Hormel Foods 2014 Annual Report Download

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2014 annual report
foods
for the way
we live

Table of contents

  • Page 1
    foods for the way we live 2014 annual report

  • Page 2
    7% Sales growth 5 year CAGR 12% 48 EPS growth 5 year CAGR Consecutive years of dividend increases 30+ Brands with No. 1 or No. 2 market share

  • Page 3
    ... expands the Specialty Foods segment offerings in sports nutrition products. Muscle Milk® is the number one brand of ready-to-drink protein-rich beverages, and the product line is an excellent fit for today's on the go lifestyles. Dividends Hormel Foods has an outstanding history of returning...

  • Page 4
    ... his retirement in January, after years of supporting the company's expansion through employee growth and development. As a result, Lawrence C. Lyons was promoted to Vice President, Human Resources. In May, Michael L. Devine retired from the position of Vice President, Grocery Products Operations...

  • Page 5
    ...(In thousands, except per share amounts) 2014 2013 Change % Change Net Sales Net Earnings Attributable to Hormel Foods Corporation Percent of Sales Earnings Per Share Basic Diluted Dividends Declared to Shareholders Per Share of Common Stock Weighted-Average Shares Outstanding Basic Diluted Capital...

  • Page 6
    ... Snacking and meals eaten on the go continue to be a growing part of today's busy way of life. Hormel Foods offers products that are a good source of protein and perfect for the grab and go eating occasion. The power of protein Muscle Milk® products are the No. 1 brand in the ready-todrink protein...

  • Page 7
    ...Globally-inspired cuisine Hormel® Café H® proteins provide on-trend, globally-inspired ï¬,avors. We handle the time, labor, special equipment, and authentic spices and marinades, delivering top quality proteins for foodservice operators to execute exciting signature dishes. 2014 annual report 5

  • Page 8
    ... SPAM® luncheon meat offering. Powerful brands 2030 6 foods for the way we live Serving suggestion China is projected to add approximately 800 million people to the global middle class by 2030. - Ernst & Young report in collaboration with Skolkovo Institute for Emerging Market Studies, "Hitting...

  • Page 9
    ... whole turkeys to ground turkey and sausages, the Jennie-O Turkey Store segment offers more than 1,500 products as well as recipes that make it easy to eat well. those naturally occurring 64% 64% of consumers are trying to eat healthier. - IRI 2013 Consumer Snacking Survey All natural guacamole...

  • Page 10
    ...before, and they want products to serve their families without spending hours in the kitchen. Hormel Foods provides a variety of options that deliver the convenience consumers crave. Sides in a snap Hormel® side dishes take just minutes in the microwave to heat and are packaged in a resealable tub...

  • Page 11
    ..., quality ingredients, offering consumers and foodservice operators the genuine Mexican ï¬,avor they crave. Simple guacamole goodness Guacamole is fast becoming one of the country's hottest condiments and Wholly Guacamole® products have been the No. 1 selling brand of refrigerated guacamole in...

  • Page 12
    ...® Natural Choice® deli meats, Hormel® Cure 81® hams, Hormel® pepperoni, Hormel® REV® wraps, Hormel® refrigerated entrees, Hormel® side dishes, Hormel® Black Label® bacon, Hormel® party trays, and Lloyd's® barbeque ribs. By providing consumers and foodservice operators with high quality...

  • Page 13
    ... Diamond Crystal Brands, and Hormel Specialty Products, the Specialty Foods segment offers high quality products to healthcare facilities, retail customers, foodservice operators, and food manufacturers. Individual serving restaurant packets, nutritional food products, stocks and broths, supplements...

  • Page 14
    ... 2013) Employer Awards International Supplier of the Year (Hormel Foods China) Papa John's (April 2014) 40 Best Companies for Leaders list (Hormel Foods) Chief Executive magazine (January 2014) 2014 Supplier Legacy Award (Diamond Crystal Brands) Premier Foodservice (June 2014) 50 Best Companies...

