EX-99 2 hormelearningsreleaseq.htm EXHIBIT 99 Exhibit



INVESTOR CONTACT:
Nathan Annis
(507) 437-5248
ir@hormel.com
 
MEDIA CONTACT:        
Wendy Watkins       
(507) 437-5345        
media@hormel.com      

HORMEL FOODS REPORTS SECOND QUARTER RESULTS

Company's leading brands, balanced business model and strong balance sheet position it to manage through the near-term uncertainty related to African swine fever in China

AUSTIN, Minn. (May 23, 2019) – Hormel Foods Corporation (NYSE: HRL), a leading global branded food company, today reported results for the second quarter of fiscal 2019. All comparisons are to the second quarter of fiscal 2018 unless otherwise noted.
 
EXECUTIVE SUMMARY
•
Volume of 1.2 billion lbs., up 1%
•
Record net sales of $2.3 billion, up 1%
•
Pretax earnings of $318 million, up 7%
•
Diluted earnings per share of $0.52
•
Excluding one-time gain on the divestiture of CytoSport, adjusted diluted EPS1 of $0.46 per share
•
Effective tax rate of 11.1% compared to 20.0% last year
•
Operating margin of 13.3% compared to 12.9% last year
•
Year-to-date cash flow from operations of $366 million, down 18% due to higher working capital
•
Fiscal 2019 earnings guidance decreased to $1.71 to $1.85 per share from $1.77 to $1.91 per share

COMMENTARY
"We achieved record sales this quarter as three of our four segments delivered volume and sales growth," said Jim Snee, chairman of the board, president and chief executive officer. "Many of our innovative product lines such as Hormel® Bacon 1TM cooked bacon, Hormel® Fire BraisedTM products, Hormel® Natural Choice® snacks and Herdez® salsa delivered double-digit sales growth. We also grew core product lines such as Hormel® pepperoni, Dinty Moore® stew and Austin Blues® authentic barbeque products."

"In spite of record sales, second quarter earnings did not meet our expectations," Snee said. "African swine fever in China started to impact global hog and pork markets this quarter, which led to rapidly increasing input costs. In response, we have announced pricing action across our branded value-added portfolio in the Grocery Products, Refrigerated Foods and International segments."

"Jennie-O Turkey Store profits declined due to a combination of plant startup costs and lower retail sales," Snee said. "We made a large investment to automate our whole-bird facility in Melrose, Minn., and the startup was more difficult than anticipated. We made excellent progress through the quarter and are now on track to deliver the production efficiencies we expected. Retail sales declined for the quarter, but we are reactivating promotional activity and advertising in order to regain distribution."

"We finalized the sale of CytoSport this quarter and used the proceeds to pay down the remaining debt from the Columbus Craft Meats acquisition and build our cash position," Snee said. "We will use our strong balance sheet to continue to grow our company through disciplined and strategic investments, including acquisitions and capacity expansion projects."

1

SEGMENT HIGHLIGHTS – SECOND QUARTER

Refrigerated Foods
 
•Volume flat
•Net sales up 1%
•Segment profit down 5%
 
Volume and sales growth was led by foodservice products such as Hormel® Bacon 1TM cooked bacon, Hormel® Fire BraisedTM products and Austin Blues® authentic barbeque products. Retail products such as Hormel® Black Label® bacon, Hormel® Natural Choice® products, Hormel® pepperoni and Hormel® prepared foods products for the deli also showed excellent growth. Branded value-added sales growth was offset by a double-digit decline in commodity sales.

Segment profit declined as growth in value-added profits did not fully offset a 65% decline in commodity profits. Higher operational expenses related to capacity expansion projects also impacted profitability.

Grocery Products
 
•Volume up 3%
•Net sales up 2%
•Segment profit up 12%

Sales increases were led by Herdez® salsas and sauces, Wholly® guacamole dips and Skippy® peanut butter, offset by lower sales of CytoSport products. Segment profit increased primarily due to higher volume and margins across many categories, such as the SPAM® family of products and Dinty Moore® stew, and lower expenses for CytoSport. The divestiture of CytoSport was completed on April 15, 2019.
 
