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

HORMEL FOODS REPORTS FOURTH QUARTER AND FISCAL 2019 EARNINGS; PROVIDES FISCAL 2020 OUTLOOK
 
The company is focused on its 2020 Path Forward to drive long-term sustainable growth.
 
AUSTIN, Minn. (November 26, 2019) – Hormel Foods Corporation (NYSE: HRL), a leading global branded food company, today reported results for the fourth quarter of fiscal 2019. All comparisons are to the fourth quarter of fiscal 2018 unless otherwise noted. Results reflect the divestiture of the CytoSport business. The impact of this transaction is excluded in the presentation of the non-GAAP measures below.
 
EXECUTIVE SUMMARY - FISCAL 2019
•
Volume of 4.74 billion lbs., down 1%; organic volume1 flat
•
Net sales of $9.50 billion, down 1%; organic net sales1 up 1%
•
Operating income of $1.20 billion, up 1%
•
Operating margin of 12.6% compared to 12.4% last year
•
Effective tax rate of 19.1% compared to 14.3% last year
•
Diluted earnings per share of $1.80, down 3% from $1.86 last year
•
Cash flow from operations of $923 million, down 26% due to higher working capital

EXECUTIVE SUMMARY - FOURTH QUARTER
•
Volume of 1.24 billion lbs., down 2%; organic volume1 up 1%
•
Net sales of $2.50 billion, down 1%; organic net sales1 up 2%
•
Operating margin of 12.8% compared to 12.7% last year
•
Effective tax rate of 21.0% compared to 18.7% last year
•
Diluted earnings per share of $0.47, down 2% from $0.48 last year

FISCAL 2020 OUTLOOK
"In 2020, we expect to grow operating income as we did in 2019 while also growing sales," said Jim Snee, chairman of the board, president and chief executive officer. "We are excited about our growth prospects in foodservice, retail and deli, led by brands such as SPAM®, Wholly®, Jennie-O®, Hormel® Natural Choice®, Hormel® Gatherings® and Applegate®. We are also putting a lot of energy behind our recent innovations in brands such as Herdez®, SKIPPY®, Columbus® and Hormel® Bacon 1TM. I am confident we have the right strategy, business model and leadership team to continue delivering long-term sustainable growth."

The company's outlook assumes higher protein prices and further volatility related to the impact from African swine fever and global trade uncertainty. The company's expected fiscal 2020 organic pretax earnings growth rate is in line with the company's near-term goal of 5-7% organic pretax earnings growth. As a reminder, CytoSport earnings in 2019 contributed 10 cents to earnings per share. The company also expects a higher effective tax rate in fiscal 2020 with a range of 20.5% and 22.5%.

 
Fiscal 2020 Outlook
Net Sales Guidance (in billions)
$9.50 - $10.30
Earnings per Share Guidance
$1.69 - $1.83


1

STRATEGIC INVESTMENTS
"We are excited to announce our plans to build a state-of-the-art dry sausage production facility to give us much-needed capacity for our Columbus® charcuterie products," Snee said. "The plant will allow us to continue expanding distribution of Columbus® products to the East Coast. Construction is already underway, and we expect the new facility to be operational in early fiscal 2021."

"We continue to make excellent progress on our Burke pizza toppings plant expansion and plan to start production in the back half of fiscal 2020," Snee said. "This expansion will provide ample capacity to continue growing our pizza toppings business in the foodservice channel."

DIVIDENDS
"We announced an 11 percent increase to our annual dividend, making the new dividend $0.93 per share," Snee said. "This is the 54th consecutive year in which we've increased our dividend and the 11th consecutive year in which we have increased the dividend at a double-digit rate, demonstrating again that Hormel Foods is an uncommon company."

Effective November 15, 2019, the company paid its 365th consecutive quarterly dividend at the annual rate of $0.84 per share.

COMMENTARY - FOURTH QUARTER
"Refrigerated Foods has been a strong earnings contributor all year, and this quarter was no different. I am proud of how our value-added businesses helped offset another steep decline in commodity profits," Snee said. "Grocery Products and Jennie-O Turkey Store posted modest earnings growth while the International results were below our expectations as the team continues to manage through challenges due to African swine fever and global trade uncertainty."

