Hormel Foods Corporation (NYSE:HRL) Q3 2020 Earnings Conference Call - Final Transcript
Aug 25, 2020 • 10:00 am ET
due to improved return on investments. Operating margins were 10.5% compared to 11.2% last year. Margins were impacted by additional investments into the safety of our plant professionals, employee bonuses, higher operating costs and the impact of operating pauses at Jennie-O Turkey Store. The effective tax rate was 21.6% compared to 23.6% last year.
Even in these uncertain times, the Company continued to generate strong and stable cash flows. Cash flow from operations and free cash flow for the quarter increased 59% and 72% respectively. Cash flow benefited from lower levels of inventory. The third quarter is usually spent building inventory in anticipation of higher seasonal demand in the fourth quarter. As Jim mentioned, due to the significant demand for our products in the third quarter and limiting factors on production of key brands, inventory levels were unseasonably low as we began the fourth quarter.
To provide context, the current finished good inventory level is 24% lower than last year. The segments most impacted by lower levels of inventory are Grocery Products and Refrigerated Foods. In June, we issued $1 billion of 10-year bonds at the favorable interest rate of 1.8%. This cash will provide ample liquidity and allow the business to take advantage of strategic opportunities such as M&A. We have $250 million of bonds maturing in April 2021. Our solid cash flow, liquidity position and strong balance sheet gives us the flexibility to fund our capital needs, while continuing to invest in long-term growth opportunities.
We paid our 368th consecutive quarterly dividend effective August 17th at an annual rate of $0.93 per share, an 11% increase over 2019. This completes our 92nd consecutive year of dividends. The Company did not repurchased shares during the quarter. Capital expenditures in the quarter were $88 million compared to $67 million last year. Large projects for the remainder of the year include the Burke pizza topping plant expansion, a new dry sausage facility in Project Orion. The Company's target for capital expenditures in 2020 is $350 million.
The hog market was at 20-year lows during the quarter. This benefit was reduced by our mix of hog procurement contracts and losses on strategic hog hedges. These hedges are put in over a year ago to proactively manage the risk of higher prices due to African swine fever. Currently pork industry production is operating at near capacity levels. According to the USDA, pork production is expected to be 3% higher for the year. We expect continued lower hog prices in the near term. This environment supports plentiful supplies of pork, though plant disruptions would pose a risk to production volume and commodity prices. The volatility in commodity values at the beginning of the third quarter, negatively impacted margins. The USDA composite cut out peaked in early May at levels not seen since the PED virus outbreak in 2014. The cutout fell nearly 50% by early July.
Pork trim, beef trim and bellies exhibited similar volatility. Overall pork trim was higher by 21% and beef