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Hormel Foods Announces Record Third Quarter Results And Reaffirms Fiscal 2018 Earnings Guidance

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Hormel Foods Announces Record Third Quarter Results And Reaffirms Fiscal 2018 Earnings Guidance

Company Maintains Fiscal 2018 Earnings Guidance While Successfully Navigating Industry Dynamics

PR Newswire

AUSTIN, Minn., Aug. 23, 2018 /PRNewswire/ -- Hormel Foods Corporation (NYSE:HRL), a leading global branded food company, today reported results for the third quarter of fiscal 2018. All comparisons are to the third quarter of fiscal 2017 unless otherwise noted.

Hormel Foods corporate logo

EXECUTIVE SUMMARY

  • Record diluted earnings per share of $0.39, up 15% from 2017 EPS of $0.34
  • Fiscal 2018 earnings guidance reaffirmed at $1.81 to $1.95 per share
  • Record net sales of $2.4 billion, up 7%; organic net sales1 flat
  • Volume of 1.2 billion lbs., up 5%; organic volume1 up 1%
  • Operating margin of 11.1% compared to 12.7% last year
  • Effective tax rate of 18.4% compared to 34.3% last year
  • Year-to-date cash flow from operations of $743 million, up 40% compared to last year

COMMENTARY
"We reported record sales and earnings for the quarter and remain on track to deliver our full year earnings guidance range amid volatility due to tariffs and broader industry dynamics," said Jim Snee, chairman of the board, president, and chief executive officer. "We continue to execute on our strategic initiatives while investing in growth for the future."

"Grocery Products and International delivered solid results this quarter," Snee said. "Refrigerated Foods' branded value-added strategy was able to offset a dramatic decline in commodity profits. We also saw a strong increase in value-added sales at Jennie-O Turkey Store."

"We increased our advertising investment this quarter and those investments are paying off with growth from brands such as Skippy®, Natural Choice®, Jennie-O®, Applegate®, Wholly Guacamole® and Herdez®," Snee said. "I'm also pleased to report our recent strategic acquisitions of Columbus Craft Meats, Fontanini, and Ceratti are on track with expectations."

FREMONT PLANT DIVESTITURE
"Last week we announced the sale of our Fremont processing facility to WholeStone Farms, LLC," Snee said. "This strategic decision reflects changes in the long-term dynamics of the pork industry and is aligned with our vision as a global branded food company. The Fremont facility has been an important part of our Company for decades, and it was critical we partnered with a buyer that would commit to investments in the facility and team members."

The purchase price is $30 million in cash, subject to adjustments at closing, and the transaction includes a processing facility and a multi-year agreement to supply pork raw materials to Hormel Foods. The Fremont plant harvests 10,500 hogs per day and currently represents one-third of the Company's hog harvest volume and less than one-third of commodity pork earnings. The fiscal 2019 expenses associated with the transaction are anticipated to be $15-$20 million dollars, primarily related to expenses to relocate value-added manufacturing lines to other Hormel Foods facilities and pension-related expenses. Further guidance on the full earnings impact will be provided on the fourth quarter conference call in November. The transaction is expected to close in December 2018.

SEGMENT HIGHLIGHTS – THIRD QUARTER

Refrigerated Foods

  • Volume up 5%; organic volume1 down 2%
  • Net sales up 10%; organic net sales1 down 3%
  • Segment profit flat

Volume and sales increases benefited from the inclusion of the Columbus and Fontanini acquisitions in addition to strong foodservice sales of Austin Blues® smoked barbeque products and retail sales of Hormel® Natural Choice® and Applegate® products. Organic volume and sales decreased due to lower hog harvest volumes.

Refrigerated Foods offset an 88% decline in commodity profits, a double-digit increase in per-unit freight expenses, and higher advertising investments to deliver results in line with last year.

Grocery Products

  • Volume down 1%
  • Net sales flat
  • Segment profit up 4%

Mid-single-digit sales growth in our core Grocery Products portfolio, led by Wholly Guacamole® dips, Herdez® salsas and sauces, and Skippy® peanut butter, was offset by sales declines across the CytoSport portfolio and our contract manufacturing business. Total Grocery Products segment profit increased as core Grocery Products earnings more than offset declines in contract manufacturing. Grocery Products increased advertising for the quarter to support brands such as Skippy® and SPAM®. CytoSport earnings increased for the quarter due to lower selling, general and administrative expenses.

