Hormel Foods Reports Record Third Quarter Results

AUSTIN, Minn.--(BUSINESS WIRE)--

Hormel Foods Corporation HRL today reported its performance for the fiscal year 2014 third quarter. All comparisons are to the third quarter of fiscal 2013.

HIGHLIGHTS

Third Quarter

• Record diluted EPS of $0.51, up 21 percent from $0.42 per share
• Segment operating profit increased 23 percent
• Record dollar sales of $2.3 billion, up 6 percent; volume down 1 percent
• Grocery Products operating profit down 36 percent; volume down 3 percent; dollar sales down 3 percent
• Refrigerated Foods operating profit up 101 percent; volume flat; dollar sales up 12 percent
• Jennie-O Turkey Store operating profit up 42 percent; volume down 2 percent; dollar sales up 4 percent
• Specialty Foods operating profit down 25 percent; volume down 9 percent; dollar sales down 10 percent
• International & Other operating profit up 12 percent; volume up 12 percent; dollar sales up 18 percent

The company reported record fiscal 2014 third quarter net earnings of $138.0 million, up 21 percent from net earnings of $113.6 million a year earlier. Diluted earnings per share for the quarter were $0.51, up 21 percent compared to $0.42 last year. Sales for the quarter were $2.3 billion, up 6 percent from the same period in fiscal 2013.

COMMENTARY

“Our team was able to achieve another quarter of record sales and earnings, with sales up 6% and earnings per share up 21% versus the same quarter a year ago,” said Jeffrey M. Ettinger, chairman of the board, president and chief executive officer.

“Strong demand for pork and turkey, and increased sales of value-added products in our Refrigerated Foods, Jennie-O Turkey Store and International & Other segments more than offset a challenging quarter for our Grocery Products and Specialty Foods segments,” commented Ettinger. “Our balanced model continues to support consistent revenue and earnings growth.”

SEGMENT OPERATING HIGHLIGHTS – THIRD QUARTER

Grocery Products (16% of Net Sales, 15% of Total Segment Operating Profit)
Grocery Products operating profit decreased 36 percent and total segment sales decreased 3 percent, as our core canned meat and microwave meal franchises were impacted by unusually high input costs and related pricing actions taken earlier this year. SKIPPY^® peanut butter, HORMEL^® bacon toppings and the HERDEZ^® line of products within our MegaMex Foods joint venture delivered volume growth.

Refrigerated Foods (52% of Net Sales, 40% of Total Segment Operating Profit)
Refrigerated Foods segment profit increased 101 percent, and sales increased 12 percent. Results were driven by strong pork operating margins and growth of retail and foodservice value-added products. BLACK LABEL^® bacon, HORMEL^® REV^® snack wraps, LLOYD'S^® ribs and HORMEL^® FIRE BRAISED^TM meats experienced sales growth.

Jennie-O Turkey Store (17% of Net Sales, 29% of Total Segment Operating Profit)
Jennie-O Turkey Store segment profit increased 42 percent this quarter and sales were up 4 percent. Increased sales of value-added products along with strong commodity turkey prices and lower feed costs more than offset lower live production performance and higher fuel expenses as the last winter flocks moved through our system this quarter. JENNIE-O^® ground turkey and JENNIE-O^® deli products contributed to sales growth during the quarter.

Specialty Foods (9% of Net Sales, 8% of Total Segment Operating Profit)
The Specialty Foods segment posted operating profits 25 percent lower than last year with a 10 percent decrease in sales. As expected, lower segment results were largely due to the July 2013 expiration of the agreement allowing Diamond Crystal Brands to sell certain sugar substitutes into foodservice trade channels.

International & Other (6% of Net Sales, 8% of Total Segment Operating Profit)
The International & Other segment reported profits up 12 percent and a sales increase of 18 percent. Results were driven by strong growth in our China pork foodservice sales along with the addition of SKIPPY^® peanut butter in China. SPAM^® luncheon meat exports were impacted by high input costs.

OUTLOOK

“Heading into the fourth quarter we will build on the momentum of SKIPPY^® peanut butter and HORMEL^® REV^® snack wraps with advertising campaigns during the back-to-school season,” commented Ettinger. “We are excited to enhance our portfolio of leading brands with the addition of MUSCLE MILK^® premium protein products in the high-growth sports nutrition category.”

