Hormel Foods 2015 Annual Report Download

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2014 annual report
2015 annual report
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Table of contents

  • Page 1
    Food that fits 2015 annual report 2014 annual report

  • Page 2
    ... and organic meats, and multicultural ï¬,avors that are on trend with today's consumers and foodservice operators. Our focus on innovation and product relevance is key to our financial success. 19 % earnings growth over 2014 27out of 30 years of earnings growth 50 consecutive years of dividend...

  • Page 3
    ... Jennie-O Turkey Store finished fiscal 2015 with sales down 2 percent and earnings up 1 percent. Specialty Products delivered 48 percent adjusted segment profit growth* and 22 percent sales growth this year, primarily driven by the addition of Muscle Milk® protein nutrition products. The team...

  • Page 4
    ...of group vice president and president of consumer product sales. Jeffrey R. Baker advanced to group vice president, foodservice, and David F. Weber was promoted to vice president, foodservice marketing. In March, the company announced the retirement of two employees with distinguished careers. Julie...

  • Page 5
    ...(In thousands, except per share amounts) 2015 2014 Change % Change Net Sales Net Earnings Attributable to Hormel Foods Corporation Percent of Sales Earnings Per Share Basic Diluted Dividends Declared to Shareholders Per Share of Common Stock Weighted-Average Shares Outstanding Basic Diluted Capital...

  • Page 6
    Consumers are leading busier lives than ever before. Hormel Foods offers a variety of products that meet their everyday needs-from on-the-go snacking and quick meals to more formal eating occasions. Every day 4

  • Page 7
    ...® minis can be enjoyed as a snack, a meal accompaniment, or even straight out of the cup. The top three lunch sandwiches , are: #1 PB&J, 3 Turkey. #2 Ham, #3 ods has Hormel Foods red. them covered. 2015 Eating Patterns in America, merica, The NPD Group Party perfection No party is complete...

  • Page 8
    Every taste Today's consumers are interested in more global ï¬,avors to spice up their eating occasions. Our broad portfolio of products, global presence, and continuous focus on innovation deliver an exciting variety of on-trend tastes to our consumers and foodservice customers. 6

  • Page 9
    ... to try new foods." 2015 Hormel Foods custom research conducted by McKinsey&Company Pep It Up! ® A new take on breakfast A protein-packed breakfast is the perfect way to start the day and Jennie-O Turkey Store has many products to help take on the morning. Jennie-O® breakfast sausage provides...

  • Page 10
    Every one Consumers are seeking foods that fit their individual needs. From foods that support a healthy lifestyle, to natural and organic offerings, and even products designed specifically for regional tastes and preferences, our diverse portfolio offers products to meet the needs of every one. 8

  • Page 11
    ... regular ground beef * , making eating well on taco night a breeze. *Based on USDA data for regular ground beef. Natural and organic A growing number of consumers are choosing natural and organic products. Our Applegate® brand, featuring delicious branded meat products produced from animals that...

  • Page 12
    ... 81® hams, Hormel® pepperoni, Hormel® REV® wraps, Hormel® refrigerated entrees, Hormel® side dishes, Hormel® Black Label® bacon, Hormel Gatherings® party trays, and Lloyd's® barbeque ribs. In 2015, we acquired Applegate®, the No.1 brand of natural and organic meats, to meet the growing...

  • Page 13
    ...Oven Ready ™ turkey, ground turkey, turkey breakfast sausage, rotisserie turkey, and turkey franks. Specialty Foods 2015 Net sales $1,103.4 million (12% of total) 2015 Operating profit $105.9 million (9% of total)* Through CytoSport/Century Foods International, Diamond Crystal Brands, and Hormel...

  • Page 14
    ...Hormel Foods) Selling Power magazine (September 2015) 2015 Supplier Legacy Award (Jennie-O Turkey Store) Premier Foodservice (October 2015) Best for Vets Employers list (Hormel Foods) Military Times EDGE magazine (April 2015) 2014 Center of the Plate Supplier of the Year (Hormel Foods Foodservice...