“We grew organic volume and sales in three of our four segments this quarter," Snee said. "Our SPAM® family of products and Herdez® authentic salsas and sauces were notable contributors within Grocery Products. Refrigerated Foods delivered strong value-added sales growth with excellent results posted by brands such as Hormel® Bacon 1TM, Hormel® Fire BraisedTM, Hormel® Black Label® and Columbus®. Jennie-O Turkey Store delivered top-line growth led by a double-digit increase in whole bird sales. We made nice gains in lean ground turkey distribution, but we have much more work to do."

SEGMENT HIGHLIGHTS – FOURTH QUARTER

Refrigerated Foods
 
•Volume up 1%;
• Net sales up 4%
•Segment profit down 3%
 
Volume and sales increased on strong demand for foodservice items such as Hormel® Bacon 1TM cooked bacon, pizza toppings and Hormel® Fire BraisedTM products. Retail sales of Hormel® Black Label® bacon, Applegate® products, Hormel® Natural Choice® products, Hormel Gatherings® party trays and Columbus® branded deli items also contributed to growth. Segment profit declined as record value-added profits did not offset a 46% decline in commodity profits and higher operational expenses.

2

Grocery Products
 
•Volume down 9%; organic volume1 up 2%
•Net sales down 10%; organic net sales1 up 1%
•Segment profit up 2%

Volume and sales decreases were related to the divestiture of CytoSport. Organic volume and sales increased due to strong demand for MegaMex items, including Herdez® salsas and sauces, and growth from the SPAM® family of products. The positive performances of these businesses offset lower pricing on SKIPPY® peanut butter spreads and the divestiture of CytoSport. As a reminder, the segment incurred a $17 million non-cash impairment in the fourth quarter of 2018 related to the CytoSport business.

Jennie-O Turkey Store
 
•Volume up 5%
•Net sales up 3%
•Segment profit up 6%
 
Volume and sales increased as growth from the whole-bird and commodity businesses more than offset lower retail sales. Jennie-O® lean ground turkey results improved during the quarter compared to the third quarter due to the successful execution of advertising and promotional activities in select markets. Segment profit increased, driven by operational improvements and lower freight expense.

International & Other
 
•Volume down 14%; organic volume1 down 13%
•Net sales down 12%; organic net sales1 down 11%
•Segment profit down 30%
 
Volume, sales and profit for the quarter declined significantly, driven by weakness in branded and fresh pork exports and our multinational business in Brazil. Higher pork prices due to African swine fever led to higher input costs in China and Brazil. SPAM® luncheon meat and SKIPPY® peanut butter products continue to show growth in China.

SELECTED FINANCIAL DETAILS - FISCAL 2019

Income Statement
•
Selling, general and administrative expenses decreased by 14%. The reduction was primarily related to the CytoSport divestiture and lower external expenses.
•
Advertising investments were $131 million compared to $152 million last year. The decrease in advertising investment was related primarily to the CytoSport divestiture.
•
Operating margin for the full year was 12.6% compared to 12.4%. Lower gross profit margins were more than offset by lower selling, general and administrative expenses.
•
The effective tax rate was 19.1% compared to 14.3% last year. The lower rate in fiscal 2018 was due to deferred tax remeasurements related to tax reform. The effective tax rate for fiscal 2020 is expected to be between 20.5% and 22.5%.

Cash Flow Statement
•
Cash flow from operations was $923 million, down 26% compared to last year. The decrease was primarily due to higher levels of working capital.
•
Proceeds of $480 million from the divestiture of CytoSport were used during the year to repay the remaining debt associated with the Columbus acquisition and to repurchase a record amount of common stock.

3

•
Dividends paid to shareholders were $437 million. The company paid its 365th consecutive quarterly dividend at the annual rate of $0.84 per share, a 12% increase over the prior year.
•
Capital expenditures were $294 million. The company's target for capital expenditures in fiscal 2020 is $360 million. Large projects include the Burke pizza toppings plant expansion, a new dry sausage facility in Nebraska, Project Orion, and many other projects to support growth of branded products.
•
Share repurchases totaled $174 million, representing 4.3 million shares purchased.
•
Depreciation and amortization expense for the full year was $165 million. Depreciation and amortization expense for fiscal 2020 is expected to be approximately $175 million.

