AUSTIN, Minn., Feb. 20, 2020 /PRNewswire/ -- Hormel Foods Corporation (NYSE: HRL), a leading global branded food company, today reported results for the first quarter of fiscal 2020. All comparisons are to the first quarter of fiscal 2019 unless otherwise noted. The impact of the CytoSport divestiture is excluded in the presentation of the non-GAAP measures below.
EXECUTIVE SUMMARY
COMMENTARY
"Organic sales growth met our expectations 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. "It is encouraging to see Jennie-O Turkey Store deliver a second consecutive quarter of volume, sales and profit growth while continuing to gain back Jennie-O® lean ground turkey distribution. We are also seeing the strategic capital and marketing investments lead to strong growth from brands such as SPAM®, Hormel® Black Label®, Fontanini®, Hormel® Bacon 1TM and Hormel® Fire BraisedTM."
"The Refrigerated Foods business model performed as anticipated, given the volatile commodity market conditions. Growth was driven by another strong quarter from our foodservice team and higher commodity profits," Snee said. "Volatile pork and beef trim prices also impacted profitability across many product lines in Grocery Products."
STRATEGIC INVESTMENT
"This morning we separately announced an agreement to acquire Sadler's Smokehouse, an authentic pit-smoked meats company based in Henderson, Texas. The company has been one of our trusted suppliers for over two decades, and we have been fortunate to build a relationship with the Sadler family," Snee said. "Authentic barbeque is on trend and continues to show excellent growth on restaurant menus across the nation. This acquisition perfectly aligns with our strategic initiative of strengthening our position in foodservice and gives us another highly differentiated branded product line, similar to what we have with Burke pizza toppings and Fontanini Italian meats and sausages. We also see a unique opportunity to further extend the Sadler's product line into the retail and deli channels. We are excited to welcome the Sadler's Smokehouse team members to the Hormel Foods family and look forward to their contributions."
The acquisition is expected to close in March 2020, subject to customary closing conditions. The acquisition is expected to be neutral to slightly negative to fiscal 2020 earnings, as the company plans to make immediate investments into the business and production facility. Annual sales, excluding transfers to Hormel Foods, are approximately $140 million, and operating margins are in line with the total company average. The purchase price is $270 million, and the company will fund the acquisition with cash on hand.
FISCAL 2020 OUTLOOK
"We are reaffirming our fiscal 2020 sales and earnings guidance," Snee said. "We have strong fundamentals in Refrigerated Foods and clear momentum at Jennie-O Turkey Store. We expect both segments to contribute meaningfully to our growth this year. While many Grocery Products brands, such as SPAM®, Wholly® and Herdez®, are performing well, we have additional work to do on the SKIPPY® spreads and Hormel® chili businesses. Our International team continues to manage through African swine fever, tariffs and the uncertainty caused by the recent outbreak of coronavirus in China. We have started to see a negative impact on our business in China from the coronavirus outbreak, but we are not yet able to forecast the impact for the remainder of the year. For the full year, we expect the International results to be offset by strong performances from Refrigerated Foods and Jennie-O Turkey Store."
Fiscal 2020 Outlook | |
Net Sales Guidance (in billions) | $9.50 - $10.30 |
Earnings Per Share Guidance | $1.69 - $1.83 |
SEGMENT HIGHLIGHTS – FIRST QUARTER
Refrigerated Foods
Volume and sales increased on strong demand for value-added products. Foodservice sales of Hormel® Bacon 1TM fully cooked bacon and Hormel® Fire BraisedTM products, retail sales ofHormel® Black Label® bacon and Hormel® Cure 81® ham, and deli sales of Hormel® Gatherings® party trays contributed to sales growth. Applegate® branded items in retail and foodservice also contributed to volume and sales growth. Higher raw material costs across the value-added businesses were more than offset by increased commodity profits.
Grocery Products
Volume and sales decreases were primarily related to the divestiture of CytoSport. On an organic basis, growth from product lines such as the SPAM® family of products and Wholly® guacamole dips did not offset declines from SKIPPY® products. Segment profit declined, driven by the CytoSport divestiture, higher raw material costs, lower contract manufacturing profits and decreased volumes. As a reminder, Grocery Products benefited from a legal settlement in fiscal 2019.
Jennie-O Turkey Store
Sales increased due to higher commodity and whole-bird volume and pricing. Jennie-O® lean ground tray pack volume increased as incremental distribution was regained during the quarter. Segment profit increased due to higher commodity profits and operational improvements.
International & Other
Volume and sales increased, driven by higher fresh pork export volume and strong demand in China. Segment profit decreased due to significantly higher pork raw material costs for our businesses in Brazil, China, and other Asian countries such as South Korea and the Philippines.
SELECTED FINANCIAL DETAILS
Income Statement
Cash Flow Statement
Balance Sheet
PRESENTATION
A conference call will be webcast at 8 a.m. CT on Thursday, Feb. 20, 2020. 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 4720526. An audio replay is available by going to www.hormelfoods.com. The webcast replay will be available at 11 a.m. CT, Thursday, Feb. 20, 2020, 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.