  • Page 15
    Selected Financial Data (in thousands, except per share amounts) 2014 2013 2012 2011 2010 Operations Net Sales Net Earnings Net Earnings Attributable to Hormel Foods Corporation % of net sales EBIT(1) % of net sales EBITDA(2) % of net sales Return on Invested Capital(3) $9,316,256 606,026 602,677 ...

  • Page 16
    ... price increases on certain products. Specialty Foods segment net sales and segment profit were negatively impacted due to the fourth quarter 2013 expiration of the agreement allowing Diamond Crystal Brands to sell certain sugar substitutes in foodservice trade channels as well as 2014 acquisition...

  • Page 17
    ... as an incentive for consumers to purchase various products. The coupons reduce revenues at the time they are offered, based on estimated redemption rates. Promotional contracts are performed by customers to promote the Company's products to consumers. These incentives reduce revenues at the time of...

  • Page 18
    ...assets for fiscal 2014. Employee Benefit Plans: The Company incurs expenses relating to employee benefits, such as noncontributory defined benefit pension plans and post-retirement health care benefits. In accounting for these employment costs, management must make a variety of assumptions and...

  • Page 19
    ..., and fresh product customers. This segment includes the Diamond Crystal Brands (DCB), CytoSport/Century Foods International, and Hormel Specialty Products (HSP) operating segments. This segment consists of the packaging and sale of private label shelf stable products, nutritional products, sugar...

  • Page 20
    ...The Switch® advertising campaign for Jennie-O® products, SKIPPY® peanut butter, Hormel® Natural Choice® deli meats, the SPAM® family of products, Hormel® REV® wraps, and Muscle Milk® protein-rich products. As a percentage of net sales, the Company expects selling, general and administrative...

  • Page 21
    ... financial information can be found in Note O "Segment Reporting.") Fourth Quarter Ended (in thousands) October 26, 2014 October 27, 2013 % Change October 26, 2014 Year Ended October 27, 2013 % Change Net Sales Grocery Products Refrigerated Foods Jennie-O Turkey Store Specialty Foods International...

  • Page 22
    ... pork production levels slightly over fiscal 2014. In continued support of the value-added product portfolio, the Company plans to focus advertising dollars on Hormel® Natural Choice® deli meats and Hormel® REV® wraps to enhance sales in the upcoming year. Jennie-O Turkey Store: Jennie-O Turkey...

  • Page 23
    ...of the SPAM® family of products, as higher meat input costs pressured margins during the fourth quarter. Segment profit gains for the fiscal year were largely driven by robust margins for the Company's China operations along with export sales of fresh pork items and improved royalty income. After...

  • Page 24
    ...year compared to 16.2 percent in fiscal 2012. Strong fourth quarter performances from the Refrigerated Foods, Grocery Products, and International & Other segments offset lower margins in the Jennie-O Turkey Store and Specialty Foods segments. The additional margins from SKIPPY® peanut butter sales...

  • Page 25
    Fourth Quarter Ended (in thousands) October 27, 2013 October 28, 2012 % Change October 27, 2013 Year Ended October 28, 2012 % Change Net Sales Grocery Products Refrigerated Foods Jennie-O Turkey Store Specialty Foods International & Other Total Net Sales Segment Operating Profit Grocery Products ...

  • Page 26
    ... fiscal 2012, offsetting unseasonably high hog costs. Additionally, retail bacon pricing actions taken during the third quarter drove improved margins toward the end of fiscal 2013. Jennie-O Turkey Store: Jennie-O Turkey Store (JOTS) net sales for the fiscal 2013 fourth quarter and year increased...

  • Page 27
    ...used to acquire the U.S. based SKIPPY® peanut butter business. In anticipation of that purchase in the prior year, the Company liquidated its marketable securities portfolio at the end of the first quarter of fiscal 2013, which generated $77.6 million in cash. Capital expenditures in fiscal 2014...