Balance Sheet
•
The company is in a strong financial position with a low level of debt and consistent cash flows.
•
Cash on hand increased to $673 million from $459 million at the beginning of the year.
•
Total long-term debt is $250 million compared to $625 million at the beginning of the year.
•
Working capital increased to $1,256 million from $911 million at the beginning of the year, primarily related to higher inventory levels and lower accounts payable.

PRESENTATION
 
A conference call will be webcast at 8 a.m. CT on Tuesday, November 26, 2019. Access is available at www.hormelfoods.com by clicking on "Investors." The call will also be available via telephone by dialing 888-220-8451 and providing the access code 1340983. An audio replay will be available by going to www.hormelfoods.com. The webcast replay will be available at 11 a.m. CT, Tuesday, November 26, 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 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®, Applegate®, Justin's®, Wholly®, Hormel® Black Label®, Columbus® 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.
 
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 35-41 in the company's Form 10-Q for the quarter ended July 28, 2019, 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

4

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 fourth quarter and year-to-date of fiscal 2019 and fiscal 2018.
RECONCILIATION OF NON-GAAP MEASURES
(In thousands)
 
 
 
Fourth Quarter
 
 
FY19
 
FY18
 
VOLUME (LBS.)
Reported
GAAP
 
Reported
GAAP*
Divestitures
Organic
(Non-GAAP)
Non-GAAP
% Change
Grocery Products
313,489

 
346,214

(37,394
)
308,820

1.5

Refrigerated Foods
598,474

 
592,298

—

592,298

1.0

Jennie-O Turkey Store
242,421

 
231,180

—

231,180

4.9

International & Other
82,493

 
95,600

(1,257
)
94,343

(12.6
)
   TOTAL
1,236,877

 
1,265,292

(38,651
)
1,226,641

0.8

NET SALES
 
 
 
 
 
 
Grocery Products
$
584,085

 
$
648,244

$
(71,415
)
$
576,829

1.3

Refrigerated Foods
1,373,009

 
1,321,784

—

1,321,784

3.9

Jennie-O Turkey Store
398,512

 
388,278

—

388,278

2.6

International & Other
145,907

 
166,391

(2,233
)
164,158

(11.1
)
   TOTAL
$
2,501,513

 
$
2,524,697

$
(73,648
)
$
2,451,049

2.1


 
 
 
Year-to-Date
 
 
FY19
 
FY18
 
VOLUME (LBS.)
Reported
GAAP
 
Reported
GAAP*
Divestitures
Organic
(Non-GAAP)
Non-GAAP
% Change
Grocery Products
1,283,492

 
1,328,693

(73,915
)
1,254,778

2.3

Refrigerated Foods
2,325,156

 
2,327,140

—

2,327,140

(0.1
)
Jennie-O Turkey Store
789,337

 
784,655

—

784,655

0.6

International & Other
339,296

 
357,690

(2,626
)
355,064

(4.4
)
   TOTAL
4,737,281

 
4,798,178

(76,541
)
4,721,637

0.3

NET SALES
 
 
 
 
 
 
Grocery Products
$
2,369,317

 
$
2,480,367

$
(141,401
)
$
2,338,966

1.3

Refrigerated Foods
5,210,741

 
5,109,881

—

5,109,881

2.0

Jennie-O Turkey Store
1,323,783

 
1,331,013

—

1,331,013

(0.5
)
International & Other
593,476

 
624,439

(4,696
)
619,743

(4.2
)
   TOTAL
$
9,497,317

 
9,545,700

$
(146,097
)
$
9,399,603

1.0

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

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

 
 
 
 
 

 
 
Thirteen Weeks Ended
 
 
October 27,
2019
 
October 28,
2018*
 
% Change
NET SALES
 
 
 
 
 
 
Grocery Products
 
$
584,085

 
$
648,244

 
(9.9
)
Refrigerated Foods
 
1,373,009

 
1,321,784

 
3.9

Jennie-O Turkey Store
 
398,512

 
388,278

 
2.6

International & Other
 
145,907

 
166,391

 
(12.3
)
TOTAL
 
$
2,501,513

 
$
2,524,697

 
(0.9
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SEGMENT PROFIT
 
 