  • Page 15
    ... a component of certain executive incentive plans, but does not utilize EBITDA for any material purpose. These measures are calculated as follows: (in thousands) 2015 2014 2013 2012 2011 (1) EBIT: Net Earnings Attributable to Hormel Foods Corporation Plus: Income Tax Expense Plus: Interest Expense...

  • Page 16
    ... Fiscal 2015: Hormel Foods achieved record earnings for fiscal 2015. Sales for the year were $9.3 billion, a 1 percent decrease from last year as the effects of avian inï¬,uenza tempered sales for the Jennie-O Turkey Store segment and price deï¬,ation in the pork markets impacted our Refrigerated...

  • Page 17
    ... price reductions. These incentives are recognized as reductions of revenue at the time title passes. Coupons are used as an incentive for consumers to purchase various products. The coupons reduce revenues at the time they are offered, based on estimated redemption rates. Promotional contracts...

  • Page 18
    ...the packaging and sale of private label shelf stable products, nutritional products, sugar, and condiments to industrial, retail, and foodservice customers including the results of Diamond Crystal Brands (DCB), CytoSport/Century Foods International, and Hormel Specialty Products (HSP). As of the end...

  • Page 19
    ... $ Fiscal Year 2015 2015 Non- GAAP Adjusted Earnings Stockton Plant Closure International Business Exit Diamond Crystal Brands Impairment CytoSport Contingent Consideration Adjustment (In thousands, except per share amounts) 2015 GAAP Earnings Grocery Products Refrigerated Foods Jennie-O Turkey...

  • Page 20
    ..., California manufacturing plant in fi scal 2015. fiscal Refrigerated Foods entered fi scal 2016 with favorable pork fiscal operating margins. The value-added businesses should benefi t from lower raw material costs. The addition of Applegate efit and its portfolio of natural and organic...

  • Page 21
    ... Hormel® REV® wraps, Hormel® Natural Choice® meats, Hormel® pepperoni, SKIPPY® peanut butter, the SPAM® family of products, Wholly Guacamole® dips, and Jennie-O® products later in the year, assuming bird supply normalizes as planned. As a percentage of net sales, the Company expects selling...

  • Page 22
    ... refrigerated entrees, Hormel® pepperoni, and Hormel Gatherings® party trays. Within foodservice, sales of Hormel® Fire Braised™ meats and Hormel® pizza toppings experienced gains for the quarter. Despite robust value-added sales, overall sales declined for the fourth quarter and fi scal year...

  • Page 23
    ... year fiscal ï¬,ocks created large volume shortfalls in operations and sales. Although JOTS was able to purchase some turkey meat to partially offset ï¬, ock losses, turkey breast prices remained at a record high due to overall industry shortages. The strong value-added product ï¬,ock sales enjoyed...

  • Page 24
    ...$8.75 billion in fi scal 2013. The Company's fiscal Specialty Foods, International & Other, Jennie-O Turkey Store, and Refrigerated Foods reporting segments delivered sales growth in the fourth quarter compared to fi scal 2013. fiscal For the full year in fi scal 2014, growth was enjoyed by the...

  • Page 25
    ...-added products benefi ted margins. Strong benefited margins from the Company's China operations and higher pork export sales and royalty income boosted margins for the International and Other segment. High meat input costs and & Other segment. High meat input costs and related pricing actions...

  • Page 26
    ...high meat input costs and reduced volumes following related pricing actions. Partially offsetting the decrease were higher equity in earnings results from MegaMex in the fourth quarter, as fiscal 2013 included higher incentive expense on the Fresherized Foods acquisition. For fiscal 2014, improved...

  • Page 27
    ... 2014. Several value-added products within foodservice delivered growth, led by sales of innovative Hormel® Fire Braised™ meats and Hormel® Bacon 1™ fully cooked bacon, along with continued robust sales of Hormel® fully cooked sausages. On the retail side, improved sales performance of Hormel...

  • Page 28
    ... from The Hormel Foundation at the average closing price for the three days of September 15, September 16, and September 17, 2015, or $62.32. On January 29, 2013, the Company's Board of Directors had authorized the repurchase of 10.0 million shares of its common stock with no expiration date. At As...

