What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-08-31 compared with 2023-06-01 · 181 added, 107 removed, 146 unchanged (66% of the section changed)

2 unchanged sentences

The Company is a global manufacturer and marketer of branded food products.

The Company's three reportable segments are described in Note L - Segment Reporting in the Notes to Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

The Company reported net earnings per diluted share of $0.40 for the second quarter of fiscal 2023, down 17 percent compared to last year.

The Company’s three reportable segments are described in Note M - Segment Reporting in the Notes to Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

The Company reported diluted net earnings per share of $0.30 for the third quarter of fiscal 2023, down 25 percent compared to last year.

Adjusted diluted net earnings per share (1) of $0.40 was in line with last year.

Significant factors impacting the quarter were:

• Net sales for the second quarter decreased, as the benefit from pricing actions to mitigate inflationary pressures was more than offset by the impact of lower volumes in each business segment and lower net pricing in certain categories, such as bacon, reflecting raw material commodity deflation.

Volume and net sales declines for each segment were partially due to lower turkey availability as a result of the ongoing impacts of highly pathogenic avian influenza (HPAI) in the Company's vertically integrated turkey supply chain.

• Segment profit for the second quarter decreased 12 percent, as improved results in the Foodservice segment were more than offset by declines in the Retail and International segments.

• Earnings before income taxes for the second quarter decreased 13 percent compared to the prior year.

Lower selling, general, and administrative expenses and higher equity in earnings were unable to overcome the impact of lower sales, unfavorable mix, and higher operating costs.

• Foodservice segment profit increased primarily due to improved mix across the portfolio.

• International segment profit declined significantly due to lower sales in China and significantly lower turkey export sales.

• Retail segment profit declined due to the impact of lower net sales, unfavorable mix and higher operating costs, partially offset by the benefit from pricing actions across the portfolio, higher equity in earnings from MegaMex Foods, LLC (MegaMex Foods) and improved results for the bacon business.

• Net sales for the third quarter decreased 2 percent.

The benefit from higher volumes in each segment and pricing actions to mitigate inflationary pressures was more than offset by lower net pricing in certain categories, such as bacon, reflecting raw material commodity deflation and the difficult comparison from high levels of demand for Skippy ® spreads last year.

• Segment profit for the third quarter decreased 2 percent.

Improved results in the Foodservice segment were more than offset by declines in the Retail and International segments.

• Net sales and segment profit for the Retail and Foodservice segments were negatively impacted to a lesser degree from supply chain disruption caused by a third-party logistics provider shutdown.

• Earnings before income taxes for the third quarter decreased 28 percent compared to the prior year, primarily due to the impact of an adverse arbitration ruling totaling approximately $70 million.

Adjusted earnings before income taxes (1) , excluding the impact of an adverse arbitration ruling, decreased 4 percent.

• Foodservice segment profit increased due to the contribution from higher volumes and improved mix.

• Retail segment profit declined due to unfavorable mix and increased brand investments, partially offset by the benefit from pricing actions across the portfolio, improved bacon volumes, and higher equity in earnings from MegaMex Foods, LLC (MegaMex Foods).

• International segment profit declined significantly due to unfavorable pork and turkey commodity markets, continued softness in China, and lower branded export demand.

• Year-to-date cash flow from operations was $729 million, down 5 percent compared to the prior year.

• During the second quarter, the Company increased its common stock interest in PT Garudafood Putra Putri Jaya Tbk (Garudafood) to approximately 30%.

• As disclosed in a Form 8-K filed with the U.S.

Securities and Exchange Commission on August 22, 2023, the Company received an unexpected, unfavorable arbitration ruling involving an isolated commercial dispute with a third party.

The estimated pre-tax impact of $70.0 million is reflected in operating expense and accrued liabilities.

The associated one-time payment is expected to be made in the fourth quarter of fiscal 2023.

Consolidated Results

Volume, Net Sales, Earnings, and Diluted Earnings Per Share

Quarter Ended Six Months Ended

in thousands, except per share amounts April 30,

Quarter Ended Nine Months Ended

in thousands, except per share amounts July 30,

2023 July 31, 2022 %

Change July 30,

2023 July 31, 2022 %

Volume (lbs.) 1,094,518 1,074,609 1.9 3,256,292 3,443,679 (5.4)

3 unchanged sentences

Diluted Earnings Per Share 0.30 0.40 (25.0) 1.09 1.31 (16.8)

Net sales for the second quarter decreased, as the benefit from pricing actions to mitigate inflationary pressures was more than offset by the impact of lower volumes in each business segment and lower net pricing in certain categories, such as bacon, reflecting raw material commodity deflation.

