Hormel Foods 2014 Annual Report Download - page 24

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the SKIPPY® peanut butter business compared to fiscal 2012.
A reduction in advertising expenses led to a lower expense for
both the fourth quarter and year as the prior year included a
significant investment in the Make The Switch® media cam-
paign. Lower employee benefit-related costs were also seen
in the fourth quarter compared to fiscal 2012.
Research and development expenses were $7.2 million and
$29.9 million for the fiscal 2013 fourth quarter and year,
respectively, compared to $8.1 million and $29.8 million in
fiscal 2012.
Equity in Earnings of Affiliates: Equity in earnings of affiliates
was $2.1 million and $20.5 million for the fiscal 2013 fourth
quarter and year, respectively, compared to $10.1 million and
$38.7 million in fiscal 2012. The decrease is a result of lower
earnings from the Company’s 50 percent owned MegaMex
joint venture, which experienced higher incentive expense
on the Fresherized Foods acquisition, unfavorable exchange
rates, and higher input costs. Overall improved results were
seen in the Company’s international joint ventures for the
fourth quarter, while fiscal 2013 resulted in an overall decline
for those operations compared to fiscal 2012.
The Company accounts for its majority-owned operations
under the consolidation method. Investments in which the
Company owns a minority interest, and for which there are
no other indicators of control, are accounted for under the
equity or cost method. These investments, along with receiv-
ables from other affiliates, are included in the Consolidated
Statements of Financial Position as investments in and
receivables from affiliates. The composition of this line item at
October 27, 2013, was as follows:
(in thousands)
Country Investments/Receivables
United States $203,413
Philippines 52,652
Vietnam 5,671
Mexico 5,724
Japan 3,149
Total $270,609
Income Taxes: The Company’s effective tax rate for the fiscal
2013 fourth quarter and year was 33.9 percent and 33.6 per-
cent, respectively, compared to 33.1 percent and 33.4 percent,
respectively, for the quarter and year in fiscal 2012.
Segment Results
Net sales and operating profits for each of the Company’s
reportable segments are set forth below. The Company
is an integrated enterprise, characterized by substantial
intersegment cooperation, cost allocations, and sharing
of assets. Therefore, the Company does not represent that
these segments, if operated independently, would report the
operating profit and other financial information shown below.
(Additional segment financial information can be found in
Note O “Segment Reporting.”)
for the fiscal year. Additionally, top-line comparative results
for the year were impacted by the addition of Don Miguel
Foods Corp. sales (additional product lines within the
MegaMex joint venture) when the Company’s retail sales force
assumed responsibility for these sales beginning in the third
quarter of fiscal 2012. These sales contributed an incremental
$103.2 million of net sales and 47.4 million lbs. to the top-line
results for the fiscal year. Higher export sales of the SPAM®
family of products by the Company’s international business
provided notable growth throughout fiscal 2013. Increased
value-added sales within the Refrigerated Foods and Jennie-O
Turkey Store segments also contributed to the top-line
results for both the fourth quarter and fiscal year. The more
modest tonnage increase reflects continued lower sales of
commodity meat items as harvest levels were reduced to limit
the Company’s exposure to unfavorable operating margins. In
addition, planned reductions in the Refrigerated Foods feed
sales business impacted volume comparisons.
Gross Profit: Gross profit was $385.5 million and $1.41 billion
for the 2013 fourth quarter and fiscal year, respectively,
compared to $351.8 million and $1.33 billion in fiscal 2012.
As a percentage of net sales, gross profit increased to 16.6
percent for the fourth quarter compared to 16.2 percent in
fiscal 2012, but decreased to 16.1 percent for the year com-
pared to 16.2 percent in fiscal 2012. Strong fourth quarter
performances from the Refrigerated Foods, Grocery Products,
and International & Other segments offset lower margins in
the Jennie-O Turkey Store and Specialty Foods segments. The
additional margins from SKIPPY® peanut butter sales boosted
margins for both the Grocery Products and International &
Other segments. Additionally, continued strong margins were
experienced on export sales of the SPAM® family of products in
the International & Other segment and improved results in the
value-added businesses were seen in the Refrigerated Foods
segment during the fourth quarter. These increases were able
to overcome a sharp decline in the Specialty Foods segment
due to the expiration of the agreement allowing DCB to sell
certain sugar substitutes in foodservice trade channels and
higher input costs for HSP. For the full year, gross margins
were hindered by high grain costs and weak commodity turkey
prices for Jennie-O Turkey Store and poor pork processing
margins for Refrigerated Foods. In addition, shipping and han-
dling expenses for the fiscal year increased compared to fiscal
2012 in four of the Company’s five reporting segments.
Selling, General and Administrative: Selling, general and
administrative expenses for the fourth quarter and year were
$147.4 million and $627.3 million, respectively, compared to
$159.7 million and $605.9 million in fiscal 2012. Selling, gen-
eral and administrative expenses as a percentage of net sales
for the fourth quarter decreased to 6.3 percent compared to
fiscal 2012 at 7.4 percent. For the fiscal year, these expenses
decreased to 7.2 percent of net sales from 7.4 percent in fiscal
2012. The expense incurred in fiscal 2013 includes transition
and transaction costs incurred related to the acquisition of