Hormel Foods Reports Excellent Second Quarter Results

HIGHLIGHTS
Second Quarter
• Diluted adjusted EPS of $0.67, up 14 percent from $0.59 per share in 20091
o Adjusted earnings exclude the previously announced, one-time charges amounting to $0.10 per diluted share that were incurred, relating to the Valley Fresh plant closing and the tax impact of the new health care laws
• Adjusted segment operating profit up 18 percent from last year1
• Dollar sales of $1.7 billion up 7 percent from 2009
• Volume up 2 percent from 2009
• Grocery Products adjusted operating profit down 2 percent1; volume up 10 percent; dollar sales up 6 percent
• Refrigerated Foods operating profit up 7 percent; volume flat; dollar sales up 7 percent
• Jennie-O Turkey Store operating profit up 93 percent; volume down 3 percent; dollar sales up 1 percent
• Specialty Foods operating profit up 39 percent; volume up 8 percent; dollar sales up 13 percent
• All Other operating profit down 18 percent; volume flat; dollar sales up 7 percent

Excluding the one-time charges referenced above, the company reported fiscal 2010 second quarter adjusted1 net earnings of $91.3 million, up 14 percent from net earnings of $80.4 million a year earlier. For the six months ended April 25, 2010, adjusted1 net earnings were $202.5 million, up 25 percent from the same period last year. Diluted adjusted1 net earnings per share were $1.50, up 25 percent from $1.20 last year.

On a GAAP basis, the company reported fiscal 2010 second quarter net earnings of $77.9 million, down 3 percent from net earnings of $80.4 million a year earlier. Diluted GAAP earnings per share for the quarter were $0.57 this year compared to $0.59 per share last year. GAAP segment operating profit for the quarter was $146 million, up 10 percent from a year ago. Grocery Products segment operating profit for the quarter was $33 million, down 24 percent from a year ago. For the six months ended April 25, 2010, GAAP net earnings were $189.1 million or $1.40 per diluted share (up 17 percent) compared to net earnings of $161.8 million or $1.20 per diluted share from the same period last year.

Sales for the quarter totaled $1.7 billion, which was up 7 percent from fiscal 2009. For the six months ended April 25, 2010, sales totaled $3.4 billion, up 4 percent from the same period last year.

COMMENTARY
“We are pleased to report excellent earnings and sales for the quarter, which were up 14 percent and 7 percent, respectively. This quarter demonstrated the value of our balanced model, as our Jennie-O Turkey Store and Specialty Foods segments more than made up for the more difficult quarter experienced by our Grocery Products segment due to increased raw material costs. We are also gratified to see our sales grow in all five of our segments,” said Jeffrey M. Ettinger, chairman of the board, president and chief executive officer.

“Our Jennie-O Turkey Store segment had an outstanding quarter, showing strength across the board. Our Specialty Foods segment also enjoyed a strong quarter, aided by strong sales of nutritional products, sugar substitutes and private label canned meats. Our Refrigerated Foods segment had improved results, primarily resulting from strong cutout margins, and our International segment had weaker results,” remarked Ettinger.

“We were pleased with the progress made with our new product lines under our MegaMex Foods venture and our Country Crock^® side dish acquisition, as both product lines contributed to our results this quarter,” commented Ettinger.

SEGMENT OPERATING HIGHLIGHTS – SECOND QUARTER
Grocery Products (15% of Net Sales, 22% of Total Segment Operating Profit)
The Grocery Products segment experienced soft segment operating profit results, down 2 percent on an adjusted1 basis, due to higher protein costs. Net sales exceeded last year by 6 percent, led by strong results from our core products, such as Hormel^® chili and Hormel^® Mary Kitchen^® hash. Results from our MegaMex Foods business continue to meet expectations.

Refrigerated Foods (53% of Net Sales, 38% of Total Segment Operating Profit)
Despite the rapid rise in primal values during the quarter, the Refrigerated Foods segment exceeded last year’s profitability by 7 percent, due primarily to stronger cutout margins. Net sales for the quarter also increased 7 percent, with strong contributions from products such as Hormel^® party trays and Hormel^® pepperoni. Positive contributions from our new Country Crock^® business were also reflected in the results.

