Hormel Foods Reports Record Fourth Quarter, Full Year Results

Hormel Foods Corporation (NYSE: HRL) today reported its performance for the fiscal year 2013 fourth quarter and full year.

All comparisons are to the fourth quarter or full year of fiscal 2012.

HIGHLIGHTS

Fourth Quarter
  • Record diluted EPS of $0.58, up 18 percent from $0.49 per share
  • Segment operating profit increased 21 percent
  • Record dollar sales of $2.3 billion, increased 7 percent; volume up 3 percent
  • Grocery Products operating profit up 17 percent; volume up 24 percent (volume down 2 percent excluding sales of SKIPPY ® products); dollar sales up 23 percent (dollar sales up 1 percent excluding sales of SKIPPY ® products)
  • Refrigerated Foods operating profit up 30 percent; volume down 5 percent; dollar sales up 4 percent
  • Jennie-O Turkey Store operating profit up 25 percent; volume up 8 percent; dollar sales up 7 percent
  • Specialty Foods operating profit down 34 percent; volume down 8 percent; dollar sales down 14 percent
  • International & Other operating profit up 82 percent; volume up 32 percent (volume up 15 percent excluding sales of SKIPPY ® products); dollar sales up 38 percent (dollar sales up 18 percent excluding sales of SKIPPY ® products)

Fiscal Year
  • Record diluted EPS of $1.95, up 5 percent from diluted EPS of $1.86
  • Segment operating profit up 6 percent
  • Record dollar sales of $8.8 billion, up 6 percent; volume up 3 percent
  • Grocery Products operating profit up 18 percent; volume up 29 percent (volume flat excluding sales of SKIPPY ® and DON MIGUEL ® products); dollar sales up 30 percent (dollar sales up 2 percent excluding sales of SKIPPY ® and DON MIGUEL ® products)
  • Refrigerated Foods operating profit up 2 percent; volume down 4 percent; dollar sales up 1 percent
  • Jennie-O Turkey Store operating profit down 7 percent; volume up 1 percent; dollar sales up 3 percent
  • Specialty Foods operating profit up 7 percent; volume down 2 percent; dollar sales up 1 percent
  • International & Other operating profit up 43 percent; volume up 19 percent (volume up 7 percent excluding sales of SKIPPY ® products); dollar sales up 23 percent (dollar sales up 9 percent excluding sales of SKIPPY ® products)

The company reported fiscal 2013 fourth quarter net earnings of $157.3 million, up 19 percent from net earnings of $132.6 million a year earlier. Diluted earnings per share for the quarter were $0.58, up 18 percent compared to $0.49 last year. Sales for the quarter were $2.3 billion, up 7 percent from the same period in fiscal 2012.

For the year ended October 27, 2013, net earnings were $526.2 million, up 5 percent from net earnings of $500.1 million last year. Diluted net earnings per share were $1.95, up 5 percent from diluted net earnings per share of $1.86 last year. Sales for the year ended October 27, 2013, totaled $8.8 billion, up 6 percent from last year.

COMMENTARY

“We achieved excellent results in the fourth quarter with earnings per share growth of 18 percent and sales up 7 percent. We delivered both segment profit and sales increases in four of our five segments. We are pleased with our team’s ability to drive earnings growth through our on-going efforts to improve operational efficiencies and focus on expanding our value-added franchises, providing strong momentum heading into fiscal 2014,” said Jeffrey M. Ettinger, chairman of the board, president and chief executive officer.

"In looking at the full year, we enjoyed sales growth of 6 percent, ending the year at a record $8.8 billion. We grew earnings per share by 5 percent, finishing at record earnings of $1.95 per share, at the upper end of our adjusted guidance range. We broadened our portfolio with the addition of the iconic SKIPPY ® brand, providing our team another excellent platform for innovation across many categories. We continued to execute our value-added growth strategy this year with successful new product launches, including our new HORMEL ® REV ® snack wraps in the retail space and HORMEL ® FIRE BRAISED TM meats in the foodservice channel,” commented Ettinger.

"This morning we announced a $0.12 per share increase to the annual dividend, or 18 percent, making the annual dividend $0.80 per share in 2014. This marks the 48th consecutive year in which we have increased our dividend, consistent with our objective to deliver superior total returns to our shareholders," stated Ettinger.

SEGMENT OPERATING HIGHLIGHTS – FOURTH QUARTER

Grocery Products (18% of Net Sales, 26% of Total Segment Operating Profit) Grocery Products segment profit increased 17 percent. Sales for the quarter were up 23 percent, with the addition of SKIPPY ® product sales driving a large portion of the segment sales increase this quarter. HORMEL ® COMPLEATS ® microwave meals, HORMEL ® bacon toppings, and the HERDEZ ® line of products within our MegaMex Foods joint venture contributed to the year over year sales increase as well.

