Hormel Foods 2011 Annual Report Download - page 22

2
0
Hormel Foods Corporation
N
et interest and investment ex
p
ense
(
income
)
for the fourth
q
uarter and fiscal year was a net ex
p
ense of
$
6.6 million and
$
23.4 million, res
p
ectively, com
p
ared to a net ex
p
ense of
$
4.6
million and
$
22.0 million for the com
p
arable
p
eriods of fiscal
2
010. The increased expense primarily reflects lower invest
-
ment returns on the
C
ompany’s rabbi trust for supplemental
executive retirement plans and de
f
erred income plans, as
w
ell as additional amortization related to the
C
ompany’s
affordable housin
g
investments durin
g
fiscal
20
11. Interest
expense was $22.7 million for fiscal 2011, decreasin
g
from
$
26.6 million in fiscal 2010, due to a lower overall long-term
debt balance and a lower interest rate for the current
y
ear.
T
he only debt balance outstanding at the end of fiscal 2011
relates to the Com
p
any’s
$
250.0 million senior notes which
mature in 2021. The Com
p
any ex
p
ects interest ex
p
ense to
be a
pp
roximately
$
12.0 to
$
15.0 million for fiscal 2012 as the
reduced debt balance and lower interest rate
f
or the
f
ull
fi
scal
y
ear w
i
ll prov
i
de an add
i
t
i
onal reduct
i
on.
G
eneral corporate expense for the fourth quarter and year
w
as $9.8 million and $36.0 million, respectively, compared
to $14.9 million and $40.3 million for the prior year quarter
and twelve months. The lower ex
p
ense for both the fourth
q
uarter and year reflects a decrease in the lower of cost or
market inventory reserve, which was partially offset by higher
p
ens
i
on,
i
nsurance, and other com
p
ensat
i
on related ex
p
enses
com
p
ared to the
p
r
i
or year.
N
et earnin
g
s attributable to the Company’s noncontrollin
g
interests were $1.2 million and $5.0 million for the 2011
f
ourth quarter and fiscal year, respectively, compared to $1.5
million and $4.2 million for the comparable periods of fi
s
-
cal
20
1
0
. Despite a decline in the fourth quarter, results for
the
C
om
p
any’s Prece
p
t Foods business increased for fiscal
20
11 com
p
ared to the
p
rior year. Im
p
roved results for the
Com
p
any’s China o
p
erations also contributed to the increase
ve
r
sus
fi
sca
l 2
0
1
0.
F
I
SC
AL YEAR
S
20
1
0
AND
2009
:
Co
n
so
li
d
at
ed
R
esu
lt
s
N
et Earnin
g
s: Net earnings attributable to the Company
f
or the fourth
q
uarter of fiscal 2010 were
$
121.1 million, an
increase of 16.6 percent compared to earnin
g
s of $103.9 mil
-
lion for the same quarter in fiscal
2009
. Diluted earnin
g
s per
s
hare were $0.45 compared to $0.38 for the same quarter in
fiscal
2009
.
O
n a U.
S
.
G
AAP basis, net earnin
g
s attributable
to the
C
ompany for fiscal
20
1
0
increased 15.4 percent to
$395.6 million, from $342.8 million in fiscal 2009. U.S. GAAP
diluted earnings per share for fiscal
20
1
0
increased 15.
0
percent to
$
1.46 compared to
$
1.27 in fiscal 2009. Ad
j
usted
(
1
)
n
et earnings attributable to the Company for fiscal 2010
i
ncreased 19.3
p
ercent to
$
409.0 million, from
$
342.8 million
i
n fiscal 2009. Adjusted
(
1
)
diluted earnings per share for fiscal
2010 increased 18.9
p
ercent to
$
1.51 com
p
ared to
$
1.27 in
fi
scal 2009.
(
1
)
S
ee discussion re
g
ardin
g
20
1
0
adjusted net earnin
g
s on pa
g
e
2
4.
Specialty Foods segment profit increased 12.2 percent for
the
f
ourth
q
uarter and decreased 4.7
p
ercent
f
or the year
compared to fiscal 2010. High raw materials costs were a
challenge for Specialty Foods throughout fiscal 2011 across
all operat
i
n
g
se
g
ments. Add
i
t
i
onal pr
i
c
i
n
g
advances taken
i
n
the third quarter were able to o
ff
set these costs and improve
mar
g
in results durin
g
the
f
ourth quarter. Product mix
improvements at
C
FI also provided a si
g
nificant improvement
in profitability late in the year, with increased volumes of
nutritional and bulk blended products replacin
g
less profi
t
-
able toll-based contract manufacturing business.
E
fforts taken in fiscal 2011 to gain new customers and expand
distribution
f
or this segment have been success
f
ul, and will
continue to benefit results for S
p
ecialty Foods in future
q
ua
r
-
ters. Raw mater
i
al costs w
i
ll rema
i
n a challenge, and add
i
-
t
i
onal pr
i
c
i
n
g
i
n
i
t
i
at
i
ves may be cons
i
dered on certa
i
n
i
tems
w
here the lar
g
est cost
i
ncreases are ant
i
c
i
pated. Add
i
t
i
onal
product mix improvements are also expected
g
oin
g
f
orward,
and the
C
ompany will look for this se
g
ment to provide both
s
ales and earnin
g
s
g
rowth durin
g
fiscal
20
1
2
.
All
O
th
e
r:
A
ll
O
ther net sales increased 1
2
.4
p
ercent for the
f
ourth
q
uarter and 26.
3
p
ercent for the year com
p
ared to
fiscal 2010. Strong fresh pork export sales have driven the
to
p
-line results
f
or both the
q
uarter and
fi
scal year
f
or this
s
egment. Sales of the SPA
M
®
family of
p
roducts declined for
t
he
f
ourth quarter, but provided a signi
fi
cant sales increase
o
n a full year basis com
p
ared to fiscal 2010.
All Other se
g
ment profit increased 3.4 percent and 38.8 per
-
c
ent
f
or the
f
ourth quarter and year, respectively, compared
t
o fiscal
20
1
0
. The increased export volumes noted above
were able to o
ff
set lower product mar
g
ins due to the on
g
o
-
in
g
hi
g
h raw material costs experienced durin
g
fiscal
20
11.
Althou
g
h equity in earnin
g
s results for our international joint
venture o
p
erations declined for both the fourth
q
uarter and
fi
scal year, favorable currency rates and
p
rofit im
p
rovements
f
rom the Com
p
any’s China o
p
erations were able to cover
t
hese declines and contributed to im
p
roved overall
p
ro
fi
tabil
-
ity
f
or the segment.
O
ur international business is enterin
g
2012 with
g
ood
m
omentum. Export markets are expected to rema
i
n stron
g
i
n the near term. Raw mater
i
al costs rema
i
n h
ig
h, but pr
i
c
i
n
g
initiatives taken in fiscal
20
11 should help to moderate the
impact on mar
g
ins in upcomin
g
quarters.
Unallocated Income and Expenses: The
C
om
p
any does not
a
llocate investment income, interest ex
p
ense, and interest
income to its segments when measuring performance. The
C
om
p
any also retains various other income and unallocated
e
xpenses at corporate. Equity in earnings o
f
a
ffi
liates is
included in se
g
ment operatin
g
pro
fi
t; however, earnin
g
s
a
ttributable to the Company’s noncontrollin
g
interests are
e
xcluded. These items are included in the se
g
ment table
f
or
t
he purpose o
f
reconcilin
g
se
g
ment results to earnin
g
s be
f
ore
income taxes
.