Jennie-O Turkey Store
 
•Volume up 2%
•Net sales flat
•Segment profit down 45%
 
Sales for the quarter were flat as improved results in foodservice and whole-bird sales were offset by declines in retail sales due to the lingering impact of two voluntary product recalls. Foodservice sales growth was led by many categories, including Jennie-O® sliced products. Segment profit was impacted by higher-than-expected plant startup expenses, higher feed costs and lower retail sales.

International & Other
 
•Volume down 7%
•Net sales down 9%
•Segment profit down 31%
 
International volume, sales and segment profit decreased primarily due to the continued impact of tariffs on fresh pork exports along with higher freight costs. Growth in our China business was driven by increased sales of branded value-added products such as SPAM® luncheon meat and Skippy® peanut butter.


2

SELECTED FINANCIAL DETAILS

Income Statement
•
Selling, general and administrative expenses decreased primarily due to a one-time gain resulting from the CytoSport divestiture and lower selling expenses.
•
Advertising investments were $35 million compared to $37 million last year. Advertising investments for the full year are expected to be modestly lower compared to the prior year due to the CytoSport divestiture.
•
Operating margin was 13.3% compared to 12.9% last year.
•
The effective tax rate was 11.1% compared to 20.0% last year. The decrease was due to the impact of the tax gain from the CytoSport divestiture. The full-year effective tax rate for fiscal 2019 is expected to be between 17.5% and 19.5%.

Cash Flow Statement
•
Capital expenditures in the second quarter were $48 million compared to $87 million last year. The full-year outlook for capital expenditures decreased to approximately $310 million, primarily due to weather delays and project timing. Key projects for the full year include an expansion of our Burke Corporation pizza-toppings facility in Nevada, Iowa, an expansion at our Fontanini facility in McCook, Ill., and multiple other projects designed to increase value-added capacity.
•
Depreciation and amortization expense in the second quarter was $41 million, flat to last year. The full-year expense is expected to be approximately $160 million.
•
Share repurchases for the quarter totaled $23 million, representing 0.6 million shares purchased.
•
The company repaid the remaining $375 million in debt related to the Columbus Craft Meats acquisition.
•
The company paid its 363rd consecutive quarterly dividend on May 15, 2019, at the annual rate of $0.84 per share, a 12% increase over the prior year.

Balance Sheet
•
Working capital increased to $1,199 million from $911 million at the beginning of the year, primarily related to the proceeds received from the CytoSport divestiture.
•
Cash on hand increased to $639 million from $459 million at the beginning of the year.
•
The company remains in a strong financial position to fund additional capital needs.

OUTLOOK
“Over the past three years, the intentional actions we have taken as part of Our Path Forward, which include evolving to a broader global branded food company, accelerating our foodservice business, modernizing our supply chain and divesting nonstrategic assets, has made our company stronger,” Snee said. “Our experienced management team, leading brands, focus on innovation, strong balance sheet and diversified businesses allow us to manage through times of uncertainty and volatility, as we are currently experiencing with African swine fever.”
The company's revised fiscal 2019 earnings guidance range is based on the input cost increases experienced in the second quarter and a forecast for volatile domestic pork prices in the second half of fiscal 2019. The company has a proven ability to operate in elevated market conditions but expects short-term margin compression as branded value-added pricing actions lag input cost increases. Additionally, expectations for Jennie-O Turkey Store have been lowered as the company reinvests in the Jennie-O® brand in order to regain retail distribution.

3

 
 
Revised Fiscal 2019 Outlook
Prior Fiscal 2019 Outlook
Net Sales Guidance (in billions)
$9.50 - $10.0
$9.70 - $10.20
Earnings Per Share Guidance
$1.71 - $1.85
$1.77 - $1.91

PRESENTATION
 
A conference call will be webcast at 8:00 a.m. CT on Thursday, May 23, 2019. Access is available at www.hormelfoods.com by clicking on "Investors." The call will also be available via telephone by dialing 800-263-0877 and providing the access code 5051059. An audio replay is available by going to www.hormelfoods.com. The webcast replay will be available at 11:00 a.m. CT, Thursday, May 23, 2019, and will remain on the website for one year.

