HORMEL FOODS CORP /DE/ 10-Q

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, Retail, Foodservice, and International, are described in Note M - Segment Reporting in the Notes to the Consolidated Financial Statements in this Quarterly Report on Form 10-Q. The Company reported diluted net earnings per share of $0.34 for the second quarter of fiscal 2024, down 15 percent compared to last year. Adjusted diluted net earnings per share (1) was $0.38. Significant factors impacting the quarter were: • Net sales for the second quarter decreased 3 percent. The benefit from higher volume and net sales in the Foodservice segment was more than offset by lower volume and net sales in the Retail and International segments. • Segment profit for the second quarter decreased 2 percent, as improved results in the International and Foodservice segments were more than offset by a decline in the Retail segment. • Earnings before income taxes for the second quarter decreased 12 percent, as the benefit from lower logistics expenses and higher interest and investment income was more than offset by the impact from lower net sales and higher selling, general, and administrative (SG&A) expenses. Adjusted earnings before income taxes (1) , excluding the impact of expenses related to the Company’s transform and modernize initiative and pork antitrust litigation settlements, decreased 4 percent. • International segment profit increased significantly, resulting from favorable costs in China, growth from our partnerships in the Philippines, South Korea, and Indonesia, as well as growth in Brazil. • Foodservice segment profit increased primarily due to higher sales and lower logistics expenses. • Retail segment profit declined due to lower sales and higher SG&A expenses, which included increased advertising investments. These factors more than offset the benefit from lower logistics expenses and supply chain improvement. • Year-to-date cash flow from operations was $640 million, an increase of 55 percent compared to the prior year. • The pre-tax impact of expenses related to the Company’s transform and modernize initiative and pork antitrust litigation settlements in the second quarter was $23.6 million. Consolidated Results Volume, Net Sales, Earnings, and Diluted Earnings Per Share Quarter Ended Six Months Ended In thousands, except per share amounts April 28, 2024 April 30, 2023 % Change April 28, 2024 April 30, 2023 % Change Volume (lbs.) 1,059,843 1,099,563 (3.6) 2,161,397 2,161,774 — Net Sales $ 2,887,352 $ 2,977,639 (3.0) $ 5,884,263 $ 5,948,632 (1.1) Earnings Before Income Taxes 244,139 278,839 (12.4) 529,685 560,041 (5.4) Net Earnings Attributable to Hormel Foods Corporation 189,278 217,239 (12.9) 408,140 434,958 (6.2) Diluted Earnings Per Share 0.34 0.40 (15.0) 0.74 0.79 (6.3) Adjusted Diluted Earnings Per Share (1) 0.38 0.40 (5.0) 0.79 0.79 — (1) See the “Non-GAAP 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 second quarter of fiscal 2024 decreased as the benefit from higher volume and net sales in the Foodservice segment was more than offset by lower volume and net sales in the Retail and International segments. 22 Table of Contents For the first six months of fiscal 2024, the benefit from improved volume in the Foodservice segment was more than offset by lower net sales in the Retail and International segments. The declines in net sales are related to a significant year-over-year decline in whole bird turkey markets, primarily impacting the Retail segment, and lower export sales and lower net sales in China, impacting the International segment. Cost of Products Sold Quarter Ended Six Months Ended In thousands April 28, 2024 April 30, 2023 % Change April 28, 2024 April 30, 2023 % Change Cost of Products Sold $ 2,383,546 $ 2,486,220 (4.1) $ 4,871,723 $ 4,961,263 (1.8) Cost of products sold for the second quarter and the first six months of fiscal 2024 decreased due primarily to lower sales. On a per pound basis for the first six months of fiscal 2024, cost of products sold decreased 2 percent. Costs are expected to continue to moderate relative to the high levels of inflation the business has absorbed since the beginning of fiscal 2021. Raw material input costs for pork, beef, and feed are anticipated to remain volatile and above historical levels. The Company expects its transform and modernize initiative to deliver cost savings throughout fiscal 2024, targeting packaging, logistics, and production costs. Gross Profit Quarter Ended Six Months Ended In thousands April 28, 2024 April 30, 2023 % Change April 28, 2024 April 30, 2023 % Change Gross Profit $ 503,806 $ 491,419 2.5 $ 1,012,539 $ 987,369 2.5 Percent of Net Sales 17.4 % 16.5 % 17.2 % 16.6 % Gross profit as a percent of net sales for the second quarter of fiscal 2024 increased due primarily to improvement in the Retail and International segments. For the first six months of fiscal 2024, gross profit as a percent of net sales increased for all segments. All segments benefited from lower logistics expenses on a volume basis. Logistics expenses declined due to lower industry-wide freight rates and savings realized as part of the Company’s transform and modernize initiative. Looking ahead to the third quarter of fiscal 2024, the Company expects gross profit as a percent of net sales to be comparable to last year. The Company expects gross profit as a percent of net sales to increase for the International segment and be comparable for the Retail and Foodservice segments. Selling, General, and Administrative (SG&A) Quarter Ended Six Months Ended In thousands April 28, 2024 April 30, 2023 % Change April 28, 2024 April 30, 2023 % Change SG&A $ 266,668 $ 212,492 25.5 $ 507,054 $ 434,548 16.7 Percent of Net Sales 9.2 % 7.1 % 8.6 % 7.3 % Adjusted SG&A (1) $ 244,898 $ 212,492 15.3 $ 476,568 $ 434,548 9.7 Adjusted Percent of Net Sales (1) 8.5 % 7.1 % 8.1 % 7.3 % (1) See the “Non-GAAP