  • Page 28
    ...-Looking Statements This report contains "forward-looking" information within the meaning of the federal securities laws. The "forward-looking" information may include statements concerning the Company's outlook for the future as well as other statements of beliefs, future plans, strategies, or...

  • Page 29
    ...by customers or consumers. We do not have control over handling procedures once our products have been shipped for distribution. If one or more of these risks were to materialize, the Company's brand and business reputation could be negatively impacted. In addition, revenues could decrease, costs of...

  • Page 30
    ...term financial results. Jennie-O Turkey Store raises turkeys and also contracts with turkey growers to meet its raw material requirements for whole birds and processed turkey products. Additionally, the Company owns various hog raising facilities that supplement its supply of raw materials. Results...

  • Page 31
    ...litigation may include class actions involving employees, consumers, competitors, suppliers, shareholders, or injured persons, and claims relating to product liability, contract disputes, intellectual property, advertising, labeling, wage and hour laws, employment practices, or environmental matters...

  • Page 32
    ... 26, 2014 open contracts by $6.1 million, which in turn would lower the Company's future cost of purchased hogs by a similar amount. Turkey and Hog Production Costs: The Company raises or contracts for live turkeys and hogs to meet some of its raw material supply requirements. Production costs in...

  • Page 33
    ... estimates and judgments. Hormel Foods Corporation has developed a system of internal controls designed to assure that the records reï¬,ect the transactions of the Company and that the established policies and procedures are adhered to. This system is augmented by well-communicated written policies...

  • Page 34
    ... position of Hormel Foods Corporation as of October 26, 2014 and October 27, 2013 and the related statements of operations, comprehensive income, changes in shareholders' investment and cash ï¬,ows for each of the three years in the period ended October 26, 2014, and our report dated December 17...

  • Page 35
    ...years in the period ended October 26, 2014, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Hormel Foods Corporation's internal control over financial reporting...

  • Page 36
    ... 400,000,000 shares; issued - none Common stock, par value $0.0293 a share - authorized 800,000,000 shares; issued 263,613,201 shares October 26, 2014 issued 263,658,296 shares October 27, 2013 Accumulated other comprehensive loss Retained earnings Hormel Foods Corporation Shareholders' Investment...

  • Page 37
    ...Fiscal Year Ended (in thousands, except per share amounts) October 26, 2014 October 27, 2013 October 28, 2012 Net sales Cost of products sold Gross Profit Selling, general and administrative Equity in earnings... Comprehensive Income Attributable to Hormel Foods Corporation See Notes to Consolidated ...

  • Page 38
    ... 28, 2012 Net earnings Other comprehensive income Purchases of common stock Stock-based compensation expense Exercise of stock options/ nonvested shares Shares retired Distribution to noncontrolling interest Declared cash dividends - $0.68 per share Balance at October 27, 2013 Net earnings Other...

  • Page 39
    ... Statements of Cash Flows Fiscal Year Ended (in thousands) October 26, 2014 October 27, 2013 October 28, 2012 Operating Activities Net earnings Adjustments to reconcile to net cash provided by operating activities: Depreciation Amortization of intangibles Equity in earnings of affiliates, net...

  • Page 40
    ... on net earnings or operating cash ï¬,ows as previously reported. Stock Split: On November 22, 2010, the Company's Board of Directors authorized a two-for-one split of the Company's common stock, which was subsequently approved by shareholders at the Company's Annual Meeting on January 31, 2011, and...

  • Page 41
    ...fair values at date of acquisition, and are allocated to reporting units that will receive the related sales and income. The Company's reporting units represent operating segments (aggregations of business units that have similar economic characteristics and share the same production facilities, raw...

  • Page 42
    ...scal years 2014, 2013, or 2012. Employee Benefit Plans: The Company ...Company. Such proceedings typically involve claims related to product liability, contract disputes, wage and hour laws, employment practices, or other actions brought by employees, consumers, competitors, or suppliers. The Company...

