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Hormel Foods Reports Third Quarter Results


AUSTIN, Minn., Aug. 22, 2019 /PRNewswire/ -- Hormel Foods Corporation (NYSE: HRL), a leading global branded food company, today reported results for the third quarter of fiscal 2019. All comparisons are to the third quarter of fiscal 2018 unless otherwise noted. Results reflect the divestiture of the CytoSport business. The impact of this transaction is excluded in the presentation of the non-GAAP measures below.

Hormel Foods corporate logo

EXECUTIVE SUMMARY

COMMENTARY
"We delivered earnings in line with our expectations this quarter as our experienced management team reacted quickly and appropriately to rapidly changing market conditions," said Jim Snee, chairman of the board, president and chief executive officer. "Disciplined pricing, strategic promotional activity, effective advertising and insight-led innovation all played a positive role in our performance. The fundamentals of our company are strong, and we remain focused on delivering our key results as we navigate near-term commodity market uncertainty."

"Innovative branded product lines such as Hormel® Bacon 1TM cooked bacon, Hormel® Fire BraisedTM products, Skippy® P.B. & Jelly Minis, and Herdez® salsas all delivered strong sales growth," Snee said. "Our team also grew sales across many core brands such as SPAM®, Dinty Moore®, Mary Kitchen® and Old Smokehouse®."

"Double-digit earnings growth in Refrigerated Foods offset weaker results in Grocery Products," Snee said. "Refrigerated Foods effectively managed sales growth and profitability in the midst of volatile input costs caused by African swine fever. Many of our established brands in Grocery Products continue to outpace center store growth. However, the disappointing bottom-line performance for Grocery Products was driven by higher avocado costs in our MegaMex joint venture and lower results for our Skippy® peanut butter spreads business."

"The Jennie-O Turkey Store team is working diligently to regain lean ground turkey distribution following the two voluntary product recalls," Snee said. "Our International team made progress growing the SPAM® and Skippy® brands in China while U.S. exports continue to be impacted by global trade uncertainty."

SEGMENT HIGHLIGHTS ? THIRD QUARTER

Refrigerated Foods

Sales increased on strong demand for foodservice items such as Hormel® Bacon 1tm cooked bacon, Old Smokehouse® premium raw bacon and Hormel® Fire BraisedTM products. Retail sales of Hormel® Black Label® convenience bacon and Columbus® branded deli items also contributed to overall growth. Volume declined slightly for the quarter, attributed to price increases on value-added items. Segment profit increased significantly primarily due to improved profitability for value-added products. Favorable operational expenses and higher commodity profits also contributed to the earnings growth.

Grocery Products

Volume and sales decreases were related to the divestiture of CytoSport. On an organic basis, strong sales of the SPAM® family of products, Don Miguel® branded items, Dinty Moore® stew and Herdez® salsas and sauces more than offset lower sales of Skippy® peanut butter. The decline in segment profit was driven by the divestiture of CytoSport, the impact of significantly higher avocado costs and lower Skippy® peanut butter pricing.

Jennie-O Turkey Store

Volume and sales decreased for the quarter as lower retail and foodservice sales were not fully offset by improved results in the commodity and whole-bird businesses. The retail business continues to be impacted by lost distribution due to the impact of two voluntary product recalls. Segment profit declined as a result of lower sales from retail and foodservice value-added items.

International & Other

Volume and sales for the quarter were flat as improved results in China offset the divestiture of CytoSport. Results in China were positively impacted by strong demand for foodservice and Skippy® peanut butter products as well as increased distribution of SPAM® luncheon meat. Segment profit for the quarter was slightly higher, driven by growth in China.