In the second quarter, retail brands and products such as Hormel ® chili, SKIPPY ® , Hormel ® pepperoni, WHOLLY ® , Applegate ® frozen items, Hormel ® Square Table TM , Hormel ® Gatherings ® , La Victoria ® , Herdez ® , Dinty Moore ® and Mary Kitchen ® delivered net sales growth compared to the prior year.

In the Foodservice segment, the sliced meats, pizza toppings, and premium breakfast sausage categories grew volume and net sales during the quarter compared to last year.

In the International segment, overall net sales declines for the quarter were partially offset by net sales growth from the SKIPPY ® and Planters ® brands, in addition to strong growth in Brazil.

For the first six months of the year, the benefit from pricing actions to mitigate inflationary pressures was more than offset by the impact of lower volumes in each segment.

The primary drivers of lower volume were declines in commodity pork availability as a result of the Company's new pork supply agreement and lower turkey supply from the ongoing impacts of HPAI.

Adjusted Diluted Earnings Per Share (1)

0.40 0.40 — 1.19 1.31 (9.2)

(1) See the “Non-GAAP Financial Measures” section below for a description of the Company's use of measures not defined by United States Generally Accepted Accounting Principles (GAAP).

Net sales for the third quarter decreased.

For the first nine months of fiscal 2023, the benefit from pricing actions to mitigate inflationary pressures was more than offset by the impact of lower volumes in each segment and lower net pricing in certain categories, such as bacon, reflecting raw material commodity deflation.

The primary drivers of lower volume were declines in commodity pork availability as a result of the Company's new pork supply agreement and lower turkey supply from the impacts of highly pathogenic avian influenza (HPAI).

Cost of Products Sold

Quarter Ended Six Months Ended

in thousands April 30, 2023 May 1, 2022 %

April 30, 2023 May 1, 2022 %

Quarter Ended Nine Months Ended

in thousands July 30, 2023 July 31, 2022 %

July 30, 2023 July 31, 2022 %

Cost of Products Sold $ 2,465,251 $ 2,528,364 (2.5) $ 7,426,514 $ 7,577,062 (2.0)

Cost of products sold for the second quarter and first six months of fiscal 2023 decreased due to lower sales.

On a volume basis, cost of products sold increased 8 percent for the first six months of the year driven primarily by continued inflationary pressures stemming from, among other inputs, packaging, logistics, and labor.

Costs are expected to remain elevated due to the continued impacts of broad-based inflation and higher warehousing costs.

In general, raw material input costs for protein are expected to be lower for the balance of the year compared to fiscal 2022 but to remain above historical levels.

Feed costs are anticipated to remain above historical levels.

Quarter Ended Six Months Ended

in thousands April 30, 2023 May 1, 2022 %

April 30, 2023 May 1, 2022 %

Cost of products sold for the third quarter and first nine months of fiscal 2023 decreased due to lower sales.

On a volume basis, cost of products sold increased 4 percent for the first nine months of the year driven primarily by inflationary pressures stemming from, among other inputs, packaging, logistics, and labor.

Costs are expected to remain elevated due to inflation and higher warehousing costs.

In general, raw material input costs for protein are expected to be lower for the balance of the year compared to fiscal 2022.

Feed costs are anticipated to remain above historical levels through the end of the fiscal year.

Quarter Ended Nine Months Ended

in thousands July 30, 2023 July 31, 2022 %

July 30, 2023 July 31, 2022 %

Gross Profit $ 498,048 $ 506,049 (1.6) $ 1,485,417 $ 1,598,269 (7.1)

Percentage of Net Sales 16.5 % 17.9 % 16.6 % 17.8 %

Gross profit as a percentage of net sales for the second quarter and first six months of fiscal 2023 declined, driven primarily by unfavorable mix and the persistent impact of inflationary pressures.

Percent of Net Sales 16.8 % 16.7 % 16.7 % 17.4 %

Gross profit as a percentage of net sales for the third quarter increased marginally due to improvement in the Foodservice segment.

