EX-99 2 hormelearningsreleaseq32018.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 ANNOUNCES RECORD THIRD QUARTER RESULTS
AND REAFFIRMS FISCAL 2018 EARNINGS GUIDANCE
 
Company Maintains Fiscal 2018 Earnings Guidance
While Successfully Navigating Industry Dynamics
 
AUSTIN, Minn. (August 23, 2018) – Hormel Foods Corporation (NYSE: HRL), a leading global branded food company, today reported results for the third quarter of fiscal 2018. All comparisons are to the third quarter of fiscal 2017 unless otherwise noted.
 
EXECUTIVE SUMMARY
•
Record diluted earnings per share of $0.39, up 15% from 2017 EPS of $0.34
•
Fiscal 2018 earnings guidance reaffirmed at $1.81 to $1.95 per share
•
Record net sales of $2.4 billion, up 7%; organic net sales1 flat
•
Volume of 1.2 billion lbs., up 5%; organic volume1 up 1%
•
Operating margin of 11.1% compared to 12.7% last year
•
Effective tax rate of 18.4% compared to 34.3% last year
•
Year-to-date cash flow from operations of $743 million, up 40% compared to last year

COMMENTARY
"We reported record sales and earnings for the quarter and remain on track to deliver our full year
earnings guidance range amid volatility due to tariffs and broader industry dynamics," said Jim Snee, chairman of the board, president, and chief executive officer. "We continue to execute on our strategic initiatives while investing in growth for the future."

“Grocery Products and International delivered solid results this quarter," Snee said. "Refrigerated Foods' branded value-added strategy was able to offset a dramatic decline in commodity profits. We also saw a strong increase in value-added sales at Jennie-O Turkey Store."

"We increased our advertising investment this quarter and those investments are paying off with growth from brands such as Skippy®, Natural Choice®, Jennie-O®, Applegate®, Wholly Guacamole® and Herdez®," Snee said. "I'm also pleased to report our recent strategic acquisitions of Columbus Craft Meats, Fontanini, and Ceratti are on track with expectations."

FREMONT PLANT DIVESTITURE
"Last week we announced the sale of our Fremont processing facility to WholeStone Farms, LLC," Snee said. "This strategic decision reflects changes in the long-term dynamics of the pork industry and is aligned with our vision as a global branded food company. The Fremont facility has been an important part of our Company for decades, and it was critical we partnered with a buyer that would commit to investments in the facility and team members."

The purchase price is $30 million in cash, subject to adjustments at closing, and the transaction includes a processing facility and a multi-year agreement to supply pork raw materials to Hormel Foods. The Fremont plant harvests 10,500 hogs per day and currently represents one-third of the Company's hog

1

harvest volume and less than one-third of commodity pork earnings. The fiscal 2019 expenses associated with the transaction are anticipated to be $15-$20 million dollars, primarily related to expenses to relocate value-added manufacturing lines to other Hormel Foods facilities and pension-related expenses. Further guidance on the full earnings impact will be provided on the fourth quarter conference call in November. The transaction is expected to close in December 2018.
 
SEGMENT HIGHLIGHTS – THIRD QUARTER

Refrigerated Foods
 
•Volume up 5%; organic volume1 down 2%
• Net sales up 10%; organic net sales1 down 3%
•Segment profit flat
 
Volume and sales increases benefited from the inclusion of the Columbus and Fontanini acquisitions in addition to strong foodservice sales of Austin Blues® smoked barbeque products and retail sales of Hormel® Natural Choice® and Applegate® products. Organic volume and sales decreased due to lower hog harvest volumes.

Refrigerated Foods offset an 88% decline in commodity profits, a double-digit increase in per-unit freight expenses, and higher advertising investments to deliver results in line with last year.

Grocery Products
 
•Volume down 1%
•Net sales flat
•Segment profit up 4%

Mid-single-digit sales growth in our core Grocery Products portfolio, led by Wholly Guacamole® dips, Herdez® salsas and sauces, and Skippy® peanut butter, was offset by sales declines across the CytoSport portfolio and our contract manufacturing business. Total Grocery Products segment profit increased as core Grocery Products earnings more than offset declines in contract manufacturing. Grocery Products increased advertising for the quarter to support brands such as Skippy® and SPAM®. CytoSport earnings increased for the quarter due to lower selling, general and administrative expenses.
 