ABOUT HORMEL FOODS - Inspired People. Inspired Food.™
 
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.™ - 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 second 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 31-36 in the company's Form 10-Q for the quarter ended Jan. 27, 2019, which can be accessed at hormelfoods.com in the "Investors" section.

 

4

1 COMPARISON OF U.S. GAAP TO NON-GAAP FINANCIAL MEASUREMENTS
The non-GAAP adjusted financial measurement of adjusted earnings per share is presented to provide investors additional information to facilitate the comparison of past and present operations. The company believes this non-GAAP financial measurement provides useful information to investors because it is a measurement used to evaluate performance on a comparable year-over-year basis. This non-GAAP measurement is not intended to be a substitute for a U.S. GAAP measurement in analyzing financial performance. This non-GAAP measurement is not in accordance with generally accepted accounting principles and may be different from non-GAAP measures used by other companies.

Adjusted earnings per share excludes the one-time gain associated with the divestiture of the CytoSport business, which was recognized in Net Unallocated Expense and Provision for Income Taxes. The tax benefit was driven by the sale of shares of the CytoSport legal entity. The table below shows the calculations to reconcile from the non-GAAP adjusted measure to the GAAP measure in the second quarter.
 
Second Quarter 2019
 
2019 Non-GAAP Adjusted Earnings
Gain on CytoSport Sale
2019 GAAP Earnings
Grocery Products
$
104,499

$
—

$
104,499

Refrigerated Foods
158,088

—

158,088

Jennie-O Turkey Store
17,749

—

17,749

International & Other
14,325

—

14,325

   Total segment profit
$
294,661

$
—

$
294,661

Net Unallocated Expense
(6,709
)
(16,469
)
(23,178
)
Noncontrolling interest
207

—

207

   Earnings Before Income Taxes
$
301,577

$
16,469

$
318,046

Provision for income taxes
52,382

(16,972
)
35,410

   Net Earnings
$
249,195

$
33,441

$
282,636

Less: Net earnings attributable to noncontrolling interest
207

—

207

   Net Earnings attributable to Hormel Foods Corporation
$
248,988

$
33,441

$
282,429

 
 
 
 
   Diluted Earnings Per Share
$
0.46

$
0.06

$
0.52



5
HORMEL FOODS CORPORATION
SEGMENT DATA
(Unaudited) (In thousands)

 
 
 
 
 

 
 
Thirteen Weeks Ended
 
 
April 28, 2019
 
April 29, 2018*
 
% Change
NET SALES
 
 
 
 
 
 
Grocery Products
 
$
635,319

 
$
621,492

 
2.2

Refrigerated Foods
 
1,257,884

 
1,245,066

 
1.0

Jennie-O Turkey Store
 
305,256

 
303,875

 
0.5

International & Other
 
146,285

 
160,135

 
(8.6
)
TOTAL
 
$
2,344,744

 
$
2,330,568

 
0.6

 
 
 
 
 
 
 
 
 
 
 
 
 
 
SEGMENT PROFIT
 
 

 
 

 
 

Grocery Products
 
$
104,499

 
$
93,206

 
12.1

Refrigerated Foods
 
158,088

 
166,920

 
(5.3
)
Jennie-O Turkey Store
 
17,749

 
32,073

 
(44.7
)
International & Other
 
14,325

 
20,850

 
(31.3
)
TOTAL SEGMENT PROFIT
 
294,661

 
313,049

 
(5.9
)
Net unallocated expense
 
(23,178
)
 
16,304

 
(242.2
)
Noncontrolling interest
 
207

 
138

 
50.0

EARNINGS BEFORE INCOME TAX
 
$
318,046

 
$
296,883

 
7.1

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

 
 
 
 
 

 
 