For the first nine months of fiscal 2023, gross profit as a percentage of net sales declined, driven primarily by unfavorable mix and the persistent impact of inflationary pressures.

Pricing actions helped mitigate some of the impact from inflationary pressures.

Gross profit as a percentage of net sales increased for the Foodservice segment but declined for the Retail and International segments during the second quarter and first six months of the year.

Looking ahead to the third quarter of fiscal 2023, the Company expects gross profit as a percentage of net sales to decline compared to last year.

Gross profit as a percentage of net sales increased for the Foodservice segment but declined for the Retail and International segments during the first nine months of the year.

Looking ahead to the fourth quarter of fiscal 2023, the Company expects gross profit as a percentage of net sales to be comparable to last year.

The Company expects gross profit as a percentage of net sales to increase for the Foodservice segment but decline for the Retail and International segments.

Selling, General, and Administrative (SG&A)

Quarter Ended Six Months Ended

in thousands April 30, 2023 May 1, 2022 %

April 30, 2023 May 1, 2022 %

Quarter Ended Nine Months Ended

in thousands July 30, 2023 July 31, 2022 %

July 30, 2023 July 31, 2022 %

SG&A $ 291,073 $ 222,147 31.0 $ 725,621 $ 672,777 7.9

Percentage of Net Sales 7.1 % 7.3 % 7.3 % 7.3 %

For the second quarter, SG&A expenses decreased due to lower employee-related expenses and advertising investments.

For the first six months of fiscal 2023, SG&A expenses as a percent of net sales were comparable to the prior year.

Advertising investments in the second quarter were $35 million, down 11 percent compared to last year.

Percent of Net Sales 9.8 % 7.3 % 8.1 % 7.3 %

Adjusted SG&A (1)

$ 221,073 $ 222,147 (0.5) $ 655,621 $ 672,777 (2.6)

Adjusted Percent of Net Sales (1)

7.5 % 7.3 % 7.4 % 7.3 %

(1) See the “Non-GAAP Financial Measures” section below for a description of the Company's use of measures not defined by U.S.

For the third quarter and first nine months of fiscal 2023, SG&A expenses and SG&A expenses as a percent of net sales increased primarily due to the accrual for an adverse arbitration ruling of $70.0 million.

For the first nine months of fiscal 2023, adjusted SG&A expenses as a percent of net sales (1) was marginally higher compared to the prior year.

Advertising investments in the third quarter were $43 million, up 15 percent compared to last year.

The Company expects full-year advertising expense to increase compared to the prior year.

Equity in Earnings of Affiliates

Quarter Ended Six Months Ended

in thousands April 30, 2023 May 1, 2022 %

April 30, 2023 May 1, 2022 %

Quarter Ended Nine Months Ended

in thousands July 30, 2023 July 31, 2022 %

July 30, 2023 July 31, 2022 %

Equity in Earnings of Affiliates $ 9,784 $ 7,138 37.1 $ 42,213 $ 19,951 111.6

Equity in earnings of affiliates for the second quarter and first six months of fiscal 2023 increased due to significantly higher results for MegaMex Foods.

Equity in earnings of affiliates for the third quarter and first nine months of fiscal 2023 increased due to significantly higher results for MegaMex Foods.

MegaMex Foods results reflect a benefit from pricing actions and lower avocado input costs.

Effective Tax Rate

Quarter Ended Six Months Ended

April 30, 2023 May 1, 2022 April 30, 2023 May 1, 2022

Quarter Ended Nine Months Ended

July 30, 2023 July 31, 2022 July 30, 2023 July 31, 2022

Effective Tax Rate 21.7 % 24.5 % 22.2 % 21.8 %

The higher effective tax rate in the second quarter and first six months of fiscal 2023 is primarily due to the decrease in tax benefits from stock option exercises.

The lower effective tax rate in the third quarter is primarily due to favorable changes of certain U.S.

income and deductions in the fiscal 2022 federal tax return filing.

The higher effective tax rate for the first nine months of fiscal 2023 is primarily due to the decrease in tax benefits from stock option exercises.

The effective tax rate for fiscal 2023 is expected to be between 21.0% and 23.0%.

For further information, refer to Note J - Income Taxes.

For further information, refer to Note K - Income Taxes.

Segment Results

2 unchanged sentences

Therefore, the Company does not represent that these segments, if operated independently, would report the profit and other financial information shown below.