Refrigerated Foods (48% of Net Sales, 32% of Total Segment Operating Profit) Refrigerated Foods segment profit increased 30 percent through enhanced margins in our retail bacon business along with improved pork operating margins as compared to last year’s challenging pork operating environment. Sales for the quarter were up 4 percent, led by growth in value-added products including retail sales of HORMEL ® pepperoni, HORMEL ® NATURAL CHOICE ® lunchmeats and LLOYDS ® ribs along with foodservice sales of HORMEL ® FIRE BRAISED TM meats and HORMEL ® NATURAL CHOICE ® deli meats.

Jennie-O Turkey Store (20% of Net Sales, 27% of Total Segment Operating Profit) Jennie-O Turkey Store delivered excellent results this quarter, with segment profit up 25 percent, driven by the continued sales growth of value-added products and realization of operational efficiencies throughout the supply chain. Sales for the quarter increased 7 percent, led by sales of JENNIE-O TURKEY STORE ® fresh turkey chubs, turkey breakfast sausage, and turkey bacon.

Specialty Foods (9% of Net Sales, 6% of Total Segment Operating Profit) The Specialty Foods segment posted operating profits 34 percent lower than last year with a 14 percent decrease in sales. Lower segment results were due to the expiration of the agreement allowing Diamond Crystal Brands to sell certain sugar substitutes into foodservice trade channels.

International & Other (5% of Net Sales, 9% of Total Segment Operating Profit) The International & Other segment posted impressive segment profits 82 percent ahead of last year, while sales grew 38 percent. Results were driven by robust export sales of our SPAM ® and SKIPPY ® product lines.

OUTLOOK

"We expect to deliver continued sales and earnings growth in fiscal 2014. In particular, we are looking for our Refrigerated Foods, Grocery Products, Jennie-O Turkey Store and International & Other segments to drive profit growth in fiscal 2014 as our Specialty Foods segment refocuses following the expiration of a contract representing a significant portion of our sugar substitute business. We expect to benefit from lower grain and turkey commodity costs, while high beef input costs and uncertainty of hog supplies may offset some of those gains headed into the new year,” remarked Ettinger. “Taking all of the relevant factors into account, we are setting our 2014 earnings guidance range at $2.17 to $2.27 per share."

DIVIDENDS

Effective November 15, 2013, the company paid its 341st consecutive quarterly dividend, at the annual rate of $0.68.

CONFERENCE CALL

A conference call will be webcast at 8:00 a.m. CT on Tuesday, November 26, 2013. Access is available at http://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 877-941-8609 and the access code is 4649315. An audio replay is available by calling 800-406-7325 and entering access code 4649315. The audio replay will be available beginning at 10:30 a.m. CT on Tuesday, November 26, 2013, through 11:59 p.m. CT on December 10, 2013. The Webcast replay will be available at 10:30 a.m. CT, Tuesday, November 26, 2013, 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 Dividend Aristocrats for 2013, Maplecroft Climate Innovation Indexes, Global 1000 Sustainable Performance Leaders and was again named one of "The 100 Best Corporate Citizens” by Corporate Responsibility Magazine for the fifth year in a row. Hormel Foods has been recognized on the G.I. Jobs magazine list of America’s Top 100 Military Friendly Employers in 2012 and 2013. 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 http://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 that appear on pages 33-39 in the company’s Form 10-Q for the quarter ended July 28, 2013, which was filed with the SEC on September 6, 2013, and can be accessed at www.hormelfoods.com under “Investors-SEC Filings.”

Segment Data

Fiscal 2013 Fourth Quarter Segment Operating Results (dollars in thousands)
   
FOURTH QUARTER – 13 WEEKS ENDED
       

NET SALES
October 27, 2013 October 28, 2012 % Change
Grocery Products $ 419,615 $ 340,222 23.3
Refrigerated Foods 1,108,157 1,063,941 4.2
Jennie-O Turkey Store 459,670 429,199 7.1
Specialty Foods 212,485 247,429 (14.1 )
International & Other   123,275   89,393 37.9  
Total $ 2,323,202 $ 2,170,184 7.1  
 

OPERATING PROFIT
Grocery Products $ 63,476 $ 54,248 17.0
Refrigerated Foods 79,453 61,150 29.9
Jennie-O Turkey Store 65,550 52,232 25.5
Specialty Foods 15,975 24,093 (33.7 )
International & Other   22,069   12,126 82.0  
Total segment operating profit 246,523 203,849 20.9
Net interest and investment expense (income) 595 1,407 (57.7 )
General corporate expense 7,466 3,389 120.3
Noncontrolling interest   1,145   1,685 (32.0 )
Earnings before income taxes $ 239,607 $ 200,738 19.4  
 
 
YEAR TO DATE – 52 WEEKS ENDED
 

NET SALES
October 27, 2013 October 28, 2012 % Change
Grocery Products $ 1,517,557 $ 1,170,871 29.6
Refrigerated Foods 4,251,515 4,222,752 0.7
Jennie-O Turkey Store 1,601,868 1,549,227 3.4
Specialty Foods 932,533 924,472 0.9
International & Other   448,181   363,348 23.3  
Total $ 8,751,654 $ 8,230,670 6.3  
 

