Hormel Foods Reports Third Quarter Results

HIGHLIGHTS
• Diluted EPS of $.57, up 50 percent from $.38 per share in 2008
• Segment operating profit up 33 percent from last year
• Dollar sales of $1.57 billion, decreased 6 percent from 2008
• Volume down 4 percent from 2008
• Grocery Products operating profit up 11 percent; volume down 8 percent; dollar sales down 6 percent
• Refrigerated Foods operating profit up 60 percent; volume down 1 percent; dollar sales down 5 percent
• Jennie-O Turkey Store operating profit up 97 percent; volume down 2 percent; dollar sales down 5 percent
• Specialty Foods operating profit down 2 percent; volume down 13 percent (down 16 percent excluding acquisitions); dollar sales down 13 percent (down 15 percent excluding acquisitions)
• All Other operating profit down 19 percent; volume down 4 percent; dollar sales down 10 percent
• Net Interest and Investment Income improved significantly due to gains in the rabbi trust investments versus losses a year ago.

The company reported fiscal 2009 third quarter net earnings of $77.2 million, up 49 percent from earnings of $51.9 million a year earlier. Diluted earnings per share for the quarter were $.57 this year compared to $.38 per share last year. Sales totaled $1.6 billion, which were down 6 percent from fiscal 2008. For the nine months ending July 26, 2009, net earnings were $238.9 million, or $1.76 per diluted share, up from $1.58 a year earlier. Sales totaled $4.9 billion, which are even with last year.

COMMENTARY
“We are pleased to report improved operating segment results for the quarter. Our Refrigerated Foods segment rebounded to post higher earnings on an enhanced sales mix and lower costs, despite weak cutout margins during much of the quarter. Our Jennie-O Turkey Store segment also showed continued improvement in the quarter,” said Jeffrey M. Ettinger, chairman of the board, president and chief executive officer.

“Our Grocery Products segment had another solid quarter, as increased sales of canned items more than offset the impact of discontinued sales of olive oil and soft sales of microwave products. Our Specialty Foods and All Other segments had weaker results,” Ettinger remarked.

“Sales and volumes were down overall, as we made intentional reductions to our turkey production and the effects of the economy took their toll on certain portions of the business,” Ettinger commented.

SEGMENT OPERATING HIGHLIGHTS – THIRD QUARTER
Grocery Products (13% of Net Sales, 26% of Total Segment Operating Profit)
The Grocery Products segment reported another good quarter with segment operating profit up 11 percent. Strong sales of the SPAM family of products, HORMEL chili and HERDEZ products more than offset the impact of soft sales of our microwaveable products. Excluding sales of the recently discontinued Carapelli joint venture products, net sales for the Grocery Products segment were even with last year.

Refrigerated Foods (54% of Net Sales, 45% of Total Segment Operating Profit)
The Refrigerated Foods segment completed an outstanding quarter, with segment operating profits up 60 percent from last year, when primal values were exceptionally high, due to strong export demand. Sales of our retail value-added offerings such as HORMEL Pepperoni,HORMEL Party Trays and the DiLusso Deli Company products more than offset the impact of a challenging pork environment. Foodservice sales continued to be soft, reflecting a weak travel and recreation environment and a continued decline in the restaurant trade.

Jennie-O Turkey Store (19% of Net Sales, 12% of Total Segment Operating Profit)
Total segment operating profit for Jennie-O Turkey Store improved 97 percent from last year’s tough third quarter. Lower feed expenditures due to the planned reduction of turkey production and a reduced cost per ton, were the primary drivers of the improved profitability. The reduced production helped offset the continued challenge of low commodity meat prices, by reducing our exposure to those markets.

Specialty Foods (11% of Net Sales, 13% of Total Segment Operating Profit)
Segment operating profit for Specialty Foods was down 2 percent, reflecting mixed results within the segment. Diamond Crystal Brands showed improved results due to strong sales of nutritional products. However, these results were not sufficient to overcome weak sales of nutritional and ready-to-drink products at Century Foods International.

All Other (3% of Net Sales, 4% of Total Segment Operating Profit)
The All Other segment, which includes Hormel Foods International, experienced a 19 percent decline in segment operating profit. Continued currency headwinds and difficult export markets led to the weaker results.

Net Interest and Investment Income
Net interest and investment income for the quarter was significantly improved versus last year due primarily to more favorable returns on the rabbi trust investments.

General Corporate Expense
General corporate expenses increased from last year due to higher medical expenses and increased employee incentive plan costs.

OUTLOOK
“As a result of our strong third quarter results, we anticipate full year results in our recently announced range of $2.36 to $2.42 per share. Although we are faced with challenges including the weak economy, a continued excess supply of commodity turkey meat, and difficult export markets, our balanced business model, continued strength in our core franchise products, and our very committed team should allow us to deliver an excellent year,” Ettinger concluded.

DIVIDENDS
Effective July 15, 2009, the Company paid its 324th consecutive quarterly dividend. The annual rate is $.76.

CONFERENCE CALL
A conference call will be Webcast at 8:30 a.m. CT on Thursday, August 20, 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 866-225-8754 and you must provide the access code of 4114856. An audio replay is available by calling 800-406-7325 and entering access code 4114856. The audio replay will be available beginning at 10:30 a.m. CT on Thursday, August 20, 2009, through 11:59 p.m. CT on Thursday, September 3, 2009. The Webcast replay will be available at 10:30 a.m. CT, Thursday, August 20, 2009, and archived for one year.