Quarter Ended Six Months Ended

in thousands April 30, 2023 May 1, 2022 % Change April 30, 2023 May 1, 2022 % Change

Quarter Ended Nine Months Ended

in thousands July 30, 2023 July 31, 2022 % Change July 30, 2023 July 31, 2022 % Change

Retail $ 1,891,746 $ 1,924,553 (1.7) $ 5,765,786 $ 5,921,145 (2.6)

14 unchanged sentences

$ 207,626 $ 289,836 (28.4) $ 767,666 $ 920,608 (16.6)

Volume and net sales declined for each segment for the first six months of fiscal 2023 primarily due to lower fresh pork availability resulting from the Company's new pork supply agreement and lower turkey volumes due to the ongoing impacts of HPAI in the Company's vertically integrated turkey supply chain.

Quarter Ended Six Months Ended

in thousands April 30, 2023 May 1, 2022 %

Change April 30, 2023 May 1, 2022 %

Volume declined for each segment for the first nine months of fiscal 2023 primarily due to lower fresh pork availability resulting from the Company's new pork supply agreement and lower turkey volumes due to the impacts of HPAI in the Company's vertically integrated turkey supply chain.

Quarter Ended Nine Months Ended

in thousands July 30, 2023 July 31, 2022 %

Change July 30, 2023 July 31, 2022 %

Volume (lbs.) 748,146 742,103 0.8 2,267,363 2,435,581 (6.9)

1 unchanged sentence

Segment Profit 151,128 163,092 (7.3) 459,031 522,980 (12.2)

For the second quarter, net sales growth from the global flavors vertical was more than offset by lower net sales across the other retail verticals.

Brands and products such as Hormel ® chili, SKIPPY ® , Hormel ® pepperoni, WHOLLY ® , Applegate ® frozen items, Hormel ® Square Table TM , Hormel ® Gatherings ® , La Victoria ® , Herdez ® , Dinty Moore ® and Mary Kitchen ® delivered net sales growth compared to the prior year.

Additionally, Planters ® snack nuts and Hormel ® Black Label ® bacon grew volume during the quarter, partially overcoming the headwind from lower turkey volumes, the impact of elasticities related to pricing actions, and lower contract manufacturing volumes.

Net sales declined for the first six months of fiscal 2023 primarily due to lower fresh pork availability and lower turkey volumes.

Segment profit declined for the second quarter and first six months of the year due to the impact from lower net sales, unfavorable mix and higher operating costs, partially offset by the benefit from pricing actions across the portfolio, higher equity in earnings from MegaMex Foods, and improved results for the bacon business.

Looking to the third quarter, the Retail segment expects lower segment profit compared to last year.

From a net sales perspective, the impact of pricing actions and rebounding turkey volumes are expected to more than offset lower pricing across the bacon portfolio and strong SKIPPY ® peanut butter sales in the prior year.

Declines in segment profit are expected as a result of unfavorable mix and higher operating expenses.

For the third quarter, volume growth was driven by the value-added meats, bacon, snacking and entertaining, and emerging brands verticals.

In addition to a recovery across the turkey portfolio, volume and net sales grew for many leading items, including our SPAM ® family of products, Hormel ® Gatherings ® party trays, Hormel ® pepperoni, and Applegate ® natural and organic meats.

Net sales declined due to the difficult comparison from high levels of demand for Skippy ® spreads last year and lower market-driven pricing on raw bacon items.

Net sales declined for the first nine months of fiscal 2023 primarily due to lower fresh pork and turkey volumes, and lower market-driven pricing on raw bacon items.

Segment profit declined for the third quarter due to the impact of unfavorable mix and increased brand investments, partially offset by the benefit from pricing actions across the portfolio, improved bacon volumes, and higher equity in earnings from MegaMex Foods.

For the first nine months of fiscal 2023, segment profit declined due to unfavorable mix and higher operating expenses, partially offset by the benefit from pricing actions across the portfolio, higher equity in earnings from MegaMex Foods, and improved bacon volumes.

Looking to the fourth quarter, the Retail segment expects lower segment profit compared to last year.

The impact of higher volumes from the snacking and entertaining vertical is expected to be more than offset by lower volume in the convenient meals and proteins vertical, which benefited from strong Skippy ® spreads demand in the prior year.

Unfavorable mix, partially due to lower turkey markets, is also anticipated to negatively impact results.