  • Page 29
    ...ensure a steady supply of production inputs. Certain of these contracts are based on market prices at the time of delivery, for which the Company has estimated the purchase commitment using current market prices as of October 25, 2015. The Company also utilizes various hedging programs to manage the...

  • Page 30
    ... in the Company's Annual Report to Stockholders, other filings by the Company with the U.S. Securities and Exchange Commission, the Company's press releases, and oral statements made by the Company's representatives, the words or phrases "should result," "believe," "intend," "plan," "are expected...

  • Page 31
    ... these higher costs could adversely affect our short-term financial results. Jennie-O Turkey Store raises turkeys and also contracts with turkey growers to meet its raw material requirements for whole birds and processed turkey products. Additionally, the Company owns various hog raising facilities...

  • Page 32
    ... in litigation may include class actions involving employees, consumers, competitors, suppliers, shareholders, or injured persons, and claims relating to product liability, contract disputes, intellectual property, advertising, labeling, wage and hour laws, employment practices, or environmental...

  • Page 33
    ...-based prices over periods of up to 10 years. Purchased hogs under contract accounted for 94 percent of the total hogs purchased by the Company in both fiscal 2015 and 2014. The majority of these contracts use market-based formulas based on hog futures, hog primal values, or industry reported hog...

  • Page 34
    ... in grain prices, the Company utilizes a hedge program to offset the ï¬,uctuation in the Company's future direct grain purchases. This program currently utilizes corn futures for JOTS, and these contracts are accounted for under cash ï¬,ow hedge accounting. The open contracts are reported at their...

  • Page 35
    ...reporting as of October 25, 2015, has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included herein. Jeffrey M. Ettinger Chairman of the Board, Chief Executive Officer, and Director Jody H. Feragen Executive Vice President...

  • Page 36
    ... of Hormel Foods Corporation at October 25, 2015 and October 26, 2014 and the related statements of operations, comprehensive income, changes in shareholders' investment and cash ï¬,ows for each of the three years in the period ended October 25, 2015 and our report dated December 16, 2015 expressed...

  • Page 37
    Report of Independent Registered Public Accounting Firm The Board of Directors and Shareholders Hormel Foods Corporation We have audited the accompanying consolidated statements of financial position of Hormel Foods Corporation as of October 25, 2015 and October 26, 2014 and the related ...

  • Page 38
    ... 26, 2014 Additional paid-in capital Accumulated other comprehensive loss Retained earnings Hormel Foods Corporation Shareholders' Investment Noncontrolling Interest Total Shareholders' Investment Total Liabilities and Shareholders' Investment See Notes to Consolidated Financial Statements. $ 495...

  • Page 39
    Consolidated Statements of Operations Fiscal Year Ended (in thousands, except per share amounts) October 25, 2015 October 26, 2014 October 27, 2013 Net sales Cost of products sold Gross Profit Selling, general and administrative Goodwill impairment charge Equity in earnings of affiliates ...

  • Page 40
    ...cash dividends - $0.80 per share Balance at October 26, 2014 Net earnings Other comprehensive (loss) income Purchases of common stock Stock-based compensation expense Exercise of stock options/ nonvested shares Purchase of additional ownership from noncontrolling interest Shares retired Distribution...

  • Page 41
    Consolidated Statements of Cash Flows Fiscal Year Ended (in thousands) October 25, 2015 October 26, 2014 October 27, 2013 Operating Activities Net earnings Adjustments to reconcile to net cash provided by operating activities: Depreciation Amortization of intangibles Goodwill impairment charge ...

  • Page 42
    ... years 2015, 2014, and 2013 consisted of 52 weeks. Fiscal year 2016 will consist of 53 weeks. Subsequent Event: On November 25, 2015, subsequent to the end of the fiscal year, the Company announced that its Board of Directors authorized a two-for-one split of the Company's common stock. Stockholder...