Jennie-O Turkey Store (17% of Net Sales, 22% of Total Segment Operating Profit)
Jennie-O Turkey Store improved its segment operating profit results by a remarkable 93 percent from a year ago. Strength across the board, including stronger commodity meat markets and improved efficiencies contributed to the strong results. Sales of our value-added products rose in all three trade channels.

Specialty Foods (12% of Net Sales, 15% of Total Segment Operating Profit)
The Specialty Foods segment recorded an outstanding quarter, with segment profit up 39 percent from 2009. Each business unit contributed to the increase, led by sales of sports nutrition products, private label canned meat products, and sugar substitutes. Revenues overall also exceeded last year by 13 percent.

All Other (3% of Net Sales, 3% of Total Segment Operating Profit)
The All Other segment, which includes Hormel Foods International, experienced an 18 percent
decline in segment profit for the quarter. This decline was due primarily to continued weakness in fresh pork exports resulting from decreased demand in our key markets. Revenues for the segment exceeded last year, aided by strong sales of the SPAM^® family of products.

Net Interest and Investment Income
Lower net interest and investment income reflects a gain in 2009 on the dissolution of the Carapelli joint venture and current year lower returns on the rabbi trust investments.

General Corporate Expense
General corporate expenses were slightly lower than last year (down 2 percent).

OUTLOOK
“Excluding the 10 cent per share impact of the one-time charges relating to the closing of the Valley Fresh plant and the reduced value of the deferred tax asset resulting from the new health care laws, we are raising our full year guidance range from $2.68 to $2.78 per share to $2.75 to $2.85 per share. We anticipate continued higher hog costs during the remainder of the year, and we recognize the strong investment performance in our rabbi trust last year will result in a more difficult comparison in the back half of the year. However, we believe our strong brands and our dedicated team will allow us to overcome those obstacles,” concluded Ettinger.

DIVIDENDS
Effective May 15, 2010, the Company paid its 327th consecutive quarterly dividend, at the annual rate of $0.84.

CONFERENCE CALL
A conference call will be Webcast at 7:30 a.m. CT (8:30 a.m. ET) on Wednesday, May 19, 2010. Access is available at https://www.hormelfoods.com. If you do not have Internet access and want to listen to the call over the phone, the dial in number is 877-941-2333 and you must provide the access code of 4286994. An audio replay is available by calling 800-406-7325 and entering access code 4286994. The audio replay will be available beginning at 10:30 a.m. CT on Wednesday, May 19, 2010, through 11:59 p.m. CT on Wednesday, June 2, 2010. The Webcast replay will be available at 10:30 a.m. CT, Wednesday, May 19, 2010, and archived for one year.

ADJUSTED EARNINGS
¹Adjusted net earnings excludes one-time charges of $6.3 million ($.05 per diluted share) relating to the closure of the Valley Fresh plant and an income tax charge of $7.1 million ($.05 per diluted share) primarily from the change in tax treatment of Medicare Part D reimbursements by the new health care laws. Adjusted segment operating profit and Grocery Products adjusted segment operating profit exclude one-time charges relating to the Valley Fresh plant closing. The tables below show the calculations to reconcile from adjusted earnings to GAAP earnings.

Second Quarter
2009 Earnings 2010 Adjusted
Earnings Valley Fresh Plant Closure Tax items primarily related to health care laws 2010 GAAP Earnings
Grocery Products $ 43,677 $ 2,755 $ (9,733) $ 33,022
Refrigerated Foods 51,695 55,523 55,523
Jennie-O Turkey Store 16,678 32,169 32,169
Specialty Foods 15,432 21,508 21,508
All Other 5,027 4,133 4,133
Total segment operating profit 132,509 156,088 (9,733) 146,355
Net interest and investment income 1,666 (5,151) (5,151)
General corporate expense (9,547) (9,391) (9,391)
Earnings before income taxes 124,628 141,546 (9,733) 131,813
Income taxes (44,243) (50,286) 3,455 $ (7,120) (53,951)
Net earnings attributable to Hormel Foods Corporation $ 80,385 $ 91,260 $ (6,278) $ (7,120) $ 77,862