SELECTED FINANCIAL DETAILS

Income Statement

Cash Flow Statement

Balance Sheet

OUTLOOK
"We are reaffirming our fiscal 2019 earnings guidance range," Snee said. "While we have yet to see sustained higher pork prices due to African swine fever, we have seen input cost volatility and are expecting further volatility. The Refrigerated Foods team has proven its ability to operate in various market conditions with a continued focus on value-added growth, disciplined pricing and innovation. Earnings pressure from higher avocado prices and peanut butter category dynamics will continue to impact results in Grocery Products in the fourth quarter."

"Our experienced management team will continue to leverage our company's long-term strategy of building brands, innovating, making strategic acquisitions and increasing balance in our business to deliver long-term growth," Snee said.


Fiscal 2019 Outlook

Net Sales Guidance (in billions)

$9.50 - $10.0

Earnings Per Share Guidance

$1.71 - $1.85

PRESENTATION
A conference call will be webcast at 8 a.m. CT on Thursday, August 22, 2019. Access is available at www.hormelfoods.com by clicking on "Investors." The call will also be available via telephone by dialing 888-204-4368 and providing the access code 8156000. An audio replay is available by going to www.hormelfoods.com. The webcast replay will be available at 11 a.m. CT, Thursday, August 22, 2019, 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 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®, 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 11th 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://csr.hormelfoods.com/.

REPORTING SEGMENTS
At the beginning of fiscal 2019, the Hormel Deli Solutions division combined all deli businesses, including the Jennie-O Turkey Store deli division, into one division within the Refrigerated Foods segment. In addition, the ingredients business was realigned from the Grocery Products segment to the Refrigerated Foods segment. Fiscal 2018 third quarter and year-to-date segment net sales and segment profit reflect the new operating segments. These segment changes have no effect on previously reported consolidated net sales, operating profit, net earnings or earnings per share.

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 35-41 in the company's Form 10-Q for the quarter ended April 28, 2019, which can be accessed at hormelfoods.com in the "Investors" section.

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 CytoSport divestiture (April 2019) in the Grocery Products and International & Other segments. The tables below show the calculations to reconcile from the non-GAAP adjusted measures to the GAAP measures in the third quarter and year-to-date of fiscal 2019 and fiscal 2018.

NON-GAAP MEASURES
(In thousands)




Third Quarter


FY19


FY18


VOLUME (LBS.)

Reported

GAAP


Reported

GAAP*

Divestitures

Organic

(Non-GAAP)

Non-GAAP

% Change

Grocery Products

290,658



323,748


(36,521)


287,227


1.2

Refrigerated Foods

558,531



564,672


?


564,672


(1.1)

Jennie-O Turkey Store

189,146



197,710


?


197,710


(4.3)

International & Other

85,169



84,763


(1,369)


83,394


2.1

   TOTAL

1,123,504



1,170,893


(37,890)


1,133,003


(0.8)








NET SALES







Grocery Products

$

543,088



$

607,054


$

(69,986)


$

537,068


1.1

Refrigerated Foods

1,301,101



1,288,394


?


1,288,394


1.0

Jennie-O Turkey Store

298,781



316,100


?


316,100


(5.5)

International & Other

147,735



147,594


(2,463)


145,131


1.8

   TOTAL

$

2,290,705



$

2,359,142


$

(72,449)


$

2,286,693


0.2




Year-to-Date


FY19


FY18


VOLUME (LBS.)

Reported

GAAP


Reported

GAAP*

Divestitures

Organic

(Non-GAAP)

Non-GAAP

% Change

Grocery Products

970,003



982,479


(36,521)


945,958


2.5

Refrigerated Foods

1,726,682



1,734,842


?


1,734,842


(0.5)

Jennie-O Turkey Store

546,916



553,475


?


553,475


(1.2)

International & Other

256,803



262,090


(1,369)


260,721


(1.5)

   TOTAL

3,500,404



3,532,886


(37,890)


3,494,996


0.2








NET SALES







Grocery Products

$

1,785,232



$

1,832,123


$

(69,986)


$

1,762,137


1.3

Refrigerated Foods

3,837,732



3,788,097


?


3,788,097


1.3

Jennie-O Turkey Store

925,271



942,735


?