“We anticipate a strong finish to the year from our Jennie-O Turkey Store segment, aided by beneficial grain markets and growing value-added sales, and from our International & Other and Specialty Foods segments,” remarked Ettinger. “The impact of cost pressures in our Grocery Products segment is likely to continue in the fourth quarter, and pork operating margins are not expected to be as beneficial to Refrigerated Foods. Taking all of these factors into account, we expect to finish fiscal 2014 within our previously stated guidance range of $2.17 to $2.27 per share,” stated Ettinger.

DIVIDENDS

Effective August 15, 2014, the company paid its 344th consecutive quarterly dividend, at the annual rate of $0.80.

CONFERENCE CALL

A conference call will be webcast at 8:00 a.m. CT on Thursday, August 21, 2014. Access is available at www.hormelfoods.com. The call will also be accessible via telephone by dialing 888-329-8877 and providing the access code 2700055. An audio replay is available by calling 888-203-1112 and entering access code 2700055. The audio replay will be available beginning at 11:00 a.m. CT on Thursday, August 21, 2014, through 11:00 a.m. CT on September 4, 2014. The Webcast replay will be available at 11:00 a.m. CT, Thursday, August 21, 2014, and archived for one year.

About Hormel Foods

Hormel Foods Corporation, based in Austin, Minn., is a multinational manufacturer and marketer of consumer-branded food and meat products, many of which are among the best known and trusted in the food industry. The company leverages its extensive expertise, innovation and high competencies in pork and turkey processing and marketing to bring branded, value-added products to the global marketplace. The company is a member of the Standard & Poor's (S&P) 500 Index, S&P 500 Dividend Aristocrats for 2014, was named the 2013 Sustainable Supply Chain of the Year by Refrigerated & Frozen Foods magazine, and was again named one of “The 100 Best Corporate Citizens” by Corporate Responsibility Magazine for the sixth year in a row. Hormel Foods was recognized on the G.I. Jobs magazine list of America's Top 100 Military Friendly Employers in 2012 and 2013, and named one of the 2014 40 Best Companies for Leaders by Chief Executive magazine. The company enjoys a strong reputation among consumers, retail grocers, foodservice and industrial customers for products highly regarded for quality, taste, nutrition, convenience and value. For more information, visit www.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 on pages 32 - 38 in the company's Form 10Q for the quarter ended April 27, 2014, which can be accessed at www.hormelfoods.com under “Investors-SEC Filings.”

Segment Data
Fiscal 2014 Third Quarter Segment Operating Results (dollars in thousands)
			THIRD QUARTER – 13 WEEKS ENDED
NET SALES			July 27, 2014				July 28, 2013				% Change
Grocery Products			$	359,549			$	370,297			(2.9	)
Refrigerated Foods				1,192,624				1,068,587			11.6
Jennie-O Turkey Store				382,647				367,125			4.2
Specialty Foods				216,406				240,512			(10.0	)
International & Other				133,721				113,004			18.3
Total			$	2,284,947			$	2,159,525			5.8
OPERATING PROFIT
Grocery Products			$	33,781			$	52,962			(36.2	)
Refrigerated Foods				90,028				44,769			101.1
Jennie-O Turkey Store				64,756				45,623			41.9
Specialty Foods				17,378				23,170			(25.0	)
International & Other				18,696				16,692			12.0
Total segment operating profit				224,639				183,216			22.6
Net interest and investment expense (income)				1,522				3,577			(57.5	)
General corporate expense				11,174				2,833			294.4
Noncontrolling interest				1,039				270			284.8
Earnings before income taxes			$	212,982			$	177,076			20.3
			YEAR TO DATE – 39 WEEKS ENDED
NET SALES			July 27, 2014				July 28, 2013				% Change
Grocery Products			$	1,153,099			$	1,097,942			5.0
Refrigerated Foods				3,432,289				3,143,358			9.2
Jennie-O Turkey Store				1,162,472				1,142,198			1.8
Specialty Foods				629,561				720,048			(12.6	)
International & Other				395,064				324,906			21.6
Total			$	6,772,485			$	6,428,452			5.4
OPERATING PROFIT
Grocery Products			$	145,013			$	150,170			(3.4	)
Refrigerated Foods				250,724				153,239			63.6
Jennie-O Turkey Store				177,109				156,567			13.1
Specialty Foods				57,767				72,898			(20.8	)
International & Other				62,116				49,421			25.7
Total segment operating profit				692,729				582,295			19.0
Net interest and investment expense (income)				6,842				6,887			(0.7	)
General corporate expense				27,242				19,228			41.7
Noncontrolling interest				2,765				2,720			1.7
Earnings before income taxes			$	661,410			$	558,900			18.3

