Hormel Foods Corporation · NYSE:HRL
Hormel Foods — Q1 2018 Earnings Presentation
54 slides from Hormel Foods's earnings presentation, Feb 22, 2018
Slide 1: Q1 2018 Earnings Update
CAGNY Inspired People. Q1 2018 Earnings Update Inspired Food.
Slide 2: Jim Snee
Jim Snee Chairman, President, and CEO 2
Slide 3: Legal Disclosure
Legal Disclosure This presentation contains forward-looking information based on management’s current views and assumptions. Actual events may differ materially. Please refer to the cautionary statement regarding Forward- Looking Statements and Risk Factors on pages 31-35 in the Company’s 2017 annua
Slide 4: Includes 2018 declared increase
* *Includes 2018 declared increase 4
Slide 5: Refrigerated Foods, Grocery Products, Jennie-O, International
Refrigerated Grocery Jennie-O International Foods Products Turkey Store & Other 5
Slide 6: Strong, Branded Presence Across the Food Space
Strong, Branded Presence Across the Food Space Other 2% International 6% Retail 63% Foodservice 27% 29% Net Sales BRAND Fiscal 2017 Data 6
Slide 7: Hormel Foods Our Path Forward
Hormel Foods FIRST QUARTER 2018 UPDATE Our Path Forward % Priorities from Investor Day - June 2017 EVOLVING to a broader food company 5 TOP LINE GROWTH % EXPANDING and accelerating foodservice BECOMING a more global food company 10 BOTTOM LINE GROWTH % REDUCING volatility and increasing balance 15 I
Slide 8: Key Messages for Today
Key Messages for Today Record Q1 earnings & 1 FY18 guidance increased Tax reform provides additional 2 funds to invest into our business Our new deli group will be the 3 company’s next growth engine 8
Slide 9: 2018 First Quarter Results
2018 First Quarter Results FIRST QUARTER 2018 UPDATE Organic Volume* Organic Revenue* Earnings Per Share Lbs., In billions In billions Q1 2017 1.16 Q1 2017 $2.18 Q1 2017 $0.44 Q1 2018 1.15 Q1 2018 $2.20 Q1 2018 $0.56 - 2% + 1% + 27% • Strong earnings growth in Grocery Products segment • Positive imp
Slide 10: Grocery Products
Grocery Products FIRST QUARTER 2018 UPDATE • Merger with Specialty Foods segment • Strong, branded sales growth BRAND • Higher earnings from MegaMex joint venture and lower SG&A expenses Volume Sales Operating Profit -1% +1% +8% 10
Slide 11: Tightly Integrating Specialty Foods into Grocery Products
Tightly Integrating FIRST QUARTER 2018 UPDATE Specialty Foods into Grocery Products Grocery Products SIMPLE MEXICAN NUT FUNCTIONAL MEALS FOODS BUTTERS NUTRITION BRAND BRAND 11
Slide 12: Refrigerated Foods
Refrigerated Foods FIRST QUARTER 2018 UPDATE • Branded sales growth across retail and foodservice BRAND • Profits impacted by acquisitions, divestitures and freight • Continued input cost volatility Volume Sales -8% +5% Organic Volume* Organic Sales* Operating Profit -1% +4% -18% *Excludes certain a
Slide 13: Jennie-O Turkey Store
Jennie-O Turkey Store FIRST QUARTER 2018 UPDATE • Sales growth of Jennie-O® lean ground turkey and Jennie-O® Oven Ready® products offset by lower whole bird sales • Profits impacted by reduced harvest volumes, lower commodity prices, and higher freight costs • Continued investments to support brand
Slide 14: International & Other
International & Other FIRST QUARTER 2018 UPDATE • Sales growth led by Ceratti® brand, exports, and strong results in China • Now producing SPAM® products in China • Softer export margins due to higher input costs Volume Sales +14% +19% Organic Volume* Organic Sales* Operating Profit -3% +2% -3% *Exc
Slide 15: Modernizing Our Supply Chain
FIRST QUARTER 2018 UPDATE Modernizing Our Supply Chain SIMPLIFY MORE THAN MORE THAN MORE THAN MODERNIZE 30 PRODUCTION BROAD CO-PACKER 10,000 10,000 OPTIMIZE FACILITIES NETWORK SUPPLY ITEMS SKUs RATIONALIZE Internal data 15
Slide 16: Supply Chain Integration on Track
Supply Chain Integration on Track FIRST QUARTER 2018 UPDATE 16
Slide 17: Fiscal 2018 Invest & Grow
Fiscal 2018 FIRST QUARTER 2018 UPDATE Invest & Grow EPS + 15% to 24% • Grocery Products, Refrigerated Foods and International are on track $1.80 $1.81 to • Slower-than-expected to $1.96 recovery at Jennie-O $1.57 $1.95 Turkey Store • Guidance increased due to tax reform Fiscal 2017 2018 Guidance 17
Slide 18: Jim Sheehan
Jim Sheehan Senior Vice President and Chief Financial Officer 18
Slide 19: Key Drivers in Fiscal 2018
Key Drivers in Fiscal 2018 • A slower recovery in the turkey market • New processing capacity in the hog industry • Input cost volatility • Rising transportation costs • Tax reform 19
Slide 20: Industry Oversupply Leads to Continued Low Turkey Prices
