Hormel Foods 2010 Annual Report Download - page 18

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for much of the year. Shipping and handling expenses also
increased compared to the prior year, primarily reflecting the
increased tonnage over fiscal 2009. However, unusually favor-
able cutout margins in the Company’s pork operations were
able to offset the impact of these higher costs.
Entering fiscal 2011, the Company expects a continuation of
high raw material costs. While the hog supply is expected to
approximate current levels, the Company does not anticipate
that pork operating margins will remain at the historically
high levels that have been experienced recently. The recent
rise in grain markets is also a concern, as significantly higher
grain costs in fiscal 2011 may negatively impact margin
results. The Company will continue to pursue modest price
increases and additional operating efficiencies, where pos-
sible, to maintain margins as the year progresses.
Selling, General and Administrative: Selling, general and
administrative expenses for the fourth quarter and year were
$166.5 million and $605.3 million, respectively, compared to
$142.7 million and $567.1 million last year. As a percentage of
net sales, selling, general and administrative expenses for the
fourth quarter decreased to 8.1 percent of net sales compared
to 8.5 percent of net sales in the prior year. For the fiscal year,
the expenses decreased to 8.4 percent from 8.7 percent in
fiscal 2009. Investments in media campaigns supporting the
Hormel® and Jennie-O Turkey Store® brands were a key driver
of the higher expense during both the fourth quarter and fiscal
year, with total advertising expense up $18.7 million for the
year compared to fiscal 2009. The Company also experienced
increased expenses for compensation, travel, and profes-
sional services during the current year. As a percentage of net
sales, the Company expects selling, general and administra-
tive expenses to approximate 8.5 percent in fiscal 2011.
Research and development expenses were $7.7 million and
$27.6 million for the fourth quarter and year, respectively,
compared to $6.5 million and $25.4 million in 2009. Research
and development expenses are again expected to increase dur-
ing fiscal 2011, due to the Company’s ongoing investments in
product innovation and expansion of value-added product lines.
Net Sales: Net sales for the fourth quarter increased to $2.06
billion from $1.68 billion in 2009, an increase of 23.2 percent.
Net sales for the twelve months of fiscal 2010 increased 10.5
percent to $7.22 billion compared to $6.53 billion in the prior
year. Tonnage for the fourth quarter increased 13.8 percent
to 1.34 billion lbs. compared to the prior year at 1.18 billion
lbs. Tonnage for the fiscal year increased 5.2 percent to 4.80
billion lbs. from 4.56 billion lbs. in the prior year. Following
top-line declines in fiscal 2009, sales momentum was
restored during fiscal 2010, with all five segments reporting
significant gains for both the fourth quarter and full year. The
Company’s branded, value-added product portfolios showed
particular strength in the latter half of fiscal 2010, attributable
to successful new item introductions, distribution gains on
key product lines, and substantial investments in advertising
to support both the Hormel® and Jennie-O Turkey Store® brands.
Sales from the Company’s MegaMex joint venture and the
Country Crock® side dish acquisition also benefited top-line
results compared to the prior year. Entering fiscal 2011, the
Company expects to continue its strong top-line momentum.
Gross Profit: Gross profit was $355.0 million and $1.24 bil-
lion for the 2010 fourth quarter and fiscal year, respectively,
compared to $304.2 million and $1.10 billion last year. As a
percentage of net sales, gross profit decreased to 17.2 per-
cent for the fourth quarter compared to 18.2 percent in fiscal
2009, and increased to 17.2 percent for the year compared
to 16.8 percent in fiscal 2009. Gross profit for fiscal 2010
includes a charge of $9.7 million incurred during the second
quarter related to the closing of the Company’s Valley Fresh
plant. Jennie-O Turkey Store experienced the most significant
margin gains over the prior year, generated by efficiencies
throughout their supply chain and operational improvements
across the business. Lower feed costs, favorable commodity
meat and whole bird pricing, and a larger than usual hedging
gain on open positions during the fourth quarter, also con-
tributed to the margin growth for this segment in fiscal 2010.
Higher hog costs experienced throughout fiscal 2010 con-
stricted margins in the Company’s value-added businesses
The following table shows the calculations to reconcile from adjusted earnings to U.S. GAAP earnings.
Year Ended October 31, 2010
Tax Items
Primarily
Related to
Adjusted Valley Fresh Health Care U.S. GAAP
(in thousands, except per share amounts) Earnings Plant Closure Laws Earnings
Earnings before income taxes $ 634,284 $ (9,733) $ – $ 624,551
Income taxes (221,110) 3,455 (7,120) (224,775)
Net earnings $ 413,174 $ (6,278) $ (7,120) $ 399,776
Net earnings attributable to Hormel Foods Corporation $ 408,985 $ (6,278) $ (7,120) $ 395,587
Diluted net earnings per share $ 3.02 $ (0.05) $ (0.05) $ 2.92