HORMEL FOODS REPORTS THIRD QUARTER RESULTS AND REVISES FULL YEAR SALES AND EARNINGS GUIDANCE

The company delivers its seventh consecutive quarter of record sales and fourth consecutive quarter of earnings growth 

AUSTIN, Minn., Sept. 1, 2022 /PRNewswire/ -- Hormel Foods Corporation (NYSE: HRL), a leading global branded food company, today reported results for the third quarter of fiscal 2022. All comparisons are to the third quarter of fiscal 2021 unless otherwise noted.

• Record net sales of $3.0 billion, up 6%; organic net sales¹ up 3%
• Operating income of $291 million, up 40%; up 17% compared to adjusted operating income¹ of $248 million last year
• Operating margin of 9.6%, compared to 7.2% last year and compared to adjusted operating margin¹ of 8.7% last year
• Pretax earnings of $290 million, up 42%; up 18% compared to adjusted pretax earnings¹ of $245 million last year
• Effective tax rate of 24.5%, compared to 13.3% last year
• Diluted earnings per share of $0.40, up 25%; up 3% compared to adjusted diluted earnings per share¹ of $0.39 last year
• Cash flow from operations of $186 million, up 143%

"We delivered another quarter of record sales and double-digit operating income growth," said Jim Snee, chairman of the board, president and chief executive officer. "In the current environment, delivering seven straight quarters of record sales and four consecutive quarters of earnings growth is a notable achievement and speaks to the effectiveness of our strategy and the importance of our brands in uncertain times. Our team's execution played a pivotal role in our growth this quarter, as together, we overcame significant challenges, including continued broad-based inflationary pressures, persistent upstream and downstream supply chain disruptions, limited turkey supply, and impacts in China from COVID-related restrictions and temporary plant shutdowns."

"We continued to benefit from our balanced business model during the quarter, led by outstanding contributions from Jennie-O Turkey Store and Refrigerated Foods," Snee said. "The Jennie-O Turkey Store segment significantly outperformed our profit expectations for the quarter as the team managed limited turkey supply effectively and maximized operational performance. Refrigerated Foods delivered double-digit, value-added earnings growth on retail and foodservice items, more than offsetting lower commodity profitability. Similar to last quarter, impressive performance from these businesses helped mitigate higher input and supply chain costs across all segments. Earnings growth was also supported by the Planters^® snack nuts business, which continues to meet our expectations."

"Our brands remain healthy, continue to generate growth and are responding well to pricing actions," Snee said. "Consumers and operators continued to engage with our brands due to their value, convenience and versatility. The team drove volume, sales and share² gains at retail for brands such as SKIPPY^®, Hormel^® Gatherings^®, Hormel^® chili, Dinty Moore^® and Mary Kitchen^®. Likewise, demand for our foodservice products was strong, as operators again turned to our items to help mitigate labor pressures and diversify menu offerings. Value-added products such as our premium bacon and sausage, sliced meats and our line of premium prepared proteins performed exceptionally well this quarter. Our strategy of building a portfolio with both premium and value offerings continued to serve us well as macroeconomic conditions pressure some of our customers, consumers and operators. Our teams remain keenly focused on the long-term needs of the business, our strategic priorities and protecting the equity of our leading brands." 

"From a top-line and bottom-line perspective, the business remains healthy as we continue to navigate some of the most difficult operating conditions in the company's 130-year history," Snee said. "We are confident in our ability to exceed our previous sales guidance due to strong demand for our foodservice and center store grocery brands, higher turkey markets and the pricing actions we have taken across the portfolio. Our long-term strategy to meet consumers where they want to eat, with a broad portfolio of products, has been crucial to our growth in the current environment."

"We expect elevated cost inflation to persist, primarily related to operations, logistics and raw material inputs," Snee said. "As a result, we are revising our full year earnings guidance range. We view the majority of the escalated cost pressures we are currently absorbing as transient and likely to subside over the coming quarters. We will continue to leverage our balanced business model and experienced management team as we navigate these difficult business conditions."

"We recently announced the next step in our strategic evolution, our Go Forward (GoFWD) initiative," Snee said. "We will be organizing our business into three empowered segments to support our six strategic priorities, better align our business to the needs of our customers, consumers and operators, and drive sustainable long-term growth. Our new operating model is a culmination of our recent strategic actions, which included numerous portfolio-building acquisitions, such as the Planters^® snack nuts business, the creation of One Supply Chain, the modernization of our technology and e-commerce capabilities, and most recently, our transformational efforts at Jennie-O Turkey Store. This new structure will create a more aligned organization that is accountable, nimble and focused on creating the Hormel Foods of the future."

