Hormel Foods Achieves Record First Quarter Earnings and Raises Fiscal 2016 Guidance

AUSTIN, Minn.--(BUSINESS WIRE)--Hormel Foods Corporation (NYSE:HRL) today reported record performance for the fiscal year 2016 first quarter.

All comparisons are to the first quarter of fiscal 2015. All earnings per share measures have been adjusted to reflect the two-for-one stock split distributed on February 9, 2016.

SUMMARY

• Record diluted earnings per share of $0.43, up 23 percent from non-GAAP¹ adjusted diluted EPS² of $0.35. 2015 GAAP EPS were $0.32.
• Dollar sales of $2.3 billion, down 4 percent; volume down 3 percent.
• Grocery Products operating profit up 26 percent as compared to 2015 non-GAAP¹ adjusted segment operating profit²; volume down 5 percent; dollar sales down 4 percent. Operating profit up 58 percent as compared to 2015 GAAP operating profit.
• Refrigerated Foods operating profit up 65 percent; volume up 5 percent; dollar sales up 2 percent.
• Jennie-O Turkey Store operating profit down 2 percent; volume down 23 percent; dollar sales down 15 percent. Decreases reflect the substantial impact of the avian influenza outbreak, as flocks lost in 2015 created large volume shortfalls in operations and sales.
• Specialty Foods operating profit up 44 percent; volume down 4 percent; dollar sales down 10 percent.
• International & Other operating profit up 1 percent as compared to 2015 non-GAAP¹ adjusted segment operating profit²; volume up 4 percent; dollar sales down 7 percent. Operating profit up 69 percent as compared to 2015 GAAP operating profit.

The company reported fiscal 2016 first quarter record net earnings of $235.1 million, up 25 percent from non-GAAP¹ adjusted net earnings² of $187.3 million last year. 2015 GAAP net earnings were $171.7 million. Diluted earnings per share for the quarter were $0.43, up 23 percent from non-GAAP¹ adjusted diluted earnings per share² of $0.35 last year. 2015 GAAP diluted earnings per share were $0.32. Sales for the quarter were $2.3 billion, down 4 percent from last year.

COMMENTARY

“We are pleased to report a double-digit earnings increase for the quarter, with four of our five segments posting earnings growth,” said Jeffrey M. Ettinger, chairman of the board and chief executive officer. “This marks our eleventh consecutive quarter of achieving record earnings results.”

“Our commitment to investing in the sustained growth of the business is evident in our results. Our business performance continues to be influenced by our company-wide spirit of innovation, increased brand support, prudent capital investment, and portfolio-expanding acquisitions,” commented Ettinger. “While sales were muted this quarter by turkey supply constraints and lower pricing due to declining pork markets, we enjoyed strong performance from many great products across our portfolio, such as HORMEL GATHERINGS^® party trays, APPLEGATE^® natural breakfast sausage, HORMEL^® FIRE BRAISED^TM meats, MUSCLE MILK^® PRO SERIES protein beverages, and WHOLLY GUACAMOLE^® refrigerated dips.”

SEGMENT OPERATING HIGHLIGHTS – FIRST QUARTER

Grocery Products (17% of Net Sales, 17% of Total Segment Operating Profit)
Grocery Products segment profit increased 26 percent over adjusted 2015 results², benefiting from favorable raw material costs and improved plant efficiencies. Segment profit increased 58 percent as compared to 2015 GAAP segment profit. Sales fell 4 percent, with overall softer results partially offset by increased sales of WHOLLY GUACAMOLE^® refrigerated dips and HORMEL^® bacon toppings.

Refrigerated Foods (51% of Net Sales, 45% of Total Segment Operating Profit)
Refrigerated Foods segment profit increased 65 percent driven by higher pork operating margins and strong results in our value added businesses. Dollar sales were up 2 percent with the addition of the Applegate business, growth of retail products including HORMEL^® CURE 81^® bone-in hams and HORMEL^® refrigerated entrees, and increased sales of foodservice products such as OLD SMOKEHOUSE^® bacon and HORMEL^® NATURAL CHOICE^® deli meats.

Jennie-O Turkey Store (16% of Net Sales, 24% of Total Segment Operating Profit)
Jennie-O Turkey Store segment profit declined 2 percent and sales were down 15 percent. The reductions reflect the substantial impact of the avian influenza outbreak that occurred in 2015, as previously lost flocks created significant volume shortfalls in plant operations and sales.

Specialty Foods (10% of Net Sales, 7% of Total Segment Operating Profit)
Specialty Foods delivered a 44 percent segment profit increase. Results reflect favorable input costs and synergies captured within the CytoSport and Century Foods supply chain. Sales decreased 10 percent as increased sales of MUSCLE MILK^® protein products did not fully offset lower sales of sports nutrition contract packaging.