Twenty-Six Weeks Ended
 
 
April 28, 2019
 
April 29, 2018*
 
% Change
NET SALES
 
 
 
 
 
 
Grocery Products
 
$
1,242,144

 
$
1,225,069

 
1.4

Refrigerated Foods
 
2,536,631

 
2,499,703

 
1.5

Jennie-O Turkey Store
 
626,490

 
626,635

 
—

International & Other
 
299,834

 
310,454

 
(3.4
)
TOTAL
 
$
4,705,099

 
$
4,661,861

 
0.9

 
 
 
 
 
 
 
 
 
 
 
 
 
 
SEGMENT PROFIT
 
 

 
 

 
 

Grocery Products
 
$
199,796

 
$
190,751

 
4.7

Refrigerated Foods
 
320,681

 
324,451

 
(1.2
)
Jennie-O Turkey Store
 
55,653

 
69,797

 
(20.3
)
International & Other
 
39,303

 
45,505

 
(13.6
)
TOTAL SEGMENT PROFIT
 
615,433

 
630,504

 
(2.4
)
Net unallocated expense
 
(9,287
)
 
28,698

 
(132.4
)
Noncontrolling interest
 
301

 
242

 
24.4

EARNINGS BEFORE INCOME TAX
 
$
625,021

 
$
602,048

 
3.8

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


6
HORMEL FOODS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (In thousands, except per share amounts)


 
 
 
 
 
 
 
 
 
 
 
Thirteen Weeks Ended
 
Twenty-Six Weeks Ended
 
 
April 28, 2019
 
April 29, 2018*
 
April 28, 2019
 
April 29, 2018*
Net sales
 
$
2,344,744

 
$
2,330,568

 
$
4,705,099

 
$
4,661,861

Cost of products sold
 
1,875,595

 
1,837,765

 
3,747,616

 
3,670,762

GROSS PROFIT
 
469,149

 
492,803

 
957,483

 
991,099

Selling, general and administrative
 
170,076

 
204,549

 
363,620

 
424,421

Equity in earnings of affiliates
 
13,291

 
13,486

 
24,749

 
37,017

OPERATING INCOME
 
312,364

 
301,740

 
618,612

 
603,695

Interest & investment income (expense)
 
11,297

 
2,144

 
18,171

 
10,083

Interest expense
 
(5,615
)
 
(7,001
)
 
(11,762
)
 
(11,730
)
EARNINGS BEFORE INCOME TAXES
 
318,046

 
296,883

 
625,021

 
602,048

Provision for income taxes
 
35,410

 
59,361

 
100,866

 
61,315

(effective tax rate)
 
11.1
%
 
20.0
%
 
16.1
%
 
10.2
%
NET EARNINGS
 
282,636

 
237,522

 
524,155

 
540,733

Less: Net earnings attributable to noncontrolling interest
 
207

 
138

 
301

 
242

NET EARNINGS ATTRIBUTABLE TO HORMEL FOODS CORPORATION
 
$
282,429

 
$
237,384

 
$
523,854

 
$
540,491

 
 
 
 
 
 
 
 
 
NET EARNINGS PER SHARE
 
 

 
 

 
 

 
 

Basic
 
$
0.53

 
$
0.45

 
$
0.98

 
$
1.02

Diluted
 
$
0.52

 
$
0.44

 
$
0.96

 
$
1.00

 
 
 
 
 
 
 
 
 
WEIGHTED-AVERAGE SHARES OUTSTANDING
 
 

 
 

 
 

Basic
 
535,480

 
529,799

 
534,988

 
529,626

Diluted
 
546,330

 
542,811

 
546,724

 
543,146

 
 
 
 
 
 
 
 
 
Dividends declared per share
 
$
0.2100

 
$
0.1875

 
$
0.4200

 
$
0.3750

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

7
HORMEL FOODS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Unaudited) (In thousands)

 
 
 
 
 
 
