SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended January 24, 1998 Commission File
Number 1-2402
HORMEL FOODS CORPORATION
Incorporated Under the Laws
of the State of Delaware Fein #41-0319970
1 Hormel Place
Austin, Minnesota 55912-3680
Telephone - (507) 437-5737
None
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES XXX NO
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date.
Class Outstanding at January 24, 1998
Common Stock - $.1172 par value 75,618,111
Common Stock Non-Voting - $.01 par value - 0 -
Pages: This report contains twelve pages numbered sequentially from this
cover page.
Form 10-Q
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
HORMEL FOODS CORPORATION
(In Thousands of Dollars)
January 24, October 25,
1998 1997
(Unaudited)
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 164,661 $ 146,853
Short-term marketable securities--
at cost which approximates market 20,714 5,533
Accounts receivable 271,445 233,966
Inventories 256,175 265,346
Deferred income taxes 12,345 12,204
Prepaid expenses 6,308 7,450
TOTAL CURRENT ASSETS 731,648 671,352
DEFERRED INCOME TAXES 68,537 68,629
INTANGIBLES 129,780 131,710
INVESTMENTS IN AFFILIATES 116,347 113,372
OTHER ASSETS 59,375 54,734
PROPERTY, PLANT AND EQUIPMENT
Land 11,793 11,467
Buildings 237,116 242,124
Equipment 568,227 594,159
Construction in Progress 72,054 72,179
889,190 919,929
Less allowance for depreciation (421,755) (431,191)
467,435 488,738
$1,573,122 $1,528,535
</TABLE>
See notes to financial statements
<PAGE>
Form 10-Q
STATEMENTS OF FINANCIAL POSITION
HORMEL FOODS CORPORATION
(In Thousands of Dollars)
<TABLE>
<CAPTION>
January 24, October 25,
1998 1997
LIABILITIES AND SHAREHOLDERS' (Unaudited)
INVESTMENT
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $ 105,752 $ 120,385
Accrued expenses 34,862 34,564
Accrued marketing 26,737 21,543
Employee compensation 37,533 46,275
Taxes, other than federal
income taxes 19,778 16,524
Dividends payable 12,526 11,980
Federal income tax 22,664 4,712
Current maturities of
long-term debt 7,607 4,595
TOTAL CURRENT LIABILITIES 267,459 260,578
LONG-TERM DEBT--
less current maturities 206,575 198,232
ACCUMULATED POSTRETIREMENT
BENEFIT OBLIGATION 243,343 243,343
OTHER LONG-TERM LIABILITIES 23,940 24,180
SHAREHOLDERS' INVESTMENT
Preferred Stock, par value
$.01
authorized 40,000,000
shares; issued--none
Common Stock, non-voting,
par value $.01 a share--
authorized 40,000,000 shares;
issued--none
Common Stock, par value $.1172
a share--authorized 200,000,000:
Issued 75,618,111 shares 01/24/98
Issued 75,776,510 shares 10/25/97 8,862 8,881
Earnings reinvested in business 822,943 793,321
831,805 802,202
$1,573,122 $1,528,535
</TABLE>
See notes to financial statements
<PAGE>
Form 10-Q
STATEMENTS OF EARNINGS (Unaudited)
HORMEL FOODS CORPORATION
(In Thousands of Dollars, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Three
Months Ended Months Ended
January 24, January 25,
1998 1997
Sales, less returns and
<S> <C> <C>
allowances $ 814,914 $ 810,309
Cost of products sold 605,196 626,800
GROSS PROFIT 209,718 183,509
Expenses:
Selling and delivery 144,218 132,371
Administrative and general 19,343 18,005
Gain on plant sale (28,379) ---
OPERATING INCOME 74,536 33,133
Other income and expenses:
Other Income--net 2,753 2,973
Equity in earnings of affiliates 1,200 ---
Interest expense (3,182) (3,058)
EARNINGS BEFORE INCOME TAXES 75,307 33,048
Provision for income taxes 28,458 12,066
NET EARNINGS $ 46,849 $ 20,982
Earnings per share:
NET EARNINGS PER SHARE (DILUTED)$ 0.61 $ 0.27
NET EARNINGS PER SHARE (BASIC) $ 0.62 $ 0.27
</TABLE>
See notes to financial statements
<PAGE>
Form 10-Q
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
HORMEL FOODS CORPORATION