Jennie-O Turkey Store
 
•Volume up 14%
•Net sales up 8%
•Segment profit down 23%
 
Volume and sales for the quarter were driven by increases in whole bird and commodity sales in addition to strong value-added sales growth. Value-added sales gains were led by Jennie-O® premium deli products and Jennie-O® lean ground turkey. Segment profit decreased as a result of lower profits from whole bird sales, double-digit increases in per-unit freight costs, and increased advertising investment.

International & Other
 
•Volume up 9%; organic volume1 down 7%
•Net sales up 11%; organic net sales1 down 3%
•Segment profit up 9%
 
International sales increases were related to the inclusion of the Ceratti business, higher export sales for SPAM® luncheon meat and Skippy® peanut butter, and stronger sales for the China multinational business. Fresh pork export volume, sales, and profitability declined sharply in the quarter due to the

2

impact of increased tariffs in key markets. Overall earnings increased as improved profitability in China more than offset lower fresh pork export profits and increased advertising investments.

SELECTED FINANCIAL DETAILS

Income Statement
•
Selling, general and administrative expenses increased due to acquisitions and higher advertising investments.
•
Advertising investments were $40 million compared to $24 million last year. Advertising investments for the full year are expected to increase by approximately 20% over last year.
•
Operating margin was 11.1% compared to 12.7% last year.
•
The effective tax rate was 18.4% compared to 34.3% last year. The decline was due to The Tax Cuts and Jobs Act passed in December 2017 and deferred tax remeasurements. The full year effective tax rate for fiscal 2018 is expected to be between 15% and 16% compared to 17.5% and 19.5% previously.

Cash Flow Statement
•
Capital expenditures in the third quarter were $103 million compared to $42 million last year. Capital expenditures for the full year are expected to total approximately $400 million. Key projects include: bacon capacity increases in our Wichita, Kans., facility, a new whole bird facility in Melrose, Minn., improvements to the Austin, Minn., plant and multiple projects designed to increase value-added capacity.
•
Depreciation and amortization expense in the third quarter was $41 million compared to $33 million last year. Expenses for the full year are expected to be approximately $160 million.
•
Share repurchases to date total $45 million, representing 1.3 million shares purchased.
•
The Company repaid $90 million in short-term debt in the quarter.
•
The third quarter dividend marked the 90th year of uninterrupted dividends paid to our shareholders. The Company paid its 360th consecutive quarterly dividend at the annual rate of $0.75 per share, a 10% increase over the prior year.

Balance Sheet
•
Working capital decreased to $757 million from $968 million at the beginning of the year, primarily related to debt retirement and lower accounts receivable.
•
Cash on hand decreased to $269 million from $444 million at the beginning of the year as the Company continued to pay down short-term debt related to the Columbus Craft Meats acquisition.
•
Total debt is $720 million. The debt is split between short-term borrowings of $95 million and long-term borrowings of $625 million.
•
The Company remains in a strong financial position to fund other capital needs.

OUTLOOK
"We are reaffirming our earnings outlook for fiscal 2018. Our strong branded portfolio, focus on innovation, strategic acquisitions, and balanced model will continue to help us mitigate the impacts from foreign trade uncertainty, increased freight costs, and commodity market volatility," Snee said.

 
 
Fiscal 2018 Outlook
Prior 2018 Outlook
Net Sales Guidance (in billions)
$9.40 - $9.60
$9.70 - $10.10
Earnings per Share Guidance
$1.81 - $1.95
$1.81 - $1.95


3

PRESENTATION
 
A conference call will be webcast at 8:00 a.m. CT on Thursday, August 23, 2018. Access is available at www.hormelfoods.com and clicking on "Investors." The call will also be available via telephone by dialing 888-220-8451 and providing the access code 8905023. An audio replay is available by going to www.hormelfoods.com. The webcast replay will be available at 11:00 a.m. CT, Thursday, August 23, 2018, 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 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 tenth 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/.
 
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 34-40 in the company's Form 10-Q for the quarter ended April 29, 2018, which can be accessed at www.hormelfoods.com under "Investors."

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 acquisition of Columbus Craft Meats (November 2017), the acquisition of Fontanini Italian Meats and Sausages (August 2017), and the divestiture of Farmer John (January 2017) in Refrigerated Foods and the acquisition of Ceratti (August 2017) in International. The tables below show the calculations to reconcile from the non-GAAP adjusted measures to the GAAP measures in the third quarter and third quarter year-to-date of fiscal 2018 and fiscal 2017.


