Hormel Foods (HRL)

Q4 2011 Earnings Call

November 22, 2011 9:00 am ET

Executives

Kevin C. Jones - Director of Investor Relations

Jeffrey M. Ettinger - Chairman, Chief Executive Officer and President

Jody H. Feragen - Chief Financial Officer, Executive Vice President and Director

Analysts

Ann H. Gurkin - Davenport & Company, LLC, Research Division

Jonathan P. Feeney - Janney Montgomery Scott LLC, Research Division

Kenneth B. Zaslow - BMO Capital Markets U.S.

Diane Geissler - Credit Agricole Securities (USA) Inc., Research Division

Jeffrey D. Farmer - Jefferies & Company, Inc., Research Division

Robert Moskow - Crédit Suisse AG, Research Division

Timothy S. Ramey - D.A. Davidson & Co., Research Division

Lindsay Mann - Goldman Sachs Group Inc., Research Division

Akshay S. Jagdale - KeyBanc Capital Markets Inc., Research Division

Christina McGlone - Deutsche Bank AG, Research Division

Farha Aslam - Stephens Inc., Research Division

Christine McCracken - Cleveland Research Company

Eric J. Larson - Ticonderoga Securities LLC, Research Division

Presentation

Operator

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Ladies and gentlemen, thank you for standing by, and welcome to the Hormel Foods Fourth Quarter Earnings Conference Call. [Operator Instructions] This conference is being recorded today, Tuesday, November 22, 2011. I would now like to turn the conference over to Kevin Jones, Director of Investor Relations. Please go ahead, sir.

Kevin C. Jones

Thank you, Dale. Good morning, everyone. Welcome to the Hormel Foods conference call for the fourth quarter of fiscal 2011. We released our results this morning before the market opened around 6:30 a.m. Eastern Time. If you did not receive a copy of the release, you can find it on our website at www.hormelfoods.com under the Investors section.

On our call today is Jeff Ettinger, Chairman of the Board, President and Chief Executive Officer; and Jody Feragen, Executive Vice President and Chief Financial Officer. Jeff will provide a review of the operating results for the quarter and the year and our guidance for fiscal 2012. Then Jody will provide detailed financial results for the quarter and the year. The line will be open for questions following Jody's remarks.

[Operator Instructions] An audio replay of this call will be available beginning at 10:30 a.m. Central Time today, November 22, 2011. The dial-in number is (800) 406-7325, and the access code is 4482517. It will also be posted to our website and archived for 1 year.

Before we get started with the results of the quarter, I need to reference the Safe Harbor statement. Some of the comments made today will be forward-looking and are made under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those expressed in or implied by the statements we will be making. Among the factors that may affect the operating results of the company, our fluctuations in the cost and availability of raw materials and market conditions for finished products. Please refer to Pages 33 through 39 of the company's 10-Q for the quarter ended July 31, 2011 for more details. It can be accessed on our website.

Now I'll turn the call over to Jeff.

Jeffrey M. Ettinger

Good morning, everyone. Bearing in mind that all of the quarterly comparisons were affected by the return to a normal 13-week duration versus last year's 14-week fourth quarter, we are pleased to report solid results. Earnings per share for the fourth quarter were $0.43, down 4% from a year ago on sales of $2.1 billion, up 2% from a year ago. We generated segment profit increases in 4 out of 5 of our operating segments.

Tonnage was down in comparison with last year's 14-week quarter, but we held our own in the face of significant pricing actions. Further impacting this volume comparison was the shift of significant whole bird sales at our Jennie-O Turkey Store segment into earlier quarters. For the full year, earnings per share grew 19% to $1.74 over the U.S. GAAP earnings of $1.46 per share in 2010. Sales reached $7.9 billion for the full year, up 9% from a year ago, with all 5 segments registering gains.

I will now take you through each segment. Our Grocery Products segment contributed nicely to our solid Q4 results, with segment profit up 3% and sales down 2%. For the year, segment operating profit was up 4% and sales were up 2%. Segment profit during the quarter and for the year was adversely impacted by higher raw material cost. Products register and sales gains in the quarter included such stalwarts as our SPAM family of products, Hormel bacon toppings, Dinty Moore beef stew and Hormel Mary Kitchen Hash. Our MegaMex Foods business also contributed to our Grocery Products results and they supported their Herdez, CHI-CHI'S and La Victoria brands with advertising during the quarter. We have also been pleased with how the Wholly Guacamole refrigerated dips and related products have contributed to our growth.

We are encouraged by the progress we are making with the rollout of the new items and packaging for our Hormel Compleats microwave meals. Dollar sales were down a bit on flat volume, but this was largely due to stronger promotional efforts associated with the rollout, not to mention the comparison with the 14-week quarter.

Our Refrigerated Foods segment operating profit declined 19%, with sales up 1%. For the full year, operating profit in this segment was up 6% and sales increased 10%. Pork operating margins in the quarter were up against a very difficult comparison, with historically high margins a year ago. Those margins have declined, while pork prices have remained at elevated levels, pressuring the margins of our value-added products. Nonetheless, our meat products group had some sales performance that did solidly in their product portfolio, led by Hormel convenience bacon, Hormel Cure 81 premium hams and Hormel Natural Choice deli meats. We also continued to see growth over our Hormel Country Crock refrigerated sides.

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