  • Page 43
    ...market research. Advertising costs for fiscal years 2014, 2013, and 2012 were $114.4 million, $89.9 million, and $103.4 million, respectively. Shipping and Handling Costs: The Company's shipping and handling expenses are included in cost of products sold. Research and Development Expenses: Research...

  • Page 44
    .... In May 2014, the FASB issued ASC 606, Revenue from Contracts with Customers. This topic converges the guidance within U.S. generally accepted accounting principles and international financial reporting standards and supersedes ASC 605, Revenue Recognition. The new standard requires companies to...

  • Page 45
    ...2011 Unrecognized gains (losses): Gross Tax effect Reclassification into net earnings: Gross Tax effect Net of tax amount Balance at October 28, 2012... of net periodic cost (see Note I for additional details). Included in cost of products sold in the Consolidated Statements of Operations. 43

  • Page 46
    ... Muscle Milk® products and is a leading provider of premium protein products in the sports nutrition category. CytoSport's brands align with the Company's focus on protein while further diversifying the Company's portfolio. On November 26, 2013, the Company acquired the China based SKIPPY® peanut...

  • Page 47
    ... of net sales for fiscal year 2013. SKIPPY® is a well-established brand that allows the Company to expand its presence in the center of the store with a nonmeat protein product and reinforces the Company's balanced product portfolio. The acquisition also provides the opportunity to strengthen...

  • Page 48
    ... October 27, 2013 Brand/tradename/trademarks $7,554 5,591 5,118 4,876 4,833 2015 2016 2017 2018 Other intangibles Total $ 495,282 7,984 $ 503,266 $ 333,275 7,984 $ 341,259 2019 During the fourth quarter of fiscal years 2014 and 2013, the Company completed the required annual impairment tests...

  • Page 49
    ... or welfare benefits. Benefits for retired employees vary for each group depending on respective retirement dates and applicable plan coverage in effect. Contribution requirements for retired employees are governed by the Retiree Health Care Payment Program and may change each year as the cost to...

  • Page 50
    ...(in thousands) 2014 2013 Post-retirement Benefits 2014 2013 Change in plan assets: Fair value of plan assets at beginning of year Actual return on plan assets Employee contributions Employer contributions Benefits paid Fair value of plan assets at end of year Funded status at end of year $1,087...

  • Page 51
    ... allocations for the Company's pension plan assets as of the plan measurement date are as follows: 2014 Asset Category Actual Target Range Actual 2013 Target Range Large Capitalization Equity Hormel Foods Corporation Stock Small Capitalization Equity International Equity Private Equity Total Equity...

  • Page 52
    ...common stock held in plan assets were sold. Dividends paid during the year on shares held by the plan were $0.7 million. In 2013, plan assets included 1.7 million shares of common stock of the Company having a market value of $72.6 million. Based on the October 26, 2014 measurement date, the Company...

  • Page 53
    ... asset value (NAV) of shares held by the pension plans at year end. Small Capitalization Equity: The Level 1 investments include a mix of predominately U.S. common stocks and foreign common stocks, which are valued at the closing price reported on the active market in which the individual securities...

  • Page 54
    ...post-retirement benefits Employee compensation related liabilities Marketing and promotional accruals...Company has commitments totaling $85.0 million for the private equity investments within the pension plans, of which $30.3 million and $42.1 million remain unfunded at fiscal year end 2014 and 2013...

  • Page 55
    ... fiscal years 2013 and 2014. (in thousands) Note K Commitments and Contingencies In order to ensure a steady supply of hogs and turkeys, and to keep the cost of products stable, the Company has entered into contracts with producers for the purchase of hogs and turkeys at formula-based prices over...

  • Page 56
    ... Fiscal Year Ended October 26, 2014 October 27, 2013 October 28, 2012 Note L Stock-Based Compensation The Company issues stock options and nonvested shares as part of its stock incentive plans for employees and non-employee directors. The Company's policy is to grant options with the exercise price...

