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Although cash markets for hog purchases were higher in 2000 than
a year earlier, existing hog procurement contracts resulted in a cost
of hogs less than the quoted spot cash market. It is anticipated that
the company's hog contracts will continue to provide hogs at prices
below the quoted markets into the first quarter of 2001.
The company continues to expand its line of consumer-branded
products through both new product introductions and line extensions.
Increased sales of branded products helped to reduce exposure
to fluctuating commodity prices. The company made considerable
progress in 2000 with the continued expansion of consumer-branded
pork products further reducing the effect of fluctuating commodity
prices on the company's principal raw materials.
Net earnings for the year increased 4.1 percent to $170,217 from
$163,438 in 1999. Results for 1999 include an after-tax gain of
$3,808 from the sale of land by Campofrio Alimentacion, S.A.,
Madrid, Spain, a company in which Hormel Foods has an equity
ownership interest. Excluding the one-time gain, net earnings
for 2000 increased by $10,587, or 6.6 percent. Net sales in 2000
increased 9.5 percent to $3,675,132 from $3,357,757 last year.
Tonnage for the year increased 1.0 percent compared to 1999.
Net earnings for the fourth quarter of 2000 were $60,979, an increase
of 2.2 percent over earnings of $59,674 for the same period last year.
Sales for the quarter increased 5.8 percent to $1,006,181 compared
to $950,839 in 1999. Tonnage increased 0.2 percent for the quarter
compared to last year.
The company's core branded business continued to be the major
contributor to earnings as all core business groups and subsidiaries
contributed to the record performance. Increased market share and
distribution by some of the company's best-known brands, as well
as increased activity in new market introductions, drove the record
sales and earnings performance.
Margins for the Refrigerated Foods Group during the fourth quarter
were impacted by live hog prices that were 25.4 percent higher than
the same period a year ago. As noted earlier, the company's hog
procurement contracts with suppliers softened the impact of the higher
live hog prices. The company processed 1.0 percent more hogs during
the quarter compared to 1999.
Sales by the Foodservice Division increased 25.8 and 30.3 percent
for the quarter and year, respectively, when compared to last year.
Increases were realized in all 15 categories of branded products.
The largest category gain occurred in premium pork, which includes
Always Tender pork, which was up 88.0 percent over the same
quarter a year ago.
Total Meat Products Division tonnage decreased 2.6 percent for
the fourth quarter and increased 3.6 percent for the year compared
to last year. Branded tonnage increased 36.6 percent for the year
compared to 1999. Record market share was accomplished in fiscal
2000 for pepperoni and bacon. The fully cooked entree lines continue
to perform strongly. Four new entrees were introduced in the
fourth quarter.
Sales by the Grocery Products Division were down 6.5 percent for
the quarter but finished on plan with an increase of just under 1.0
percent for the year. The 2000 plan had anticipated a decrease for
the quarter as a result of an extremely strong fourth quarter in 1999
that included Y2K stocking. The decrease in sales, on a comparative
basis, is expected to continue into the first quarter of 2001 but should
be offset by favorable sales comparisons expected to be attained in
the final three quarters of 2001.
Jennie-O sales dollars increased 8.8 percent for the quarter and
3.4 percent for the year compared to 1999 primarily as a result of an
improved sales mix. Tonnage for the quarter increased by 5.9 percent
compared to last year. Tonnage was flat for the year primarily
as a result of a decision earlier in the year to convert traditional
summer cut-up breast and commodity part sales into whole birds.
As anticipated, the whole bird market remained strong this fall,
particularly on the hen side, and allowed Jennie-O to profit from
this strategy.
Other value-added segments of Jennie-O's business continued to
grow with foodservice again registering double-digit sales increases
for the quarter and year. The most recent 12-week AC Nielsen scanner
data shows increases in sales volume with an increase in market
share and distribution for most of Jennie-O's measured retail brands.
Jennie-O continues to be aggressive in new product development.
The company will roll out four new foodservice products in the first
quarter of 2001 which follows the successful launch of four new
retail items in the fourth quarter of 2000.