International & Other (6% of Net Sales, 7% of Total Segment Operating Profit)
International & Other posted a segment profit increase of 1 percent over adjusted 2015 results², while sales were down 7 percent. Segment profit increased 69 percent as compared to 2015 GAAP segment profit. Results reflect unfavorable currency rates and softer sales in key markets, which offset SKIPPY^® peanut butter sales gains.

OUTLOOK

“Our strong earnings performance in the first quarter, led by Refrigerated Foods, Grocery Products, and Specialty Foods, along with the positive momentum at Jennie-O Turkey Store, has given us confidence to raise our fiscal 2016 earnings guidance range from $1.43 to $1.48 per share to $1.50 to $1.56 per share,” stated James P. Snee, President and Chief Operating Officer.

“We expect favorable input costs to continue for Refrigerated Foods, Grocery Products, and Specialty Foods, while we look for pork operating margins to moderate as the year progresses,” commented Snee. “Our turkey production is on pace to return to normalized levels by the end of the second quarter, positioning Jennie-O Turkey Store for strong growth in the back half of fiscal 2016 with our on-trend portfolio of JENNIE-O^® turkey products. We expect International to achieve improved results with increased sales of our SKIPPY^® peanut butter and SPAM^® family of products.”

“As part of our efforts to drive revenue growth, we are currently investing in our brands through impactful new advertising campaigns for innovations such as our SKIPPY^® PB BITES, and core items including HORMEL^® pepperoni and MUSCLE MILK^® protein products, ” added Snee.

DIVIDENDS

Effective February 16, 2016, the company paid its 350th consecutive quarterly dividend, at the annual rate of $0.58.

CONFERENCE PRESENTATION

A conference presentation will be webcast live at 9:30 a.m. CT on Tuesday, February 16, 2016. Access is available at www.hormelfoods.com. The webcast replay will be available at 11:30 a.m. CT, Tuesday, February 16, 2016, and will remain on our website for one year.

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 non-GAAP adjusted financial measurements are used for internal purposes to evaluate the results of operations and to measure a component of certain employee incentive plans in fiscal year 2015. 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 segment operating profit, net earnings, and diluted net earnings per share exclude charges relating to the closure of the Stockton, California, manufacturing facility and the exit from international joint venture businesses in the first quarter of fiscal 2015. The tables below show the calculations to reconcile from the non-GAAP adjusted measures to the GAAP measures.

First Quarter
(In thousands, except per share amounts)	2016 Earnings			2015 Non- GAAP Adjusted Earnings			Stockton Plant Closure			International Business Exit			2015 GAAP Earnings
Grocery Products	$	65,273		$	51,901		$	(10,526	)	$			$	41,375
Refrigerated Foods		166,908			101,152									101,152
Jennie-O Turkey Store		91,303			93,020									93,020
Specialty Foods		26,793			18,576									18,576
International & Other		24,287			23,930						(9,546	)		14,384
Total segment operating profit		374,564			288,579			(10,526	)		(9,546	)		268,507
Net interest & investment expense		(5,370	)		(1,929	)								(1,929	)
General corporate expense		(15,132	)		(3,253	)								(3,253	)
Earnings before income taxes		354,062			283,397			(10,526	)		(9,546	)		263,325
Income taxes		(119,001	)		(96,062	)		3,685			770			(91,607	)
Net earnings attributable to Hormel Foods Corporation	$	235,061		$	187,335		$	(6,841	)	$	( 8,776	)	$	171,718
Diluted net earnings per share*	$	0.43		$	0.35		$	(0.02	)	$	(0.02	)	$	0.32
*Earnings per share does not sum across due to rounding

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. Hormel Foods, which 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, will celebrate its 125^th anniversary in 2016. The company is a member of the Standard & Poor's (S&P) 500 Index, S&P 500 Dividend Aristocrats, and was named one of “The 100 Best Corporate Citizens” by Corporate Responsibility Magazine for the seventh year in a row. Hormel Foods also received a perfect score on the Human Rights Campaign’s 2016 Corporate Equality Index, was recognized on the 2015 Best for Vets Employers List by Military Times, and was named one of the 2016 40 Best Companies for Leaders by Chief Executive magazine. 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 28 - 32 in the company’s annual stockholders’ report for the year ended October 25, 2015, which can be accessed at www.hormelfoods.com under “Investors-SEC Filings.”