Further risks to the outlook include higher-than-expected elasticities and lower sales volumes as a result of softer consumer demand.

Quarter Ended Six Months Ended

in thousands April 30, 2023 May 1, 2022 %

Change April 30, 2023 May 1, 2022 %

Quarter Ended Nine Months Ended

in thousands July 30, 2023 July 31, 2022 %

Change July 30, 2023 July 31, 2022 %

Volume (lbs.) 255,822 250,513 2.1 747,484 760,677 (1.7)

1 unchanged sentence

Segment Profit 146,270 128,798 13.6 428,110 399,482 7.2

Volume and net sales declined during the second quarter, as growth in the sliced meats, pizza toppings, and premium breakfast sausage categories was more than offset by the impact of lower turkey volumes and lower net pricing in certain categories, such as bacon, reflecting raw material commodity deflation.

Brands such as Cafe H ® , Hormel ® Bacon 1 TM , Old Smokehouse ® and Hormel ® Fire Braised TM also delivered volume gains compared to the prior year.

Net sales declined for the first six months of fiscal 2023 primarily due to lower fresh pork availability, lower turkey volumes, and lower net pricing in certain categories reflecting raw material commodity deflation.

Segment profit increased during the second quarter and first six months of fiscal 2023 due to improved mix across the portfolio.

For the third quarter, the Foodservice segment expects higher segment profit compared to the prior year.

The Company expects rebounding turkey volumes and improved mix to be the primary drivers of growth.

Risks to the outlook include further softening of foodservice industry demand and higher-than-expected operating costs.

Volume for the third quarter increased, driven by growth in our affiliated businesses and strong demand in many branded categories, including pizza toppings, premium bacon and breakfast sausage, and premium prepared proteins.

Brands such as Cafe H ® , Hormel ® Fire Braised TM , Fontanini ® , Old Smokehouse ® and Hormel ® Bacon 1 TM delivered volume gains compared to the prior year.

Net sales declined, primarily due to lower net pricing in certain categories, such as bacon, reflecting raw material commodity deflation.

Net sales declined for the first nine months of fiscal 2023 primarily due to lower net pricing in certain categories reflecting raw material commodity deflation, and lower fresh pork and turkey volumes.

Segment profit increased during the third quarter due to the contribution from higher volumes and improved mix.

Segment profit increased during the first nine months of fiscal 2023 due to improved mix across the portfolio.

For the fourth quarter, the Foodservice segment expects higher segment profit compared to the prior year.

Growth is expected to be driven by higher volumes and lower freight expenses.

Risks to the outlook include a softening of foodservice industry demand and higher-than-expected operating costs.

International

Quarter Ended Six Months Ended

in thousands April 30, 2023 May 1, 2022 %

April 30, 2023 May 1, 2022 %

Quarter Ended Nine Months Ended

in thousands July 30, 2023 July 31, 2022 %

July 30, 2023 July 31, 2022 %

Volume (lbs.) 90,550 81,993 10.4 241,445 247,421 (2.4)

1 unchanged sentence

Segment Profit 12,222 24,464 (50.0) 45,723 78,833 (42.0)

During the second quarter, volume and net sales growth from the SKIPPY ® and Planters ® brands, in addition to strong growth in Brazil, was more than offset by lower commodity turkey export sales and lower results in China.

Foodservice sales in China improved sequentially throughout the second quarter, helping offset the difficult comparison to retail pantry loading and sales to food-security programs last year.

Net sales declined for the first six months of fiscal 2023 primarily due to lower turkey volumes and lower sales in China.

Segment profit for the second quarter and first six months of fiscal 2023 declined significantly due to lower sales in China and lower turkey export sales.

In the third quarter, the International segment anticipates segment profit to decline compared to last year but show sequential improvement to the second quarter.

The segment expects to benefit from strong branded export margins, gradually improving conditions in China, and more normalized turkey export volumes by the end of the quarter.

Further risks to the outlook include weaker-than-expected export demand, deteriorating economic conditions in China, and continued disruption impacting the Company's turkey exports.

During the third quarter, net sales declined as a result of lower branded export sales and lower results in China.

Foodservice sales in China improved sequentially throughout the third quarter, partially offsetting the difficult net sales comparison from sales to food-security programs last year.

In addition to growth from the Skippy ® and Planters ® brands, strong volume growth was driven by low-margin commodity fresh pork and turkey exports.

