EARNINGS PER SHARE





         Basic

$          0.35

$          0.37

$          1.19

$          1.22

         Diluted

$          0.34

$          0.36

$          1.17

$          1.19






WEIGHTED AVG. SHARES OUTSTANDING



         Basic

528,165

529,660

528,487

529,473

         Diluted

538,814

542,163

539,504

542,890






DIVIDENDS DECLARED

          PER SHARE

 

$       0.170

$        0.145

$          0.510

$        0.435





 

HORMEL FOODS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(Unaudited) (In thousands)





July 30, 2017

October 30, 2016

ASSETS





CURRENT ASSETS



  Cash and cash equivalents

$     633,341

$     415,143

  Accounts receivable

549,011

591,310

  Inventories

1,013,214

985,683

  Income taxes receivable

-

18,282

  Prepaid expenses

17,096

13,775

  Other current assets

4,433

5,719




     TOTAL CURRENT ASSETS

2,217,095

2,029,912




DEFERRED INCOME TAXES

-

6,223




INTANGIBLES

2,705,388

2,737,755




OTHER ASSETS

531,386

490,728




PROPERTY, PLANT & EQUIPMENT, NET

1,054,096

1,105,449




     TOTAL ASSETS

$  6,507,965

$  6,370,067




LIABILITIES AND SHAREHOLDERS' INVESTMENT


CURRENT LIABILITIES

$     877,771

$  1,053,196




LONG-TERM DEBT – LESS CURRENT MATURITIES

250,000

250,000




DEFERRED INCOME TAXES

9,571

-




OTHER LONG-TERM LIABILITIES

617,443

615,465




SHAREHOLDERS' INVESTMENT

4,753,180

4,451,406




    TOTAL LIAB. & SHAREHOLDERS' INVESTMENT

$  6,507,965

$  6,370,067

 

 

HORMEL FOODS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (In thousands)




Thirty-Nine Weeks Ended


July 30, 2017

July 24, 2016



OPERATING ACTIVITIES



  Net earnings

$  628,740

$  646,327

  Depreciation and amortization of intangibles

96,121

96,520

  Goodwill impairment charge

-

991

  Increase in working capital

(203,393)

(99,467)

  Other

(9,995)

(22,685)

NET CASH PROVIDED BY OPERATING ACTIVITIES

511,473

621,686




INVESTING ACTIVITIES



  Proceeds from sale of business

135,944

110,149

  Acquisitions of businesses/intangibles

-

(281,655)

  Net purchases of property/equipment

(115,979)

(163,238)

  (Increase) decrease in investments, equity in affiliates, and other assets

(1,154)

6,865

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES

18,811

(327,879)




FINANCING ACTIVITIES



  Net payments on short-term debt

-

(40,000)

  Dividends paid on common stock

(256,341)

(219,744)

  Share repurchase

(94,487)

(44,976)

  Other

39,196

48,423

NET CASH USED IN FINANCING ACTIVITIES

(311,632)

(256,297)

Effect of exchange rate changes on cash

(454)

(5,152)

INCREASE IN CASH AND CASH EQUIVALENTS

218,198

32,358

Cash and cash equivalents at beginning of year

415,143

347,239

CASH AND CASH EQUIVALENTS AT END OF QUARTER

$  633,341

$  379,597

 

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SOURCE Hormel Foods Corporation