  • Page 43
    ... sale will be completed within one year. The net assets of the business held for sale are then recorded at the lower of their current carrying value or the fair market value, less costs to sell. See additional discussion regarding the Company's assets held for sale in Note E. Employee Benefit Plans...

  • Page 44
    ... are included in cost of products sold. Research and Development Expenses: Research and development costs are expensed as incurred and are included in selling, general and administrative expenses. Research and development expenses incurred for fiscal years 2015, 2014, and 2013 were $32.0 million...

  • Page 45
    ... of $39.67, fully depleting that program. On January 29, 2013, the Company's Board of Directors authorized the repurchase 10.0 million shares of its common stock with no expiration date. During fiscal year 2015, 0.4 million shares were repurchased from The Hormel Foundation under this authorization...

  • Page 46
    ...are reï¬,ected in the Refrigerated Foods reporting segment. The acquisition contributed $92.8 million of net sales since the date of acquisition. On August 11, 2014, the Company acquired CytoSport Holdings, Inc. (CytoSport) of Benicia, California for a final purchase price of $420.9 million in cash...

  • Page 47
    ...This acquisition included the Weifang, China manufacturing facility and all sales in Mainland China. The purchase price was funded by the Company with cash on hand. SKIPPY ® is a well-established brand that allows the Company to expand its presence in the center of the store with a non-meat protein...

  • Page 48
    ... E. Purchase adjustments during the year relate to the CytoSport acquisition. The additions during the prior fiscal year ended October 26, 2014, were due to the acquisitions of CytoSport on August 11, 2014, and the China based SKIPPY ® peanut butter business on November 26, 2013. Grocery Products...

  • Page 49
    ... at 4.125%, interest due semi-annually through April 2021 maturity date Less current maturities Total $250,000 - $250,000 $250,000 - $250,000 NOTE E Assets Held For Sale In fiscal year 2015, the Company began actively marketing a portion of Diamond Crystal Brands (DCB). Through this process, the...

  • Page 50
    ... or welfare benefits. Benefits for retired employees vary for each group depending on respective retirement dates and applicable plan coverage in effect. Contribution requirements for retired employees are governed by the Retiree Health Care Payment Program and may change each year as the cost to...

  • Page 51
    ... dates: Pension Benefits (in thousands) 2015 2014 Post-retirement Benefits 2015 2014 Change in benefit obligation: Benefit obligation at beginning of year Service cost Interest cost Actuarial (gain) loss Employee contributions Medicare Part D subsidy Benefits paid Benefit obligation at end...

  • Page 52
    ... Company common stock held in plan assets were sold. Dividends paid during 2014 on shares held by the plan were $0.7 million. Based on the October 25, 2015 measurement date, the Company anticipates making contributions of $24.1 million to fund the pension plans during fiscal year 2016. The Company...

  • Page 53
    ...plan investments as of October 25, 2015, and October 26, 2014, by asset category and fair value hierarchy level, are as follows: Fair Value Measurements at October 25, 2015 Quoted Prices... Total Private Equity ...Corporate issues - domestic Corporate issues - foreign Total Fixed Income Total Investments at Fair ...

  • Page 54
    ...top performing, high quality firms that focus on U.S. and foreign small to mid-markets, venture capitalists, and entrepreneurs with a concentration in areas of innovation. Investment strategies include buyouts, growth capital, buildups, and distressed, as well as early stages of company development...

  • Page 55
    ... when fixed forward priced contracts are offered to the Company's commodity suppliers. The intent of the program is to make the forward priced commodities cost nearly the same as cash market purchases at the date of delivery. The futures contracts are designated and accounted for as fair value...

  • Page 56
    ...)(3) Fiscal Year Ended Fair Value Hedges: Location on Consolidated Statements of Operations October 25, 2015 October 26, 2014 Gain/(Loss) Recognized in Earnings (Ineffective Portion)(2) (5) Fiscal Year Ended October 25, 2015 October 26, 2014 Commodity contracts Cost of products sold $(4,297...

