Hormel Foods 2010 Annual Report Download - page 24

22
Although the Meat Products business unit experienced an
overall sales decline in the fourth quarter of fiscal 2009,
their results on key product lines remained strong. For the
fourth quarter and fiscal year, double-digit sales growth was
achieved for Hormel® retail pepperoni, Di Lusso® products,
and prepared deli foods. Sales of Hormel® Natural Choice®
lunchmeats and Hormel® party trays also showed notable
gains for 2009 compared to the prior year. The Foodservice
business unit reported an overall sales decline for the year, as
they continued to experience decreased travel and restaurant
business due to the economic conditions that existed through-
out fiscal 2009.
Farmer John was challenged throughout fiscal 2009, as
the lower hog markets generated significant losses for the
Company’s live hog production operations.
Jennie-O Turkey Store: Jennie-O Turkey Store (JOTS) net
sales for the fourth quarter and year decreased 9.8 percent
and 3.2 percent, respectively, compared to fiscal 2008.
Tonnage decreased 6.3 percent for the fourth quarter and
3.1 percent for the twelve months, compared to fiscal 2008
results. Lower commodity meat sales, due to overall lower
market pricing compared to fiscal 2008, were the key driver of
the sales decline. Planned volume reductions also impacted
sales, and JOTS ended the year with significantly lower inven-
tory levels compared to fiscal 2008. Value-added net sales
also declined during the second half of the fiscal year, reflect-
ing the ongoing impact of weak economic conditions.
Segment profit for JOTS increased 5.7 percent for the fourth
quarter and 11.0 percent for the year compared to fiscal 2008.
Lower feed costs, due to the planned reductions in turkey pro-
duction and a decreased cost per ton, were the key driver of
the improved profit results throughout fiscal 2009. Commodity
markets were low as the industry experienced an oversupply
of breast meat and whole birds during the majority of the
fiscal year. Export markets were also volatile during 2009.
The volume reductions noted above were able to reduce the
Company’s exposure to the lower markets and allowed JOTS
to avoid generating surplus breast meat. JOTS also benefited
from significantly reduced freight expenses during fiscal 2009.
Value-added net sales for JOTS declined in the latter half of
2009, but maintained a slight increase for the fiscal year com-
pared to fiscal 2008. Products such as Jennie-O Turkey Store®
tray pack products, pan roasts, and franks ended the year
with strong fourth quarter results, but were unable to offset
decreases in other retail and deli product lines.
Specialty Foods: Specialty Foods net sales decreased 11.8
percent for the fourth quarter and 8.9 percent for fiscal year
compared to fiscal 2008. Tonnage decreased 8.3 percent for
the fourth quarter and 9.0 percent for fiscal 2009, compared
to fiscal 2008 results. The Boca Grande Foods, Inc. (Boca
Grande) acquisition contributed an incremental $13.8 million
of net sales and 15.8 million lbs. of tonnage to the fiscal year
2009 results for this segment.
Grocery Products: Grocery Products net sales decreased
11.9 percent for the fourth quarter and 2.4 percent for the
year compared to fiscal 2008. Tonnage decreased 6.9 percent
for the fourth quarter and 2.6 percent for the year compared
to fiscal 2008 results. Top-line results for both the fourth
quarter and year were negatively impacted by the discontinu-
ance of sales of Carapelli® olive oil at the end of the second
quarter of fiscal 2009, as well as the rationalization of certain
other non-strategic product lines. Increased promotional
support also contributed to the sales decline. This segment
experienced weakness in consumer spending, particularly
in the microwave category, as sales of Hormel® Compleats®
microwave meals declined compared to fiscal 2008 levels due
to the ongoing economic trend away from convenience items.
Sales of Hormel® chili remained strong, showing double-digit
sales increases for both the fourth quarter and fiscal year
compared to 2008.
Segment profit for Grocery Products increased 12.4 percent
for the fourth quarter and 9.3 percent for the year compared
to fiscal 2008. Lower pork input costs, product mix improve-
ments, and pricing advances taken early in the year provided
a substantial benefit throughout fiscal 2009. Increased sales
of our SPAM® family of products and decreased expenses
related to freight, warehousing, and packaging also contrib-
uted to the improved profit results.
Refrigerated Foods: Net sales by the Refrigerated Foods
segment were down 8.9 percent for the fourth quarter and
2.4 percent for fiscal 2009 compared to fiscal 2008. Tonnage
increased 1.0 percent for the fourth quarter and decreased
1.0 percent for the fiscal year as compared to 2008. Weak
economic conditions impacted sales results for this segment
throughout fiscal 2009, most notably in the Foodservice
business unit. Lower primal values also resulted in reduced
prices for commodity pork, hams, and bacon.
Segment profit for Refrigerated Foods increased 23.1 percent
in the fourth quarter and 6.7 percent for fiscal 2009 compared
to fiscal 2008. The Company’s hog processing for the fourth
quarter decreased 1.8 percent to 2.40 million hogs from 2.45
million hogs for the comparable period in 2008. For the fiscal
year, hog processing decreased 1.1 percent to 9.44 million
hogs from 9.55 million hogs in fiscal 2008. Lower input costs
and a more favorable product mix for our value-added busi-
nesses were the key drivers of the improved profit results
compared to fiscal 2008. Sizable pork operating losses,
generated by unfavorable cut-out margins compared to fiscal
2008 and reserve adjustments related to producer contracts,
offset a portion of these gains. A significant reduction in
freight expenses during fiscal 2009 also strengthened the
profit results for this segment.