Item 2. Management’s Discussion and Analysis
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Overview
The Company is a global manufacturer and marketer of branded food products. 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 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.
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• 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.
• 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 Nine Months Ended
in thousands, except per share amounts July 30,
2023 July 31, 2022 %
Change July 30,
2023 July 31, 2022 %
Change
Volume (lbs.) 1,094,518 1,074,609 1.9 3,256,292 3,443,679 (5.4)
Net Sales $ 2,963,299 $ 3,034,414 (2.3) $ 8,911,930 $ 9,175,331 (2.9)
Earnings Before Income Taxes 207,626 289,836 (28.4) 767,666 920,608 (16.6)
Net Earnings Attributable to Hormel Foods Corporation 162,679 218,915 (25.7) 597,637 720,103 (17.0)
Diluted Earnings Per Share 0.30 0.40 (25.0) 1.09 1.31 (16.8)
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
Net sales for the third quarter decreased. 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.
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 Nine Months Ended
in thousands July 30, 2023 July 31, 2022 %
Change
July 30, 2023 July 31, 2022 %
Change
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 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.
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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.
Gross Profit
Quarter Ended Nine Months Ended
in thousands July 30, 2023 July 31, 2022 %
Change
July 30, 2023 July 31, 2022 %
Change
Gross Profit $ 498,048 $ 506,049 (1.6) $ 1,485,417 $ 1,598,269 (7.1)
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 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 Nine Months Ended
in thousands July 30, 2023 July 31, 2022 %
Change
July 30, 2023 July 31, 2022 %
Change
SG&A $ 291,073 $ 222,147 31.0 $ 725,621 $ 672,777 7.9
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. GAAP.
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 Nine Months Ended
in thousands July 30, 2023 July 31, 2022 %
Change
July 30, 2023 July 31, 2022 %
Change
Equity in Earnings of Affiliates $ 9,784 $ 7,138 37.1 $ 42,213 $ 19,951 111.6
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 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 %
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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 K - Income Taxes.
Segment Results
Net sales and segment profit for each of the Company’s reportable segments are set forth below. The Company is an integrated enterprise, characterized by substantial intersegment cooperation, cost allocations, and sharing of assets. Therefore, the Company does not represent that these segments, if operated independently, would report the profit and other financial information shown below.
Quarter Ended Nine Months Ended
in thousands July 30, 2023 July 31, 2022 % Change July 30, 2023 July 31, 2022 % Change
Net Sales
Retail $ 1,891,746 $ 1,924,553 (1.7) $ 5,765,786 $ 5,921,145 (2.6)
Foodservice 890,949 917,671 (2.9) 2,607,140 2,681,737 (2.8)
International 180,605 192,190 (6.0) 539,005 572,450 (5.8)
Total $ 2,963,299 $ 3,034,414 (2.3) $ 8,911,930 $ 9,175,331 (2.9)
Segment Profit
Retail $ 151,128 $ 163,092 (7.3) $ 459,031 $ 522,980 (12.2)
Foodservice 146,270 128,798 13.6 428,110 399,482 7.2
International 12,222 24,464 (50.0) 45,723 78,833 (42.0)
Total Segment Profit
309,619 316,354 (2.1) 932,863 1,001,295 (6.8)
Net Unallocated Expense
101,886 26,429 285.5 164,997 80,799 104.2
Noncontrolling Interest
(108) (89) (21.4) (200) 112 (279.1)
Earnings Before Income Taxes
$ 207,626 $ 289,836 (28.4) $ 767,666 $ 920,608 (16.6)
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.
Retail
Quarter Ended Nine Months Ended
in thousands July 30, 2023 July 31, 2022 %
Change July 30, 2023 July 31, 2022 %
Change
Volume (lbs.) 748,146 742,103 0.8 2,267,363 2,435,581 (6.9)
Net Sales $ 1,891,746 $ 1,924,553 (1.7) $ 5,765,786 $ 5,921,145 (2.6)
Segment Profit 151,128 163,092 (7.3) 459,031 522,980 (12.2)
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.