  • Page 57
    .... Dividends received from affiliates for the fiscal years ended October 25, 2015, October 26, 2014, and October 27, 2013, were $37.3 million, $22.8 million, and $34.0 million, respectively. The Company recognized a basis difference of $21.3 million associated with the formation of MegaMex Foods...

  • Page 58
    ...Upon distribution of these earnings, we will be subject to U.S. taxes and withholding taxes payable to various foreign governments. A credit for foreign taxes already paid would be available to reduce the U.S. tax liability. Total income taxes paid during fiscal years 2015, 2014, and 2013 were $296...

  • Page 59
    ... Fiscal Year Ended October 25, 2015 October 26, 2014 October 27, 2013 NOTE L Stock-Based Compensation The Company issues stock options and nonvested shares as part of its stock incentive plans for employees and non-employee directors. The Company's policy is to grant options with the exercise price...

  • Page 60
    ... shares granted on or after July 28, 2014 vest on the earlier of the day before the Company's next annual meeting date or one year. A reconciliation of the nonvested shares (in thousands) as of October 25, 2015 and changes during the fiscal year then ended, is as follows: WeightedAverage Grant...

  • Page 61
    ... with purchases of corn and soybean meal, and to minimize the price risk assumed when forward priced contracts are offered to the Company's commodity suppliers. The Company's futures contracts for corn and soybean meal are traded on the Chicago Board of Trade, while futures contracts for lean hogs...

  • Page 62
    ... Contingencies In order to ensure a steady supply of hogs and turkeys, and to keep the cost of products stable, the Company has entered into contracts with producers for the purchase of hogs and turkeys at formula-based prices over periods up to 10 years. The Company has also entered into grow-out...

  • Page 63
    ...the packaging and sale of private label shelf stable products, nutritional products, sugar, and condiments to industrial, retail, and foodservice customers including the results of Diamond Crystal Brands (DCB), CytoSport/Century Foods International, and Hormel Specialty Products (HSP). As of the end...

  • Page 64
    ... fresh meats, frozen items, refrigerated meal solutions, sausages, hams, wieners, guacamole, and bacon (excluding JOTS products). The Poultry category is composed primarily of JOTS products. Shelf-stable includes canned luncheon meats, shelf-stable microwaveable meals, stews, chilies, hash, meat...

  • Page 65
    ... of operations for the years ended October 25, 2015, and October 26, 2014. Net Earnings Attributable to Hormel Foods Corporation(1) (in thousands, except per share data) Net Sales Gross Profit Net Earnings Basic Earnings Per Share Diluted Earnings Per Share 2015 First quarter Second quarter...

  • Page 66
    ... high and low prices of the company's common stock and the dividends per share declared for each fiscal quarter of 2015 and 2014, respectively, are shown below: 2015 High Low Dividend Dividend Reinvestment Plan Hormel Foods Corporation's Dividend Reinvestment Plan, available to record stockholders...

  • Page 67
    ... at Austin (Minn.) High School. The meeting will convene at 8:00 p.m. (CT). References to the Company's brands or products in italics within this report represent valuable trademarks owned or licensed by Hormel Foods, LLC or other subsidiaries of Hormel Foods Corporation. Stock Performance...

  • Page 68
    ...Jeffrey A. Grev Vice President, Legislative Affairs Vice President, Meat Products Marketing James M. Splinter Group Vice President, Grocery Products Wendy A. Watkins Fred D. Halvin Vice President, Corporate Development Vice President, Corporate Communications Larry L. Vorpahl Group Vice President...

  • Page 69
    Board of Directors Jeffrey M. Ettinger Chairman of the Board and Chief Executive Officer Director since May 2004 Gary C. Bhojwani Former Chairman of Allianz Life Insurance Company of North America Director since July 2014 Terrell K. Crews Retired Executive Vice President and Chief Financial Of...

  • Page 70
    ...A legacy product that was produced when George A. Hormel ran our company, Hormel® pepperoni is the leading brand of retail pepperoni. From pizza toppings, to on-the-go choices such as Hormel® pepperoni stix, easy recipe prep with Hormel® pepperoni minis, and options like Hormel® turkey pepperoni...