Hormel Foods 2010 Annual Report Download - page 22

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increase. The Company reported gains of $3.7 million and
$15.3 million for the 2009 fourth quarter and fiscal year,
respectively, compared to losses of $20.4 million and $29.0
million for the comparable periods of fiscal 2008.
Net Sales: Net sales for the fourth quarter of fiscal 2009
decreased to $1.68 billion from $1.86 billion in 2008, a
decrease of 10.0 percent. Net sales for the twelve months of
fiscal 2009 decreased 3.3 percent to $6.53 billion compared to
$6.75 billion in fiscal 2008. Tonnage for the fourth quarter of
fiscal 2009 decreased 3.2 percent to 1.18 billion lbs. compared
to 1.21 billion lbs. in 2008. Tonnage for the year decreased 2.6
percent to 4.56 billion lbs. from 4.68 billion lbs. in 2008. Top-
line results declined due to a combination of factors. A weak
consumer environment resulted in softer sales throughout
fiscal 2009, and continued to have a significant impact during
the fourth quarter. Planned volume reductions at Jennie-O
Turkey Store, the discontinuance of sales of Carapelli® olive
oil, and product rationalizations during fiscal 2009 also contrib-
uted to the decline for the year. Net sales decreases outpacing
tonnage reductions for fiscal 2009 also reflected lower pricing
in our pork and turkey complexes.
Gross Profit: Gross profit was $304.2 million and $1.10 billion
for the fourth quarter and year, respectively, compared to
$276.2 million and $1.06 billion in fiscal 2008. As a percent-
age of net sales, gross profit increased to 18.2 percent for
the fourth quarter compared to 14.8 percent in fiscal 2008,
and increased to 16.8 percent for the year compared to 15.7
percent in fiscal 2008. The Refrigerated Foods segment real-
ized margin gains throughout fiscal 2009 as reduced input
costs were more than able to offset the impact of unfavorable
cut-out margins in pork operations. These gains were most
notable in the second half of the year, as a rapid increase
in input costs in the latter half of fiscal 2008 had decreased
margins in the Company’s value-added business units. Lower
feed costs at Jennie-O Turkey Store also contributed to the
margin improvement, resulting from a planned reduction in
turkey production and a decreased cost per ton in fiscal 2009
compared to fiscal 2008. Significantly lower freight expense
across most segments of the Company also benefited mar-
gins for both the fourth quarter and fiscal year.
Selling, General and Administrative: Selling, general and
administrative expenses for the fourth quarter and year were
$142.7 million and $567.1 million, respectively, compared to
$132.9 million and $552.5 million in fiscal 2008. As a percent-
age of net sales, selling, general and administrative expenses
for the fourth quarter increased to 8.5 percent of net sales
compared to 7.1 percent of net sales in the same quarter of
fiscal 2008. For the full fiscal year, these expenses increased
to 8.7 percent from 8.2 percent in fiscal 2008. Increases
for both the fourth quarter and fiscal year reflected higher
employee incentive plan costs, increased pension and medical
expenses, and additional charitable contributions compared
to fiscal 2008. These increases offset reductions in travel and
advertising expenses.
Net interest and investment income for the fourth quarter
and year was a net expense of $4.6 million and $22.0 million,
respectively, compared to a net expense of $4.5 million and
$8.4 million for the comparable periods of fiscal 2009. Lower
investment returns on the Company’s rabbi trust for supple-
mental executive retirement plans and deferred income plans
were the primary driver of the increased net expense in fiscal
2010, as the Company transitioned the majority of this portfo-
lio to fixed return investments to reduce the exposure to vola-
tility in equity markets. The Company also recorded increased
amortization related to affordable housing investments
during fiscal 2010. Additionally, fiscal 2009 results included
a $3.6 million pretax gain recognized on the dissolution of
the Company’s Carapelli USA, LLC joint venture. Interest
expense was $26.6 million for fiscal 2010, decreasing from
$28.0 million in fiscal 2009 due to outstanding borrowings
against the Company’s line of credit in the prior year. The only
debt balance remaining at the end of fiscal 2010 relates to the
Company’s $350.0 million senior notes which mature in 2011.
The Company expects interest expense to be approximately
$20.0 to $23.0 million for fiscal 2011, as the Company may
consider options to take advantage of the favorable interest
rates currently available.
General corporate expense for the fourth quarter and year
was $14.9 million and $40.3 million, respectively, compared
to $10.3 million and $38.3 million for the prior year quarter
and twelve months. The higher expense for both the fourth
quarter and year reflects an increase in the lower of cost
or market inventory reserve and higher pension expense
compared to the prior year. These were partially offset by a
reduction in expenses for medical benefits in the current year
compared to fiscal 2009.
Net earnings attributable to the Company’s noncontrolling
interests were $1.5 million and $4.2 million for the 2010
fourth quarter and fiscal year, respectively, compared to $0.7
million and $3.2 million for the comparable periods of fiscal
2009. The increases for fiscal 2010 primarily reflect improved
performance from the Company’s Precept Foods business.
FISCAL YEARS 2009 AND 2008:
Consolidated Results
Net Earnings: Net earnings attributable to the Company
for the fourth quarter of fiscal 2009 were $103.9 million, an
increase of 53.2 percent compared to earnings of $67.8 mil-
lion for the same quarter in fiscal 2008. Diluted earnings per
share were $0.77 compared to $0.50 for the same period in
2008. Net earnings attributable to the Company for the year
increased 20.1 percent to $342.8 million from $285.5 mil-
lion in fiscal 2008. Diluted earnings per share for fiscal 2009
increased to $2.53 from $2.08 in 2008.
Gains on investments held in the Company’s rabbi trust
for supplemental executive retirement plans and deferred
income plans in fiscal 2009 were a key driver of the earnings