Jennie-O Turkey Store

  • Volume up 14%
  • Net sales up 8%
  • Segment profit down 23%

Volume and sales for the quarter were driven by increases in whole bird and commodity sales in addition to strong value-added sales growth. Value-added sales gains were led by Jennie-O® premium deli products and Jennie-O® lean ground turkey. Segment profit decreased as a result of lower profits from whole bird sales, double-digit increases in per-unit freight costs, and increased advertising investment.

International & Other

  • Volume up 9%; organic volume1 down 7%
  • Net sales up 11%; organic net sales1 down 3%
  • Segment profit up 9%

International sales increases were related to the inclusion of the Ceratti business, higher export sales for SPAM® luncheon meat and Skippy® peanut butter, and stronger sales for the China multinational business. Fresh pork export volume, sales, and profitability declined sharply in the quarter due to the impact of increased tariffs in key markets. Overall earnings increased as improved profitability in China more than offset lower fresh pork export profits and increased advertising investments.

SELECTED FINANCIAL DETAILS

Income Statement

  • Selling, general and administrative expenses increased due to acquisitions and higher advertising investments.
  • Advertising investments were $40 million compared to $24 million last year. Advertising investments for the full year are expected to increase by approximately 20% over last year.
  • Operating margin was 11.1% compared to 12.7% last year.
  • The effective tax rate was 18.4% compared to 34.3% last year. The decline was due to The Tax Cuts and Jobs Act passed in December 2017 and deferred tax remeasurements. The full year effective tax rate for fiscal 2018 is expected to be between 15% and 16% compared to 17.5% and 19.5% previously.

Cash Flow Statement

  • Capital expenditures in the third quarter were $103 million compared to $42 million last year. Capital expenditures for the full year are expected to total approximately $400 million. Key projects include: bacon capacity increases in our Wichita, Kans., facility, a new whole bird facility in Melrose, Minn., improvements to the Austin, Minn., plant and multiple projects designed to increase value-added capacity.
  • Depreciation and amortization expense in the third quarter was $41 million compared to $33 million last year. Expenses for the full year are expected to be approximately $160 million.
  • Share repurchases to date total $45 million, representing 1.3 million shares purchased.
  • The Company repaid $90 million in short-term debt in the quarter.
  • The third quarter dividend marked the 90th year of uninterrupted dividends paid to our shareholders. The Company paid its 360th consecutive quarterly dividend at the annual rate of $0.75 per share, a 10% increase over the prior year.

Balance Sheet

  • Working capital decreased to $757 million from $968 million at the beginning of the year, primarily related to debt retirement and lower accounts receivable.
  • Cash on hand decreased to $269 million from $444 million at the beginning of the year as the Company continued to pay down short-term debt related to the Columbus Craft Meats acquisition.
  • Total debt is $720 million. The debt is split between short-term borrowings of $95 million and long-term borrowings of $625 million.
  • The Company remains in a strong financial position to fund other capital needs.

OUTLOOK
"We are reaffirming our earnings outlook for fiscal 2018. Our strong branded portfolio, focus on innovation, strategic acquisitions, and balanced model will continue to help us mitigate the impacts from foreign trade uncertainty, increased freight costs, and commodity market volatility," Snee said.


Fiscal 2018 Outlook

Prior 2018 Outlook

Net Sales Guidance (in billions)

$9.40 - $9.60

$9.70 - $10.10

Earnings per Share Guidance

$1.81 - $1.95

$1.81 - $1.95

PRESENTATION
A conference call will be webcast at 8:00 a.m. CT on Thursday, August 23, 2018. Access is available at www.hormelfoods.com and clicking on "Investors." The call will also be available via telephone by dialing 888-220-8451 and providing the access code 8905023. An audio replay is available by going to www.hormelfoods.com. The webcast replay will be available at 11:00 a.m. CT, Thursday, August 23, 2018, and will remain on the website for one year.