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Three Three
Months Ended Months Ended
January 24, January 25,
1998 1997
OPERATING ACTIVITIES
<S> <C> <C>
Net earnings $ 46,849 $ 20,982
Adjustments to reconcile to
net cash provided by
operating activities:
Depreciation 12,332 10,549
Amortization of intangibles 1,780 1,872
Equity in earnings of affil (1,200) ---
Provision for deferred income
taxes (49) 515
(Gain) loss on property/equipment
sales and idle facility 88 (22)
(Gain) on Plant sale (17,592)
Changes in operating assets
and liabilities:
Decrease(increase)in accounts
receivable (37,479) 20,460
(Increase)decrease in inventories
and prepaid expenses 10,313 5,151
Increase(decrease) in accounts
payable and accrued expenses 3,083 (31,142)
NET CASH PROVIDED BY OPERATING
ACTIVITIES 18,125 28,365
INVESTING ACTIVITIES
Sale of held-to-maturity securities 5,662 ---
Purchase of held-to-maturity
securities (20,845) (19,357)
Acquisitions of businesses --- (140)
Purchases of property/equipmen (12,353) (17,072)
Proceeds from sales of
prop./equip. 38,828 2,989
(Increase)in investments
and other assets (6,266) (73,369)
NET CASH USED IN INVESTING
ACTIVITIES 5,026 (106,949)
FINANCING ACTIVITIES
Proceeds from long-term borrowings 11,647 64,336
Principal payments
on long-term debt (292) (10)
Dividends paid on Common Stock (11,753) (11,662)
Stock Repurchase (5,157) (13,035)
Other 212 111
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (5,343) 39,740
</TABLE>
<PAGE>
Form 10-Q
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
HORMEL FOODS CORPORATION
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Three Three
Months Ended Months Ended
January 24, January 25,
1998 1997
(DECREASE)INCREASE IN CASH AND
<S> <C> <C>
CASH EQUIVALENTS 17,808 (38,844)
Cash and cash equivalents at
beginning of year 146,853 188,473
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 164,661 $ 149,629
</TABLE>
See notes to financial statements
<PAGE>
FORM 10-Q
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
HORMEL FOODS CORPORATION
NOTE A
In the opinion of the Company, the accompanying unaudited financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary for a fair presentation.
The accounting policies followed by the Company are set forth in Note A to
the Company's Financial Statements in the 1997 Hormel Foods Corporation
Annual Report to Shareholders, which is incorporated by reference on Form
10-K.
NOTE B
The results of operations for the three month period ended January 24,
1998, and January 25, 1997 are not necessarily indicative of the results to
be expected for the full year.
FORM 10-Q
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In Thousands)
HORMEL FOODS CORPORATION
RESULTS OF OPERATIONS
Earnings for the first quarter of Fiscal 1998 were $46,849 compared to
$20,982 in 1997. The 1998 results include a gain, net of taxes, of $17,402
on the sale of the Davenport gelatin plant to Goodman Fielder Ltd., of
Sydney, Australia.
Excluding the one-time gain from the Davenport sale, sales and earnings for
the quarter were $814,914 and $29,447, respectively, compared to $810,309
and $20,982 for the same periods last year. Tonnage volume for the quarter
increased 5.8 percent over 1997 to 685,180 pounds.
The increase in earnings and tonnage volume, while sales dollars remained
almost flat, was a result of lower finished goods price levels and
aggressive promotional programs. While live prices for hogs declined
dramatically during the quarter, total value of the processed hogs
decreased even more limiting the Company's ability to recover adequate
margins. Pressure on margins was mitigated by promotional programs that
increased the volume of higher margin, manufactured items in the product
mix.