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 statements regarding "Risk Factors" and "Forward-Looking Statements" that appear on pages 7-9 and 28 in the company's Form 10-K for the fiscal year ended Oct. 27, 2019, which can be accessed at hormelfoods.com in the "Investors" section.
Note: Due to rounding, numbers presented throughout this news release may not sum precisely to the totals provided, and percentages may not precisely reflect the absolute figures.
1 COMPARISON OF U.S. GAAP TO NON-GAAP FINANCIAL MEASUREMENTSThe non-GAAP adjusted financial measurements of organic net sales and organic volume are presented to provide investors with 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 GAAP measures to the non-GAAP adjusted measures in the first quarter of fiscal 2019.
RECONCILIATION OF NON-GAAP MEASURES | |||||||||||||||
(In thousands) | |||||||||||||||
First Quarter | |||||||||||||||
FY20 | FY19 | ||||||||||||||
VOLUME (LBS.) | Reported GAAP | Reported GAAP | Divestitures | Organic (Non-GAAP) | Non-GAAP % Change | ||||||||||
Grocery Products | 292,919 | 338,743 | (34,807) | 303,936 | (3.6) | ||||||||||
Refrigerated Foods | 605,608 | 589,356 | — | 589,356 | 2.8 | ||||||||||
Jennie-O Turkey Store | 197,200 | 182,159 | — | 182,159 | 8.3 | ||||||||||
International & Other | 91,260 | 86,635 | (1,027) | 85,608 | 6.6 | ||||||||||
TOTAL | 1,186,987 | 1,196,893 | (35,834) | 1,161,059 | 2.2 | ||||||||||
NET SALES | |||||||||||||||
Grocery Products | $ | 540,626 | $ | 606,825 | $ | (63,172) | $ | 543,653 | (0.6) | ||||||
Refrigerated Foods | 1,351,790 | 1,278,747 | — | 1,278,747 | 5.7 | ||||||||||
Jennie-O Turkey Store | 330,128 | 321,234 | — | 321,234 | 2.8 | ||||||||||
International & Other | 161,890 | 153,549 | (1,982) | 151,567 | 6.8 | ||||||||||
TOTAL | $ | 2,384,434 | $ | 2,360,355 | $ | (65,154) | $ | 2,295,201 | 3.9 |
HORMEL FOODS CORPORATION SEGMENT DATA (Unaudited) (In thousands)
| |||||||||||
Thirteen Weeks Ended | |||||||||||
January 26, 2020 | January 27, 2019 | % Change | |||||||||
NET SALES | |||||||||||
Grocery Products | $ | 540,626 | $ | 606,825 | (10.9) | ||||||
Refrigerated Foods | 1,351,790 | 1,278,747 | 5.7 | ||||||||
Jennie-O Turkey Store | 330,128 | 321,234 | 2.8 | ||||||||
International & Other | 161,890 | 153,549 | 5.4 | ||||||||
TOTAL | $ | 2,384,434 | $ | 2,360,355 | 1.0 | ||||||
SEGMENT PROFIT | |||||||||||
Grocery Products | $ | 68,435 | $ | 95,297 | (28.2) | ||||||
Refrigerated Foods | 167,343 | 162,593 | 2.9 | ||||||||
Jennie-O Turkey Store | 38,551 | 37,904 | 1.7 | ||||||||
International & Other | 19,952 | 24,978 | (20.1) | ||||||||
TOTAL SEGMENT PROFIT | 294,280 | 320,772 | (8.3) | ||||||||
Net unallocated expense | 4,199 | 13,891 | (69.8) | ||||||||
Noncontrolling interest | 81 | 94 | (13.8) | ||||||||
EARNINGS BEFORE INCOME TAX | $ | 290,162 | $ | 306,975 | (5.5) |
HORMEL FOODS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share amounts) | |||||||||
Thirteen Weeks Ended | |||||||||
January 26, 2020 | January 27, 2019 | ||||||||
Net sales | $ | 2,384,434 | $ | 2,360,355 | |||||
Cost of products sold | 1,916,014 | 1,872,021 | |||||||
GROSS PROFIT | 468,421 | 488,334 | |||||||
Selling, general and administrative | 195,521 | 193,544 | |||||||
Equity in earnings of affiliates | 7,588 | 11,458 | |||||||
OPERATING INCOME | 280,488 | 306,248 | |||||||
Interest & investment income (expense) | 13,251 | 6,874 | |||||||
Interest expense | (3,577) | (6,147) | |||||||
EARNINGS BEFORE INCOME TAXES | 290,162 | 306,975 | |||||||
Provision for income taxes | 47,209 | 65,456 | |||||||
(effective tax rate) | 16.3 | % | 21.3 | % | |||||
NET EARNINGS | 242,953 | 241,519 | |||||||
Less: Net earnings (loss) attributable to noncontrolling interest | 81 | 94 | |||||||
NET EARNINGS ATTRIBUTABLE TO HORMEL FOODS CORPORATION | $ | 242,872 | $ | 241,425 | |||||