ABOUT HORMEL FOODS - Inspired People. Inspired Food.™
Hormel Foods Corporation, based in Austin, Minn., is a leading global branded food company with over $9 billion in annual revenues across more than 80 countries worldwide. Its brands include Skippy®, SPAM®, Hormel® Natural Choice®, Columbus®, Applegate®, Justin's®, Wholly Guacamole®, Hormel® Black Label® and more than 30 other beloved brands. The company is a member of the S&P 500 Index and the S&P 500 Dividend Aristocrats, was named one of "The 100 Best Corporate Citizens" by Corporate Responsibility Magazine for the tenth year in a row, and has received numerous other awards and accolades for its corporate responsibility and community service efforts. In 2016, the company celebrated its 125th anniversary and announced its new vision for the future - Inspired People. Inspired Food.™ - focusing on its legacy of innovation. For more information, visit www.hormelfoods.com and http://csr.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 that appears on pages 34-40 in the company's Form 10-Q for the quarter ended April 29, 2018, which can be accessed at www.hormelfoods.com under "Investors."

 1 COMPARISON OF U.S. GAAP TO NON-GAAP FINANCIAL MEASUREMENTS
The non-GAAP adjusted financial measurements of organic net sales and organic volume are presented to provide investors additional information to facilitate the comparison of past and present operations. The company believes these non-GAAP financial measurements provide useful information to investors because they are the measurements used to evaluate performance on a comparable year-over-year basis. Non-GAAP measurements are not intended to be a substitute for U.S. GAAP measurements in analyzing financial performance. These non-GAAP measurements are not in accordance with generally accepted accounting principles and may be different from non-GAAP measures used by other companies.

Organic net sales and organic volume are defined as net sales and volume excluding the impact of acquisitions and divestitures. Organic net sales and organic volume exclude the impacts of the acquisition of Columbus Craft Meats (November 2017), the acquisition of Fontanini Italian Meats and Sausages (August 2017), and the divestiture of Farmer John (January 2017) in Refrigerated Foods and the acquisition of Ceratti (August 2017) in International. The tables below show the calculations to reconcile from the non-GAAP adjusted measures to the GAAP measures in the third quarter and third quarter year-to-date of fiscal 2018 and fiscal 2017.

NON-GAAP1 VOLUME AND SALES DATA

(Unaudited) (In thousands)


3rd Quarter


FY 2018


FY 2017


VOLUME (LBS.)


Reported

(GAAP)


Acquisitions


Organic

(Non-GAAP)


Reported

(GAAP)


Organic

% change

Grocery Products


327,890





327,890



330,505



(0.8)


Refrigerated Foods


530,337



(37,482)



492,855



503,296



(2.1)


Jennie-O Turkey Store


227,903





227,903



200,143



13.9


International & Other


84,763



(12,391)



72,372



78,120



(7.4)


TOTAL


1,170,893



(49,873)



1,121,020



1,112,064



0.8















FY 2018


FY 2017


NET SALES


Reported

(GAAP)


Acquisitions


Organic

(Non-GAAP)


Reported

(GAAP)


Organic

% change

Grocery Products


$

617,727



$



$

617,727



$

618,859



(0.2)


Refrigerated Foods


1,195,763



(137,803)



1,057,960



1,086,546



(2.6)


Jennie-O Turkey Store


398,058





398,058



369,078



7.9


International & Other


147,594



(18,974)



128,620



132,892



(3.2)


TOTAL


$

2,359,142



$

(156,777)



$

2,202,365



$

2,207,375



(0.2)


 

Year to Date


FY 2018


FY 2017



VOLUME (LBS.)