Diluted net earnings per share $ 0.59 $ 0.67 $ (0.05) $ (0.05) $ 0.57
Year to Date
2009 Earnings 2010 Adjusted
Earnings Valley Fresh Plant Closure Tax items primarily related to health care laws 2010 GAAP Earnings
Grocery Products $ 83,312 $ 96,925 $ (9,733) $ 87,192
Refrigerated Foods 97,440 125,711 125,711
Jennie-O Turkey Store 45,927 65,436 65,436
Specialty Foods 30,749 41,138 41,138
All Other 13,272 11,855 11,855
Total segment operating profit 270,700 341,065 (9,733) 331,332
Net interest and investment income (3,398) (11,269) (11,269)
General corporate expense (18,044) (19,754) (19,754)
Earnings before income taxes 249,258 310,042 (9,733) 300,309
Income taxes (87,490) (107,575) 3,455 $ (7,120) (111,240)
Net earnings attributable to
Hormel Foods Corporation $ 161,768 $ 202,467 $ (6,278) $ (7,120) $ 189,069

Diluted net earnings per share $ 1.20 $ 1.50 $ (0.05) $ (0.05) $ 1.40

The following is a reconciliation of Forecasted Diluted Net Earnings per Common Share to our Full Year Guidance for the period presented.

Full Year 2010
Forecasted Diluted Net Earnings per Common Share $2.65 – $2.75
Plant closing & tax treatment charges + 0.10
Full Year Guidance for Adjusted Diluted Net Earnings per Common Share $2.75 – $2.85

COMPARISON OF GAAP TO NON-GAAP FINANCIAL MEASUREMENTS
The non-GAAP adjusted financial measurements are provided to assist the investor in better understanding the Company’s operating performance by excluding the impact of certain non-recurring items affecting comparability. Non-GAAP measurements are not intended to be a substitute for GAAP measurements in analyzing financial performance. These non-GAAP measurements are not in accordance with any generally accepted accounting principles and may be different from non-GAAP measures used by other companies.

“Country Crock” is a registered trademark of the Unilever Group of Companies and is used under license. All rights reserved.

Statements Follow
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Segment Data
Fiscal 2010 Second Quarter Segment Operating Results (in Thousands)
SECOND QUARTER – 13 WEEKS ENDED

NET SALES April 25, 2010 April 26, 2009 % Change
Grocery Products $ 256,665 $ 241,684 6.2
Refrigerated Foods 893,470 834,062 7.1
Jennie-O Turkey Store 292,551 289,745 1.0
Specialty Foods 196,934 173,586 13.5
All Other 60,162 55,966 7.5
Total $ 1,699,782 $ 1,595,043 6.6
OPERATING PROFIT
Grocery Products $ 33,022 $ 43,677 (24.4)
Refrigerated Foods 55,523 51,695 7.4
Jennie-O Turkey Store 32,169 16,678 92.9
Specialty Foods 21,508 15,432 39.4
All Other 4,133 5,027 (17.8)
Total segment operating
profit 146,355 132,509 10.4
Net interest and
investment income (5,151) 1,666 (409.2)
General corporate
expense (9,391) (9,547) 1.6
Noncontrolling interest 673 715 (5.9)
Earnings before income taxes $ 132,486 $ 125,343 5.7
YEAR TO DATE – 26 WEEKS ENDED

NET SALES April 25, 2010 April 26, 2009 % Change
Grocery Products $ 518,309 $ 483,627 7.2
Refrigerated Foods 1,785,772 1,731,486 3.1
Jennie-O Turkey Store 612,502 594,784 3.0
Specialty Foods 383,876 352,476 8.9
All Other 126,770 121,756 4.1
Total $ 3,427,229 $ 3,284,129 4.4
OPERATING PROFIT
Grocery Products $ 87,192 $ 83,312 4.7
Refrigerated Foods 125,711 97,440 29.0
Jennie-O Turkey Store 65,436 45,927 42.5
Specialty Foods 41,138 30,749 33.8
All Other 11,855 13,272 (10.7)
Total segment
operating profit 331,332 270,700 22.4
Net interest
and investment
income (11,269) (3,398) (231.6)
General
corporate
expense (19,754) (18,044) (9.5)
Noncontrolling
interest 1,735 1,509 15.0
Earnings before income taxes $ 302,044 $ 250,767 20.4
HORMEL FOODS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)