4

NON-GAAP1 VOLUME AND SALES DATA
(Unaudited) (In thousands)

3rd Quarter
 
FY 2018
 
FY 2017
 
VOLUME (LBS.)
 
Reported
(GAAP)
 
Acquisitions
 
Organic
(Non-GAAP)
 
Reported
(GAAP)
 
Organic
% change
Grocery Products
 
327,890

 
—

 
327,890

 
330,505

 
(0.8
)
Refrigerated Foods
 
530,337

 
(37,482
)
 
492,855

 
503,296

 
(2.1
)
Jennie-O Turkey Store
 
227,903

 
—

 
227,903

 
200,143

 
13.9

International & Other
 
84,763

 
(12,391
)
 
72,372

 
78,120

 
(7.4
)
TOTAL
 
1,170,893

 
(49,873
)
 
1,121,020

 
1,112,064

 
0.8

 
 
 
 
 
 
 
 
 
 
 
 
 
FY 2018
 
FY 2017
 
NET SALES
 
Reported
(GAAP)
 
Acquisitions
 
Organic
(Non-GAAP)
 
Reported
(GAAP)
 
Organic
% change
Grocery Products
 
$
617,727

 
$
—

 
$
617,727

 
$
618,859

 
(0.2
)
Refrigerated Foods
 
1,195,763

 
(137,803
)
 
1,057,960

 
1,086,546

 
(2.6
)
Jennie-O Turkey Store
 
398,058

 
—

 
398,058

 
369,078

 
7.9

International & Other
 
147,594

 
(18,974
)
 
128,620

 
132,892

 
(3.2
)
TOTAL
 
$
2,359,142

 
$
(156,777
)
 
$
2,202,365

 
$
2,207,375

 
(0.2
)
 

Year to Date
 
FY 2018
 
FY 2017
 
 
VOLUME (LBS.)
 
Reported
(GAAP)
 
Acquisitions
 
Organic
(Non-GAAP)
 
Reported
(GAAP)
 
Divestitures
 
Organic
(Non-GAAP)
 
Organic
% change
Grocery Products
 
995,505

 
—

 
995,505

 
1,008,180

 
—

 
1,008,180

 
(1.3
)
Refrigerated Foods
 
1,641,151

 
(107,544
)
 
1,533,607

 
1,633,211

 
(80,454
)
 
1,552,757

 
(1.2
)
Jennie-O Turkey Store
 
634,140

 
—

 
634,140

 
620,343

 
—

 
620,343

 
2.2

International & Other
 
262,090

 
(35,900
)
 
226,190

 
233,481

 
—

 
233,481

 
(3.1
)
TOTAL
 
3,532,886

 
(143,444
)
 
3,389,442

 
3,495,215

 
(80,454
)
 
3,414,761

 
(0.7
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FY 2018
 
FY 2017
 
 
NET SALES
 
Reported
(GAAP)
 
Acquisitions
 
Organic
(Non-GAAP)
 
Reported
(GAAP)
 
Divestitures
 
Organic
(Non-GAAP)
 
Organic
% change
Grocery Products
 
$
1,863,147

 
$
—

 
$
1,863,147

 
$
1,869,652

 
$
—

 
$
1,869,652

 
(0.3
)
Refrigerated Foods
 
3,539,186

 
(383,698
)
 
3,155,488

 
3,237,071

 
(100,231
)
 
3,136,840

 
0.6

Jennie-O Turkey Store
 
1,160,622

 
—

 
1,160,622

 
1,178,304

 
—

 
1,178,304

 
(1.5
)
International & Other
 
458,048

 
(59,869
)
 
398,179

 
389,884

 
—

 
389,884

 
2.1

TOTAL
 
$
7,021,003

 
$
(443,567
)
 
$
6,577,436

 
$
6,674,911

 
$
(100,231
)
 
$
6,574,680

 
—


Statements Follow

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

 
 
 
 
 

 
 
Thirteen Weeks Ended
 
 
July 29, 2018
 
July 30, 2017
 
% Change
NET SALES
 
 
 
 
 