The company is transitioning to three operating segments – Retail, Foodservice and International – and will begin operating under the new model on Oct. 31, 2022.  Earnings will be reported under this structure beginning in the first quarter of fiscal 2023. The three new segments will continue to be supported by the company's One Supply Chain team and corporate functions. Additionally, the company will be standing up a Brand Fuel center of excellence, which will house enterprisewide brand management expertise, marketing support, insights-led innovation and analytical capabilities to further enable data-driven decisions. This center will also incorporate the digital experience group, the company's e-commerce and digital content team that leads the company's brands and businesses in the virtual marketplace.

Coinciding with the announcement of the new operating model, the company disclosed the following senior leadership appointments:

• The company's largest segment – Retail – will be led by Deanna Brady, as executive vice president of Retail. Brady currently oversees the company's Refrigerated Foods segment.
• The Foodservice segment will be led by Mark Ourada, group vice president of Foodservice.
• Swen Neufeldt will continue to lead the company's international business as group vice president, president of Hormel Foods International Corporation.

"Our balanced model, strategic investments and experienced management team have served us well in the past and will be key to our success in the coming years," Snee said. "Under the leadership of Deanna, Mark and Swen, we expect to drive sustainable growth in line with our long-term growth goals. Each of these leaders has over 25 years of experience with the company and proven reputations for delivering results. I could not be more excited for the future of our company."

Changes to the company's operating segments have no impact on historical consolidated results of operations, financial position or cash flows. Recast financial information will be provided during the first quarter of fiscal 2023 to aid in comparability to historical financial data.

Demand across the company's U.S. channels remained elevated for center store items at retail and value-added foodservice products. The company benefited from pricing actions to offset inflationary pressures across many categories and contributions from the Planters^® snack nuts business. Sales for the international channel declined, primarily due to lower export sales. 

• Volume down 18%; organic volume¹ down 19%
• Net sales up 2%; organic net sales¹ up 1%
• Segment profit up 16%

Net sales increased due to continued strong results from the foodservice businesses, growth from many retail products, strategic pricing actions across the portfolio and the inclusion of the Planters^® snack nuts business in the convenience channel. Retail products such as Applegate^® natural and organic meats, Hormel^® Gatherings^® party trays, Hormel^® Natural Choice^® sliced meats, Hormel^® Square Table^TM entrees and Lloyd's^® barbeque grew volume and sales for the quarter. Foodservice growth was driven by elevated demand for brands such as Austin Blues^®, Hormel^® Natural Choice^®, Hormel^® Bacon 1^TM, Café H^® and Old Smokehouse^®. Consistent with the company's long-term strategy to better align resources to value-added growth, the overall decline in volume was due primarily to lower commodity sales resulting from the company's new pork supply agreement. Segment profit growth was driven by strong results from the value-added businesses, more than offsetting higher operational and logistics costs, and lower commodity profitability.  

• Volume up 15%; organic volume¹ up 8%
• Net sales up 25%; organic net sales¹ up 13%
• Segment profit down 5%

Volume and sales increased significantly, led by strong demand across the nut butters, Mexican and simple meals portfolios, and from the inclusion of the Planters^® snack nuts business. Organic sales gains were led by products such as SKIPPY^® spreads, WHOLLY^® Guacamole, Hormel^® chili, Dinty Moore^® beef stew and Mary Kitchen^® hash, in addition to strategic pricing actions. Segment profit declined due to the impact from continued inflationary pressures and lower results from MegaMex.

• Volume down 20%
• Net sales down 8%
• Segment profit up 537%

As anticipated, volume and sales declined as a result of the supply impacts on the company's vertically integrated supply chain from highly pathogenic avian influenza (HPAI). Foodservice and whole-bird sales increased due to favorable pricing, partially offsetting lower commodity and retail sales. Higher commodity prices and foodservice sales drove the substantial improvement in segment profit.

• Volume down 11%; organic volume¹ down 12%
• Net sales down 5%; organic net sales¹ down 6%
• Segment profit down 9%

Higher global sales of SPAM^® luncheon meat and improved results in Brazil did not overcome an overall decline in export sales and lower sales in China. Export volumes declined as a result of current export logistics challenges and lower commodity sales due to the company's new pork supply agreement. Sales in China were negatively affected by COVID-related restrictions and temporary plant shutdowns. Profit growth in China, due primarily to lower pork input costs, did not offset the impact of lower export sales.

• Advertising spend was $37 million, compared to $31 million in the prior year.
• The effective tax rate was 24.5%, compared to 13.3% for the previous year. Last year's rate reflected the benefit from a large volume of stock option exercises and a one-time foreign tax benefit. The effective tax rate for fiscal 2022 is expected to be between 20.5% and 22.5%.
• Capital expenditures in the third quarter were $61 million, compared to $54 million last year. The company's target for capital expenditures in fiscal 2022 is $310 million.
• Depreciation and amortization expense in the third quarter was $65 million, compared to $59 million last year. The full-year expense is expected to be approximately $250 million.