942,735


(1.9)

International & Other

447,569



458,048


(2,463)


455,585


(1.8)

   TOTAL

$

6,995,804



$

7,021,003


$

(72,449)


$

6,948,554


0.7









* FY18 segment results have been adjusted to reflect the changes in the Grocery Products, Refrigerated Foods and Jennie-O Turkey Store segments.

 

HORMEL FOODS CORPORATION
SEGMENT DATA
(Unaudited) (In thousands)








Thirteen Weeks Ended



July 28,
2019


July 29,

 2018*


% Change

NET SALES







Grocery Products


$

543,088



$

607,054



(10.5)

Refrigerated Foods


1,301,101



1,288,394



1.0

Jennie-O Turkey Store


298,781



316,100



(5.5)

International & Other


147,735



147,594



0.1

TOTAL


$

2,290,705



$

2,359,142



(2.9)















SEGMENT PROFIT







Grocery Products


$

58,778



$

83,433



(29.6)

Refrigerated Foods


171,795



151,924



13.1

Jennie-O Turkey Store


21,278



23,305



(8.7)

International & Other


18,755



18,646



0.6

TOTAL SEGMENT PROFIT


270,606



277,308



(2.4)

Net unallocated expense


9,584



19,686



(51.3)

Noncontrolling interest


(22)



110



(120.0)

EARNINGS BEFORE INCOME TAX


$

261,000



$

257,732



1.3








Thirty-Nine Weeks Ended



July 28,
2019


July 29,

 2018*


% Change

NET SALES







Grocery Products


$

1,785,232



$

1,832,123



(2.6)

Refrigerated Foods


3,837,732



3,788,097



1.3

Jennie-O Turkey Store


925,271



942,735



(1.9)

International & Other


447,569



458,048



(2.3)

TOTAL


$

6,995,804



$

7,021,003



(0.4)















SEGMENT PROFIT







Grocery Products


$

258,574



$

274,184



(5.7)

Refrigerated Foods


492,476



476,375



3.4

Jennie-O Turkey Store


76,931



93,102



(17.4)

International & Other


58,058



64,151



(9.5)

TOTAL SEGMENT PROFIT


886,039



907,812



(2.4)

Net unallocated expense


297



48,384



(99.4)

Noncontrolling interest


279



352



(20.7)

EARNINGS BEFORE INCOME TAX


$

886,021



$

859,780



3.1








* FY18 segment results have been adjusted to reflect the changes in the Grocery Products, Refrigerated Foods and Jennie-O Turkey Store segments.

 

HORMEL FOODS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (In thousands, except per share amounts)












Thirteen Weeks Ended


Thirty-Nine Weeks Ended



July 28,
2019


July 29,

 2018*


July 28,
2019


July 29,

 2018*

Net sales


$

2,290,705



$

2,359,142



$

6,995,804



$

7,021,003


Cost of products sold


1,857,263



1,904,096



5,604,879



5,574,858


GROSS PROFIT


433,442



455,046



1,390,925



1,446,145


Selling, general and administrative


180,169



211,497



543,789



635,918


Equity in earnings of affiliates


3,384



13,141



28,133



50,158


OPERATING INCOME


256,657



256,690



875,269



860,385


Interest & investment income (expense)


7,556



9,477



25,727



19,560


Interest expense


(3,213)



(8,435)



(14,975)



(20,165)


EARNINGS BEFORE INCOME TAXES


261,000



257,732



886,021



859,780


Provision for income taxes


61,573



47,379



162,439



108,694


(effective tax rate)


23.6

%


18.4

%


18.3

%


12.6

%

NET EARNINGS


199,427



210,353



723,582



751,086


Less: Net earnings (loss) attributable to noncontrolling interest


(22)



110



279



352


NET EARNINGS ATTRIBUTABLE TO HORMEL FOODS CORPORATION


$

199,449



$

210,243



$

723,303



$

750,734











NET EARNINGS PER SHARE









Basic


$

0.37



$

0.40



$

1.35



$

1.42


Diluted


$

0.37



$

0.39



$

1.33



$

1.38











WEIGHTED-AVERAGE SHARES OUTSTANDING







Basic


534,188



530,606



534,721



529,953


Diluted


543,678



543,762



545,709



543,352











Dividends declared per share


$

0.2100



$

0.1875



$

0.6300



$

0.5625



*Restated per ASU 2017-07, Compensation - Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (Topic 715).