Reported

(GAAP)


Acquisitions


Organic

(Non-
GAAP)


Reported

(GAAP)


Divestitures


Organic

(Non-
GAAP)


Organic

% change

Grocery Products


995,505





995,505



1,008,180





1,008,180



(1.3)


Refrigerated Foods


1,641,151



(107,544)



1,533,607



1,633,211



(80,454)



1,552,757



(1.2)


Jennie-O Turkey Store


634,140





634,140



620,343





620,343



2.2


International & Other


262,090



(35,900)



226,190



233,481





233,481



(3.1)


TOTAL


3,532,886



(143,444)



3,389,442



3,495,215



(80,454)



3,414,761



(0.7)



















FY 2018


FY 2017



NET SALES


Reported

(GAAP)


Acquisitions


Organic

(Non-GAAP)


Reported

(GAAP)


Divestitures


Organic

(Non-GAAP)


Organic

% change

Grocery Products


$

1,863,147



$



$

1,863,147



$

1,869,652



$



$

1,869,652



(0.3)


Refrigerated Foods


3,539,186



(383,698)



3,155,488



3,237,071



(100,231)



3,136,840



0.6


Jennie-O Turkey Store


1,160,622





1,160,622



1,178,304





1,178,304



(1.5)


International & Other


458,048



(59,869)



398,179



389,884





389,884



2.1


TOTAL


$

7,021,003



$

(443,567)



$

6,577,436



$

6,674,911



$

(100,231)



$

6,574,680




Statements Follow


HORMEL FOODS CORPORATION

SEGMENT DATA

(Unaudited) (In thousands)








Thirteen Weeks Ended



July 29,
2018


July 30,
2017


% Change

NET SALES







Grocery Products


$

617,727



$

618,859



(0.2)


Refrigerated Foods


1,195,763



1,086,546



10.1


Jennie-O Turkey Store


398,058



369,078



7.9


International & Other


147,594



132,892



11.1


TOTAL


$

2,359,142



$

2,207,375



6.9
















OPERATING PROFIT







Grocery Products


$

85,540



$

82,116



4.2


Refrigerated Foods


138,497



138,314



0.1


Jennie-O Turkey Store


34,625



44,986



(23.0)


International & Other


18,646



17,111



9.0


TOTAL SEGMENT OPERATING PROFIT


277,308



282,527



(1.8)


Net interest and investment expense (income)


3,834



1,681



128.1


General corporate expense


15,852



2,865



453.3


Noncontrolling interest


110



43



155.8


EARNINGS BEFORE INCOME TAX


$

257,732



$

278,024



(7.3)









Thirty-Nine Weeks Ended



July 29,
2018


July 30,
2017


% Change

NET SALES







Grocery Products


$

1,863,147



$

1,869,652



(0.3)


Refrigerated Foods


3,539,186



3,237,071



9.3


Jennie-O Turkey Store


1,160,622



1,178,304



(1.5)


International & Other


458,048



389,884



17.5


TOTAL


$

7,021,003



$

6,674,911



5.2
















OPERATING PROFIT







Grocery Products


$

281,168



$

282,789



(0.6)


Refrigerated Foods


435,638



442,316



(1.5)


Jennie-O Turkey Store


126,855



176,952



(28.3)


International & Other


64,151



62,191



3.2


TOTAL SEGMENT OPERATING PROFIT


907,812



964,248



(5.9)


Net interest and investment expense (income)


14,747



2,463



498.7


General corporate expense


33,637



13,308



152.8


Noncontrolling interest


352



159



121.4


EARNINGS BEFORE INCOME TAX


$

859,780



$

948,636



(9.4)


 


HORMEL FOODS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited) (In thousands, except per share amounts)




Thirteen Weeks Ended


Thirty-Nine Weeks Ended



July 29,
2018


July 30,
2017


July 29,
2018


July 30,
2017

Net sales


$

2,359,142



$

2,207,375



$

7,021,003



$

6,674,911


Cost of products sold


1,899,970



1,754,966



5,562,966



5,183,302


GROSS PROFIT


459,172



452,409



1,458,037



1,491,609


Selling, general and administrative


210,747



176,660



633,668



567,886


Equity in earnings of affiliates


13,141



3,956



50,158



27,376


OPERATING INCOME


261,566



279,705



874,527



951,099


Interest & investment income (expense)


4,601



1,376



5,418



6,643


Interest expense


(8,435)



(3,057)



(20,165)



(9,106)


EARNINGS BEFORE INCOME TAXES


257,732



278,024



859,780



948,636


Provision for income taxes


47,379



95,473



108,694



319,896


(effective tax rate)