 
 

 
 

Grocery Products
 
$
80,923

 
$
79,082

 
2.3

Refrigerated Foods
 
189,287

 
194,573

 
(2.7
)
Jennie-O Turkey Store
 
41,031

 
38,744

 
5.9

International & Other
 
17,455

 
24,802

 
(29.6
)
TOTAL SEGMENT PROFIT
 
328,696

 
337,201

 
(2.5
)
Net unallocated expense
 
5,065

 
15,787

 
(67.9
)
Noncontrolling interest
 
63

 
90

 
(30.0
)
EARNINGS BEFORE INCOME TAX
 
$
323,694

 
$
321,504

 
0.7

 
 
 
 
 

 
 
Fifty-Two Weeks Ended
 
 
October 27,
2019
 
October 28,
2018*
 
% Change
NET SALES
 
 
 
 
 
 
Grocery Products
 
$
2,369,317

 
$
2,480,367

 
(4.5
)
Refrigerated Foods
 
5,210,741

 
5,109,881

 
2.0

Jennie-O Turkey Store
 
1,323,783

 
1,331,013

 
(0.5
)
International & Other
 
593,476

 
624,439

 
(5.0
)
TOTAL
 
$
9,497,317

 
$
9,545,700

 
(0.5
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SEGMENT PROFIT
 
 

 
 

 
 

Grocery Products
 
$
339,497

 
$
353,266

 
(3.9
)
Refrigerated Foods
 
681,763

 
670,948

 
1.6

Jennie-O Turkey Store
 
117,962

 
131,846

 
(10.5
)
International & Other
 
75,513

 
88,953

 
(15.1
)
TOTAL SEGMENT PROFIT
 
1,214,735

 
1,245,013

 
(2.4
)
Net unallocated expense
 
5,362

 
64,171

 
(91.6
)
Noncontrolling interest
 
342

 
442

 
(22.6
)
EARNINGS BEFORE INCOME TAX
 
$
1,209,715

 
$
1,181,284

 
2.4



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


 
 
 
 
 
 
 
 
 
 
 
Thirteen Weeks Ended
 
Fifty-Two Weeks Ended
 
 
October 27,
2019
 
October 28,
2018*
 
October 27,
2019
 
October 28,
2018*
Net sales
 
$
2,501,513

 
$
2,524,697

 
$
9,497,317

 
$
9,545,700

Cost of products sold
 
2,007,790

 
1,991,369

 
7,612,669

 
7,566,227

GROSS PROFIT
 
493,723

 
533,328

 
1,884,648

 
1,979,473

Selling, general and administrative
 
183,795

 
205,287

 
727,584

 
841,205

Goodwill/intangible impairment
 
—

 
17,279

 
—

 
17,279

Equity in earnings of affiliates
 
11,068

 
8,814

 
39,201

 
58,972

OPERATING INCOME
 
320,996

 
319,576

 
1,196,265

 
1,179,961

Interest & investment income
 
5,793

 
8,257

 
31,520

 
27,817

Interest expense
 
(3,095
)
 
(6,329
)
 
(18,070
)
 
(26,494
)
EARNINGS BEFORE INCOME TAXES
 
323,694

 
321,504

 
1,209,715

 
1,181,284

Provision for income taxes
 
68,128

 
60,008

 
230,567

 
168,702

(effective tax rate)
 
21.0
%
 
18.7
%
 
19.1
%
 
14.3
%
NET EARNINGS
 
255,566

 
261,496

 
979,148

 
1,012,582

Less: net earnings attributable to noncontrolling interest
 
63

 
90

 
342

 
442

NET EARNINGS ATTRIBUTABLE TO HORMEL FOODS CORPORATION
 
$
255,503

 
$
261,406

 
$
978,806

 
$
1,012,140

 
 
 
 
 
 
 
 
 
NET EARNINGS PER SHARE
 
 

 
 

 
 

 
 

Basic
 
$
0.48

 
$
0.49

 
$
1.83

 
$
1.91

Diluted
 
$
0.47

 
$
0.48

 
$
1.80

 
$
1.86

 
 
 
 
 
 
 
 
 
WEIGHTED AVG. SHARES OUTSTANDING
 
 

 
 

 
 

