Hormel Foods Reports Fourth Quarter And Full Year Results

HIGHLIGHTS

Fourth Quarter
• Diluted EPS of $.77, up 54 percent from $.50 per share in 2008
• Segment operating profit increased 17 percent from last year
• Dollar sales of $1.68 billion decreased 10 percent from 2008
• Volume down 3 percent from 2008
• Grocery Products operating profit up 12 percent; volume down 7 percent; dollar sales down 12 percent
• Refrigerated Foods operating profit up 23 percent; volume up 1 percent; dollar sales down 9 percent
• Jennie-O Turkey Store operating profit up 6 percent; volume down 6 percent; dollar sales down 10 percent
• Specialty Foods operating profit up 9 percent; volume down 8 percent; dollar sales down 12 percent
• All Other operating profit up 53 percent; volume down 11 percent; dollar sales down 13 percent
• Net Interest and Investment Income was up $22.9 million from 2008
Fiscal Year
• Diluted EPS of $2.53, up 22 percent from $2.08 per share in 2008
• Segment operating profit up 7 percent from last year
• Dollar sales of $6.53 billion down 3 percent from 2008
• Volume down 3 percent
• Grocery Products operating profit up 9 percent; volume down 3 percent; dollar sales down 2 percent
• Refrigerated Foods operating profit up 7 percent; volume down 1 percent; dollar sales down 2 percent
• Jennie-O Turkey Store operating profit up 11 percent; volume down 3 percent; dollar sales down 3 percent
• Specialty Foods operating profit down 2 percent; volume down 9 percent (down 12 percent excluding acquisitions); dollar sales down 9 percent (down 11 percent excluding acquisitions)
• All Other operating profit up 2 percent; volume up 2 percent; dollar sales down 2 percent
• Net Interest and Investment Income was up $47.7 million from 2008

The company reported fiscal 2009 fourth quarter net earnings of $103.9 million, up 53 percent from earnings of $ 67.8 million a year earlier. Diluted earnings per share for the quarter were $.77 this year compared to $.50 per share last year. Sales totaled $1.68 billion, which was down 10 percent from fiscal 2008.

For the twelve months ending October 25, 2009, net earnings were $342.8 million, or $2.53 per diluted share, (up 22 percent) compared to $285.5 million a year ago, or $2.08 per diluted share. Sales totaled $6.53 billion, down 3 percent from $6.75 billion in the same period last year.

COMMENTARY

“We are pleased to report an excellent finish to fiscal 2009. All five business segments contributed to our third consecutive strong quarter, generating a 54 percent increase in EPS and a 17 percent increase in segment operating profit. We are happy to get back on track with our long-term record of earnings growth after a challenging year in 2008,” said Jeffrey M. Ettinger, chairman of the board, president and chief executive officer.

“Our Refrigerated Foods segment led the way with strong earnings resulting from an enhanced product mix bolstered by lower input costs. Our Grocery Products segment posted solid earnings results from lower year-over-year input costs for many items and behind the strength of increased sales and market share of our Hormel chili product line. Our Jennie-O Turkey Store segment benefitted from reduced production levels and lower input costs. A return to positive earnings comparisons by our Specialty Foods and All Other segments, lower freight and warehouse expenses across all of our business segments and improved investment income results also contributed to our strong earnings results,” explained Ettinger.

“Although we are pleased with our earnings, we experienced disappointing sales in the fourth quarter. The decline in sales was attributable in part to lower commodity costs reflected in lower pricing in our pork and turkey complex, planned production reductions at Jennie-O Turkey Store, product rationalizations and some difficult comparisons from the prior year. In addition, we were also faced with a continued weak consumer environment that hampered sales efforts during the quarter,” Ettinger remarked.

“For the full year, earnings per share grew 22 percent on a 3 percent reduction in sales. Four of our five segments posted increased segment operating profits over a year ago, and total operating profits increased 7 percent from a year ago,” stated Ettinger.

“This morning, we announced an $.08 per share increase to our annual dividend rate (or 10.5%), making the new dividend $.84 per share. This is the 44th consecutive year in which we’ve increased our dividend,” Ettinger concluded.

SEGMENT OPERATING HIGHLIGHTS – FOURTH QUARTER

Grocery Products (14% of Net Sales, 27% of Total Segment Operating Profit)
The Grocery Products segment achieved strong segment profit results with an increase of 12 percent from 2008, as a result of favorable raw material and freight and warehouse variances. Strong sales of Hormelchili also contributed to the segment profit increase. Sales declined as a result of a continued difficult consumer environment, particularly in the microwave product lines. The discontinued Carapelli joint venture comprised about a quarter of the sales decline, and increased promotional spending, difficult comparisons from a year ago and some product rationalization also contributed to the sales decline.