NET EARNINGS PER SHARE | |||||||||
Basic | $ | 0.45 | $ | 0.45 | |||||
Diluted | $ | 0.45 | $ | 0.44 | |||||
WEIGHTED-AVERAGE SHARES OUTSTANDING | |||||||||
Basic | 535,075 | 534,495 | |||||||
Diluted | 544,815 | 547,118 | |||||||
Dividends declared per share | $ | 0.2325 | $ | 0.2100 |
HORMEL FOODS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Unaudited) (In thousands) | ||||||||
January 26, 2020 | October 27, 2019 | |||||||
ASSETS | ||||||||
Cash and cash equivalents | $ | 724,419 | $ | 672,901 | ||||
Short-term marketable securities | 14,808 | 14,736 | ||||||
Accounts receivable | 562,483 | 574,396 | ||||||
Inventories | 1,057,277 | 1,042,362 | ||||||
Income taxes receivable | 187 | 19,924 | ||||||
Prepaid expenses | 24,817 | 22,637 | ||||||
Other current assets | 10,976 | 14,457 | ||||||
TOTAL CURRENT ASSETS | 2,394,967 | 2,361,413 | ||||||
Goodwill | 2,484,088 | 2,481,645 | ||||||
Other intangibles | 1,031,804 | 1,033,862 | ||||||
Pension assets | 141,892 | 135,915 | ||||||
Investments in and receivables from affiliates | 290,777 | 289,157 | ||||||
Other assets | 251,353 | 177,901 | ||||||
Property, plant & equipment, net | 1,695,228 | 1,629,111 | ||||||
TOTAL ASSETS | $ | 8,290,109 | $ | 8,109,004 | ||||
LIABILITIES AND SHAREHOLDERS' INVESTMENT | ||||||||
Accounts payable | $ | 490,042 | $ | 590,033 | ||||
Accrued expenses | 64,702 | 62,031 | ||||||
Accrued workers' compensation | 27,116 | 24,272 | ||||||
Accrued marketing | 110,093 | 96,305 | ||||||
Employee-related expenses | 164,933 | 213,515 | ||||||
Taxes payable | 30,489 | 6,208 | ||||||
Interest and dividends payable | 127,452 | 112,685 | ||||||
Current maturities of long-term debt | 8,259 | — | ||||||
TOTAL CURRENT LIABILITIES | 1,023,085 | 1,105,049 | ||||||
Long-term debt, less current maturities | 308,972 | 250,000 | ||||||
Pension and post-retirement benefits | 539,972 | 536,490 | ||||||
Other long-term liabilities | 145,923 | 115,356 | ||||||
Deferred income taxes | 176,113 | 176,574 | ||||||
Accumulated other comprehensive loss | (393,278) | (399,500) | ||||||
Other shareholders' investment | 6,489,323 | 6,325,035 | ||||||
TOTAL LIABILITIES & SHAREHOLDERS' INVESTMENT | $ | 8,290,109 | $ | 8,109,004 |
HORMEL FOODS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) | ||||||||
Thirteen Weeks Ended | ||||||||
January 26, 2020 | January 27, 2019 | |||||||
OPERATING ACTIVITIES | ||||||||
Net earnings | $ | 242,953 | $ | 241,519 | ||||
Depreciation and amortization | 49,329 | 40,018 | ||||||
(Increase) decrease in working capital | (102,839) | (81,659) | ||||||
Other | (1,025) | (12,453) | ||||||
NET CASH PROVIDED BY OPERATING ACTIVITIES | 188,418 | 187,425 | ||||||
INVESTING ACTIVITIES | ||||||||
Net (purchase) sale of securities | (16) | — | ||||||
Net purchases of property/equipment | (57,097) | (9,125) | ||||||
(Increase) decrease in investments, equity in affiliates, and other assets | (3,391) | 7,446 | ||||||
NET CASH USED IN INVESTING ACTIVITIES | (60,504) | (1,679) | ||||||
FINANCING ACTIVITIES | ||||||||
Net (payments) proceeds from long-term debt and finance leases | (2,019) | 38 | ||||||
Dividends paid on common stock | (112,249) | (100,125) | ||||||
Share repurchase | — | (44,809) | ||||||
Other | 36,353 | 15,997 | ||||||
NET CASH USED IN FINANCING ACTIVITIES | (77,915) | (128,899) | ||||||
Effect of exchange rate changes on cash | 1,519 | (3,294) | ||||||
INCREASE IN CASH AND CASH EQUIVALENTS | 51,518 | 53,553 | ||||||
Cash and cash equivalents at beginning of year | 672,901 | 459,136 | ||||||
CASH AND CASH EQUIVALENTS AT END OF QUARTER | $ | 724,419 | $ | 512,689 |
INVESTOR CONTACT: Nathan Annis (507) 437-5248 | MEDIA CONTACT: Wendy Watkins (507) 437-5345 |
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SOURCE Hormel Foods Corporation