Hormel Foods International experienced significant tonnage growth
as many of the company's domestic brands continued to gain
increased recognition and distribution in world markets. China,
Canada and the Asia-Pacific region, including Japan, Micronesia and
South Korea, all experienced double-digit volume growth. Sales of
Stagg chili and SPAM luncheon meat, including the introduction
of SPAM hot & spicy flavored with Tabasco brand pepper sauce and
SPAM oven roasted turkey, were significant contributors to growth
in the international market.
Selling and delivery expenses for the fourth quarter and year were
$99,049 and $379,326, respectively, compared to $95,683 and
$356,553 last year. As a percentage of sales, selling and delivery
expenses were 9.8 and 10.3 percent for the quarter and year compared
to 10.1 and 10.6 percent in 1999.
Marketing expenses decreased to $69,180 for the quarter and
$292,808 for the year from $82,774 and $307,376 for the same periods
last year. As a percentage of sales, marketing expenses decreased
to 6.9 and 8.0 percent for the quarter and year, respectively, compared
to 8.7 and 9.2 percent in 1999. Marketing expenses were down in the
fourth quarter due to program spending based on tonnage of specific
product lines.
Administrative and general expenses were $15,848 and $65,517
for the quarter and year, respectively, compared to $20,381 and
$73,196 last year. As a percentage of sales, administrative and general
expenses for the quarter and year were 1.6 and 1.8 percent
compared to 2.1 and 2.2 percent for the same periods in 1999.
Research and development continues to be an integral part of the
company's strategy to extend existing brands and expand its offering
of new consumer-branded items. Research and development
expenses for the quarter and year were $2,520 and $9,592, respectively,
compared to $2,457 and $9,566 for the same periods last year.
Research and development expenses of Hormel Foods LLC, which
has responsibility for the company's intangible assets, are included
in administrative and general expenses.
The company's effective tax rate for the quarter and year was 34.9
and 35.6 percent compared to 35.1 and 35.0 percent in 1999. The
reduction in the rate for the fourth quarter was the result of favorable
settlements of various state audits.
Fiscal Years 1999 and 1998: During 1999, the company experienced
record sales levels across all major operating units. Abundant supplies
of live hogs at reasonable costs supported the sales increases.
Although benefiting from relatively low markets for cash hog
purchases, the company continued to pay substantially more than
quoted markets for hogs purchased under procurement contracts.
The contract costs are fully reflected in the company's financial
results. Similar market conditions were experienced in 1998.
Net earnings for the year increased 17.3 percent to $163,438 from
$139,291 in 1998. Results for 1999 include an after-tax gain of
$3,808 from the sale of land by Campofrio Alimentacion, S.A.,
Madrid, Spain, a company in which Hormel Foods has an equity
ownership interest. Results for 1998 include an after-tax gain of
$17,402 from the sale of the company's Davenport, Iowa, gelatin
plant to Goodman Holder Limited, Sydney, Australia. Excluding
these one-time gains, company net earnings from continuing operations
in 1999 of $159,630 exceeded 1998 earnings by $37,741, or
31.0 percent. Net sales in 1999 increased 3.0 percent to $3,357,757
from $3,261,045 the previous year. Tonnage for the year increased
7.1 percent compared to 1998. Fiscal 1999 was a 52-week year compared
to a 53-week year in 1998.
Net earnings for the fourth quarter of 1999 were $59,674, an increase
of 32.2 percent over earnings of $45,152 for the same period in 1998.
Sales for the quarter were $950,839, a 4.3 percent increase from a
year earlier. Tonnage increased 1.4 percent for the quarter compared
to 1998.
Virtually all divisions and subsidiaries contributed to the record performance.
All major divisions experienced volume growth which, in
many cases, exceeded category growth. Increased market share and
distribution by some of the company's best-known brands resulted
in record sales volume and profits for the Foodservice, Meat Products
and Prepared Foods Groups.
Jennie-O also had its best year ever with record sales, tonnage
and profits. Generally favorable market conditions, including both
feed costs and commodity turkey prices, contributed to the results.
Jennie-O experienced increased brand distribution for a number
of their best-known branded products.
