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 April 25, 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
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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 April 25, 1998
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Common Stock - $.1172 par value 74,772,393
Common Stock Non-Voting - $.01 par value - 0 -
Pages:This report contains ten pages numbered sequentially from this cover page.
-1-
STATEMENTS OF FINANCIAL POSITION Form 10-Q
HORMEL FOODS CORPORATION
(In Thousands of Dollars)
April 25, October 25,
1998 1997
------------ -----------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents ................. $ 170,000 $ 146,853
Short-term marketable securities--
at cost which approximates market ....... 56,593 5,533
Accounts receivable ....................... 190,617 233,966
Inventories ............................... 242,264 265,346
Deferred income taxes ..................... 12,486 12,204
Prepaid expenses .......................... 12,195 7,450
TOTAL CURRENT ASSETS 684,155 671,352
DEFERRED INCOME TAXES ....................... 68,445 68,629
INTANGIBLES ................................. 127,849 131,710
INVESTMENTS IN AFFILIATES ................... 117,147 113,372
OTHER ASSETS ................................ 61,560 54,734
PROPERTY, PLANT AND EQUIPMENT
Land ...................................... 11,956 11,467
Buildings ................................. 241,604 242,124
Equipment ................................. 595,529 594,159
Construction in progress .................. 54,399 72,179
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903,488 919,929
Less allowance for depreciation ........... (431,392) (431,191)
----------- -----------
472,096 488,738
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$ 1,531,252 $ 1,528,535
=========== ===========
See notes to financial statements
-2-
STATEMENTS OF FINANCIAL POSITION Form 10-Q
HORMEL FOODS CORPORATION
(In Thousands of Dollars)
April 25, October 25,
1998 1997
---------- -----------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES
Accounts payable ........................... $ 111,294 $ 120,385
Accrued expenses ........................... 27,567 34,564
Accrued marketing .......................... 20,767 21,543
Employee compensation ...................... 43,595 46,275
Taxes, other than federal income taxes ..... 17,999 16,524
Dividends payable .......................... 12,494 11,980
Federal income tax ......................... 0 4,712
Current maturities of long-term debt ....... 5,668 4,595
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TOTAL CURRENT LIABILITIES .................... 239,384 260,578
LONG-TERM DEBT--less current maturities ...... 207,482 198,232
ACCUMULATED POSTRETIREMENT BENEFIT
OBLIGATION ................................... 244,690 243,343
OTHER LONG-TERM LIABILITIES .................. 23,974 24,180
SHAREHOLDERS' INVESTMENT
Preferred Stock, par value $.01 a share--
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 shares;
issued 74,772,393 shares April 25, 1998
issued 75,776,510 shares Oct. 25, 1997 8,763 8,881
Earnings reinvested in business ............ 806,959 793,321
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815,722 802,202
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$1,531,252 $1,528,535
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See notes to financial statements
-3-
STATEMENTS OF EARNINGS Form 10-Q
(Unaudited)
HORMEL FOODS CORPORATION
(In Thousands, Except Per Share Amounts)
Three Months Ended Six Months Ended
April 25, April 26, April 25, April 26,
1998 1997 1998 1997
---------- ----------- ----------- -----------
Sales, less returns and
allowances ............... $ 778,325 $ 798,455 $ 1,593,239 $ 1,608,764
Cost of products sold ...... 577,809 608,841 1,183,005 1,235,641
----------- ----------- ----------- -----------
GROSS PROFIT 200,516 189,614 410,234 373,123
Expenses:
Selling and delivery ..... 76,191 77,972 153,346 153,807
Marketing ................ 66,050 52,129 133,113 108,666
Administrative and general 20,371 18,207 39,714 36,212
Gain on plant sale ....... 0 0 (28,379) 0
----------- ----------- ----------- -----------
OPERATING INCOME 37,904 41,306 112,440 74,438
Other income and expenses:
Other income--net ........ 4,532 2,356 7,285 5,330
Equity in earnings of
affiliates ............. 1,367 518 2,567 518
Interest expense ......... (3,371) (3,342) (6,553) (6,400)
----------- ----------- ----------- -----------
EARNINGS BEFORE INCOME
TAXES ...................... 40,432 40,838 115,739 73,886
Provision for income taxes . 14,136 15,150 42,594 27,216
----------- ----------- ----------- -----------
NET EARNINGS $ 26,296 $ 25,688 $ 73,145 $ 46,670
=========== =========== =========== ===========