18.4

%


34.3

%


12.6

%


33.7

%

NET EARNINGS


210,353



182,551



751,086



628,740


Less: net earnings attributable to noncontrolling interest


110



43



352



159


NET EARNINGS ATTRIBUTABLE TO HORMEL FOODS CORPORATION


$

210,243



$

182,508



$

750,734



$

628,581











NET EARNINGS PER SHARE









Basic


$

0.40



$

0.35



$

1.42



$

1.19


Diluted


$

0.39



$

0.34



$

1.38



$

1.17











WEIGHTED AVG. SHARES OUTSTANDING







Basic


530,606



528,165



529,953



528,487


Diluted


543,762



538,814



543,352



539,504











Dividends declared per share


$

0.1875



$

0.1700



$

0.5625



$

0.5100


 

HORMEL FOODS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(Unaudited) (In thousands)








July 29, 2018


October 29, 2017

ASSETS

Cash and cash equivalents


$

268,982



$

444,122


Accounts receivable


559,181



618,351


Inventories


1,001,044



921,022


Income taxes receivable


4,641



22,346


Prepaid expenses


14,542



16,144


Other current assets


5,920



4,538


TOTAL CURRENT ASSETS


1,854,310



2,026,523







Goodwill


2,734,575



2,119,813


Other intangibles


1,236,897



1,027,014


Pension assets


190,050



171,990


Investments in and receivables from affiliates


276,462



242,369


Other assets


192,769



184,948


Property, plant & equipment, net


1,410,310



1,203,251


TOTAL ASSETS


$

7,895,373



$

6,975,908












LIABILITIES AND SHAREHOLDERS' INVESTMENT






Accounts payable


$

488,978



$

552,714


Short-term debt


95,000




Accrued expenses


58,416



76,966


Accrued worker's compensation


27,289



26,585


Accrued marketing


119,663



101,573


Employee-related expenses


201,353



209,562


Taxes payable


2,372



525


Interest and dividends payable


103,760



90,287


TOTAL CURRENT LIABILITIES


1,096,831



1,058,212







Long-term debt, less current maturities


624,801



250,000


Pension and post-retirement benefits


534,698



530,249


Other long-term liabilities


104,083



99,340


Deferred income taxes


139,192



98,410


Accumulated other comprehensive loss


(259,208)



(248,075)


Other shareholder's investment


5,654,976



5,187,772


TOTAL LIAB. & SHAREHOLDERS' INVESTMENT


$

7,895,373



$

6,975,908


 

HORMEL FOODS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (In thousands)




Thirty-Nine Weeks Ended



July 29, 2018


July 30, 2017

OPERATING ACTIVITIES





Net earnings


$

751,086



$

628,740


Depreciation and amortization of intangibles


121,108



96,121


Increase in working capital


(49,374)



(205,303)


Other


(79,615)



11,835


NET CASH PROVIDED BY OPERATING ACTIVITIES


743,205



531,393







INVESTING ACTIVITIES





Proceeds from sale of business




135,944


Acquisitions of businesses/intangibles


(857,668)




Net purchases of property/equipment


(236,733)



(116,235)


(Increase) decrease in investments, equity in affiliates, and other assets


(1,569)



4,041


NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES


(1,095,970)



23,750







FINANCING ACTIVITIES





Net proceeds (payments) from short-term debt


95,000




Net proceeds (payments) from long-term debt


374,801




Dividends paid on common stock


(288,515)



(256,341)


Share repurchase


(44,741)



(94,487)


Other


40,732



14,337


NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES


177,277



(336,491)


Effect of exchange rate changes on cash


348



(454)


(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS


(175,140)



218,198


Cash and cash equivalents at beginning of year


444,122



415,143


CASH AND CASH EQUIVALENTS AT END OF QUARTER


$

268,982



$

633,341


 

INVESTOR CONTACT:

Nathan Annis

(507) 437-5248

ir@hormel.com


MEDIA CONTACT:

Wendy Watkins

(507) 437-5345

media@hormel.com

 

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SOURCE Hormel Foods Corporation

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