Basic
 
534,151

 
533,110

 
534,578

 
530,742

Diluted
 
543,802

 
545,421

 
545,232

 
543,869

 
 
 
 
 
 
 
 
 
Dividends declared per share
 
$
0.2100

 
$
0.1875

 
$
0.8400

 
$
0.7500


 *Adjusted due to the adoption of Accounting Standards Update (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)

 
 
 
 
 
 
 
October 27, 2019
 
October 28, 2018
ASSETS
Cash and cash equivalents
 
$
672,901

 
$
459,136

Short-term marketable securities
 
14,736

 
—

Accounts receivable
 
574,396

 
600,438

Inventories
 
1,042,362

 
963,527

Income taxes receivable
 
19,924

 
3,995

Prepaid expenses
 
22,637

 
16,342

Other current assets
 
14,457

 
6,662

TOTAL CURRENT ASSETS
 
2,361,413

 
2,050,100

 
 
 
 
 
Goodwill
 
2,481,645

 
2,714,116

Other intangibles
 
1,033,862

 
1,207,219

Pension assets
 
135,915

 
195,153

Investments in and receivables from affiliates
 
289,157

 
273,153

Other assets
 
177,901

 
189,951

Property, plant & equipment, net
 
1,629,111

 
1,512,600

TOTAL ASSETS
 
$
8,109,004

 
$
8,142,292

 
 
 
 
 
 
 
 
 
 
LIABILITIES AND SHAREHOLDERS’ INVESTMENT
 
 
 
 
 
Accounts payable
 
$
590,033

 
$
618,830

Accrued expenses
 
62,031

 
48,298

Accrued worker's compensation
 
24,272

 
24,594

Accrued marketing
 
96,305

 
118,887

Employee-related expenses
 
213,515

 
224,736

Taxes payable
 
6,208

 
2,490

Interest and dividends payable
 
112,685

 
101,079

TOTAL CURRENT LIABILITIES
 
1,105,049

 
1,138,914

 
 
 
 
 
Long-term debt, less current maturities
 
250,000

 
624,840

Pension and post-retirement benefits
 
536,490

 
477,557

Other long-term liabilities
 
115,356

 
99,070

Deferred income taxes
 
176,574

 
197,093

Accumulated other comprehensive loss
 
(399,500
)
 
(243,498
)
Other shareholder's investment
 
6,325,035

 
5,848,316

TOTAL LIAB. & SHAREHOLDERS’ INVESTMENT
 
$
8,109,004

 
$
8,142,292


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


 
 
 
 
 
 
 
Fifty-Two Weeks Ended
 
 
October 27, 2019
 
October 28, 2018
OPERATING ACTIVITIES
 
 

 
 

Net earnings
 
$
979,148

 
$
1,012,582

Depreciation and amortization
 
165,209

 
161,858

Goodwill/intangible impairment
 
—

 
17,279

(Increase) decrease in working capital
 
(215,548
)
 
76,580

Other
 
(5,813
)
 
(26,570
)
NET CASH PROVIDED BY OPERATING ACTIVITIES
 
922,996

 
1,241,729

 
 
 
 
 
INVESTING ACTIVITIES
 
 

 
 

Net (purchase) sale of securities
 
(14,496
)
 
—

Proceeds from sale of business
 
479,806

 
—

Acquisitions of businesses/intangibles
 
—

 
(857,668
)
Net purchases of property/equipment
 
(256,436
)
 
(379,858
)
Decrease in investments, equity in affiliates, and other assets
 
11,279

 
2,158

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
 
220,153

 
(1,235,368
)
 
 
 
 
 
FINANCING ACTIVITIES
 
 

 
 

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

Dividends paid on common stock
 
(437,053
)
 
(388,107
)
Share repurchase
 
(174,246
)
 
(46,898
)
Other
 
59,895

 
71,803

NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
 
(926,244
)
 
11,638

Effect of exchange rate changes on cash
 
(3,140
)
 
(2,985
)
INCREASE IN CASH AND CASH EQUIVALENTS
 
213,765

 
15,014

Cash and cash equivalents at beginning of year
 
459,136

 
444,122

CASH AND CASH EQUIVALENTS AT END OF YEAR
 
$
672,901

 
$
459,136



9