Earnings per share:
NET EARNINGS PER SHARE
(DILUTED) .................. $ 0.34 $ 0.33 $ 0.95 $ 0.60
=========== =========== =========== ===========
NET EARNINGS PER SHARE
(BASIC) .................... $ 0.35 $ 0.33 $ 0.97 $ 0.61
=========== =========== =========== ===========
See notes to financial statements
-4-
CONSOLIDATED STATEMENTS OF CASH FLOWS Form 10-Q
HORMEL FOODS CORPORATION
(In Thousands of Dollars)
6 Months Ended 6 Months Ended
April 25, 1998 April 26, 1997
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OPERATING ACTIVITIES
Net earnings ................................. $ 73,145 $ 46,670
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation ............................. 24,725 21,261
Amortization of intangibles .............. 3,562 3,959
Equity in earnings of affiliates ......... (2,567) 0
Provision for deferred income taxes ...... (98) 1,030
(Gain) loss on property/equipment sales .. 230 (446)
(Gain) on Plant sale ..................... (17,592) 0
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 43,349 32,801
(Increase) decrease in inventories
and prepaid expenses .................... 18,337 (3,948)
Increase (decrease) in accounts payable
and accrued expenses .................... (21,640) (58,185)
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NET CASH PROVIDED BY OPERATING ACTIVITIES ...... 121,451 43,142
INVESTING ACTIVITIES
Sale of held-to-maturity securities ......... 7,680 26,300
Purchase of held-to-maturity securities ..... (58,740) (45,100)
Acquisitions of businesses .................. 0 (18,065)
Purchases of property/equipment ............. (29,785) (52,022)
Proceeds from sales of property/equipment ... 39,063 3,807
(Increase) in investments and other assets .. (7,735) (53,443)
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Dividends from affiliate .................... 0 0
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NET CASH USED IN INVESTING ACTIVITIES .......... (49,517) (138,523)
FINANCING ACTIVITIES
Proceeds from long-term borrowings .......... 15,038 64,337
Principal payments on long-term debt ........ (4,715) (1,668)
Dividends paid on Common Stock .............. (23,884) (23,612)
Stock Repurchase ............................ (36,703) (26,759)
Other ....................................... 1,477 152
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NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES ........................... (48,787) 12,450
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(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS ............................... 23,147 (82,931)
Cash and cash equivalents at beginning of year . 146,853 188,473
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CASH AND CASH EQUIVALENTS
AT END OF YEAR ............................... $ 170,000 $ 105,542
========= =========
See notes to financial statements
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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 and six month periods ended April 25,
1998 and April 26, 1997 are not necessarily indicative of the results to be
expected for the full year.
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FORM 10-Q
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In Thousands)
HORMEL FOODS CORPORATION
RESULTS OF OPERATIONS
Net earnings in the second quarter increased 2.4 percent to $26,296 from $25,688
during the same quarter of 1997. Sales for the quarter decreased 2.5 percent to
$778,325 from $798,455 last year. Sales tonnage for the period increased 7.8
percent compared to the same quarter of 1997.
Lower selling prices in the marketplace due to reduced price levels for pork raw
materials contributed to the decline in dollar sales as tonnage volume
increased. While live prices paid for hogs continued at levels less than the
second quarter of 1997, procurement agreements with producers limited the
reduction in live hog costs that would normally have been expected. In the
long-term, however, contract buying should reduce the volatility in the supply
and price of hogs experienced historically. Depressed turkey selling prices
and margins also had a negative influence on the Company's second quarter
performance.
Earnings for the first six-months of fiscal 1998 were $73,145 compared to
$46,670 in 1997. The 1998 results include a gain, net of taxes, of $17,402 on
the sale of the Davenport, Iowa gelatin plant to Goodman Fielder, LTD., of
Sydney, Australia. Excluding the one-time gain from the Davenport sale, sales
and earnings for the first half were $1,593,239 and $55,743, respectively,
compared to $1,608,764 and $46,670 for the same period last year. Tonnage
volume for the first half increased 6.8 percent over 1997 to 1,377,390 pounds.