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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.
Foodservice
Quarter Ended Nine Months Ended
in thousands July 30, 2023 July 31, 2022 %
Change July 30, 2023 July 31, 2022 %
Change
Volume (lbs.) 255,822 250,513 2.1 747,484 760,677 (1.7)
Net Sales $ 890,949 $ 917,671 (2.9) $ 2,607,140 $ 2,681,737 (2.8)
Segment Profit 146,270 128,798 13.6 428,110 399,482 7.2
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 Nine Months Ended
in thousands July 30, 2023 July 31, 2022 %
Change
July 30, 2023 July 31, 2022 %
Change
Volume (lbs.) 90,550 81,993 10.4 241,445 247,421 (2.4)
Net Sales $ 180,605 $ 192,190 (6.0) $ 539,005 $ 572,450 (5.8)
Segment Profit 12,222 24,464 (50.0) 45,723 78,833 (42.0)
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
The Company does not allocate deferred compensation, investment income, interest expense, or interest income to its segments when measuring performance. The Company also retains various other income and unallocated expenses at the corporate level.
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Equity in earnings of affiliates is included in segment profit; however, earnings attributable to the Company’s noncontrolling interests are excluded. These items are included in the segment table for the purpose of reconciling segment results to earnings before income taxes.
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 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
% Change
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)
Less: 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
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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
% Change
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)
Less: 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
When assessing liquidity and capital resources, the Company evaluates cash and cash equivalents, short-term and long-term investments, income from operations, and borrowing capacity.
Cash Flow Highlights
Nine Months Ended
in thousands July 30, 2023 July 31, 2022
Cash and Cash Equivalents $ 669,124 $ 850,344
Cash Provided by (Used in) Operating Activities 728,756 763,157
Cash Provided by (Used in) Investing Activities (588,489) (171,827)
Cash Provided by (Used in) Financing Activities (450,977) (344,463)
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.
Cash Provided by (Used in) Operating Activities
• Cash flows from operating activities were largely impacted by changes in operating assets and liabilities.
– 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 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.
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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 $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.
Sources and Uses of Cash
The Company's balanced business model, with diversification across raw material inputs, channels, and categories, provides stability in ever changing economic environments. The Company maintains a disciplined capital allocation strategy by applying a waterfall approach, which focuses first on required uses of cash such as capital expenditures to maintain facilities, dividend returns to investors, mandatory debt repayments, and pension obligations. Next, the Company looks to strategic items in support of growth initiatives such as capital projects, acquisitions, additional dividend increases, and working capital investments. Finally, the Company evaluates opportunistic uses including incremental debt repayment and share repurchases.
The Company believes its anticipated income from operations, cash on hand, borrowing capacity under the current credit facility, and access to capital markets will be adequate to meet all short-term and long-term commitments. The Company continues to look for opportunities to make investments and acquisitions that align with its strategic priorities. The Company's ability to leverage its balance sheet through the issuance of debt provides the flexibility to pursue strategic opportunities which may require additional funding.
Dividend Payments
The Company remains committed to providing returns to investors through cash dividends. The Company has paid 380 consecutive quarterly dividends since becoming a public company in 1928. The annual dividend rate for fiscal 2023 increased to $1.10 per share, representing the 57th consecutive annual dividend increase.
Capital Expenditures
Capital expenditures are first allocated to required maintenance and then growth opportunities based on the needs of the business. Capital expenditures supporting growth opportunities in fiscal 2023 will focus on projects for capacity, innovation, automation, and new technology. Capital expenditures for fiscal 2023 are estimated to be $280 million.
Debt
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
As a source of short-term financing, the Company maintains a $750 million unsecured revolving credit facility. The maximum commitment under this credit facility may be further increased by $375 million, generally by mutual agreement of the lenders and the Company, subject to certain customary conditions. Funds drawn from this facility may be used by the Company to refinance existing debt, for working capital or other general corporate purposes, and for funding acquisitions. 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 July 30, 2023, the Company had no outstanding draws from this facility.