OPERATING PROFIT
Grocery Products $ 213,646 $ 181,251 17.9
Refrigerated Foods 232,692 228,665 1.8
Jennie-O Turkey Store 222,117 238,298 (6.8 )
Specialty Foods 88,873 83,089 7.0
International & Other   71,490   49,889 43.3  
Total segment operating profit 828,818 781,192 6.1
Net interest and investment expense (income) 7,482 6,339 18.0
General corporate expense 26,694 21,429 24.6
Noncontrolling interest   3,865   4,911 (21.3 )
Earnings before income taxes $ 798,507 $ 758,335 5.3  
 
 
HORMEL FOODS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
         
Thirteen Weeks Ended Fifty-Two Weeks Ended
October 27, 2013   October 28, 2012 October 27, 2013     October 28, 2012
 
Net sales $ 2,323,202 $ 2,170,184 $ 8,751,654 $ 8,230,670
 
Cost of products sold   1,937,686     1,818,405     7,338,838     6,898,819  
 
GROSS PROFIT: 385,516 351,779 1,412,816 1,331,851
 
Selling, general and administrative 147,444 159,685 627,340 605,868
 
Equity in earnings of affiliates   2,130     10,051     20,513     38,691  
 
OPERATING INCOME: 240,202 202,145 805,989 764,674
 
Other income & expenses:
Interest & investment income 2,500 1,748 4,971 6,520
Interest expense   (3,095 )   (3,155 )   (12,453 )   (12,859 )
 
EARNINGS BEFORE INCOME TAXES: 239,607 200,738 798,507 758,335
 
Provision for income taxes 81,122 66,452 268,431 253,374
(effective tax rate)   33.86 %   33.10 %   33.62 %   33.41 %
 
NET EARNINGS 158,485 134,286 530,076 504,961

Less: net earnings attributable to noncontrolling interest
 

1,145
   

1,685
   

3,865
   

4,911
 

NET EARNINGS ATTRIBUTABLE TO HORMEL FOODS CORPORATION

$

157,340
 

$

132,601
 

$

526,211
 

$

500,050
 
 
NET EARNINGS PER SHARE
Basic $ 0.60   $ 0.50   $ 1.99   $ 1.90  
Diluted $ 0.58   $ 0.49   $ 1.95   $ 1.86  
 
WEIGHTED AVG SHARES O/S
Basic 263,853 262,949 264,317 263,466
Diluted 270,208 268,149 270,224 268,891
 
DIVIDENDS DECLARED
PER SHARE $ 0.17   $ 0.15   $ 0.68   $ 0.60  
 
 
HORMEL FOODS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
       
 
October 27, 2013 October 28, 2012
(in thousands)

ASSETS
 
CURRENT ASSETS
Cash and cash equivalents $ 434,014 $ 682,388
Short-term marketable securities - 77,387
Accounts receivable 551,500 507,041
Inventories 967,977 950,521
Income taxes receivable - 16,460
Deferred income taxes 73,543 68,560
Prepaid expenses 13,000 12,772
Other current assets   7,379   5,555
 
TOTAL CURRENT ASSETS 2,047,413 2,320,684
 
INTANGIBLES 1,312,565 753,947
 
OTHER ASSETS 600,569 564,855
 
PROPERTY, PLANT & EQUIPMENT, NET   955,333   924,480
 
TOTAL ASSETS $ 4,915,880 $ 4,563,966
 
 

LIABILITIES AND SHAREHOLDERS’ INVESTMENT
 
TOTAL CURRENT LIABILITIES $ 784,009 $ 786,300
 
LONG-TERM DEBT – LESS CURRENT MATURITIES 250,000 250,000
 
OTHER LONG-TERM LIABILITIES 565,292 702,741
 
SHAREHOLDERS’ INVESTMENT   3,316,579   2,824,925
 
TOTAL LIAB. & SHAREHOLDERS’ INVESTMENT $ 4,915,880 $ 4,563,966
 
 
HORMEL FOODS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
   
Fifty-Two Weeks Ended
October 27, 2013     October 28, 2012
(in thousands)
OPERATING ACTIVITIES
Net earnings $ 530,076 $ 504,961
Depreciation and amortization of intangibles 124,850 119,494
Increase in working capital (22,016 ) (113,938 )
Other   4,895     7,264  
NET CASH PROVIDED BY OPERATING ACTIVITIES 637,805 517,781
 
INVESTING ACTIVITIES
Net sale of securities 77,558 -
Acquisitions of businesses/intangibles (665,415 ) (168 )
Net purchases of property / equipment (96,598 ) (127,739 )
(Increase) decrease in investments, equity in affiliates, and other assets   (6,619 )   21,143  
NET CASH USED IN INVESTING ACTIVITIES (691,074 ) (106,764 )
 
FINANCING ACTIVITIES
Dividends paid on common stock (174,320 ) (152,204 )
Share repurchase (70,819 ) (61,366 )
Other   49,618     20,821  
NET CASH USED IN FINANCING ACTIVITIES (195,521 ) (192,749 )
EFFECT OF EXCHANGE RATE CHANGES ON CASH   416     990  
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (248,374 ) 219,258
Cash and cash equivalents at beginning of year   682,388     463,130  
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 434,014   $ 682,388  
 

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