Hormel Foods 2011 Annual Report Download - page 23

2
1
Hormel Foods Corporation
the 2010 fourth quarter and fiscal year, with total advertising
ex
p
ense u
p
$
18.7 million for the year com
p
ared to fiscal 2009.
T
he Com
p
any also ex
p
erienced increased ex
p
enses for co
m
-
pensation, travel, and professional services during fiscal 2010.
R
esearch and development expenses were $7.7 million and
$27.6 million for the fiscal 2010 fourth quarter and year,
respectively, compared to $6.5 million and $25.4 million in
2009.
E
quity in Earnin
g
s o
f
A
ffi
liates:
E
quity in earnings of affiliates
w
as
$
4.1 million and
$
13.1 million for the fiscal 2010 fourth
q
uarter and year, res
p
ectively, com
p
ared to
$
1.4 million and
$
4.8 million in fiscal 2009. On October 26, 2009, the Com
p
any
completed the formation of MegaMex Foods, LLC
(
MegaMex
)
,
a 50 percent owned joint venture which markets Mexican
f
oods in the United States. Favorable results from this joint
v
enture were the primary driver o
f
the increased earnin
g
s
f
or
both the fiscal
20
1
0
fourth quarter and year, offsettin
g
sli
g
htly
lower overall results from the
C
ompany’s other joint ventures.
D
urin
g
the
C
ompany’s fiscal
20
1
0
fourth quarter, Me
g
aMex
also acquired Don Miguel Foods, a leading provider of
branded frozen and fresh authentic Mexican a
pp
etizers,
s
nacks, and handheld items.
T
he Company accounts for its ma
j
ority-owned operations
under the consol
i
dat
i
on method. Investments
i
n wh
i
ch the
Company owns a minority interest, and for which there are
no other indicators o
f
control
,
are accounted
f
or under the
equ
i
ty or cost method. These
i
nvestments, alon
g
w
i
th rece
i
v-
ables from other affiliates
,
are included in the
C
onsolidated
S
t
a
t
e
m
e
nt
o
f Fin
a
n
c
i
a
l P
os
iti
o
n
as
inv
es
tm
e
nt
s
in
a
n
d
r
ece
i
v
-
ables from affiliates. The composition of this line item at
October
3
1, 2010, was as follows:
(
in thousands
)
C
ountry
I
nvestments
/
Receivables
U
nit
ed
S
t
a
t
es
$
123
,
451
P
h
i
l
i
pp
i
nes 6
3,
89
4
V
ie
tn
am
20,
5
0
1
Me
x
ico
4
,
9
3
1
J
apan 1
,
61
2
To
t
al
$
214
,
38
9
I
ncome
T
axes: The Company’s effective tax rate for the
f
ourth quarter and year was 34.8 percent and 36.0 percent,
respectively, in fiscal 2010 compared to
3
4.0 percent and
3
4.5
percent, respectively, for the quarter and year in fiscal
2009
.
T
he hi
g
her rate for fiscal
20
1
0
primarily reflected a chan
g
e
in the tax treatment of Medicare Part D subsidies, resultin
g
f
r
o
m n
e
w h
ea
lth
ca
r
e
l
a
w
s
e
n
ac
t
ed
in
20
1
0
. Th
e
l
o
w
e
r r
a
t
es
in fiscal
2009
for both the fourth
q
uarter and fiscal year were
also due to significantly higher returns on the Company’s
rabbi trust investments com
p
ared to fiscal 2010, which are
not taxa
bl
e
.
N
e
t
S
al
es
:Net sales for the fourth
q
uarter of fiscal 2010
i
ncreased to
$
2.06 billion from
$
1.68 billion in fiscal 2009, an
i
ncrease of 23.2
p
ercent. Net sales for the twelve months of
fiscal 2010 increased 10.5
p
ercent to
$
7.22 billion com
p
ared
t
o $6.53 billion in fiscal 2009. Tonna
g
e for the fourth quarter
i
ncreased 13.8 percent to 1.34 billion lbs. compared to 1.18
billion lbs. in fiscal
2009
. Tonna
g
e for the fiscal year
20
1
0
i
ncreased 5.
2
percent to 4.
80
billion lbs. from 4.56 billion lbs.
i
n fiscal
2009
. Followin
g
top-line declines in fiscal
2009
, sales
momentum was restored durin
g
fiscal
20
1
0
, with all five se
g
-
ments reporting significant gains for both the fourth quarter
a
nd full year. The
C
om
p
any’s branded, value-added
p
roduct
portfolios showed particular strength in the latter half of fi
s
-
c
al 2010
,
attributable to successful new item introductions
,
di
str
i
but
i
on ga
i
ns on key product l
i
nes, and substant
i
al
i
nvest
-
ments
i
n advert
i
s
i
n
g
to support both the
H
orme
l
®
an
d
J
ennie-O
T
urkey Store
®
brands. Sales from the Company’s MegaMex
j
o
i
nt venture and the
C
ountry Crock
®
s
i
de d
i
sh ac
q
u
i
s
i
t
i
on also
b
enefitted to
p
-line results com
p
ared to fiscal 2009.
G
ross Profit: Gross profit was $355.0 million and $1.24 bi
l
-
lion for the
20
1
0
fourth quarter and fiscal year, respectively,
compared to $304.2 million and $1.10 billion in fiscal 2009.
As a percenta
g
e of net sales,
g
ross profit decreased to 17.
2
p
ercent for the
20
1
0
fourth
q
uarter com
p
ared to 1
8
.
2
p
ercent
in fiscal
2009
, and increased to 17.
2
p
ercent for the year
com
p
ared to 16.8
p
ercent in fiscal 2009. Gross
p
rofit for fi
s
-
cal 2010 includes a charge of
$
9.7 million incurred during
the second quarter related to the closing of the Company’s
V
alley Fresh
p
lant. Jennie-O Turkey Store ex
p
erienced the
m
ost si
g
nificant mar
g
in
g
ains over fiscal 2009,
g
enerated
b
y e
ffi
ciencies throu
g
hout its supply chain and operational
improvements across the business. Lower
f
eed costs,
f
avor
-
able commodity meat and whole bird pricin
g
, and a lar
g
er
than usual hed
g
in
g
g
ain on open positions durin
g
the fourth
quarter, also contributed to the mar
g
in
g
rowth for this se
g
-
m
ent in fiscal
20
1
0
. Higher hog costs experienced throughout
fiscal
20
1
0
constricted margins in the
C
ompany’s value-added
b
usinesses for much of the year. Shipping and handling
ex
p
enses also increased com
p
ared to fiscal 2009,
p
rimarily
r
e
fl
ecting increased tonnage. However, unusually
f
avorable
cutout margins in the Company’s pork operations were able to
o
ff
set the impact o
f
these hi
g
her costs.
S
elling,
G
eneral and Administrative:
S
ellin
g
,
g
eneral and
administrative expenses for the fiscal
20
1
0
fourth quarter
and year were $166.5 million and $605.3 million, respectively,
compared to $142.7 million and $567.1 million in fiscal 2009.
As a percentage of net sales, selling, general and admi
n
-
istrative ex
p
enses for the fourth
q
uarter decreased to
8
.1
p
ercent of net sales com
p
ared to 8.5
p
ercent of net sales in
fiscal 2009. For the fiscal year, the ex
p
enses decreased to 8.4
p
ercent from 8.7
p
ercent in fiscal 2009. Investments in media
campa
ig
ns support
i
n
g
the
H
orme
l
®
an
d
J
ennie-O Turkey Store
®
b
rands were a key driver o
f
the hi
g
her expense durin
g
both