990256 Hormel Foods Reports 31% Increase in Operating Earnings

Austin, MN - Hormel Foods Corporation announced operating earnings of $38,572,000, or $.52 per diluted share, for the first quarter ended January 30. This is an improvement of $9,125,000, or 31.0%, over first quarter operating earnings one year ago of $29,447,000, or $.39 per diluted share.

Total reported earnings for the first quarter of fiscal 1999 of $42,380,000, or $.57 a diluted share, are slightly higher than announced operating earnings. This increase reflects a one-time gain of $3,808,000, or $.05 a diluted share, for the sale of land by Campofrio Alimentacion, S.A., Madrid, Spain, a leading global foods company in which Hormel Foods has a 21.4% ownership interest. Fiscal 1998's total first quarter earnings were $46,849,000, or $.61 a diluted share, and included a one-time gain of $17,402,000, or $.23 a diluted share, for the sale of the company's Davenport (Iowa) gelatin/specialized proteins plant.

The Austin, Minn.-based multinational meat and food processing firm announced strong increases in tonnage volume, totaling 8.7%, which supported growing category share for many of the company's well-established as well as newly introduced consumer-branded, value-added meat and food products. Dollar sales of $799,005,000, a decrease of 2.0% from the $814,914,000 reported in the first quarter of fiscal 1998, were lower due to reduced pork pricing levels in the marketplace.

Joel W. Johnson, chairman of the board, president and chief executive officer, explained that a combination of factors contributed to the company's overall financial performance. "Consumer demand for Hormel Foods products is very high. Across our major domestic operating units and internationally, our tonnage gains reflect strong consumer response to our product lines and marketing initiatives. We also benefited from pork producers bringing to market the largest supply of live hogs in history. This allowed company facilities to be operated at optimum capacity, resulting in lowering costs and increased efficiencies. The abundant supplies also supported tonnage growth and led to expanded pork processing margins."

Johnson added that while Hormel Foods benefited from lower prices for hogs in the spot cash market, the company continued to sustain losses from floor price hog procurement contracts that paid substantially more than quoted market prices. "We paid considerably more in procurement costs during the first quarter than if all our hogs had been purchased on a historical cash basis," explained Johnson, "but these contract arrangements enable us to protect the quality and availability of our raw material needs. We expect to recover losses from the procurement contracts when pork prices rise above the cost of production."

Marketing successes among core business groups helped drive the first quarter growth. Tonnage volume of the Grocery Products Division rose significantly with both dollar sales and profits setting new records. Hormel bacon bits became the number one product in unit sales in its category with a 31% share. Herb-Ox bouillon, benefiting from a new quick-dissolving cube, achieved a 40% volume increase and greatly improved distribution. A new Mary Kitchen corned beef hash with 50% reduced fat is meeting good retail acceptance as are three recently introduced Kid's Kitchen Pizza Wedges microwave meals in pepperoni, three cheese and cheeseburger varieties.

For the Meat Products Group, increased sales tonnage was aided by double- digit growth in the premium ham, bacon, presliced meats, boneless and canned ham and deli dry sausage categories. The Always Tender flavored pork, Always Tender fresh pork and Always Tender Consumer Ready fresh pork outpaced all product categories and were a major factor in the Meat Products Group's improved tonnage, dollar sales and profit performance.

The Foodservice Group continued its strong growth record with double-digit increases in branded tonnage, total tonnage and profits. Fresh pork, led by pork ribs and portion-cut and boneless pork, ended the quarter with excellent gains as did the presliced meats, pizza toppings, turkey, cooked beef and vending categories.

Jennie-O Foods, now recognized as the world's largest turkey processor, recorded value-added, branded tonnage equivalent to last year's first quarter and continued to develop improved margins despite excessive industry capacity and resulting low prices. Recently introduced were a line of three-pound boneless thigh steaks and two flavors of marinated turkey tenderloins.

For Hormel Foods International (HFI), export volume to Asia-Pacific, Europe and Latin America increased dramatically across most major consumer brands. SPAM luncheon meat, Stagg chili, Hormel chili, Mary Kitchen hash, fresh and frozen pork and branded dry sausage items enjoyed growth in virtually every region in which HFI competes. Key foreign affiliates, KR Hormel Foods in Australia, Tulip International A/S in the United Kingdom, Hormel Cinta Azul Foods in Central America and Hormel Alimentos S.A. de C.V. in Mexico also reported good volume and distribution growth. In the first quarter, HFI formed a joint venture with Pure Foods Corporation, a major consumer foods company based in Manila, Philippines. The new joint venture, known as The Purefoods-Hormel Company, will produce and market a variety of canned foods and refrigerated meats under both the Purefoods and Hormel brands with distribution to be expanded to other Asian countries having large Filipino populations.

Effective February 15, the company paid its 282nd consecutive quarterly dividend which also represented the 33rd consecutive annual increase in the dividend rate. The newly established rate of $.66 per share amounted to a 3.1% increase from the former dividend rate of $.64 per share.

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