Hormel Foods International experienced record sales and export
tonnage for the year while earnings improved over 1998. Sales of
Jennie-O whole turkeys, Stagg chili and SPAM luncheon meat
were significant contributors to growth in the international market.
Selling and delivery expenses for the fourth quarter and year were
$95,683 and $356,553, respectively, compared to $102,028 and
$328,050 in 1998. As a percentage of sales, selling and delivery
expenses were 10.1 and 10.6 percent for the quarter and year
compared to 11.2 and 10.1 percent the previous year.
Marketing expenses increased to $82,774 for the quarter and
$307,376 for the year compared to $77,232 and $276,826 in 1998. As
a percentage of sales, marketing expenses in 1999 compared to 1998
increased to 8.7 from 8.5 percent for the quarter and to 9.2 from 8.5
percent for the year.
Administrative and general expenses were $20,381 and $73,196
for the quarter and year, respectively, compared to $10,813 and
$72,331 in 1998. As a percentage of sales, administrative and general
expenses for the quarter and year were 2.1 and 2.2 percent compared
to 1.2 and 2.2 percent for the same periods last year.
Research and development expenses for the quarter and year were
$2,457 and $9,566 compared to $2,412 and $9,037 for the same
periods in 1998.
The company's effective tax rate declined to 35.0 percent from 35.9
percent in 1998. The reduction is primarily due to a decrease in state
and local taxes and foreign equity earnings which are net of tax.
Liquidity: The company continues to have an exceptionally strong
balance sheet. Cash, cash equivalents and short-term marketable
securities were $106,610 at the end of 2000. Long-term debt declined
$38,795 to $145,928, reflecting payments made by the company
in fiscal 2000. On October 31, 2000, the company entered into a
$425,000 short-term credit facility which replaced an existing credit
line of $20,000. The credit facility is for general corporate purposes
and may be used for acquisitions. The strong balance sheet and
available credit facility provide the company with the ability to take
advantage of expansion or acquisition opportunities that may arise.
During 2000, cash provided by operating activities was $151,304 as
compared to $239,536 last year. The decrease in cash provided by
operating activities was primarily due to changes in working capital
items which were in the normal course of business.
Cash used for investing activities in 2000 decreased to $74,456 from
$144,132 in 1999. The decrease in cash used for investing activities
reflects a lower amount of securities held for investment as well as
normal purchases of property, plant and equipment. Cash used in
1999 included the equity investment in the Purefoods-Hormel
Company in the Philippines.
Cash used for financing activities increased to $164,512 from
$111,028 in 1999 primarily due to net payments on long-term debt.
Cash dividend payments were up slightly from 1999, and the
company continued to repurchase Common Stock in the market.
During the year, the company repurchased 4,307,100 shares of its
Common Stock at an average price per share of $17.49 under a
repurchase plan approved in September 1998. During the fourth
quarter, 900,800 shares were repurchased under the plan at an average
price per share of $15.98.
Financial ratios for 2000 and 1999 are presented below:
2000 1999
Liquidity Ratios
Current ratio 2.1 2.1
Receivables turnover 12.8 13.7
Days sales in receivables 30.6 28.9
Inventory turnover 9.7 9.3
Days sales in inventory 38.4 41.5
Leverage Ratio
Long-term debt to equity 21.1% 26.9%
(including current maturities)
Operating Ratios
Pretax profit to net worth 30.8% 30.4%
Pretax profit to total assets 15.9% 15.5%
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While the company does have international operations and operates
in international markets, it considers its market risk in such activities
to be immaterial.
Forward-Looking Statements: The company and its representatives
may from time to time make written or oral statements with respect
to annual or long-term goals and expectations of the company. These
statements include, but are not limited to, the company's filings with
the Securities and Exchange Commission and in its reports to shareholders.
The company cautions readers not to place undue reliance
on forward-looking statements which represent current views as of
the date made.
Exhibit 99 to the Annual Report on Form 10-K for the year ended
October 30, 1999, provides the full text of the company's cautionary
statement relevant to forward-looking statements and information
for the purpose of "Safe Harbor" provisions of the Private Securities
Litigations Reform Act of 1995.
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