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PRNewswire 23-May-2019 6:30 AM
AUSTIN, Minn., May 23, 2019 /PRNewswire/ -- 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
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."
SEGMENT HIGHLIGHTS – SECOND QUARTER
Refrigerated Foods
Volume and sales growth was led by foodservice products such as Hormel® Bacon 1™ cooked bacon, Hormel® Fire Braised™ 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
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
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
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.
SELECTED FINANCIAL DETAILS
Income Statement
Cash Flow Statement
Balance Sheet
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.
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.
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.
INVESTOR CONTACT: Nathan Annis (507) 437-5248 ir@hormel.com |
MEDIA CONTACT: Wendy Watkins (507) 437-5345 media@hormel.com |
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 |
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. |
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). |
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 |
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 |
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SOURCE Hormel Foods Corporation