Gross margins for the quarter and first six months as a percentage of sales were
25.8 percent compared to 23.8 and 23.2 percent for the corresponding periods of
1997. The effect of lower price levels for finished goods was more than offset
by increased tonnage volume with a significant portion of the volume increase
being higher margin manufactured items.
Marketing expenses for the quarter and first half were $66,050 and $133,113,
respectively, compared to $52,129 and $108,666 for 1997. The Company continues
to emphasize its well-established products as well as its newer ethnic product
lines in promotional programs targeted to increase sales of processed items
which have higher margins than the commodity fresh pork and turkey product
lines. Selling and delivery expenses for the quarter and six months as a
percentage of sales were unchanged from 1997 at 9.8 percent and 9.6 percent
respectively. Administrative and general expenses increased to 2.6 percent for
the quarter and 2.5 percent for the six months compared to 2.3 percent for the
same periods in 1997.
The Company's core Hormel business continues to be the major contributor to
earnings with the Prepared Foods, Meat Products, and Foodservice Groups all
experiencing gains in sales of branded product lines.
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FORM 10-Q
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In Thousands)
HORMEL FOODS CORPORATION
RESULTS OF OPERATIONS
Asian Pacific export sales were up 10 percent for the quarter compared to last
year. Despite the difficult exchange rate issues, sales increases were achieved
in Japan, Philippines and Australia. Stagg (R) Chili which has exceeded
expectations in Canada will be introduced into the UK, Spain and Germany later
in the year. Joint ventures in Shanghai and Beijing continue to expand their
product offerings and distribution.
Although Jennie-O experienced significant increases in both tonnage volume and
dollar sales for the second quarter, margins continued to be difficult for the
Company's turkey operations. Introduction of several new products later in the
year along with continued moderation of feed grain costs should improve
Jennie-O's performance.
The effective tax rate for the quarter and first half was 35.0 and 36.8 percent
compared to 37.1 and 36.8 for the same periods last year. The reduction during
the quarter was primarily due to an increase in foreign dividend income taxed at
a lower rate.
FINANCIAL CONDITION
FORM 10-Q
Ratio comparisons presented below as of the end of the second quarter reflect
the continued strong financial condition of the Company.
End of Quarter
2nd Quarter 2nd Quarter
1998 1997
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Liquidity Ratios
Current ratio 2.9 3.1
Receivables turnover 15.0 15.0
Days sales in receivables 21.8 days 22.5 days
Inventory turnover 9.3 9.1
Days sales in inventory 37.4 days 40.7 days
Leverage Ratio
Long-term debt to equity 26.13% 24.6%
Operating Ratios
Pre-tax profit to net worth 18.1% 18.9%
Pre-tax profit to total assets 9.6% 10.3%
Changes during the first six months in current asset and liability balances
followed normal seasonal patterns. Inventory levels are considered adequate for
the traditional promotional activities that occur during the third and fourth
quarters.
-8-
FORM 10-Q
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In Thousands)
HORMEL FOODS CORPORATION
FINANCIAL CONDITION
During the first half, the Company invested $29,785 in new plant and equipment.
Investment in plant and equipment continues to emphasize productivity gains and
efficient product flow while improving ergonomics and safety conditions for
employees at existing locations. The Company completed a new manufacturing plant
and distribution center in Osceola, Iowa in 1997 which accounts for the
increased investment level last year.
During the second quarter additional investment was made in computer hardware
and software for ongoing initiatives to improve data processing services in the
accounting and distribution areas. As mentioned previously, the Company sold the
Davenport gelatin plant late in the first quarter.
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 primarily consists of small issue Industrial Revenue Bonds of
varying maturities, debt used for investment in the Federal Affordable Housing
Program, $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 significant borrowing capacity remains to take advantage of any
business opportunities that may arise through acquisition or internal expansion.
During the first six months of Fiscal 1998, 1,079,908 shares of Hormel Common
Stock were purchased under the share repurchase program at an average price per
share of $33.99.
-9-
FORM 10-Q
PART II - OTHER INFORMATION
Item 4. Results of Votes of Security Holders.
None
Item 6. Exhibits and Reports on Form 8-K
None
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:-------------------------
J. M. ETTINGER
Treasurer
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