Debt Covenants
The Company’s debt and credit agreements contain customary terms and conditions including representations, warranties, and covenants. 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 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 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. The Company evaluates the balance and uses of cash held internationally based on the needs of the business.
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Share Repurchases
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 fiscal 2023, the Company repurchased 310,000 shares for $12 million.
Commitments
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, other than the matter described below.
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.
TRADEMARKS
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.
CRITICAL ACCOUNTING ESTIMATES
This discussion and analysis of financial condition and results of operations is based upon the Company's consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires the Company to make estimates, judgments, and assumptions that can have a meaningful effect on the reporting of consolidated financial statements. The significant accounting policies used in preparing these Consolidated Financial Statements are consistent with those described in Note A - Summary of Significant Accounting Policies to the Consolidated Financial Statements in the Form 10-K.
Critical accounting estimates are defined as those reflective of significant judgments, estimates, and uncertainties, which may result in materially different results under different assumptions and conditions. There have been no material changes in the Company’s Critical Accounting Estimates as disclosed in its Annual Report on Form 10-K for the fiscal year ended October 30, 2022.
FORWARD-LOOKING STATEMENTS
This report contains “forward-looking” information within the meaning of the federal securities laws. The “forward-looking” information may include statements concerning the Company’s outlook for the future as well as other statements of beliefs, future plans, strategies, or anticipated events and similar expressions concerning matters that are not historical facts.
The Private Securities Litigation Reform Act of 1995 (the Reform Act) provides a “safe harbor” for forward-looking statements to encourage companies to provide prospective information. The Company is filing this cautionary statement in connection with the Reform Act. When used in this Quarterly Report on Form 10-Q, the Company’s Annual Report to Stockholders, other filings by the Company with the Securities and Exchange Commission, the Company’s press releases, and oral statements made by the Company’s representatives, the words or phrases “should result,” “believe,” “intend,” “plan,” “are expected to,” “targeted,” “will continue,” “will approximate,” “is anticipated,” “estimate,” “project,” or similar expressions are intended to identify forward-looking statements within the meaning of the Reform Act. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those anticipated or projected.
In connection with the “safe harbor” provisions of the Reform Act, the Company is identifying risk factors that could affect financial performance and cause the Company’s actual results to differ materially from opinions or statements expressed with respect to future periods. The discussions of risk factors in the Company's most recent Annual Report on Form 10-K and in Part II, Item 1A of this Quarterly Report on Form 10-Q contain certain cautionary statements regarding the Company’s business, which should be considered by investors and others. Such risk factors should be considered in conjunction with any discussions of operations or results by the Company or its representatives, including any forward-looking discussion, as well as comments contained in press releases, presentations to securities analysts or investors, or other communications by the Company.
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,
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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. Forward-looking statements are inherently at risk to changes in the national and worldwide economic environment, which could include, among other things, risks related to the deterioration of economic conditions; the COVID-19 pandemic; risks associated with acquisitions and divestitures; potential disruption of operations including at co-manufacturers, suppliers, logistics providers, customers, or other third-party service providers; risk of loss of a material contract; the Company’s inability to protect information technology systems against, or effectively respond to, cyber attacks or security breaches; deterioration of labor relations, labor availability or increases to labor costs; general risks of the food industry, including food contamination; outbreaks of disease among livestock and poultry flocks; fluctuations in commodity prices and availability of raw materials and other inputs; fluctuations in market demand for the Company’s products; damage to the Company's reputation or brand image; climate change, or legal, regulatory, or market measures to address climate change; risks of litigation; potential sanctions and compliance costs arising from government regulation; compliance with stringent environmental regulations and potential environmental litigation; and risks arising from the Company’s foreign operations.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.