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

THIRD QUARTER – 13 WEEKS ENDED

NET SALES July 26, 2009 July 27, 2008 % Change
Grocery Products $ 209,012 $ 222,922 (6.2)
Refrigerated Foods 847,578 890,978 (4.9)
Jennie-O Turkey Store 295,381 310,532 (4.9)
Specialty Foods 167,203 192,001 (12.9)
All Other 55,266 61,709 (10.4)
Total $ 1,574,440 $ 1,678,142 (6.2)

OPERATING PROFIT
Grocery Products $ 33,215 $ 29,849 11.3
Refrigerated Foods 58,291 36,331 60.4
Jennie-O Turkey Store 15,920 8,078 97.1
Specialty Foods 16,488 16,895 (2.4)
All Other 4,664 5,785 (19.4)
Total segment operating
profit 128,578 96,938 32.6
Net interest and
investment income (553) (13,904) 96.0
General corporate
expense (9,974) (2,907) (243.1)
Earnings before income taxes $ 118,051 $ 80,127 47.3

YEAR TO DATE – 39 WEEKS ENDED

NET SALES July 26, 2009 July 27, 2008 % Change
Grocery Products $ 692,639 $ 683,801 1.3
Refrigerated Foods 2,579,064 2,580,259 (0.0)
Jennie-O Turkey Store 890,165 893,870 (0.4)
Specialty Foods 519,679 563,322 (7.7)
All Other 177,022 172,139 2.8
Total $ 4,858,569 $ 4,893,391 (0.7)
OPERATING PROFIT
Grocery Products $ 116,527 $ 107,829 8.1
Refrigerated Foods 155,731 154,762 0.6
Jennie-O Turkey Store 61,847 54,590 13.3
Specialty Foods 47,237 50,701 (6.8)
All Other 17,936 20,653 (13.2)
Total segment operating
profit 399,278 388,535 2.8
Net interest and
investment income (3,951) (28,738) 86.3
General corporate
expense (28,018) (18,982) (47.6)
Earnings before income taxes $ 367,309 $ 340,815 7.8
HORMEL FOODS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)

Thirteen Weeks Ended Thirty-Nine Weeks Ended
7-26-2009 7-27-2008* 7-26-2009 7-27-2008*

Net sales $ 1,574,440 $ 1,678,142 $ 4,858,569 $ 4,893,391

Cost of products sold 1,314,116 1,449,096 4,063,892 4,107,702

GROSS PROFIT: 260,324 229,046 794,677 785,689

Selling,
general and
administrative 142,010 135,256 424,381 419,567

Equity in
earnings of
affiliates 290 241 964 3,431

OPERATING INCOME: 118,604 94,031 371,260 369,553

Other income & expenses:
Interest &
investment
income (loss) 6,410 (6,454) 17,385 (8,139)

Interest
expense (6,963) (7,450) (21,336) (20,599)

EARNINGS BEFORE
INCOME TAXES: 118,051 80,127 367,309 340,815

Provision for income taxes 40,882 28,180 128,372 123,126
(effective tax
rate) 34.63% 35.17% 34.95% 36.13%

NET EARNINGS $ 77,169 $ 51,947 $ 238,937 $ 217,689

NET EARNINGS PER SHARE
Basic $ .57 $ .38 $ 1.78 $ 1.61
Diluted $ .57 $ .38 $ 1.76 $ 1.58

WEIGHTED AVG SHARES OUT
Basic 134,255 135,391 134,301 135,583
Diluted 135,720 137,055 135,419 137,447

DIVIDENDS DECLARED
PER
SHARE $ .190 $ .185 $ .570 $ .555
* 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
July 26, 2009 October 26, 2008
(In Thousands)
ASSETS

CURRENT ASSETS
Cash and cash equivalents $ 295,100 $ 154,778
Accounts receivable 355,408 411,010
Inventories 744,667 784,542
Federal income taxes 7,009 0
Deferred income taxes 47,343 45,948
Prepaid expenses & other current
assets 30,924 41,900

TOTAL CURRENT ASSETS 1,480,451 1,438,178

INTANGIBLES 763,254 770,544

OTHER ASSETS 474,328 430,092

PROPERTY, PLANT & EQUIPMENT, NET 958,697 977,657

TOTAL ASSETS $3,676,730 $3,616,471
LIABILITIES AND SHAREHOLDERS’ INVESTMENT

TOTAL CURRENT LIABILITIES $ 679,835 $ 781,233

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

OTHER LONG-TERM LIABILITIES 480,492 477,666

SHAREHOLDERS’ INVESTMENT 2,166,403 2,007,572

TOTAL LIAB. &
SHAREHOLDERS’ INVESTMENT $3,676,730 $3,616,471

HORMEL FOODS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Thirty-Nine Weeks Ended
7-26-2009 7-27-2008
OPERATING ACTIVITIES (In Thousands)
Net earnings $ 238,937 $ 217,689
Depreciation and amortization of
intangibles 94,074 95,114
Decrease (Increase) in working capital 6,679 (126,248)
Other (12,566) (3,124)
NET CASH PROVIDED BY OPERATING ACTIVITIES 327,124 183,431

INVESTING ACTIVITIES
Net sale (purchase) of available-for-sale
securities 3,899 (8,899)
Acquisitions of businesses/intangibles (701) (27,175)
Net purchases of property / equipment (67,721) (94,027)
Decrease in investments, equity in
affiliates, and other assets 4,283 4,902
Dividends from affiliates 0 970
NET CASH USED IN INVESTING ACTIVITIES (60,240) (124,229)

FINANCING ACTIVITIES
Net (payments on) proceeds from debt (40,000) 4,946
Dividends paid on common stock (75,880) (70,585)
Share repurchase (13,876) (56,472)
Other 3,194 23,147
NET CASH USED IN FINANCING ACTIVITIES (126,562) (98,964)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
140,322
(39,762)
Cash and cash equivalents at beginning of year 154,778 149,749
CASH AND CASH EQUIVALENTS AT END OF QUARTER $ 295,100 $ 109,987