Net sales declined for the first nine months of fiscal 2023 primarily due to lower turkey volumes and lower sales in China.

Segment profit declined significantly in the third quarter due to unfavorable pork and turkey commodity markets, continued softness in China, and lower branded export demand.

Segment profit for the first nine months of fiscal 2023 declined significantly due to lower sales in China and lower turkey export volumes.

In the fourth quarter, the International segment anticipates segment profit to decline significantly compared to last year.

Similar to the drivers in the third quarter, continued softness in China, lower branded export demand, and unfavorable pork and turkey commodity markets are expected to persist.

Unallocated Income and Expenses

4 unchanged sentences

These items are included in the segment table for the purpose of reconciling segment results to earnings before income taxes.

Quarter Ended Six Months Ended

in thousands April 30, 2023 May 1, 2022 April 30, 2023 May 1, 2022

Quarter Ended Nine Months Ended

in thousands July 30, 2023 July 31, 2022 July 30, 2023 July 31, 2022

Net Unallocated Expense $ 101,886 $ 26,429 $ 164,997 $ 80,799

Noncontrolling Interest (108) (89) (200) 112

For the second quarter and first six months of fiscal 2023, net unallocated expense increased due to higher pension costs, which were partially offset by improved rabbi investment results.

For the third quarter and first nine months of fiscal 2023, net unallocated expense increased resulting from the accrual for an adverse arbitration ruling of $70.0 million and higher pension costs, which were partially offset by improved interest and investment income.

Related Party Transactions

There has been no material change in the information regarding Related Party Transactions as disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended October 30, 2022.

Non-GAAP Financial Measures

The non-GAAP adjusted financial measures of adjusted SG&A expense, adjusted SG&A as a percent of net sales, adjusted earnings before income taxes, and adjusted diluted net earnings per share are presented to provide investors with additional information to facilitate the comparison of past and present operations.

Adjusted SG&A, adjusted SG&A as a percent of net sales, adjusted earnings before income taxes and adjusted diluted net earnings per share exclude the impact of an adverse arbitration ruling.

The tax impact was calculated using the effective tax rate for the quarter in which the expense was incurred.

The Company believes these non-GAAP financial measures provide useful information to investors because they are the measures used to evaluate performance on a comparable year-over-year basis.

Non-GAAP measures are not intended to be a substitute for GAAP measures in analyzing financial performance.

These non-GAAP measures are not in accordance with generally accepted accounting principles and may be different from non-GAAP measures used by other companies.

The tables below show the calculations to reconcile from the GAAP measures to the non-GAAP adjusted measures.

Quarter Ended

July 30, 2023 July 31, 2022

in thousands, except per share amounts Reported

GAAP Arbitration Ruling Non-GAAP Reported

GAAP Non-GAAP

Net Sales $ 2,963,299 $ — $ 2,963,299 $ 3,034,414 (2.3)

Cost of Products Sold 2,465,251 — 2,465,251 2,528,364 (2.5)

Gross Profit 498,048 — 498,048 506,049 (1.6)

Selling, General, and Administrative 291,073 (70,000) 221,073 222,147 (0.5)

Equity in Earnings of Affiliates 9,784 — 9,784 7,138 37.1

Operating Income 216,759 70,000 286,759 291,040 (1.5)

Interest and Investment Income 9,239 — 9,239 14,411 (35.9)

Interest Expense 18,372 — 18,372 15,615 17.7

Earnings Before Income Taxes 207,626 70,000 277,626 289,836 (4.2)

Provision for Income Taxes 45,055 15,190 60,245 71,010 (15.2)

Net Earnings 162,571 54,810 217,381 218,826 (0.7)

Net Earnings (Loss) Attributable to Noncontrolling Interest (108) — (108) (89) (21.4)

Net Earnings Attributable to Hormel Foods Corporation $ 162,679 $ 54,810 $ 217,489 $ 218,915 (0.7)

Diluted Net Earnings Per Share $ 0.30 $ 0.10 $ 0.40 $ 0.40 —

SG&A Percent of Net Sales 9.8 7.5 7.3

Nine Months Ended

July 30, 2023 July 31, 2022

in thousands, except per share amounts Reported

GAAP Arbitration Ruling Non-GAAP Reported

GAAP Non-GAAP

Net Sales $ 8,911,930 $ — $ 8,911,930 $ 9,175,331 (2.9)

