Hormel Foods 2015 Annual Report Download - page 16

Fiscal 2016 Outlook: We are pleased with our momentum
heading into fi scal 2016 and expect renewed revenue growth
as the year proceeds. Lower input costs are expected to
provide a benefi t for Grocery Products and Refrigerated
Foods value-added margins, offsetting modestly lower
pork operating margins compared to fi scal 2015. Strong
demand for Applegate® natural and organic products will
be an additional growth catalyst for the Refrigerated Foods
segment. We expect the Jennie-O Turkey Store segment to
return to growth in the second half of fi scal 2016, benefi ting
from strong demand for branded Jennie-O® products and low
grain costs if there are no signifi cant recurrences of HPAI.
Specialty Foods should deliver increases through the growth
of its Muscle Milk® protein nutrition products, and we expect
the International & Other segment to achieve year-over-year
improved results through the expansion of our business in
China along with increased sales of the SPAM® and SKIPPY®
families of products.
Critical Accounting Policies
This discussion and analysis of fi nancial condition and
results of operations is based upon the consolidated fi nancial
statements of Hormel Foods Corporation (the Company),
which have been prepared in accordance with U.S. generally
accepted accounting principles (GAAP). The preparation of
these fi nancial statements requires the Company to make
estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclo-
sure of contingent assets and liabilities. The Company eval-
uates, on an ongoing basis, its estimates for reasonableness
as changes occur in its business environment. The Company
bases its estimates on experience, the use of independent
third-party specialists, and various other assumptions that
are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ mate-
rially from these estimates under different assumptions or
conditions.
Critical accounting policies are defi ned as those that are
refl ective of signifi cant judgments, estimates, and uncertain-
ties, and potentially result in materially different results under
different assumptions and conditions. The Company believes
the following are its critical accounting policies:
Revenue Recognition: The Company recognizes sales when
title passes upon delivery of its products to customers, net of
applicable provisions for discounts, returns, and allowances.
Products are delivered upon receipt of customer purchase
orders with acceptable terms, including price and collectabil-
ity that is reasonably assured.
Executive Overview
Fiscal 2015: Hormel Foods achieved record earnings for fi scal
2015. Sales for the year were $9.3 billion, a 1 percent decrease
from last year as the effects of avian infl uenza tempered sales
for the Jennie-O Turkey Store segment and price defl ation
in the pork markets impacted our Refrigerated Foods and
International & Other segments. Net earnings attributable to
the Company for fi scal 2015 increased 13.8 percent to $686.1
million, from $602.7 million in fi scal 2014. Diluted earnings
per share for fi scal 2015 increased 13.9 percent to $2.54
compared to $2.23 per share last year. Non-GAAP adjusted
net earnings for the year were $714.4 million, an increase of
18.5 percent over 2014, with all fi ve segments contributing to
the growth. Non-GAAP adjusted earnings per diluted share
were $2.64, an 18.4 percent improvement compared to last
year. (See explanation of non-GAAP fi nancial measures in the
Consolidated Results section).
Improved performance for the Grocery Products, Refrigerated
Foods, and Specialty Foods segments drove fi nancial results
for the year. The Grocery Products segment benefi ted from
lower input costs, especially in the second half of the year,
with strong sales growth for the SPAM® family of products,
Dinty Moore® items, Hormel® hash, and Wholly Guacamole®
products in MegaMex Foods. Financial performance for the
Refrigerated Foods segment improved over last year, also
benefi ting from lower input costs for the value-added prod-
ucts in Foodservice and Meat Products. Continued strong
value-added sales, and the addition of Applegate Farms,
LLC (Applegate) were additional catalysts for growth in the
segment. Specialty Foods segment net sales and profi t
were higher, driven by the contributions of Muscle Milk®
sports nutrition products and synergies captured within the
CytoSport and Century Foods supply chain. The Jennie-O
Turkey Store segment, propelled by an excellent start through
the fi rst half of the year, delivered segment profi t ahead of last
year. Signifi cant turkey supply shortages, the result of highly
pathogenic avian infl uenza (HPAI), impacted sales, volume,
and plant operational effi ciencies in the second half of the
year. Strong demand for fresh lean ground turkey products
was a leading contributor to the year’s improved performance.
The International & Other segment saw nice growth in China
and export sales of SKIPPY® peanut butter, offsetting softer
exports of fresh pork and the SPAM® family of products which
were impacted by shipping delays caused by port issues and
further hindered by a stronger dollar. General corporate
expense was higher due to an increase in employee-related
expenses and higher professional and legal fees. Our fi nancial
performance continued to generate substantial operating cash
fl ows. We completed the acquisition of Applegate, spending a
total of $774.1 million. We announced a 16 percent increase to
our dividend after a 25 percent increase last year. The annual
dividend for 2016 will be $1.16 per share and marks the 50th
consecutive year of dividend increases.
14
Management’s Discussion and Analysis of Financial Condition
and Results of Operations