Hormel Foods Announces Record First Quarter Results

AUSTIN, Minn., Feb. 23, 2017 /PRNewswire/ -- Hormel Foods Corporation (NYSE: HRL) today reported results for the first quarter of fiscal year 2017. All comparisons are to the first quarter of fiscal year 2016. Results reflect the divestiture of the Diamond Crystal Brands business, the divestiture of the Farmer John business, and the acquisition of Justin's, LLC. The impact of these transactions are excluded in the presentation of the non-GAAP adjusted measures below.

SUMMARY

First Quarter

• Record diluted earnings per share of $0.44, up 2 percent from 2016 EPS of $0.43
• Net earnings of $235 million, flat compared to 2016 net earnings of $235 million
• Sales of $2.3 billion, down 1 percent; Non-GAAP¹ adjusted sales² increased 3 percent
• Volume down 2 percent; Non-GAAP¹ adjusted volume² up 5 percent
• Refrigerated Foods operating profit up 4 percent; volume down 3 percent; Non-GAAP¹ adjusted volume² flat; sales down 3 percent; Non-GAAP¹ adjusted sales² down 1 percent
• International & Other operating profit up 5 percent; volume down 1 percent; sales down 2 percent
• Grocery Products operating profit up 1 percent; volume up 4 percent; Non-GAAP¹ adjusted volume² up 2 percent; sales up 7 percent; Non-GAAP¹ adjusted sales² up 3 percent
• Specialty Foods operating profit flat; volume down 30 percent; Non-GAAP¹ adjusted volume² up 12 percent; sales down 19 percent; Non-GAAP¹ adjusted sales² up 10 percent
• Jennie-O Turkey Store operating profit down 25 percent; volume up 22 percent; sales up 13 percent

COMMENTARY

"I'm proud of our team's ability to drive earnings growth for the 15^th consecutive quarter," said Jim Snee, president and chief executive officer. "Our adjusted sales and volume performance for the quarter was solid with sales up 3 percent and volume up 5 percent."

"Earnings at Jennie-O Turkey Store declined compared to last year as turkey commodity prices were lower than we expected. However, demand for JENNIE-O® branded products continues to be strong," Snee said. "Refrigerated Foods was able to grow earnings four percent on excellent value-added sales growth despite the divestiture of the Farmer John business. Our International segment also delivered earnings growth fueled by strong pork exports."

SEGMENT OPERATING HIGHLIGHTS ? FIRST QUARTER

Grocery Products (18% of Net Sales, 18% of Total Segment Operating Profit)
Grocery Products sales increased 7 percent on the addition of JUSTIN'S® specialty nut butters along with strong sales of WHOLLY GUACAMOLE® dips, SKIPPY® peanut butter products, and HERDEZ® salsa. Non-GAAP¹ adjusted sales² increased 3 percent. Segment profit was up 1 percent. Grocery Products increased advertising to support key brands such as WHOLLY GUACAMOLE® dips and HERDEZ® salsa.

Refrigerated Foods (49% of Net Sales, 48% of Total Segment Operating Profit)
Refrigerated Foods segment profit increased 4 percent driven by solid value-added product growth in our foodservice and retail channels. Sales declined 3 percent, primarily related to the divestiture of the Farmer John business in January 2017. Non-GAAP¹ adjusted sales² decreased 1 percent. Foodservice products such as HORMEL® pepperoni and HORMEL® BACON 1^TM fully cooked bacon, and retail products such as HORMEL GATHERINGS® party trays and HORMEL® NATURAL CHOICE® meats had excellent sales growth this quarter.

Jennie-O Turkey Store (19% of Net Sales, 19% of Total Segment Operating Profit)
Jennie-O Turkey Store sales increased 13 percent and volume increased 22 percent while segment profit decreased 25 percent. Despite volume and sales increases of value-added products, segment profit declined primarily due to lower turkey commodity prices and increased operating expenses. Pricing pressure from competing proteins in the foodservice, deli and retail channels also affected the quarterly results.

Specialty Foods (8% of Net Sales, 8% of Total Segment Operating Profit)
Specialty Foods segment profit was flat and sales declined 19 percent, primarily due to the divestiture of Diamond Crystal Brands in May 2016. Non-GAAP¹ adjusted sales² increased 10 percent.

International & Other (6% of Net Sales, 7% of Total Segment Operating Profit)
International segment profit increased 5 percent while sales decreased 2 percent. Strong fresh pork exports offset declines in branded exports. High pork raw material costs continued to impact the profitability of our China meat business.

OUTLOOK

"We are tempering our full year outlook for the Jennie-O Turkey Store segment given the shortfalls in the first quarter and the expected continuation of pricing pressure due to low commodity turkey prices. Improvements in our other segments are expected to offset some of the earnings headwinds from Jennie-O Turkey Store," Snee said.

The Company is lowering its fiscal 2017 guidance to $1.65 to $1.71 per share due to challenging market conditions in the turkey industry. "The balanced model we have intentionally built in our business will allow us to overcome the challenges at Jennie-O Turkey Store. I remain confident in our team's ability to deliver sales and earnings growth by supporting our brands, innovating, and making strategic investments," Snee said.

DIVIDENDS

Effective February 15, 2016, the company paid its 354^th consecutive quarterly dividend at the annual rate of $0.68.

¹ COMPARISON OF U.S. GAAP TO NON-GAAP FINANCIAL MEASUREMENTS

The non-GAAP adjusted financial measurements are presented to provide investors additional information to facilitate the comparison of past and present operations. The company believes these non-GAAP adjusted 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.

² ADJUSTED FINANCIAL MEASURES

Adjusted net sales and volume excludes the impact from the Justin's, LLC acquisition in May 2016, and the divestitures of the Diamond Crystal Brands business in May 2016, and the Farmer John business in January 2017. The tables below show the calculations to reconcile from the non-GAAP adjusted measures to the GAAP measures in first quarter of fiscal 2016 and the first quarter of fiscal 2017.

CONFERENCE CALL

A conference call will be webcast at 8:00 a.m. CT on Thursday, February 23, 2017. Access is available at www.hormelfoods.com. The call will also be available via telephone by dialing 888-468-2440 and providing the access code 5626388. An audio replay is available by going to https://jsp.premiereglobal.com/webrsvp and entering the access code 5626388. The webcast replay will be available at 11:00 a.m. CT, Thursday, February 23, 2017, and will remain on the website for one year.

About Hormel Foods ? Inspired People. Inspired Food.tm

Hormel Foods Corporation, based in Austin, Minn., is a global branded food company with over $9 billion in annual revenues across 75 countries worldwide. Its brands include SKIPPY®, SPAM®, Hormel® Natural Choice®, 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 eighth 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.tm - focusing on its legacy of innovation. For more information, visit www.hormelfoods.com and http://2015csr.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 which appear on pages 31 - 35 in the company's annual stockholders' report for the year ended October 30, 2016, which can be accessed at www.hormelfoods.com under "Investors-SEC Filings."

Statements Follow

SOURCE Hormel Foods Corporation