  • Page 57
    ... before September 26, 2010, vest after five years or upon retirement. Nonvested shares granted between September 27, 2010, and July 27, 2014, vest after one year. Nonvested shares granted on or after July 28, 2014, vest on the earlier of the day before the Company's next annual meeting date or one...

  • Page 58
    ... the date of dedesignation have been recognized in earnings as incurred. As of October 26, 2014, and October 27, 2013, the Company had the following outstanding futures and options contracts related to these programs: Volume Commodity October 26, 2014 October 27, 2013 Corn Lean hogs 8.0 million...

  • Page 59
    ...Portion)(3) Fiscal Year Ended Fair Value Hedges: Location on Consolidated Statements of Operations October 26, 2014 October 27, 2013 Gain/(Loss) Recognized in Earnings (Ineffective Portion)(2) (5) Fiscal Year Ended October 26, 2014 October 27, 2013 Commodity contracts Cost of products sold $ (21...

  • Page 60
    ... priced contracts are offered to the Company's commodity suppliers. The Company's futures contracts for corn and soybean meal are traded on the Chicago Board of Trade, while futures contracts for lean hogs are traded on the Chicago Mercantile Exchange. These are active markets with quoted prices...

  • Page 61
    ..., and fresh product customers. The Specialty Foods segment includes the Diamond Crystal Brands, CytoSport/Century Foods International, and Hormel Specialty Products operating segments. This segment consists of the packaging and sale of private label shelf stable products, nutritional products, sugar...

  • Page 62
    ... information shown below. (in thousands) 2014 2013 2012 (in thousands) 2014 2013 2012 Assets Grocery Products Refrigerated Foods Jennie-O Turkey Store Specialty Foods International & Other Corporate Total Additions to Property, Plant and Equipment Grocery Products Refrigerated Foods Jennie...

  • Page 63
    ...the years ended October 26, 2014, and October 27, 2013. Net Earnings Attributable to Hormel Foods Corporation(1) (in thousands, except per share data) Net Sales Gross Profit Net Earnings Basic Earnings Per Share(2) Diluted Earnings Per Share(2) 2014 First quarter Second quarter Third quarter...

  • Page 64
    ... institutions. Common Stock Data The high and low prices of the company's common stock and the dividends per share declared for each fiscal quarter of 2014 and 2013, respectively, are shown below: 2014 High Low Dividend Dividend Reinvestment Plan Hormel Foods Corporation's Dividend Reinvestment...

  • Page 65
    ... Inquiries regarding products of Hormel Foods Corporation should be addressed: Consumer Response Hormel Foods Corporation 1 Hormel Place Austin, MN 55912-3680 or call 1-800-523-4635 Trademarks Annual Meeting The Annual Meeting of Shareholders will be held on Tuesday, January 27, 2015, in the...

  • Page 66
    ..., Sales Consumer Products Sales Mark J. Ourada Vice President, Foodservice Sales Thomas R. Day Group Vice President, Refrigerated Foods James R. Schroeder Julie H. Craven Vice President, Corporate Communications Vice President, Engineering Donald H. Kremin Group Vice President, Specialty Foods...

  • Page 67
    ... Director since September 2011 Susan K. Nestegard Former President, Global Healthcare Sector, Ecolab Inc. Director since October 2009 *Lead Director Stock Performance Chart Comparison of 5-year cumulative total return* Hormel Foods Corporation S&P 500 S&P Packaged Foods & Meats $350 300 250...

  • Page 68
    ... team has solved the dilemma. Hormel® Bacon 1â„¢ perfectly cooked bacon offers a fully cooked product that truly delivers uncompromising bacon ï¬,avor, texture, and appearance. It is the best bacon you'll never cook. Hormel Foods Corporation 1 Hormel Place Austin, MN 55912-3680 www.hormelfoods.com