HORMEL FOODS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
			Thirteen Weeks Ended										Thirty-Nine Weeks Ended
			July 27, 2014					July 28, 2013					July 27, 2014					July 28, 2013
Net sales			$	2,284,947				$	2,159,525				$	6,772,485				$	6,428,452
Cost of products sold				1,920,948					1,829,219					5,631,086					5,401,152
GROSS PROFIT:				363,999					330,306					1,141,399					1,027,300
Selling, general and administrative				153,035					150,999					485,009					479,896
Equity in earnings of affiliates				3,540					1,346					11,862					18,383
OPERATING INCOME:				214,504					180,653					668,252					565,787
Other income & expenses:
Interest & investment income (expense)				1,603					(455	)				2,470					2,471
Interest expense				(3,125	)				(3,122	)				(9,312	)				(9,358	)
EARNINGS BEFORE INCOME TAXES:				212,982					177,076					661,410					558,900
Provision for income taxes				73,968					63,171					227,232					187,309
(effective tax rate)				34.73	%				35.67	%				34.36	%				33.51	%
NET EARNINGS				139,014					113,905					434,178					371,591
Less: net earnings attributable to noncontrolling interest				1,039					270					2,765					2,720
NET EARNINGS ATTRIBUTABLE TO HORMEL FOODS CORPORATION			$	137,975				$	113,635				$	431,413				$	368,871
NET EARNINGS PER SHARE
Basic			$	.52				$	.43				$	1.63				$	1.39
Diluted			$	.51				$	.42				$	1.60				$	1.37
WEIGHTED AVG SHARES O/S
Basic				263,983					264,605					263,887					264,472
Diluted				270,400					270,769					270,345					270,230
DIVIDENDS DECLARED PER SHARE			$	.20				$	.17				$	.60				$	.51

HORMEL FOODS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in thousands)
			July 27, 2014				October 27, 2013
ASSETS
CURRENT ASSETS
Cash and cash equivalents			$	530,977			$	434,014
Accounts receivable				536,505				551,500
Inventories				1,076,892				967,977
Income taxes receivable				6,622				-
Deferred income taxes				71,741				73,543
Prepaid expenses				13,140				13,000
Other current assets				9,164				7,379
TOTAL CURRENT ASSETS				2,245,041				2,047,413
INTANGIBLES				1,336,293				1,312,565
OTHER ASSETS				628,949				600,569
PROPERTY, PLANT & EQUIPMENT, NET				978,150				955,333
TOTAL ASSETS			$	5,188,433			$	4,915,880
LIABILITIES AND SHAREHOLDERS' INVESTMENT
TOTAL CURRENT LIABILITIES			$	785,099			$	784,009
LONG-TERM DEBT – LESS CURRENT MATURITIES				250,000				250,000
OTHER LONG-TERM LIABILITIES				573,754				565,292
SHAREHOLDERS' INVESTMENT				3,579,580				3,316,579
TOTAL LIAB. & SHAREHOLDERS' INVESTMENT			$	5,188,433			$	4,915,880

HORMEL FOODS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
			Thirty-Nine Weeks Ended
			July 27, 2014					July 28, 2013
			(in thousands)
OPERATING ACTIVITIES
Net earnings			$	434,178				$	371,591
Depreciation and amortization of intangibles				97,134					92,986
Increase in working capital				(138,370	)				(41,711	)
Other				1,424					5,983
NET CASH PROVIDED BY OPERATING ACTIVITIES				394,366					428,849
INVESTING ACTIVITIES
Net sale of securities				-					77,558
Acquisitions of businesses/intangibles				(41,876	)				(665,415	)
Net purchases of property / equipment				(103,259	)				(62,212	)
Decrease (increase) in investments, equity in affiliates, and other assets				905					(4,810	)
NET CASH USED IN INVESTING ACTIVITIES				(144,230	)				(654,879	)
FINANCING ACTIVITIES
Dividends paid on common stock				(150,360	)				(129,426	)
Share repurchase				(28,068	)				(45,668	)
Other				26,310					48,198
NET CASH USED IN FINANCING ACTIVITIES				(152,118	)				(126,896	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH				(1,055	)				34
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS				96,963					(352,892	)
Cash and cash equivalents at beginning of year				434,014					682,388
CASH AND CASH EQUIVALENTS AT END OF QUARTER			$	530,977				$	329,496