FIRST QUARTER 2018 UPDATE Industry Oversupply Leads to Continued Low Turkey Prices Turkey Poult Placement – YoY % Change Turkey in Cold Storage - YoY % Change 13% 22% 18% 17% 17% 6% 16% 4% 4% 15% 3% 3% 2% 2% 2% 13% 12% 12% 12% 0% 11% 11% -2% -2% -2% -3% -4% -10% 2016 2017 2017 Source: USDA 20
Slide 21: Hog Industry Supply and Demand in Balance
Hog Industry Supply FIRST QUARTER 2018 UPDATE and Demand in Balance • Watching three factors Pork in Cold Storage - YoY % Change 3% – Export demand – Domestic demand 0% – Overall supply & demand balance -3% • Strong hog supply growth -4% -4% -4% -5% -7% -7% – 2017: +3% -9% -10% – 2018: +3 to 4% • Fl
Slide 22: Key Input Costs In-Line with Expectations
Key Input Costs FIRST QUARTER 2018 UPDATE In-Line with Expectations Pork Belly Market Q1 vs LY Input (% Change) 280 Hogs 17 260 USDA Market Price Per CWT 240 Pork Bellies 13 Fiscal 2017 220 Pork Trim 18 200 180 Beef Trim 43 160 Turkey Breast (13) 140 Fiscal 2018 YTD 120 Corn Flat 100 Q1 Q2 Q3 Q4 Soy
Slide 23: Rising Transportation Costs
Rising FIRST QUARTER 2018 UPDATE Transportation Costs • Freight costs higher than planned • Will not fully recover increased freight costs during 2018 • Developing mutually agreeable and sustainable solutions with customers 23
Slide 24: Positive Impact from Tax Reform
Positive Impact FIRST QUARTER 2018 UPDATE from Tax Reform Q1 2018 Fiscal 2018 Previous Effective Tax Rate 33.7% 32.3 – 33.3% Revalued Deferred Tax Liabilities (19.2) (5.3) Drop in Statutory Tax Rate (11.6) (11.6) Stock-Based Compensation (3.3) (0.2) – (0.1) Mandatory Repatriation Tax 1.5 0.3 – 0.6 A
Slide 25: Tax Reform Will Provide a Significant Benefit to Cash Flows
FIRST QUARTER 2018 UPDATE Tax Reform Will Provide a Significant Benefit to Cash Flows ~$110M ANNUAL BENEFIT INVESTING INVESTING RETURNING FOR GROWTH IN OUR PEOPLE CASH TO SHAREHOLDERS 25
Slide 26: Investing for Growth
Investing FIRST QUARTER 2018 UPDATE for Growth • Advertising • Promotional activity • Automation • Technology • Value-added capacity 26
Slide 27: Investing in Our People and Our Communities
Investing in Our People FIRST QUARTER 2018 UPDATE and Our Communities • Starting wage increases • $13/hr by end of CY18 • $14/hr by end of CY20 • Stock option grants to 21,000 employees • Increasing community donations by $25M over the next 5 years 27
Slide 28: Commitment to Returning Cash to Shareholders
Commitment to Returning FIRST QUARTER 2018 UPDATE Cash to Shareholders Dividends Internal Data 28
Slide 29: Optimizing the Balance Sheet for Growth
FIRST QUARTER 2018 UPDATE Optimizing the Balance Sheet for Growth MAINTAIN $880M INVESTMENT IN DEBT GRADE RATING $1.4B in Acquisitions* Less than 1x EBITDA CURRENT RATINGS MOODY’S: A1 $425M in Capex** S&P: A Internal data as of fiscal Q1 2018; * FY17 and FY18 acquisitions of Ceratti, Fontanini & Col
Slide 30: On Track to Hit Key Milestones
On Track to Hit FIRST QUARTER 2018 UPDATE Key Milestones • Fontanini integration IDENTIFY • Columbus integration • Grocery Products + Specialty Foods CAPTURE • Supply chain group • New deli structure RETAIN • Zero basing expenses 30
Slide 31: Jim Snee
Jim Snee Chairman, President, and CEO 31
Slide 32: Hormel Foods: Poised for the Deli of the Future
Hormel Foods: Poised for the Deli of the Future The Deli Is a High-Growth, On-Trend 1 Area of the Retail Grocery Store With Columbus, Hormel Foods Is 2 Well Positioned to Win in the Deli of the Future Hormel Foods Deli: The Next 3 Growth Engine 32
Slide 33: Deli Has Been Growing At Over 4x Total Food
Deli Has Been Growing At Over 4x Total Food Retail Deli Growth The Deli Footprint is Growing 3-Year CAGR 4.4% 3.3% GRAB BEHIND AND GO IN-STORE 2.7% RESTAURANTS THE GLASS 1.7% 1.2% 0.9% 0.2% PREPARED FOODS Deli Produce Seafood Bakery Meat Total Total Perimeter Food Source: IRI Market Advantage, Total
Slide 34: $35B Category
BEHIND GRAB AND PREPARED IN-STORE THE GLASS GO FOODS RESTAURANTS $35B Category $8.4B $4.2B $12.2B $10.2B +2.7% +6.5% +4.9% +31% *Category size and number of visits – The NPD Group/CREST®, *Category size and 3-YR CAGR - IRI Market Advantage, Total US MULO, 52 weeks ending 12/3/17. 10-year CAGR ending
Slide 35: While the Deli is Growing, Opportunities Abound
While the Deli is Growing, Opportunities Abound CHANGING LABOR SHRINK CONSUMER PREFERENCE 35
Slide 36: Retailers have a Point of Difference
Retailers have a Point of Difference AUTHENTIC FRESH DISCOVERY INSPIRATION 36
Slide 37: It is Clear – The Deli of the Past…
It is Clear – The Deli of the Past… 37
Slide 38: …Is Not the Deli of the Future.