The Company's core Hormel business continues to be the major contributor to
earnings. Within the Prepared Foods Group, tonnage volume for the Grocery
Products Division during the first quarter was up 1 percent compared to
last year. Sales of HORMEL chili, supported by substantial promotional
activity, increased 16 percent for the quarter over 1997. A new
promotional campaign for SPAM luncheon meat with the theme "So Good It's
Gone", is scheduled to run from now through June in the heavier consumption
areas.
In January, the Specialty Products Division of Prepared Foods completed the
sale of the Davenport plant mentioned previously. This will result in an
annual reduction of sales volume of approximately $40,000 and 15,000
pounds.
During the first quarter the Meat Products Group continued the favorable
trend of increased branded product sales which started in 1997. Sales
volume of key branded products as well as the mix of branded versus
commodity items both improved substantially. ALWAYS TENDER marinated
fresh pork experienced a strong double-digit increase in volume and
distribution with major retail customers purchasing and featuring these
products.
The retail ham category had record sales during the Christmas and New Years
holidays due to a favorable supply and price level of raw materials. The
deli products category also performed extremely well during the quarter
with ham products contributing the largest increase in sales volume.
<PAGE>
FORM 10-Q
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In Thousands)
Consumer packaged pepperoni also continued to grow. A major promotional
campaign supports both original pepperoni and the new reduced fat turkey
pepperoni. Early indications are that sales and national distribution of
both product categories are benefiting from the program.
The strong sales momentum experienced by the Foodservice Group throughout
1997 accelerated in the first quarter of 1998. For the quarter total
tonnage increased in excess of 19 percent with branded tonnage up in excess
of 17 percent. STAGG chili tonnage for Foodservice distribution increased
22 percent compared to last year.
Jennie-O sales dollar and tonnage volume for the first quarter increased 18
and 29 percent, respectively, over the same period last year. In late
October Jennie-O acquired Heartland Foods Company to help meet growing
demand. Turkey World Magazine projects that Jennie-O will become the
largest turkey processor in the US in 1998. Product margins have
deteriorated since November as turkey prices have decreased while corn and
soy meal have stayed at levels higher than expected. These conditions will
impact Jennie-O's ability to meet its 1998 profit plan.
Export sales by Hormel Foods International Corporation were down 34 percent
for the first quarter compared to 1997. The sales decrease was a result of
weak currencies in relation to the US dollar in the Philippines, Australia
and South Korea. The joint ventures in both Shanghai and Beijing continue
to expand production and develop distribution. Promotional programs at
both companies are scheduled for the March-April period to assist this
start-up phase of their businesses.
STAGG chili continues to do well in Canada and will be introduced in
England, Spain and Germany in the summer of 1998.
Marketing expenses increased 18.6 percent during the quarter to $67,063
from $56,537 in 1997. The Company continues to emphasize both its well
established products along with newer ethnic products in its promotional
programs.
Selling and delivery expenses which include promotional expenses, and
administrative and general expenses for the quarter increased to 17.7 and
2.4 percent of sales, respectively, from 16.3 and 2.2 percent in 1997. The
increase is the result of the generally flat dollar sales experienced in
1998 coupled with the aggressive increase in promotional expenses.
The effective tax rate for the first quarter of 1998 was 37.8 percent
compared to 36.5 percent last year. This increase is due in part to non-
deductible goodwill resulting from the Stagg and Campofrio transactions and
foreign taxes resulting from various foreign license agreements.
<PAGE>
FORM 10-Q
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In Thousands)
FINANCIAL CONDITION
Ratio comparisons for the first quarter of 1998 and 1997, which demonstrate
the Company's financial strength, are as follows:
<TABLE>
<CAPTION>
End of Quarter
1st Quarter 1st Quarter
1998 1997
Liquidity Ratios
<S> <C> <C>
Current ratio 2.7 2.9
Receivables turnover * 12.9 14.7
Days sales in receivables * 30.4 days 23.7 days
Inventory turnover 9.3 9.3
Days sales in inventory 38.6 days 38.8 days
Leverage Ratio
Long-term debt to equity 25.8% 24.8%
Operating Ratios
Pre-tax profit to net worth ** 36.9% 16.9%
Pre-tax profit to total assets ** 19.4% 9.1%
</TABLE>
* Includes $71,400 in receivables from sale of Davenport plant.