Segment Data
Fiscal 2016 First Quarter Segment Operating Results (dollars in thousands)
	FIRST QUARTER – 13 WEEKS ENDED
NET SALES	January 24, 2016		January 25, 2015		% Change
Grocery Products	$	392,218	$	409,751	(4.3	)
Refrigerated Foods		1,162,121		1,144,215	1.6
Jennie-O Turkey Store		372,066		440,019	(15.4	)
Specialty Foods		237,779		263,274	(9.7	)
International & Other		128,488		137,814	(6.8	)
Total	$	2,292,672	$	2,395,073	(4.3	)
OPERATING PROFIT
Grocery Products	$	65,273	$	41,375	57.8
Refrigerated Foods		166,908		101,152	65.0
Jennie-O Turkey Store		91,303		93,020	(1.8	)
Specialty Foods		26,793		18,576	44.2
International & Other		24,287		14,384	68.8
Total segment operating profit		374,564		268,507	39.5
Net interest and investment expense (income)		5,370		1,929	178.4
General corporate expense		15,132		3,253	365.2
Noncontrolling interest		106		712	(85.1	)
Earnings before income taxes	$	354,168	$	264,037	34.1

HORMEL FOODS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (In thousands, except per share amounts)
	Thirteen Weeks Ended
	January 24, 2016			January 25, 2015*
Net sales	$	2,292,672		$	2,395,073
Cost of products sold		1,734,661			1,950,468
GROSS PROFIT		558,011			444,605
Selling, general and administrative		209,948			180,299
Equity in earnings of affiliates		11,475			1,660
OPERATING INCOME		359,538			265,966
Other income & expenses:
Interest & investment (expense) income		(1,963	)		1,149
Interest expense		(3,407	)		(3,078	)
EARNINGS BEFORE INCOME TAXES		354,168			264,037
Provision for income taxes		119,001			91,607
(effective tax rate)		33.60	%		34.69	%
NET EARNINGS		235,167			172,430
Less: net earnings attributable to noncontrolling interest		106			712
NET EARNINGS ATTRIBUTABLE TO HORMEL FOODS CORPORATION	$	235,061		$	171,718
NET EARNINGS PER SHARE
Basic	$	0.44		$	0.33
Diluted	$	0.43		$	0.32
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic		528,862			527,352
Diluted		542,737			540,123
DIVIDENDS DECLARED PER SHARE	$	0.145		$	0.125
* Shares and per share figures have been restated to reflect the two-for-one stock split distributed on February 9, 2016.

HORMEL FOODS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands)
	January 24, 2016		October 25, 2015
	(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	375,215	$	347,239
Accounts receivable		554,738		605,689
Inventories		994,826		993,265
Income taxes receivable		-		6,132
Deferred income taxes		-		86,902
Prepaid expenses		13,820		14,383
Other current assets		7,484		9,422
TOTAL CURRENT ASSETS		1,946,083		2,063,032
DEFERRED INCOME TAXES		20,992		-
INTANGIBLES		2,524,430		2,526,703
OTHER ASSETS		535,381		538,357
PROPERTY, PLANT & EQUIPMENT, NET		1,014,003		1,011,739
TOTAL ASSETS	$	6,040,889	$	6,139,831
LIABILITIES AND SHAREHOLDERS’ INVESTMENT
CURRENT LIABILITIES
Short-term debt	$	-	$	185,000
Current liabilities excluding debt		1,020,098		1,029,025
TOTAL CURRENT LIABILITIES		1,020,098		1,214,025
LONG-TERM DEBT – LESS CURRENT MATURITIES		250,000		250,000
OTHER LONG-TERM LIABILITIES		607,278		674,413
SHAREHOLDERS’ INVESTMENT		4,163,513		4,001,393
TOTAL LIAB. & SHAREHOLDERS’ INVESTMENT	$	6,040,889	$	6,139,831

HORMEL FOODS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In thousands)
	Thirteen Weeks Ended
	January 24, 2016			January 25, 2015
OPERATING ACTIVITIES
Net earnings	$	235,167		$	172,430
Depreciation and amortization of intangibles		31,804			32,759
Decrease in working capital		30,795			46,849
Other		(19,075	)		(5,536	)
NET CASH PROVIDED BY OPERATING ACTIVITIES		278,691			246,502
INVESTING ACTIVITIES
Net purchases of property/equipment		(32,069	)		(17,743	)
Decrease in investments, equity in affiliates, and other assets		11,088			14,932
NET CASH USED IN INVESTING ACTIVITIES		(20,981	)		(2,811	)
FINANCING ACTIVITIES
Net payments on short-term debt		(185,000	)		-
Dividends paid on common stock		(66,137	)		(52,801	)
Other		23,663			3,439
NET CASH USED IN FINANCING ACTIVITIES		(227,474	)		(49,362	)
Effect of exchange rate changes on cash		(2,260	)		(1,406	)
INCREASE IN CASH AND CASH EQUIVALENTS		27,976			192,923
Cash and cash equivalents at beginning of year		347,239			334,174
CASH AND CASH EQUIVALENTS AT END OF QUARTER	$	375,215		$	527,097