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 2000 Hormel Foods Corporation Annual Report to Shareholders, which is incorporated by reference on Form 10-K.
The results of operations for the three month periods ended January 27, 2001 and January 29, 2000 are not necessarily indicative of the results to be expected for the full year.
Total comprehensive income (net income plus other comprehensive income) was $36,199 and $42,922 for the three month periods ended January 27, 2001 and January 29, 2000, respectively.
The following table sets forth the denominator for the computation of basic and diluted earnings per share:
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In Thousands except share amounts)
HORMEL FOODS CORPORATION
RESULTS OF OPERATIONS
Operating earnings for the first quarter of fiscal 2001 decreased 5.3 percent to $41,532 from $43,848 in 2000. Dollar sales for the quarter increased 4.8 percent to $947,493 compared to the same period last year. Sales tonnage decreased .6 percent from the first quarter 2000.
Gross margins decreased during the quarter compared to the same period in 2000 primarily due to the mix of Refrigerated Foods products that provided a lower gross margin than Grocery Products, which had an extraordinary first quarter last year. Heavy Y2K purchasing by our customers during the first quarter in fiscal 2000 contributed to a 10.7 percent volume increase in the Company’s canned food business making it difficult to match these results in this years first quarter.
The Company’s core Hormel business continues to be the major contributor to earnings and volume.
Hog processing levels within the Refrigerated Foods business unit were down .7 percent in the first quarter compared to the same quarter a year ago. Live hog prices were slightly higher than forecasted for the quarter and 6.8 percent higher than the first quarter of 2000. Hog procurement contracts designed to provide adequate supplies of raw materials, also contributed to reduced margins as contract prices paid for hogs exceeded the spot cash market.
Sales dollars of the Foodservice unit of the Refrigerated Group increased 7.0 percent while tonnage increased 4.0 percent for the first quarter compared to last year. Branded tonnage increased 10.0 percent. The ALWAYS TENDER® line of pork products introduced to the foodservice trade last year continues to find excellent acceptance with a wide array of food service operators. Cooked beef, premium bacon, OLD SMOKEHOUSE® applewood smoked bacon, CURE 81® ham and the Company’s traditional LAYOUT PACK® bacon also enjoyed solid growth during the quarter.
Solid performance in the branded distributor business was somewhat dampened by lower control label volume (private label for claim accounts). While control label business has become a smaller percentage of both total and processed tonnage, it still has an impact. Several restaurant groups reported weather-related declines in business during the last two months of the quarter, which led to some softening in volume from this important food service sector.
Sales dollars of the Meat Products unit increased 11.0 percent for the quarter compared to last year on a tonnage decrease of 1.0 percent. ALWAYS TENDER® fresh pork continues to grow at a double-digit rate. HORMEL® pepperoni market share grew 2.3 percent for the quarter.
Meat Products successfully launched 4 new HORMEL® fully cooked entrees featuring co-branding with Famous Daves, bringing the total number of items in the line to 8. HORMEL® fully cooked entrees have achieved a 60.0 percent ACV.
Sales dollars for the Prepared Foods business unit were down 7.0 percent compared to the same period in 2000. As stated previously, Y2K shipments negatively impacted sales comparisons for the first quarter. It is anticipated that favorable sales comparisons will be attained for the remainder of 2001 offsetting the loss of sales in the first quarter.
Market share gains were recorded during the first quarter for HORMEL® chili, MARY KITCHEN® hash, HORMEL® chunk meats and CARAPELLI® olive oils. SPAM® oven roasted turkey has now achieved a 77 percent national ACV. Spot television commercials and national magazine advertisements for the new turkey product began in January.
Turkey tonnage volume for Jennie-O decreased 1.0 percent while sales dollars increased 3.0 percent, reflecting the ongoing conversion of Jennie-O’s product mix from commodity to value-added product. During the second quarter sales dollars are expected to continue to grow on a small increase in tonnage with accelerated sales and tonnage increases the remainder of the year.
Higher than anticipated feed and energy costs impacted margins during the first quarter. Energy costs were impacted not only by large per unit price increases but by higher consumption due to extremely cold temperatures in December.
Foodservice continues to register strong growth with an 18.0 percent increase in further processed sales during the quarter. Jennie-O corn dogs were introduced to the marketplace at the start of fiscal 2001 as the unit continues to aggressively develop new products.
Late in the first quarter the Company announced the signing of a definitive agreement to acquire The Turkey Store Company, headquartered in Barron, Wisconsin for $334.4 million in cash, subject to adjustment for outstanding indebtedness and changes in working capital at the February 23, 2001 closing. The Turkey Store will be merged into Jennie-O and the combined operation will be headquartered in Willmar, Minnesota. The combination of The Turkey Store and Jennie-O creates the industry’s most extensive line of branded turkey products and enables the Company to be an even more complete supplier to our customers.
International sales volume increased 12.0 percent for the quarter compared to 2000. China operations increased tonnage volume by 35.8 percent for the first quarter of 2001. An agreement with Snow Brand Foods should generate increased sales of pork loins and pork tenderloins to Japan.