 

HORMEL FOODS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Unaudited) (In thousands)








July 28,
2019


October 28,
2018

ASSETS

Cash and cash equivalents


$

560,199



$

459,136


Short-term marketable securities


14,064



?


Accounts receivable


528,583



600,438


Inventories


1,108,514



963,527


Income taxes receivable


667



3,995


Prepaid expenses


22,606



16,342


Other current assets


11,335



6,662


TOTAL CURRENT ASSETS


2,245,968



2,050,100







Goodwill


2,487,289



2,714,116


Other intangibles


1,038,127



1,207,219


Pension assets


210,012



195,153


Investments in and receivables from affiliates


279,265



273,153


Other assets


177,529



189,951


Property, plant & equipment, net


1,516,386



1,512,600


TOTAL ASSETS


$

7,954,576



$

8,142,292












LIABILITIES AND SHAREHOLDERS' INVESTMENT

Accounts payable


$

513,372



$

618,830


Accrued expenses


56,378



48,298


Accrued workers' compensation


25,515



24,594


Accrued marketing


134,652



118,887


Employee-related expenses


193,049



224,736


Taxes payable


34,377



2,490


Interest and dividends payable


115,744



101,079


TOTAL CURRENT LIABILITIES


1,073,087



1,138,914







Long-term debt, less current maturities


250,000



624,840


Pension and post-retirement benefits


492,860



477,557


Other long-term liabilities


102,140



99,070


Deferred income taxes


145,154



197,093


Accumulated other comprehensive loss


(275,195)



(243,498)


Other shareholders' investment


6,166,530



5,848,316


TOTAL LIABILITIES & SHAREHOLDERS' INVESTMENT


$

7,954,576



$

8,142,292


 

HORMEL FOODS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In thousands)








Thirty-Nine Weeks Ended



July 28,
2019


July 29,
2018

OPERATING ACTIVITIES





Net earnings


$

723,582



$

751,086


Depreciation and amortization of intangibles


122,215



121,108


(Increase) decrease in working capital


(206,245)



(49,374)


Other


(66,640)



(79,615)


NET CASH PROVIDED BY OPERATING ACTIVITIES


572,912



743,205







INVESTING ACTIVITIES





Net (purchase) sale of securities


(13,884)



?


Proceeds from sale of business


473,885



?


Acquisitions of businesses/intangibles


?



(857,668)


Net purchases of property/equipment


(117,973)



(236,733)


Decrease (increase) in investments, equity in affiliates, and other assets


12,913



(1,569)


NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES


354,941



(1,095,970)







FINANCING ACTIVITIES





Net proceeds (payments) from short-term debt


?



95,000


Net (payments) proceeds from long-term debt


(374,840)



374,801


Dividends paid on common stock


(324,971)



(288,515)


Share repurchase


(174,246)



(44,741)


Other


48,107



40,732


NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES


(825,950)



177,277


Effect of exchange rate changes on cash


(840)



348


INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS


101,063



(175,140)


Cash and cash equivalents at beginning of year


459,136



444,122


CASH AND CASH EQUIVALENTS AT END OF QUARTER


$

560,199



$

268,982


 

INVESTOR CONTACT:
Nathan Annis
(507) 437-5248
[email protected]


MEDIA CONTACT:
Wendy Watkins
(507) 437-5345
[email protected]

 

SOURCE Hormel Foods Corporation


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