Hormel Foods Our Path Forward
Jim Snee President and CEO
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 32-38 in the Company ’ s Form 10-Q for the fiscal quarter ended April 30, 2017 for more details.
THIRD QUARTER UPDATE 2017 Third Quarter Segment Results Earnings Per Share Adjusted Revenue* Adjusted Volume* Lbs, In billions In billions 2016 Q3 1.12 2016 Q3 $2.17 2016 Q3 $0.34 2017 Q3 1.11 2017 Q3 $2.20 2017 Q3 $0.36 - 1% + 1% - 6% Record Pre-Tax Earnings *Excluding Justin’s acquisition, Farmer John divestiture, and Diamond Crystal Brands divestiture. See GAAP reconciliation ta bles.
THIRD QUARTER UPDATE Margin Compression Due to Record Commodity Price Volatility 50% Beef Trim Price/CWT Pork Belly Prices/CWT $250 $300 $250 $200 $200 $150 $150 $100 $100 $50 $50 $0 $0 NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEPT OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEPT OCT Fiscal Fiscal Month Month 2016 2017 5 Yr. Range (CY 12-16) Source: USDA
THIRD QUARTER UPDATE Record Turkey Production Leads to Continued Low Turkey Prices Turkey Poult Placement – YOY % Change Turkey Breast Cold Storage 120 Million Pounds 13% 100 80 9% 7% 7% 7% 60 6% 6% 4% 4% 40 3% 3% 2% 2% 2% 20 -1% 0 -2% -2% JAN FEB MAR APR MAY JUN JUL AUG SEPT OCT NOV DEC -3% -5% 2016 2017 5 Yr. Range (CY 12-16) 2016 2017 Source: USDA
THIRD QUARTER UPDATE Brand Strength Despite Commodity Price Volatility Low Single-Digit High Single-Digit Double-Digit Innovation Growth* Growth* Growth* Peanut Butter Fresh Tray Pack Ribs Lunchmeat and Bacon *Source: Volume Growth, IRI MULO 13 weeks ended 7/30/2017
THIRD QUARTER UPDATE 2017 Third Quarter Segment Results ADJUSTED SEGMENT PROFIT • NET SALES High input cost environment CHANGE CHANGE* • Strong Refrigerated Foods and Refrigerated Foods + 15% + 5% Grocery Products segment Grocery Products + 10% + 3% performance Jennie-O Turkey Store (20%) (9%) • Continued pressures for Specialty Foods (14%) (1%) Jennie-O Turkey Store (16%) International & Other + 1% • Aggressive competitive activity for CytoSport products + 2% Total + 1% *Excluding Justin’s acquisition, Farmer John divestiture, and Diamond Crystal Brands divestiture. See GAAP reconciliation tab les.
Consistent THIRD QUARTER UPDATE Earnings Growth $1.80 $1.54 - $1.58 $1.60 $1.40 $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 Internal data
POSITIONED TO COMPETE Strong, Branded Presence Across the Food Space Other 3% International 5% Retail 65% Net Foodservice 27% Sales Fiscal 2016 Data
Strong, Branded Presence POSITIONED TO COMPETE Across the Grocery Store *IRI Total U.S. MULO 52 weeks ended 4/9/2017
Exceeding Industry Growth POSITIONED TO COMPETE In the Foodservice Channel Segments Products Convenience Restaurants Hotels College & University K-12 Schools Healthcare * Technomic Inc. and Internal Data
Three Go-To-Market Strategies POSITIONED TO COMPETE For International Growth
Industry-Leading POSITIONED TO COMPETE Expertise Iconic Value-Added Shelf Stable Direct Brands Protein Products Sales Force
Financially Disciplined POSITIONED TO COMPETE Acquisitions Acquisition purchase price in millions
A Great Complement to POSITIONED TO COMPETE Hormel Foodservice • Branded, value-added Italian meats & sausage company • $240 million in sales • $90 million tax cash flow benefit • Available production capacity • 3-4 cents EPS accretion in FY18
Expanding Our POSITIONED TO COMPETE Global presence • First entry into South America • Premium, authentic brand in Brazil • Experienced professional management team • $100 million in sales • 1 cent EPS accretion in FY18
Our Formula A STRATEGY FOR LONG-TERM GROWTH For Success Building Balanced Acquisitions Innovation Brands Portfolio + + +