Continuing marketing investments related to the introduction of CARAPELLI® olive oil by the Carapelli joint venture lowered earnings of affiliates from the same quarter last year. Carapelli has become the number 3 brand since its basic introduction and has provided strong category growth during the 12 months since its U.S. launch.
Selling and delivery expenses for the quarter decreased slightly to 10.4 percent of sales compared to 10.5 percent in 2000. Marketing expenses for the quarter were $83,694 or 8.8 percent of sales compared to $84,977 or 9.4 percent of sales last year. The change in both expense classifications primarily reflects the effect of sales dollar growth in 2001.
Administrative and general expenses were $18,879 or 2.0 percent of sales compared to $16,494 or 1.8 percent of sales for the same period of 2000. Sales dollar growth in 2001 also impacted the percentage of sales change for the administrative and general expense classification.
The effective tax rate for the first quarter 2001 was 36.3 percent compared to 36.0 percent last year. The Company expects the rate to hold relatively stable for the remainder of the year.
LIQUIDITY AND CAPITAL RESOURCES
Ratio comparisons for the first quarter of 2001 and 2000, which demonstrate the Company’s financial strength, are as follow:
| | End of Quarter
|
| | 1st Quarter 2001
| 1st Quarter 2000
|
| | | |
| Liquidity Ratios | | |
| Current ratio | 2.1 | 2.1 |
| Receivables turnover | 13.4 | 14.5 |
| Days sales in receivables | 24.7 | 23.5 days |
| Inventory turnover | 9.8 | 9.5 |
| Days sales in inventory | 37.2 days | 38.0 days |
| Leverage Ratio | | |
| Long-term debt to equity | 20.9% | 25.6% |
| Operating Ratios | | |
| Pre-tax profit to net worth | 29.4% | 32.5% |
| Pre-tax profit to total assets | 15.8% | 16.4% |
Changes during the first quarter in current asset and liability balances followed normal seasonal patterns. Accounts receivable and inventory balances are consistent with the price levels for pork and past and future sales volumes.
During the quarter, the Company invested $25,258 in new plant and equipment primarily in Austin, Minnesota and various Jennie-O locations throughout Minnesota. Investment in plant and equipment continues to emphasize productivity gains and efficient product flow while improving ergonomics and safety conditions for employees.
The Company is building a new distribution center in Dayton, Ohio under a synthetic lease agreement. The facility will be operated by Power Logistics, Inc., who also operate the Company’s distribution center in Osceola, Iowa.
As mentioned earlier the Company signed a definitive agreement to acquire all the stock of Jerome Foods, Inc., (d/b/a The Turkey Store Company) during the first quarter. The acquisition was completed February 24, 2001.
On October 31, 2000, the Company entered into a unsecured 364 day revolving credit facility in the amount of $425,000. The credit facility will be used for commercial paper backup and general corporate purposes including acquisition financing. The credit facility was used during the second quarter in acquiring The Turkey Store Company. The leverage ratio indicates that adequate borrowing capacity remains after the acquisition to take advantage of business opportunities that may arise through additional acquisitions or internal expansion.
During the first quarter, 107,000 shares were purchased under the share repurchase program at an average price per share of $18.76.
FORWARD-LOOKING STATEMENTS
The Company and its representatives may from time to time make written or oral statements with respect to annual or long-term goals and expectations of the Company. These statements include but are not limited to the Company’s filings with the Securities and Exchange Commission and in its reports to shareholders. The Company cautions readers not to place undue reliance on forward-looking statements, which represent current views as of the date made.
Exhibit 99 to the Annual Report on Form 10-K for year ended October 28, 2000 provides the full text of the Company’s cautionary statement relevant to forward-looking statements and information for the purpose of “Safe Harbor” provisions of the Private Securities Litigations Reform Act of 1995.
PART II - OTHER INFORMATION
HORMEL FOODS CORPORATION
Item 4. Results of Votes of Security Holders.
None
Item 6. Exhibits and Reports on Form 8-K
November 6, 2000 – The Company filed a Form 8-K announcing that Hormel Foods Corporation had entered into an unsecured 364 day revolving credit facility in the amount of $425,000,000. The credit facility will be used for commercial paper backup and general corporate purposes excluding financing for any acquisition not approved by the board of directors of the target company.
January 22, 2001 – The Company filed a Form 8-K announcing it had reached a definitive agreement to acquire The Turkey Store Company, headquartered in Barron, Wisconsin. The Company will acquire all the outstanding shares of The Turkey Store for $334.4 million in cash, subject to adjustment for outstanding indebtedness and changes in working capital at closing.
March 9, 2001 – The Company filed a Form 8-K announcing completion of the acquisition of The Turkey Store Company on February 24, 2001.
March 13, 2001 – The Company filed an amendment to Form 8-K dated March 9, 2001 supplementing financial statements and providing pro-forma financial statements for the acquisition of The Turkey Store Company.
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
|
| | (Registrant) |
Date: March 13, 2001
| By /s/ M. J. McCOY
|
| | M. J. McCOY |
| | Senior Vice President |
| | And Chief Financial Officer |
Date: March 13, 2001
| By /s/ J. H. FERAGEN
|
| | J. H. FERAGEN |
| | Treasurer |