** Includes $28,379 in pre-tax profit from sale of Davenport plant.
Changes during the first quarter in current asset and liability balances
followed normal seasonal patterns except for accounts receivable which
included $71,400 for the sale of the Davenport plant. The sale closed as
of Saturday, January 24, 1998 the end of the first quarter with the cash
actually being received on Monday, January 26, 1998.
During the first quarter, the Company invested $12,353 in new plant and
equipment. In November the leased dessert gelatin packaging plant in
Aurora, Illinois was purchased for $3,275. In addition investment in
computer hardware and software for ongoing initiatives to improve data
processing services in the accounting and distribution areas was
approximately $4,000 for the quarter. Investment in plant and equipment
continues to emphasize productivity gains and efficient product flow while
improving ergonomics and safety conditions for employees.
The Company continues to keep excess funds invested short-term as it
examines business opportunities that meet its long-term operating goals.
Long-term debt consists of small issue Industrial Revenue Bonds of varying
maturities used for investment in the Federal Affordable Housing Program,
<PAGE>
FORM 10-Q
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In Thousands)
$110,000 in Senior Notes and $64,400 of long-term notes denominated in
Spanish Pesetas used to purchase the equity interest in Campofrio. The
leverage ratio indicates that significant borrowing capacity remains to
take advantage of any business opportunities that may arise through
acquisition or internal expansion.
During the first quarter of fiscal 1998, 158,399 shares of Hormel Common
Stock were purchased and retired under the share repurchase program at an
average price per share of $31.00.
<PAGE>
FORM 10-Q
PART II - OTHER INFORMATION
Item 4. Results of Votes of Security Holders.
At the Annual Meeting of Shareholders on January 27, 1998 the
proposal to approve the Company's Operators' Share Incentive
Compensation Plan was approved.
For: 64,886,661 Against: 1,079,672 Abstain: 438,195
At the Annual Meeting of Shareholders on January 27, 1998 the
proposal to approve the Company's Long-Term Incentive Plan was
approved.
For: 64,826,969 Against: 1,157,121 Abstain: 420,778
Item 6. Exhibits and Reports on Form 8-K
The Company filed a Form 8-K on October 26, 1997 announcing the
election of John R. Block and Joseph T. Mallof as directors of
the Company replacing retiring directors, Earl B. Olsen and Ray
V. Rose.
The Company filed a Form 8-K on December 17, 1997 announcing the
sale of the Davenport, Iowa gelatin/specialized proteins plant to
Goodman Fielder Limited of Sydney, Australia for $71,400,000.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HORMEL FOODS CORPORATION
Date: By:
D. J. HODAPP
Executive Vice President
& Chief Financial Officer
Date: By:
M. J. McCOY
Vice President and Treasurer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> JAN-24-1998
<CASH> 164,661
<SECURITIES> 20,714
<RECEIVABLES> 271,445
<ALLOWANCES> 0
<INVENTORY> 256,175
<CURRENT-ASSETS> 731,648
<PP&E> 467,435
<DEPRECIATION> 421,755
<TOTAL-ASSETS> 1,573,122
<CURRENT-LIABILITIES> 267,459
<BONDS> 206,575
0
0
<COMMON> 8,862
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,573,122
<SALES> 814,914
<TOTAL-REVENUES> 814,914
<CGS> 605,196
<TOTAL-COSTS> 605,196
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,182
<INCOME-PRETAX> 75,307
<INCOME-TAX> 28,458
<INCOME-CONTINUING> 46,849
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 46,849
<EPS-PRIMARY> .62
<EPS-DILUTED> .61
</TABLE>