…Is Not the Deli of the Future. 38
Slide 39: Hormel Foods: Poised for the Deli of the Future
Hormel Foods: Poised for the Deli of the Future The Deli Is a High-Growth, On-Trend 1 Area of the Retail Grocery Store With Columbus, Hormel Foods Is 2 Well Positioned to Win in the Deli of the Future 3 Hormel Foods Deli: The Next Growth Engine 39
Slide 40: Columbus Craft Meats
OLUMBUS CRAFT MEATS 40
Slide 41: Basis for Competition in the Deli
Basis for Competition in the Deli BREADTH OF OFFERINGS EXPERTISE SCALE 41
Slide 42: An Unmatched Array of Deli Solutions
An Unmatched Array BREADTH OF OFFERINGS of Deli Solutions Competitor A Competitor B Competitor C Competitor D 42
Slide 43: Strong Behind the Glass Expertise
Strong Behind BREADTH OF OFFERINGS the Glass Expertise 43
Slide 44: Delivering Innovation in Grab & Go
Delivering Innovation BREADTH BREADTHOF OFOFFERINGS OFFERINGS in Grab & Go 44
Slide 45: Foodservice Solutions for Prepared Foods
Foodservice Solutions BREADTH OF OFFERINGS for Prepared Foods BRAND BRAND BRAND 45
Slide 46: Bringing Knowledge, Expertise and Powerful Brands to the Deli
Bringing Knowledge, Expertise EXPERTISE and Powerful Brands to the Deli NATURAL INNOVATIVE TURKEY VALUE-ADDED & ORGANIC CRAFT SOLUTIONS EXPERTS INNOVATOR LEADER MEATS 46
Slide 47: Leveraging Our Proven Foodservice Go-To-Market Strategy
Leveraging Our Proven EXPERTISE Foodservice Go-To-Market Strategy DIRECT SALES SOLUTION-BASED FORCE SELLING THOUGHT INDUSTRY CHANGING LEADERSHIP INNOVATIONS JEFF BAKER GROUP VICE PRESIDENT - DELI 47
Slide 48: Columbus Expands our Nationwide Presence
Columbus Expands SCALE our Nationwide Presence Total Points of Distribution Combined Total Points of Distribution +41% 2,277 3,175 2,417 2,779 + Source: IRI Market Advantage, Total US MULO, 52 weeks ending 12/3/17, Behind the Glass and Grab & Go Categories 48
Slide 49: Hormel Foods now has Meaningful Scale in the Deli
Hormel Foods now has SCALE Meaningful Scale in the Deli DIRECT SALES FORCE ACROSS ALL APPLEGATE® BRAND DAN’S PRIZE RETAIL SALES CHANNELS JENNIE-O® DELI HORMEL® BRAND ~$1B in Sales CLUB MASS TRADITIONAL SPECIALTY & NATURAL COLUMBUS® BRAND Internal data as of fiscal Q1 2018 49
Slide 50: Hormel Foods: Poised for the Deli of the Future
Hormel Foods: Poised for the Deli of the Future The Deli Is a High-Growth, On-Trend 1 Area of the Retail Grocery Store With Columbus, Hormel Foods Is 2 Well Positioned to Win in the Deli of the Future 3 Hormel Foods Deli: The Next Growth Engine 50
Slide 51: A Profile of the New Leader in Deli
A Profile of the New Leader in Deli NET ~$1B SALES TOP-LINE > 5% GROWTH GOAL GROWTH GOAL BOTTOM-LINE > 10% Internal data as of fiscal Q1 2018 51
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Slide 53: Key Messages for Today
Key Messages for Today Record Q1 earnings & 1 FY18 guidance increased Tax reform provides additional 2 funds to invest into our business Our new deli group will be the 3 company’s next growth engine 53
Slide 54: Q1 2018 Earnings Update
be a ee ired People. ran Food: CAGNY Q1 2018 Earnings Update 54