 
April 28, 2019
 
October 28, 2018
ASSETS
Cash and cash equivalents
 
$
639,327

 
$
459,136

Short-term marketable securities
 
6,675

 
—

Accounts receivable
 
537,447

 
600,438

Inventories
 
1,030,574

 
963,527

Income taxes receivable
 
293

 
3,995

Prepaid expenses
 
24,219

 
16,342

Other current assets
 
12,132

 
6,662

TOTAL CURRENT ASSETS
 
2,250,667

 
2,050,100

 
 
 
 
 
Goodwill
 
2,486,635

 
2,714,116

Other intangibles
 
1,040,392

 
1,207,219

Pension assets
 
205,229

 
195,153

Investments in and receivables from affiliates
 
276,478

 
273,153

Other assets
 
181,777

 
189,951

Property, plant & equipment, net
 
1,494,567

 
1,512,600

TOTAL ASSETS
 
$
7,935,745

 
$
8,142,292

 
 
 
 
 
 
 
 
 
 
LIABILITIES AND SHAREHOLDERS’ INVESTMENT
Accounts payable
 
$
523,673

 
$
618,830

Accrued expenses
 
59,144

 
48,298

Accrued worker's compensation
 
24,935

 
24,594

Accrued marketing
 
126,252

 
118,887

Employee-related expenses
 
182,720

 
224,736

Taxes payable
 
22,154

 
2,490

Interest and dividends payable
 
112,798

 
101,079

TOTAL CURRENT LIABILITIES
 
1,051,676

 
1,138,914

 
 
 
 
 
Long-term debt, less current maturities
 
250,000

 
624,840

Pension and post-retirement benefits
 
488,479

 
477,557

Other long-term liabilities
 
101,378

 
99,070

Deferred income taxes
 
142,428

 
197,093

Accumulated other comprehensive loss
 
(278,135
)
 
(243,498
)
Other shareholder's investment
 
6,179,919

 
5,848,316

TOTAL LIABILITIES & SHAREHOLDERS’ INVESTMENT
 
$
7,935,745

 
$
8,142,292


8
HORMEL FOODS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In thousands)


 
 
 
 
 
 
 
Twenty-Six Weeks Ended
 
 
April 28, 2019
 
April 29, 2018
OPERATING ACTIVITIES
 
 

 
 

Net earnings
 
$
524,155

 
$
540,733

Depreciation and amortization of intangibles
 
80,743

 
80,316

(Increase) decrease in working capital
 
(166,487
)
 
(77,785
)
Other
 
(72,818
)
 
(99,923
)
NET CASH PROVIDED BY OPERATING ACTIVITIES
 
365,593

 
443,341

 
 
 
 
 
INVESTING ACTIVITIES
 
 

 
 

Net (purchase) sale of securities
 
(6,664
)
 
—

Proceeds from sale of business
 
473,885

 
—

Acquisitions of businesses/intangibles
 
—

 
(857,673
)
Net purchases of property/equipment
 
(56,454
)
 
(134,721
)
Decrease in investments, equity in affiliates, and other assets
 
14,060

 
5,934

NET CASH PROVIDED BY (USED IN) INVESTING
    ACTIVITIES
 
424,827

 
(986,460
)
 
 
 
 
 
FINANCING ACTIVITIES
 
 

 
 

Net proceeds (payments) from short-term debt
 
—

 
185,000

Net (payments) proceeds from long-term debt
 
(374,840
)
 
374,763

Dividends paid on common stock
 
(212,287
)
 
(189,139
)
Share repurchase
 
(67,622
)
 
(44,741
)
Other
 
44,277

 
29,978

NET CASH (USED IN) PROVIDED BY FINANCING
    ACTIVITIES
 
(610,472
)
 
355,861

Effect of exchange rate changes on cash
 
243

 
4,707

INCREASE (DECREASE) IN CASH AND CASH
    EQUIVALENTS
 
180,191

 
(182,551
)
Cash and cash equivalents at beginning of year
 
459,136

 
444,122

CASH AND CASH EQUIVALENTS AT END OF QUARTER
 
$
639,327

 
$
261,571



9