Cost of Products Sold 7,426,514 — 7,426,514 7,577,062 (2.0)

Gross Profit 1,485,417 — 1,485,417 1,598,269 (7.1)

Selling, General, and Administrative 725,621 (70,000) 655,621 672,777 (2.6)

Equity in Earnings of Affiliates 42,213 — 42,213 19,951 111.6

Operating Income 802,009 70,000 872,009 945,443 (7.8)

Interest and Investment Income 20,700 — 20,700 20,078 3.1

Interest Expense 55,042 — 55,042 44,913 22.6

Earnings Before Income Taxes 767,666 70,000 837,666 920,608 (9.0)

Provision for Income Taxes 170,230 15,190 185,420 200,393 (7.5)

Net Earnings 597,437 54,810 652,247 720,215 (9.4)

Net Earnings (Loss) Attributable to Noncontrolling Interest (200) — (200) 112 (279.1)

Net Earnings Attributable to Hormel Foods Corporation $ 597,637 $ 54,810 $ 652,447 $ 720,103 (9.4)

Diluted Net Earnings Per Share $ 1.09 $ 0.10 $ 1.19 $ 1.31 (9.2)

SG&A Percent of Net Sales 8.1 7.4 7.3

LIQUIDITY AND CAPITAL RESOURCES

1 unchanged sentence

Cash Flow Highlights

Six Months Ended

in thousands April 30, 2023 May 1, 2022

Nine Months Ended

in thousands July 30, 2023 July 31, 2022

Cash and Cash Equivalents $ 669,124 $ 850,344

2 unchanged sentences

Cash Provided by (Used in) Financing Activities (450,977) (344,463)

Cash and cash equivalents decreased $402 million for the six months ended April 30, 2023 primarily due to the purchase of a minority interest in Garudafood for $426 million.

Cash and cash equivalents decreased $313 million for the nine months ended July 30, 2023, primarily due to the purchase of a minority interest in Garudafood for $426 million.

Additional details related to significant drivers of cash flows are provided below.

1 unchanged sentence

• Cash flows from operating activities were largely impacted by changes in operating assets and liabilities.

– Accounts receivable decreased $106 million during the six months ended April 30, 2023 primarily due to lower sales and decreased $109 million during the six months ended May 1, 2022 as a result of the timing of sales and collections.

– Accounts payable and accrued expenses decreased $205 million and $46 million in the six months ended April 30, 2023, and May 1, 2022, respectively, due to the general timing of invoice payments and annual incentive payments.

– Inventory increased $27 million for the first half of 2023 compared to $226 million in the prior year.

The increase in inventory during fiscal 2023 was due to production outpacing sales and the higher inventory value in fiscal 2022 was primarily driven by increased raw material costs.

– Accounts receivable decreased $81 million during the nine months ended July 30, 2023, and decreased $97 million during the nine months ended July 31, 2022, as a result of the timing of sales and collections.

– Accounts payable and accrued expenses decreased $131 million and $84 million in the nine months ended July 30, 2023, and July 31, 2022, respectively, due to general timing of invoice payments and annual incentive payments.

– Inventory increased $21 million for the first nine months of fiscal 2023 compared to $311 million in the prior year.

The increase in inventory during fiscal 2023 was due to production outpacing sales and the higher inventory value in fiscal 2022 was primarily due to a recovery of inventory volumes and sustained higher raw material costs.

Cash Provided by (Used in) Investing Activities

• During the six months ended April 30, 2023, the Company purchased a minority interest in Garudafood for $426 million.

• Capital expenditures were $91 million and $128 million in the six months ended April 30, 2023, and May 1, 2022, respectively.

• During the nine months ended July 30, 2023, the Company purchased a minority interest in Garudafood for $426 million.

• Capital expenditures were $169 million and $189 million in the nine months ended July 30, 2023, and July 31, 2022, respectively.

The largest spend in both years was related to capacity expansion for pepperoni and the SPAM ® family of products.

Cash Provided by (Used in) Financing Activities

• Cash dividends paid to the Company’s shareholders continue to be an ongoing financing activity for the Company with payments totaling $293 million during the six months ended April 30, 2023 compared to $274 million in the comparable period of fiscal 2022.

• Share repurchases were $12 million during the six months ended April 30, 2023 compared with no share repurchases during fiscal 2022.