Refrigerated Foods (51% of Net Sales, 41% of Total Segment Operating Profit)
Refrigerated Foods delivered another excellent quarter, with segment operating profit up 23 percent versus last year. Unfavorable spreads between hog costs and primal values were more than offset by a better product mix in both our Meat Products and Foodservice business units, as well as strong sales of such products as Hormel pepperoni,Lloyd’s barbeque products, and the DiLusso Deli Company product lines. Sales were softer overall, reflecting a weak foodservice sales environment and reduced prices of commodity pork, hams and bacon.

Jennie-O Turkey Store (20% of Net Sales, 14% of Total Segment Operating Profit)
Total segment profit for Jennie-O Turkey Store improved 6 percent from last year. Lower feed expenditures due to the planned reduction of turkey production helped boost their segment profit. The reduced production helped offset continued low commodity meat prices, by reducing our exposure to those markets. Sales of value-added products were constrained by challenging market conditions.

Specialty Foods (11% of Net Sales, 12% of Total Segment Operating Profit)
Segment operating profit for Specialty Foods was up 9 percent, on mixed results within the segment. Strong private label performance by the Specialty Products business more than offset weak sales of nutritional and ready-to-drink products by Century Foods International.

All Other (4% of Net Sales, 6% of Total Segment Operating Profit)
The All Other segment, which includes Hormel Foods International, surpassed last year’s segment profit by 53 percent. Profit improvement was achieved due to lower raw material and freight expenses, along with improved currency conditions. Export markets remained challenging due to the continuing weak global economy.
Net Interest and Investment Income

Net interest and investment income improved $22.9 million from last year due to the significantly improved investment results of the company’s rabbi trust investments.

General Corporate Expense
During the quarter, general corporate expenses were higher than last year due to higher employee compensation plan costs.

OUTLOOK
“Having returned to more normal earnings growth levels this year, we are confident in our ability to continue to enhance our bottom line. We intend to tackle the challenge of a continued weak economy and reduced consumer spending, and expect to restore top-line growth on an annualized basis in 2010. After assessing the important factors affecting our business for the upcoming year, we are setting our fiscal 2010 guidance range at $2.63 to $2.73 per share,” stated Ettinger.

DIVIDENDS
Effective November 15, 2009, the Company paid its 325th consecutive quarterly dividend, at the then annual rate of $.76.

CONFERENCE CALL
A conference call will be Webcast at 8:30 a.m. CT on Tuesday, November 24, 2009. 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 877-941-6009 and you must provide the access code of 4173819. An audio replay is available by calling 800-406-7325 and entering access code 4173819. The audio replay will be available beginning at 10:30 a.m. CT on Tuesday, November 24, 2009, through 11:59 p.m. CT on December 8, 2009. The Webcast replay will be available at 10:30 a.m. CT, Tuesday, November 24, 2009, and archived for one year.

Statements Follow
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Segment Data
Fiscal 2009 Fourth Quarter Segment Operating Results (in Thousands)
FOURTH QUARTER – 13 WEEKS ENDED

NET SALES October 25, 2009 October 26, 2008 % Change
Grocery Products $ 232,043 $ 263,383 (11.9)
Refrigerated Foods 857,178 941,413 (8.9)
Jennie-O Turkey Store 337,544 374,132 (9.8)
Specialty Foods 189,051 214,337 (11.8)
All Other 59,286 68,247 (13.1)
Total $ 1,675,102 $ 1,861,512 (10.0)

OPERATING PROFIT
Grocery Products $ 46,004 $ 40,939 12.4
Refrigerated Foods 70,440 57,199 23.1
Jennie-O Turkey Store 25,062 23,716 5.7
Specialty Foods 21,247 19,423 9.4
All Other 9,695 6,348 52.7
Total segment
operating profit 172,448 147,625 16.8
Net interest and
investment income (4,481) (27,387) 83.6
General corporate
expense (10,294) (3,517) (192.7)
Earnings before income taxes $ 157,673 $ 116,721 35.1
YEAR TO DATE – 52 WEEKS ENDED

NET SALES October 25, 2009 October 26, 2008 % Change
Grocery Products $ 924,682 $ 947,184 (2.4)
Refrigerated Foods 3,436,242 3,521,672 (2.4)
Jennie-O Turkey Store 1,227,709 1,268,002 (3.2)
Specialty Foods 708,730 777,659 (8.9)
All Other 236,308 240,386 (1.7)
Total $ 6,533,671 $ 6,754,903 (3.3)