Thirteen Weeks Ended Twenty-Six Weeks Ended
4-25-2010 4-26-2009 4-25-2010 4-26-2009

Net sales $ 1,699,782 $ 1,595,043 $ 3,427,229 $ 3,284,129

Cost of products sold 1,419,315 1,333,005 2,828,375 2,749,776

GROSS PROFIT: 280,467 262,038 598,854 534,353

Selling, general
and administrative 146,782 139,846 292,314 282,371

Equity in earnings
of affiliates 3,952 1,485 6,773 2,183

OPERATING INCOME: 137,637 123,677 313,313 254,165

Other income & expenses:
Interest &
investment
income 1,423 8,584 1,866 10,975
Interest expense (6,574) (6,918) (13,135) (14,373)

EARNINGS BEFORE INCOME TAXES: 132,486 125,343 302,044 250,767

Provision for income taxes 53,951 44,243 111,240 87,490
(effective tax rate) 40.72% 35.30% 36.83% 34.89%

NET EARNINGS 78,535 81,100 190,804 163,277
Less: net earnings attributable to noncontrolling
interest 673 715 1,735 1,509
NET EARNINGS ATTRIBUTABLE TO HORMEL FOODS CORPORATION $ 77,862 $ 80,385 $ 189,069 $ 161,768

NET EARNINGS PER SHARE
Basic $ .58 $ .60 $ 1.42 $ 1.20
Diluted $ .57 $ .59 $ 1.40 $ 1.20

WEIGHTED AVG SHARES OUT
Basic 133,593 134,272 133,591 134,325
Diluted 135,579 135,373 135,470 135,268

DIVIDENDS DECLARED
PER SHARE $ .21 $ .19 $ .42 $ .38
HORMEL FOODS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
April 25, 2010 October 25, 2009
(In Thousands)
ASSETS

CURRENT ASSETS
Cash and cash equivalents $ 355,181 $ 385,252
Short-term marketable securities 50,023 0
Accounts receivable 356,524 372,292
Inventories 767,191 722,371
Income taxes receivable 7,217 0
Deferred income taxes 69,176 66,435
Prepaid expenses 11,911 9,130
Other current assets 19,167 19,253

TOTAL CURRENT ASSETS 1,636,390 1,574,733

INTANGIBLES 775,609 761,009

OTHER ASSETS 437,780 403,600

PROPERTY, PLANT & EQUIPMENT, NET 934,355 952,713

TOTAL ASSETS $3,784,134 $3,692,055
LIABILITIES AND SHAREHOLDERS’ INVESTMENT

TOTAL CURRENT LIABILITIES $ 651,027 $ 685,029

LONG-TERM DEBT – LESS CURRENT MATURITIES 350,000 350,000

OTHER LONG-TERM LIABILITIES 517,254 532,705

SHAREHOLDERS’ INVESTMENT 2,265,853 2,124,321

TOTAL LIAB. & SHAREHOLDERS’ INVESTMENT $3,784,134 $3,692,055
HORMEL FOODS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Twenty-Six Weeks Ended
4-25-2010 4-26-2009
(In Thousands)
OPERATING ACTIVITIES
Net earnings $ 190,804 $ 163,277
Depreciation and amortization of
intangibles 61,471 62,494
(Increase) Decrease in working capital (78,935) 46,472
Other 5,998 (8,292)
NET CASH PROVIDED BY OPERATING ACTIVITIES 179,338 263,951

INVESTING ACTIVITIES
Net (purchase) sale of securities (50,000) 3,899
Acquisitions of businesses/intangibles (28,144) (580)
Net purchases of property / equipment (37,755) (43,804)
Increase in investments, equity in
affiliates, and other assets (31,145) (1,581)
NET CASH USED IN INVESTING ACTIVITIES (147,044) (42,066)

FINANCING ACTIVITIES
Dividends paid on common stock (53,400) (50,376)
Share repurchase (29,826) (10,375)
Other 20,861 (3,581)
NET CASH USED IN FINANCING ACTIVITIES (62,365) (64,332)
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (30,071) 157,553
Cash and cash equivalents at beginning of year 385,252 154,778
CASH AND CASH EQUIVALENTS AT END OF QUARTER $ 355,181 $ 312,331