Persons stockpiling canned goods such as SPAM in worries over Y2K problems helped Hormel Foods Corp.

Thursday, February 15, 2001

Persons stockpiling canned goods such as SPAM in worries over Y2K problems helped Hormel Foods Corp. have a good first quarter a year ago.

While net earnings are down for the first quarter of this fiscal year, the company still is reporting first-quarter earnings per share of 30 cents, the same reported for the comparable first quarter of fiscal 2000.

First quarter net earnings of $41.53 million decreased 5.3 percent from year-earlier first quarter earnings of $43.84 million. Record first quarter dollar sales of $947.49 million were up 4.8 percent from $903.91 million announced a year ago. Tonnage volume for the first quarter was essentially flat when compared to the same first quarter of last year.

Joel W. Johnson, Hormel’s chairman of the board, president and chief executive officer, noted that the company’s first quarter of last year benefited from Y2K retail store and in-home pantry stockpiling.

"We anticipated that the just-concluded first quarter would be a challenging one in view of the heavy Y2K inventory loading that occurred during first quarter of one year ago," Johnson said in a prepared statement. "This unusual circumstance contributed to a 10.7 percent fiscal 2000 first quarter volume increase for our canned foods business, making it difficult for us to match these results in this yearns first quarter."

Johnson also noted the company’s procurement agreements with pork producers, designed to provide adequate supplies of raw materials for manufacturing operations, also contributed to the reduced earnings because contract prices paid exceeded prices available in the spot cash market.

"Another factor," Johnson added, "was the very large increase in energy costs-per-unit and heightened energy usage due to the extremely cold temperatures in December and January."

A major highlight that occurred late in the first quarter was the signing of a definitive agreement to acquire The Turkey Store Co., headquartered in Barron, Wis. Hormel Foods has agreed to purchase all the outstanding shares of The Turkey Store Co. for $334.4 million in cash subject to adjustment for outstanding indebtedness and changes in working capital at closing which is scheduled for Feb. 23.

The Turkey Store Co. is a leading producer, processor and marketer of fresh and cooked turkey products, marketed under The Turkey Store brand, and is the sixth largest turkey operation in the United States.

"We plan to merge The Turkey Store Co. into our wholly owned subsidiary, Jennie-O Foods, headquartered in Willmar," Johnson said. "The combination of The Turkey Store brand’s No. 1 position in fresh boneless retail products and the Jennie-O brand’s presence in the further processed retail, food-service and deli areas creates the industry’s most extensive line of branded turkey products and enables us to be an even more complete supplier to our customers."

Reviewing first quarter marketing accomplishments, Johnson noted that many of the company’s shelf-stable grocery products items – including Hormel chili, Mary Kitchen hash, Hormel chunk meats and Carapelli olive oils – enjoyed market share gains in the most recent 12-week period.

Tonnage volume for Kid’s Kitchen microwave meals and three ethnic food lines, Chi-Chi’s Mexican salsas and sauces, Patak’s Indian cooking sauces and Marrakesh Express couscous, reported increases over one year ago. The national introduction of SPAM oven roasted turkey continues to move forward with retail and consumer acceptance and new distribution.

Within the Meat Products Division, Always Tender flavored pork reported strong double-digit sales volume as did the company’s retail ham products, led by Cure 81 ham. Black Label bacon and Black Label fully cooked bacon contributed to increased tonnage results for the breakfast meats category while volume share of Hormel pepperoni rose 2.3 points to a record first quarter level. The original four-item family of Hormel fully cooked entrees continued to perform strongly with major distribution gains made across the country. Added to this very successful line were four new barbecue meat products featuring the award-winning rich and sassy barbecue sauce used by the Famous Dave’s of America restaurant chain.

Increased food-service sales volume for the quarter was led by double-digit branded tonnage growth for many of its best-known categories, specifically premium pork, bacon and ham. Always Tender Posh pork is finding increasing acceptance with a wide variety of operator customers. Old Smokehouse bacon, Old Smokehouse Applewood smoked bacon and Layout Pack wide-shingled bacon posted solid growth as did Cure 81 ham sales, which benefited from a strong holiday season.

Jennie-O Foods reported increased dollar sales but a decline in tonnage, reflecting the ongoing conversion from commodity to value-added products. Food service continued its strong growth in sales of further-processed products as customers and consumers sought the added convenience provided by presliced turkey products. Jennie-O corn dogs were introduced at the beginning of the year with excellent acceptance.

Hormel Foods International recorded a double-digit increase in consolidated tonnage volume with fresh pork and processed meats major contributors. An agreement with Snow Brands Foods in Tokyo, Japan, will more than double the exports of pork loins and pork tenderloins to that country. The company’s Chinese joint ventures in Beijing and Shanghai again reported tonnage and volume increases. Processed meats and shelf-stable grocery products that showed particularly strong growth included Jennie-O turkey, Hormel pizza toppings, Hormel precooked bacon, Marrakesh Express couscous, Kid’s Kitchen microwave meals and Stagg chili.

Effective today, the company paid its 290th consecutive quarterly dividend, which also represented the 35th consecutive annual increase in the quarterly dividend rate. The newly established annual rate is $.37 per share.

Looking ahead, Johnson said higher-than-normal energy and pork raw material costs will continue to be a challenge.

"We are encouraged, however, about our ability to grow and believe the strength of our core businesses, combined with new product introductions and ongoing expansion initiatives will enable us to meet our financial objectives," he said.