 
Grocery Products
 
$
617,727

 
$
618,859

 
(0.2
)
Refrigerated Foods
 
1,195,763

 
1,086,546

 
10.1

Jennie-O Turkey Store
 
398,058

 
369,078

 
7.9

International & Other
 
147,594

 
132,892

 
11.1

TOTAL
 
$
2,359,142

 
$
2,207,375

 
6.9

 
 
 
 
 
 
 
 
 
 
 
 
 
 
OPERATING PROFIT
 
 

 
 

 
 

Grocery Products
 
$
85,540

 
$
82,116

 
4.2

Refrigerated Foods
 
138,497

 
138,314

 
0.1

Jennie-O Turkey Store
 
34,625

 
44,986

 
(23.0
)
International & Other
 
18,646

 
17,111

 
9.0

TOTAL SEGMENT OPERATING PROFIT
 
277,308

 
282,527

 
(1.8
)
Net interest and investment expense (income)
 
3,834

 
1,681

 
128.1

General corporate expense
 
15,852

 
2,865

 
453.3

Noncontrolling interest
 
110

 
43

 
155.8

EARNINGS BEFORE INCOME TAX
 
$
257,732

 
$
278,024

 
(7.3
)
 
 
 
 
 

 
 
Thirty-Nine Weeks Ended
 
 
July 29, 2018
 
July 30, 2017
 
% Change
NET SALES
 
 
 
 
 
 
Grocery Products
 
$
1,863,147

 
$
1,869,652

 
(0.3
)
Refrigerated Foods
 
3,539,186

 
3,237,071

 
9.3

Jennie-O Turkey Store
 
1,160,622

 
1,178,304

 
(1.5
)
International & Other
 
458,048

 
389,884

 
17.5

TOTAL
 
$
7,021,003

 
$
6,674,911

 
5.2

 
 
 
 
 
 
 
 
 
 
 
 
 
 
OPERATING PROFIT
 
 

 
 

 
 

Grocery Products
 
$
281,168

 
$
282,789

 
(0.6
)
Refrigerated Foods
 
435,638

 
442,316

 
(1.5
)
Jennie-O Turkey Store
 
126,855

 
176,952

 
(28.3
)
International & Other
 
64,151

 
62,191

 
3.2

TOTAL SEGMENT OPERATING PROFIT
 
907,812

 
964,248

 
(5.9
)
Net interest and investment expense (income)
 
14,747

 
2,463

 
498.7

General corporate expense
 
33,637

 
13,308

 
152.8

Noncontrolling interest
 
352

 
159

 
121.4

EARNINGS BEFORE INCOME TAX
 
$
859,780

 
$
948,636

 
(9.4
)


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


 
 
 
 
 
 
 
 
 
 
 
Thirteen Weeks Ended
 
Thirty-Nine Weeks Ended
 
 
July 29, 2018
 
July 30, 2017
 
July 29, 2018
 
July 30, 2017
Net sales
 
$
2,359,142

 
$
2,207,375

 
$
7,021,003

 
$
6,674,911

Cost of products sold
 
1,899,970

 
1,754,966

 
5,562,966

 
5,183,302

GROSS PROFIT
 
459,172

 
452,409

 
1,458,037

 
1,491,609

Selling, general and administrative
 
210,747

 
176,660

 
633,668

 
567,886

Equity in earnings of affiliates
 
13,141

 
3,956

 
50,158

 
27,376

OPERATING INCOME
 
261,566

 
279,705

 
874,527

 
951,099

Interest & investment income (expense)
 
4,601

 
1,376

 
5,418

 
6,643

Interest expense
 
(8,435
)
 
(3,057
)
 
(20,165
)
 
(9,106
)
EARNINGS BEFORE INCOME TAXES
 
257,732

 
278,024

 
859,780

 
948,636

Provision for income taxes
 
47,379

 
95,473

 
108,694

 
319,896

(effective tax rate)
 
18.4
%
 
34.3
%
 
12.6
%
 
33.7
%
NET EARNINGS
 
210,353

 
182,551

 
751,086

 
628,740

Less: net earnings attributable to noncontrolling interest
 
110

 
43

 
352

 
159

NET EARNINGS ATTRIBUTABLE TO HORMEL FOODS CORPORATION
 
$
210,243

 
$
182,508

 
$
750,734

 
$
628,581

 
 
 
 
 
 
 
 
 
NET EARNINGS PER SHARE
 
 

 
 

 
 

 
 