• Proceeds from exercise of stock options was $3 million in the six months ended April 30, 2023 compared to $75 million in the comparable period of fiscal 2022.

• Cash dividends paid to the Company’s shareholders continue to be an ongoing financing activity for the Company with payments totaling $443 million during the nine months ended July 30, 2023, compared to $416 million in the comparable period of fiscal 2022.

• Share repurchases were $12 million during the nine months ended July 30, 2023, compared with no share repurchases during the comparable period of fiscal 2022.

• Proceeds from exercise of stock options was $8 million in the nine months ended July 30, 2023, compared to $78 million in the comparable period of fiscal 2022.

The decrease in proceeds was due to fewer options exercised during fiscal 2023 compared to fiscal 2022.

15 unchanged sentences

Capital expenditures for fiscal 2023 are estimated to be $280 million.

As of April 30, 2023, the Company’s outstanding debt included $3.3 billion of fixed rate unsecured senior notes due in fiscal 2024, 2028, 2030, and 2051 with interest payable semi-annually.

During the first six months of fiscal 2023, the Company made $28 million of interest payments and expects to make an additional $28 million of interest payments during fiscal 2023 on these notes.

See Note I - Long-Term Debt and Other Borrowing Arrangements for additional information.

As of July 30, 2023, the Company’s outstanding debt included $3.3 billion of fixed rate unsecured senior notes due in fiscal 2024, 2028, 2030, and 2051 with interest payable semi-annually.

During fiscal 2023, the Company made $55 million of interest payments on these notes.

In the third quarter of fiscal 2023, $950 million of the notes was reclassified as Current Maturities of Long-term Debt on the Consolidated Condensed Statements of Financial Position as it is payable within one year.

See Note J - Long-Term Debt and Other Borrowing Arrangements for additional information.

Borrowing Capacity

3 unchanged sentences

The lending commitments under the facility are scheduled to expire on May 6, 2026, at which time the Company will be required to pay in full all obligations then outstanding.

As of April 30, 2023, the Company had no outstanding draws from this facility.

As of July 30, 2023, the Company had no outstanding draws from this facility.

Debt Covenants

1 unchanged sentence

These debt covenants limit the ability of the Company to, among other things, incur debt for borrowed money secured by certain liens and engage in certain sale and leaseback transactions, and require maintenance of certain consolidated leverage ratios.

As of April 30, 2023, the Company was in compliance with all covenants and expects to maintain compliance in the future.

As of July 30, 2023, the Company was in compliance with all covenants and expects to maintain compliance in the future.

Cash Held by International Subsidiaries

As of April 30, 2023, the Company had $205 million of cash and cash equivalents held by international subsidiaries.

As of July 30, 2023, the Company had $208 million of cash and cash equivalents held by international subsidiaries.

The Company maintains all undistributed earnings as permanently reinvested.

2 unchanged sentences

The Company is authorized to repurchase 3,677,494 shares of common stock as part of an existing plan approved by the Company’s Board of Directors.

During the second quarter of fiscal 2023, the Company repurchased 310,000 shares for $12 million.

There have been no material changes to the information regarding the Company’s future contractual financial obligations previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended October 30, 2022.

During fiscal 2023, the Company repurchased 310,000 shares for $12 million.

In the fourth quarter of fiscal 2023, the Company expects to utilize cash on hand to pay an estimated $70 million due to an adverse arbitration ruling.

Refer to Note I - Commitments and Contingencies for additional information.

References to the Company’s brands or products in italics within this report represent valuable trademarks owned or licensed by Hormel Foods, LLC or other subsidiaries of Hormel Foods Corporation.

16 unchanged sentences

In making these statements, the Company is not undertaking, and specifically declines to undertake, any obligation to address or update each or any factor in future filings or communications regarding the Company’s business or results, and is not undertaking to address how any of these factors may have caused changes to discussions or information contained in previous filings or communications.

Though the Company has attempted to list comprehensively these important cautionary risk factors, the Company wishes to caution investors and others that other factors may in the future prove to be important in affecting the Company’s business or results of operations.

Though the Company has attempted to list comprehensively these important cautionary risk factors,

the Company wishes to caution investors and others that other factors may in the future prove to be important in affecting the Company’s business or results of operations.

The Company cautions readers not to place undue reliance on forward-looking statements, which represent current views as of the date made.

17 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis