Hormel Foods Reports Second Quarter Results

HIGHLIGHTS
• Diluted EPS of $.59, up 5 percent from $.56 per share in 2008
• Segment operating profit up 2 percent from last year
• Dollar sales of $1.6 billion, even with 2008
• Volume down 2 percent from 2008 (down 3 percent excluding acquisitions)
• Grocery Products operating profit up 5 percent; volume up 2 percent; dollar sales up 4 percent
• Refrigerated Foods operating profit down 7 percent; volume down 2 percent; dollar sales even with last year
• Jennie-O Turkey Store operating profit up 42 percent; volume down 4 percent; dollar sales down 1 percent
• Specialty Foods operating profit down 1 percent; volume down 7 percent (down 11 percent excluding acquisitions); dollar sales down 5 percent (down 8 percent excluding acquisitions)
• All Other operating profit down 14 percent; volume up 9 percent; dollar sales up 3 percent

The company reported fiscal 2009 second quarter net earnings of $80.4 million, up 4 percent from earnings of $77.6 million a year earlier. Diluted earnings per share for the quarter were $.59 this year compared to $.56 per share last year and sales totaled $1.6 billion, even with fiscal 2008. For the six months ended April 26, 2009, net earnings were $161.8 million, or $1.20 per diluted share, the latter of which was even with last year. Sales totaled $3.3 billion, up 2 percent, from $3.2 billion in the same period last year.

COMMENTARY
“We are pleased to report record earnings for the quarter. Our Grocery Products segment again delivered increases in sales and segment profit, with strong sales of canned meats and Mexican products. Our Jennie-O Turkey Store segment continues to rebound, despite difficult market conditions, as they were faced with even lower commodity meat prices than in the first quarter,” said Jeffrey M. Ettinger, chairman of the board, president and chief executive officer.

“Our Refrigerated Foods segment experienced another difficult quarter, as continued weak cut-out margins led to losses in our pork operations. The overall weakness in this segment masked a very strong performance by our Meat Products group, which achieved high single-digit sales increases of its branded portfolio of products. Our Specialty Foods segment was essentially flat, while our All Other segment had weaker results,” remarked Ettinger.

“We have seen a continuation of some of the same trends we saw in the first quarter, as consumers seek value in retail channels while foodservice sales remain soft. Unlike the first quarter, however, we have seen improvement in sales of some of our convenience items, including our refrigerated entrees and our COMPLEATS microwave meals,” commented Ettinger.

SEGMENT OPERATING HIGHLIGHTS – SECOND QUARTER
Grocery Products (15% of Net Sales, 33% of Total Segment Operating Profit)
The Grocery Products segment completed a strong quarter with sales up 4 percent and segment operating profit up 5 percent compared to last year. Sales were strong for the SPAM family of products, DINTY MOORE stews and Mexican products. These products created strong consumer demand because of their great value proposition.

Refrigerated Foods (52% of Net Sales, 39% of Total Segment Operating Profit)
Segment operating profit was down 7 percent compared to a year ago, due to the difficult spreads between hog costs and primal values. The Meat Products business unit performed well, with sales of NATURAL CHOICE lunch meats, HORMEL Party Trays and the Di Lusso Deli Company products all up double digits, among others. Foodservice sales were soft for the quarter, reflecting the continued softness in the economy as a whole.

Jennie-O Turkey Store (18% of Net Sales, 13% of Total Segment Operating Profit)
Jennie-O Turkey Store achieved an outstanding 42 percent increase in segment operating profit. Lower feed expenditures due to a planned reduction of turkey production, as well as a reduced cost per ton, were the primary drivers of the improved profitability. The reduced production has helped offset the challenge of lower commodity meat prices, by minimizing our exposure to those markets.

Specialty Foods (11% of Net Sales, 11% of Total Segment Operating Profit)
Segment operating profit for Specialty Foods was down 1 percent, reflecting mixed results within the segment. Diamond Crystal Brands finished a strong quarter with increased sales of sugar substitutes and liquid portion products. Hormel Specialty Products realized solid growth in private label canned products. However, sales by these businesses were unable to completely offset decreased sales of nutritional and ready-to-drink products at Century Foods International.

All Other (4% of Net Sales, 4% of Total Segment Operating Profit)
The All Other segment, which includes Hormel Foods International, experienced a 14 percent decline in segment profit. Export sales of the SPAM family of products and fresh pork continued their strong momentum from the first quarter, but were unable to completely offset currency headwinds and weak results experienced by our joint ventures.

Net Interest and Investment Income
Net interest and investment income was higher than last year due to the favorable returns on the rabbi trust investments and a $3.6 million gain on the dissolution of the Carapelli joint venture.

General Corporate Expense
General corporate expenses increased from last year due to increased medical expenses.

OUTLOOK
“As a result of our better-than-expected first half, we now anticipate full year results in the upper end of our previously announced guidance range of $2.15 to $2.25 per share. Despite potential on-going challenges, which could include continued negative cutout margins, export market issues and commodity cost pressures, we believe our strong portfolio of branded products, with many good value offerings, and the strength of our management team, will lead to a solid performance this year,” concluded Ettinger.

DIVIDENDS
Effective May 15, 2009, the Company paid its 323rd consecutive quarterly dividend. The annual rate is $.76.

CONFERENCE CALL
A conference call will be Webcast at 8:30 a.m. CT on Thursday, May 21, 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 800-762-8779 and you must provide the access code of 4063374. An audio replay is available by calling 800-406-7325 and entering access code 4063374. The audio replay will be available beginning at 10:30 a.m. CT on Thursday, May 21, 2009, through 11:59 p.m. CT on Thursday, June 4, 2009. The Webcast replay will be available at 10:30 a.m. CT, Thursday, May 21, 2009, and archived for one year.
ABOUT HORMEL FOODS CORPORATION

Statements Follow
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Segment Data
Fiscal 2009 Second Quarter Segment Operating Results (in Thousands)

SECOND QUARTER – 13 WEEKS ENDED

NET SALES April 26, 2009 April 27, 2008 % Change
Grocery Products $ 241,684 $ 233,464 3.5
Refrigerated Foods 834,062 831,821 0.3
Jennie-O Turkey Store 289,745 291,889 (0.7)
Specialty Foods 173,586 182,534 (4.9)
All Other 55,966 54,376 2.9
Total $ 1,595,043 $ 1,594,084 0.1

OPERATING PROFIT
Grocery Products $ 43,677 $ 41,611 5.0
Refrigerated Foods 51,695 55,625 (7.1)
Jennie-O Turkey Store 16,678 11,708 42.4
Specialty Foods 15,432 15,513 (0.5)
All Other 5,027 5,843 (14.0)
Total segment
operating profit 132,509 130,300 1.7
Net interest and
investment income 1,666 (3,176) 152.5
General corporate
expense (9,547) (5,747) (66.1)
Earnings before income taxes $ 124,628 $ 121,377 2.7

YEAR TO DATE – 26 WEEKS ENDED

NET SALES April 26, 2009 April 27, 2008 % Change
Grocery Products $ 483,627 $ 460,879 4.9
Refrigerated Foods 1,731,486 1,689,281 2.5
Jennie-O Turkey Store 594,784 583,338 2.0
Specialty Foods 352,476 371,321 (5.1)
All Other 121,756 110,430 10.3
Total $ 3,284,129 $ 3,215,249 2.1

OPERATING PROFIT
Grocery Products $ 83,312 $ 77,980 6.8
Refrigerated Foods 97,440 118,431 (17.7)
Jennie-O Turkey Store 45,927 46,512 (1.3)
Specialty Foods 30,749 33,806 (9.0)
All Other 13,272 14,868 (10.7)
Total segment operating
profit 270,700 291,597 (7.2)
Net interest and
investment income (3,398) (14,834) 77.1
General corporate
expense (18,044) (16,075) (12.2)
Earnings before income taxes $ 249,258 $ 260,688 (4.4)

HORMEL FOODS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)

Thirteen Weeks Ended Twenty-Six Weeks Ended
4-26-2009 4-27-2008* 4-26-2009 4-27-2008*

Net sales $ 1,595,043 $ 1,594,084 $ 3,284,129 $ 3,215,249

Cost of products sold 1,333,005 1,330,132 2,749,776 2,658,606

GROSS PROFIT: 262,038 263,952 534,353 556,643

Selling,
general and
administrative 139,846 140,220 282,371 284,311

Equity in
earnings of
affiliates 770 821 674 3,190

OPERATING INCOME: 122,962 124,553 252,656 275,522

Other income & expenses:
Interest &
investment
income (loss) 8,584 3,253 10,975 (1,685)

Interest
expense (6,918) (6,429) (14,373) (13,149)

EARNINGS BEFORE
INCOME TAXES: 124,628 121,377 249,258 260,688

Provision for income taxes 44,243 43,816 87,490 94,946
(effective tax rate) 35.50% 36.10% 35.10% 36.42%

NET EARNINGS $ 80,385 $ 77,561 $ 161,768 $ 165,742

NET EARNINGS PER SHARE
Basic $ .60 $ .57 $ 1.20 $ 1.22
Diluted $ .59 $ .56 $ 1.20 $ 1.20

WEIGHTED AVG SHARES OUT
Basic 134,272 135,652 134,325 135,679
Diluted 135,373 137,620 135,268 137,643

DIVIDENDS DECLARED
PER SHARE $ .190 $ .185 $ .380 $ .370
* 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
April 26, 2009 October 26, 2008
(In Thousands)
ASSETS

CURRENT ASSETS
Cash and cash equivalents $ 312,331 $ 154,778
Accounts receivable 344,925 411,010
Inventories 748,178 784,542
Deferred income taxes 47,565 45,948
Prepaid expenses & other current
assets 33,297 41,900

TOTAL CURRENT ASSETS 1,486,296 1,438,178

INTANGIBLES 765,752 770,544

OTHER ASSETS 417,741 430,092

PROPERTY, PLANT & EQUIPMENT, NET 963,979 977,657

TOTAL ASSETS $3,633,768 $3,616,471

LIABILITIES AND SHAREHOLDERS’ INVESTMENT

TOTAL CURRENT LIABILITIES $ 695,660 $ 781,233

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

OTHER LONG-TERM LIABILITIES 482,592 477,666

SHAREHOLDERS’ INVESTMENT 2,105,516 2,007,572

TOTAL LIAB. & SHAREHOLDERS’
INVESTMENT $3,633,768 $3,616,471
HORMEL FOODS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Twenty-Six Weeks Ended
4-26-2009 4-27-2008
OPERATING ACTIVITIES (In Thousands)
Net earnings $ 161,768 $ 165,742
Depreciation and amortization of
intangibles 62,494 63,971
Decrease (Increase) in working capital 42,982 (103,079)
Other (8,292) (6,859)
NET CASH PROVIDED BY OPERATING ACTIVITIES 258,952 119,775

INVESTING ACTIVITIES
Net sale (purchase) of available-for-sale
securities 3,899 (8,899)
Acquisitions of businesses/intangibles (580) (3,920)
Net purchases of property / equipment (43,804) (66,337)
(Increase) Decrease in investments,
equity in affiliates, and other assets
(1,581)
7,700
NET CASH USED IN INVESTING ACTIVITIES (42,066) (71,456)

FINANCING ACTIVITIES
Net payments on debt 0 (45,054)
Dividends paid on common stock (50,376) (45,469)
Share repurchase (10,375) (21,927)
Other 1,418 21,538
NET CASH USED IN FINANCING ACTIVITIES (59,333) (90,912)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
157,553
(42,593)
Cash and cash equivalents at beginning of year 154,778 149,749
CASH AND CASH EQUIVALENTS AT END OF QUARTER $ 312,331 $ 107,156