A conference call will be webcast at 8 a.m. CDT on Sept. 1, 2022. Access is available at www.hormelfoods.com by clicking on "Investors." The call will also be available via telephone by dialing 888-317-6003 and providing the access code 7805268. An audio replay is available by going to www.hormelfoods.com. The webcast replay will be available at noon CDT, Sept. 1, 2022, and will remain on the website for one year.

Hormel Foods Corporation, based in Austin, Minn., is a global branded food company with over $11 billion in annual revenue across more than 80 countries worldwide. Its brands include Planters^®, SKIPPY^®, SPAM^®, Hormel^® Natural Choice^®, Applegate^®, Justin's^®, WHOLLY^®, Hormel^® Black Label^®, Columbus^®, Jennie-O^® 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 on the "Global 2000 World's Best Employers" list by Forbes magazine for three years, is one of Fortune magazine's most admired companies, has appeared on the "100 Best Corporate Citizens" list by 3BL Media 13 times, and has received numerous other awards and accolades for its corporate responsibility and community service efforts. The company lives by its purpose statement — Inspired People. Inspired Food.™ — to bring some of the world's most trusted and iconic brands to tables across the globe. For more information, visit www.hormelfoods.com.

This news release contains "forward-looking" information within the meaning of the federal securities laws. The "forward-looking" information may include statements concerning the Company's outlook for the future as well as other statements of beliefs, future plans, strategies, or anticipated events and similar expressions concerning matters that are not historical facts. Words or phrases such as "should result," "believe," "intend," "plan," "are expected to," "targeted," "will continue," "will approximate," "is anticipated," "estimate," "project," or similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those anticipated or projected, which factors include, but are not limited to, risks related to the deterioration of economic conditions; the COVID-19 pandemic; risks associated with acquisitions and divestitures; potential disruption of operations including at co-manufacturers, suppliers, logistics providers, customers, or other third-party service providers; risk of loss of a material contract; the Company's inability to protect information technology systems against, or effectively respond to, cyber attacks or security breaches; deterioration of labor relations, labor availability or increases to labor costs; general risks of the food industry, including food contamination; outbreaks of disease among livestock and poultry flocks; fluctuations in commodity prices and availability of raw materials and other inputs; fluctuations in market demand for the Company's products; risks of litigation; potential sanctions and compliance costs arising from government regulation; compliance with stringent environmental regulation and potential environmental litigation; and risks arising from the Company's foreign operations. Please refer to the cautionary statements regarding "Risk Factors" and "Forward-Looking Statements" that appear in our most recent Annual Report on Form 10-K and quarterly reports on Form 10-Q, which can be accessed at hormelfoods.com in the "Investors" section, for additional information. In making these statements, the Company is not undertaking, and specifically declines to undertake, any obligation to address or update each or any factor in future filings or communications regarding the Company's business or results. Though the Company has attempted to list comprehensively these important cautionary risk factors, the Company wishes to caution investors and others that other factors may in the future prove to be important in affecting the Company's business or results of operations. The Company cautions readers not to place undue reliance on forward-looking statements, which represent current views as of the date made.

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.

¹Organic net sales, organic volume, adjusted financial measurements of adjusted operating income, adjusted operating margin, adjusted pretax earnings, and adjusted diluted earnings per share are non-GAAP financial measures. Please see the discussion of these non-GAAP financial measures and the reconciliation of these to comparable GAAP measures following the end notes.

²IRI volume and sales for 13 weeks ending 7/10/2022 - Multi-Outlet

The non-GAAP adjusted financial measurements of adjusted operating income, adjusted operating margin, adjusted pretax earnings, and adjusted diluted earnings per share are presented to provide investors with additional information to facilitate the comparison of past and present operations. Adjusted operating income, adjusted operating margin, adjusted pretax earnings, and adjusted diluted earnings per share exclude the impact of the acquisition-related expenses and accounting adjustments related to the acquisition of the Planters^® snack nuts business. The tax impact was calculated using the effective tax rate for the quarter in which the expenses and accounting adjustments were incurred.

The non-GAAP adjusted financial measures of organic net sales and organic volume are presented to provide investors with additional information to facilitate the comparison of past and present operations. 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 impact of the acquisition of the Planters^® snack nuts business (June 2021) in the Grocery Products, Refrigerated Foods, and International & Other segments.

The company believes these non-GAAP financial measures provide useful information to investors, because they are the measures used to evaluate performance on a comparable year-over-year basis. Non-GAAP measures are not intended to be a substitute for U.S. GAAP measures in analyzing financial performance. These non-GAAP measures are not in accordance with generally accepted accounting principles and may be different from non-GAAP measures used by other companies.

The tables below show the calculations to reconcile from the GAAP measures to the non-GAAP adjusted measures.

SOURCE Hormel Foods Corporation