Basic
 
$
0.40

 
$
0.35

 
$
1.42

 
$
1.19

Diluted
 
$
0.39

 
$
0.34

 
$
1.38

 
$
1.17

 
 
 
 
 
 
 
 
 
WEIGHTED AVG. SHARES OUTSTANDING
 
 

 
 

 
 

Basic
 
530,606

 
528,165

 
529,953

 
528,487

Diluted
 
543,762

 
538,814

 
543,352

 
539,504

 
 
 
 
 
 
 
 
 
Dividends declared per share
 
$
0.1875

 
$
0.1700

 
$
0.5625

 
$
0.5100


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

 
 
 
 
 
 
 
July 29, 2018
 
October 29, 2017
ASSETS
Cash and cash equivalents
 
$
268,982

 
$
444,122

Accounts receivable
 
559,181

 
618,351

Inventories
 
1,001,044

 
921,022

Income taxes receivable
 
4,641

 
22,346

Prepaid expenses
 
14,542

 
16,144

Other current assets
 
5,920

 
4,538

TOTAL CURRENT ASSETS
 
1,854,310

 
2,026,523

 
 
 
 
 
Goodwill
 
2,734,575

 
2,119,813

Other intangibles
 
1,236,897

 
1,027,014

Pension assets
 
190,050

 
171,990

Investments in and receivables from affiliates
 
276,462

 
242,369

Other assets
 
192,769

 
184,948

Property, plant & equipment, net
 
1,410,310

 
1,203,251

TOTAL ASSETS
 
$
7,895,373

 
$
6,975,908

 
 
 
 
 
 
 
 
 
 
LIABILITIES AND SHAREHOLDERS’ INVESTMENT
 
 
 
 
 
Accounts payable
 
$
488,978

 
$
552,714

Short-term debt
 
95,000

 
—

Accrued expenses
 
58,416

 
76,966

Accrued worker's compensation
 
27,289

 
26,585

Accrued marketing
 
119,663

 
101,573

Employee-related expenses
 
201,353

 
209,562

Taxes payable
 
2,372

 
525

Interest and dividends payable
 
103,760

 
90,287

TOTAL CURRENT LIABILITIES
 
1,096,831

 
1,058,212

 
 
 
 
 
Long-term debt, less current maturities
 
624,801

 
250,000

Pension and post-retirement benefits
 
534,698

 
530,249

Other long-term liabilities
 
104,083

 
99,340

Deferred income taxes
 
139,192

 
98,410

Accumulated other comprehensive loss
 
(259,208
)
 
(248,075
)
Other shareholder's investment
 
5,654,976

 
5,187,772

TOTAL LIAB. & SHAREHOLDERS’ INVESTMENT
 
$
7,895,373

 
$
6,975,908


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


 
 
 
 
 
 
 
Thirty-Nine Weeks Ended
 
 
July 29, 2018
 
July 30, 2017
OPERATING ACTIVITIES
 
 

 
 

Net earnings
 
$
751,086

 
$
628,740

Depreciation and amortization of intangibles
 
121,108

 
96,121

Increase in working capital
 
(49,374
)
 
(205,303
)
Other
 
(79,615
)
 
11,835

NET CASH PROVIDED BY OPERATING ACTIVITIES
 
743,205

 
531,393

 
 
 
 
 
INVESTING ACTIVITIES
 
 

 
 

Proceeds from sale of business
 
—

 
135,944

Acquisitions of businesses/intangibles
 
(857,668
)
 
—

Net purchases of property/equipment
 
(236,733
)
 
(116,235
)
(Increase) decrease in investments, equity in affiliates, and other assets
 
(1,569
)
 
4,041

NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES
 
(1,095,970
)
 
23,750

 
 
 
 
 
FINANCING ACTIVITIES
 
 

 
 

Net proceeds (payments) from short-term debt
 
95,000

 
—

Net proceeds (payments) from long-term debt
 
374,801

 
—

Dividends paid on common stock
 
(288,515
)
 
(256,341
)
Share repurchase
 
(44,741
)
 
(94,487
)
Other
 
40,732

 
14,337

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
 
177,277

 
(336,491
)
Effect of exchange rate changes on cash
 
348

 
(454
)
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
 
(175,140
)
 
218,198

Cash and cash equivalents at beginning of year
 
444,122

 
415,143

CASH AND CASH EQUIVALENTS AT END OF QUARTER
 
$
268,982

 
$
633,341



9