OPERATING PROFIT
Grocery Products $162,531 $148,768 9.3
Refrigerated Foods 226,171 211,961 6.7
Jennie-O Turkey Store 86,909 78,306 11.0
Specialty Foods 68,484 70,124 (2.3)
All Other 27,631 27,001 2.3
Total segment
operating profit 571,726 536,160 6.6
Net interest and
investment income (8,432) (56,125) 85.0
General corporate
expense (38,312) (22,499) (70.3)
Earnings before income taxes $ 524,982 $ 457,536 14.7
HORMEL FOODS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)

Thirteen Weeks Ended Fifty-Two Weeks Ended
10-25-2009 10-26-2008* 10-25-2009 10-26-2008*

Net sales $ 1,675,102 $ 1,861,512 $ 6,533,671 $ 6,754,903

Cost of products sold 1,370,908 1,585,272 5,434,800 5,692,974

GROSS PROFIT: 304,194 276,240 1,098,871 1,061,929

Selling, general and administrative 142,704 132,936 567,085 552,503

Equity in earnings of affiliates 664 804 1,628 4,235

OPERATING INCOME: 162,154 144,108 533,414 513,661

Other income & expenses:
Interest & investment income (loss) 2,178 (19,963) 19,563 (28,102)

Interest
expense (6,659) (7,424) (27,995) (28,023)

EARNINGS BEFORE
INCOME TAXES: 157,673 116,721 524,982 457,536

Provision for income taxes 53,797 48,910 182,169 172,036
(effective tax
rate) 34.12% 41.90% 34.70% 37.60%

NET EARNINGS $ 103,876 $ 67,811 $ 342,813 $ 285,500

NET EARNINGS PER SHARE
Basic $ .78 $ .50 $ 2.55 $ 2.11
Diluted $ .77 $ .50 $ 2.53 $ 2.08

WEIGHTED AVG SHARES OUT
Basic 134,003 134,693 134,227 135,360
Diluted 135,702 136,172 135,489 137,128

DIVIDENDS DECLARED
PER SHARE $ .190 $ .185 $ .760 $ .740

* Includes retrospective reclassification of shipping and handling expenses to cost of products sold from selling, general and administrative.

HORMEL FOODS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

October 25, 2009 October 26, 2008
(In Thousands)
ASSETS

CURRENT ASSETS
Cash and cash equivalents $ 385,252 $ 154,778
Accounts receivable 372,292 411,010
Inventories 722,371 784,542
Deferred income taxes 66,435 45,948
Prepaid expenses 9,130 11,451
Other current assets 19,253 30,449

TOTAL CURRENT ASSETS 1,574,733 1,438,178

INTANGIBLES 761,009 770,544

OTHER ASSETS 403,600 430,092

PROPERTY, PLANT & EQUIPMENT, NET 952,713 977,657

TOTAL ASSETS $3,692,055 $3,616,471

LIABILITIES AND SHAREHOLDERS’ INVESTMENT

TOTAL CURRENT LIABILITIES $ 685,029 $ 781,233

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

OTHER LONG-TERM LIABILITIES 533,574 477,666

SHAREHOLDERS’ INVESTMENT 2,123,452 2,007,572

TOTAL LIAB. & SHAREHOLDERS’ INVESTMENT $3,692,055 $3,616,471
HORMEL FOODS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Fifty-Two Weeks Ended
10-25-2009 10-26-2008
OPERATING ACTIVITIES (In Thousands)
Net earnings $ 342,813 $ 285,500
Depreciation and amortization of
intangibles 127,138 126,189
Decrease (Increase) in working capital 82,199 (162,169)
Other (1,381) 22,102
NET CASH PROVIDED BY OPERATING ACTIVITIES 550,769 271,622

INVESTING ACTIVITIES
Net sale (purchase) of available-for-sale
securities 3,899 (3,899)
Acquisitions of businesses/intangibles (701) (27,225)
Net purchases of property / equipment (91,958) (122,705)
Decrease (Increase) in investments,
equity in affiliates, and other assets 3,532 (1,366)
Dividends from affiliates 0 970
NET CASH USED IN INVESTING ACTIVITIES (85,228) (154,225)

FINANCING ACTIVITIES
Net (payments on) proceeds from debt (100,000) 29,946
Dividends paid on common stock (101,376) (95,531)
Share repurchase (38,147) (69,551)
Other 4,456 22,768
NET CASH USED IN FINANCING ACTIVITIES (235,067) (112,368)
INCREASE IN CASH AND CASH EQUIVALENTS 230,474 5,029
Cash and cash equivalents at beginning of year 154,778 149,749
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 385,252 $ 154,778