Hormel Foods A STRATEGY FOR LONG-TERM GROWTH Our Path Forward 1. Evolving to a broader food company 2. Expanding and accelerating foodservice 3. Becoming a more global food company 4. Reducing volatility and increasing balance 5. Divesting non-strategic assets 6. Modernizing our supply chain
Evolving to a Broader A STRATEGY FOR LONG-TERM GROWTH Food Company Meat Protein Company Broader Food Company Non-Meat Protein + Flavor Enhancers
Expanding and A STRATEGY FOR LONG-TERM GROWTH Accelerating Foodservice
Becoming a More A STRATEGY FOR LONG-TERM GROWTH Global Food Company China Capacity Geographic Recreating the U.S. Model Globally Lbs Expansion 1. # 1 or # 2 brands 2. Product mix – shelf stable & perishable 3. Channel mix – foodservice & retail 4. No vertical integration
Reducing Volatility and A STRATEGY FOR LONG-TERM GROWTH Increasing Balance Reducing Volatility By: Packaged Foods Protein 1. Continuing to shift our mix Foodservice Retail to value-added products 2. Fewer commodity sales International Domestic 3. Expanding our portfolio of Beef, Nuts, Tomatoes Pork and Turkey raw materials and Avocados
Portfolio Management A STRATEGY FOR LONG-TERM GROWTH Divesting Non-Strategic Assets Internal data
Modernizing Our A STRATEGY FOR LONG-TERM GROWTH Supply Chain SIMPLIFY MODERNIZE OPTIMIZE RATIONALIZE Internal data
Strategic Actions Since A STRATEGY FOR LONG-TERM GROWTH 2017 Investor Day Evolving to a broader food company Expanding and accelerating foodservice Becoming a more global food company Reducing volatility & increasing balance Divesting non-strategic assets Modernizing our supply chain
Jim Sheehan Senior Vice President, Chief Financial Officer
FINANCIAL STRATEGY Our Financial Strategy • Strategic cost management • Improving our cash cycle • Optimizing our capital structure
Consistent FINANCIAL STRATEGY Earnings Growth $1.80 $1.54 - $1.58 $1.60 $1.40 $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 Internal data
Delivering Long-Term FINANCIAL STRATEGY Shareholders Returns $600 Hormel Foods $500 $417 $400 S&P 500 Pkg $300 Food & Meats $273 $200 S&P 500 $100 $207 $0 $100 invested on 8/29/07 in stock or index – including reinvestment of dividends
FINANCIAL STRATEGY Strategic Cost Management General & Administrative Budget 0% CAGR Digital & E-commerce Strategic Strategic Less Less Mission Mission Critical Critical 2018 2017
Improving FINANCIAL STRATEGY Our Cash Cycle Cash Conversion Cycle • Obtain industry-leading accounts payable terms 50 Days Aggressive 48 • Improvement Aggressively enforce agreed upon selling terms • Optimize inventory levels 2013 2016 2018 Internal Data
FINANCIAL STRATEGY Optimizing the Balance Sheet For Growth Internal data as of fiscal Q3 2017
Resulting in Consistently FINANCIAL STRATEGY High ROIC 40% Investment Principles 35% • Rigorous valuation process 30% • Long-term weighted average 25% cost of capital 20% • Post investment analysis 15% 10% 5% 0% 1 2 3 4 5 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 -5% Factset data based on fiscal 2012-2016 data for Hormel Foods and time-relative data for peers listed in Company 2016 proxy statement.
Commitment to Returning FINANCIAL STRATEGY Cash to Shareholders Dividends $0.80 $0.70 $0.60 $0.50 $0.40 $0.30 $0.20 $0.10 $0.00 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Internal Data
Hormel Foods FINANCIAL STRATEGY Our Path Forward • Strategic cost management • Improving our cash cycle • Optimizing our capital structure • Maintain dividend growth • Invest to support high ROIC • Continue share repurchases
Hormel Foods Our Path Forward
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