Measures” section below for a description of the Company’s use of measures not defined by GAAP. For the second quarter and the first six months of fiscal 2024, SG&A and SG&A as a percent of net sales increased. This was due to higher employee-related and external expenses, driven in part by the Company’s transform and modernize initiative as well as the impact from pork antitrust litigation settlements. Adjusted SG&A as a percent of net sales (1) increased compared to last year. Advertising investments in the second quarter were $44 million, an increase of 27 percent compared to last year. For the first six months of fiscal 2024, advertising investments were $88 million, an increase of 9 percent compared to last year. The Company expects full-year advertising expense to increase compared to the prior year. 23 Table of Contents Equity in Earnings of Affiliates Quarter Ended Six Months Ended In thousands April 28, 2024 April 30, 2023 % Change April 28, 2024 April 30, 2023 % Change Equity in Earnings of Affiliates $ 15,182 $ 16,870 (10.0) $ 31,273 $ 32,429 (3.6) Equity in earnings of affiliates for the second quarter and the first six months of fiscal 2024 decreased due to lower results for MegaMex Foods, LLC, partially offset by improvement from our international partnerships. Interest and Investment Income and Interest Expense Quarter Ended Six Months Ended In thousands April 28, 2024 April 30, 2023 % Change April 28, 2024 April 30, 2023 % Change Interest and Investment Income $ 13,497 $ 1,365 889.0 $ 32,932 $ 11,461 187.3 Interest Expense 21,679 18,323 18.3 40,005 36,670 9.1 Interest and investment income for the second quarter and the first six months of fiscal 2024 increased as interest income due to a higher cash balance and more favorable market interest rates as well as improved performance from the rabbi trust more than offset higher interest expense associated with the recent debt issuance. Effective Tax Rate Quarter Ended Six Months Ended April 28, 2024 April 30, 2023 April 28, 2024 April 30, 2023 Effective Tax Rate 22.5 % 22.1 % 23.0 % 22.4 % The higher effective tax rate in the second quarter and first six months of fiscal 2024 is primarily due to the impact of higher federal deductions last year. The effective tax rate for fiscal 2024 is expected to be between 22.0% and 23.0%. For further information, refer to Note K - Income Taxes of the Notes to the Consolidated Financial Statements. Segment Results Net sales and segment profit for each of the Company’s reportable segments are set forth below. The Company does not allocate deferred compensation, non-recurring expenses associated with the transform and modernize initiative, investment income, interest expense, or interest income to its segments when measuring performance. The Company also retains various other income and expenses at the corporate level. Equity in Earnings of Affiliates is included in segment profit; however, earnings attributable to the Company’s corporate venturing investments and noncontrolling interests are excluded. These items are included below as Net Unallocated Expense and Noncontrolling Interest when reconciling to Earnings Before Income Taxes. 24 Table of Contents 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 Six Months Ended In thousands April 28, 2024 April 30, 2023 % Change April 28, 2024 April 30, 2023 % Change Net Sales Retail $ 1,788,556 $ 1,916,243 (6.7) $ 3,699,827 $ 3,874,040 (4.5) Foodservice 932,003 881,441 5.7 1,845,090 1,716,191 7.5 International 166,794 179,955 (7.3) 339,346 358,400 (5.3) Total Net Sales $ 2,887,352 $ 2,977,639 (3.0) $ 5,884,263 $ 5,948,632 (1.1) Segment Profit Retail $ 132,399 $ 153,226 (13.6) $ 281,904 $ 307,903 (8.4) Foodservice 149,302 145,399 2.7 299,466 281,841 6.3 International 23,202 13,595 70.7 43,234 33,500 29.1 Total Segment Profit 304,903 312,220 (2.3) 624,603 623,244 0.2 Net Unallocated Expense 60,694 33,356 82.0 94,714 63,111 50.1 Noncontrolling Interest (70) (24) (196.7) (204) (92) (121.4) Earnings Before Income Taxes $ 244,139 $ 278,839 (12.4) $ 529,685 $ 560,041 (5.4) Retail Quarter Ended Six Months Ended In thousands April 28, 2024 April 30, 2023 % Change April 28, 2024 April 30, 2023 % Change Volume (lbs.) 724,994 766,330 (5.4) 1,490,406 1,519,217 (1.9) Net Sales $ 1,788,556 $ 1,916,243 (6.7) $ 3,699,827 $ 3,874,040 (4.5) Segment Profit 132,399 153,226 (13.6) 281,904 307,903 (8.4) For the second quarter of fiscal 2024, volume growth from the bacon and emerging brands verticals was more than offset by declines in value-added meats. Net sales increased for many items, including Hormel ® Black Label ® bacon, the SPAM ® family of products, Applegate ® natural and organic meats, Hormel ® Square Table™ entrees, and Planters ® snack nuts. These gains were negated by a significant year-over-year volume and pricing decline for whole bird turkeys and lower net sales in the convenient meals and proteins vertical. For the first six months of fiscal 2024, net sales declined primarily as a result of significant year-over-year volume and pricing declines for whole bird turkeys. For the second quarter and first six months of fiscal 2024, segment profit declined due to lower sales and higher SG&A, which included increased advertising investments. These factors more than offset the benefit from lower logistics expenses and supply chain improvement. For the third quarter of fiscal 2024, Retail segment profit is expected to decline compared to prior year due to lower volume, lower commodity whole bird turkey prices, and pressure from the estimated impact of an unplanned production interruption at the Suffolk, Virginia, facility. Foodservice Quarter Ended Six Months Ended In thousands April 28, 2024 April 30, 2023 % Change April 28, 2024 April 30, 2023 % Change Volume (lbs.) 261,832 254,575 2.9 517,839 491,662 5.3 Net Sales $ 932,003 $ 881,441 5.7 $ 1,845,090 $ 1,716,191 7.5 Segment Profit 149,302 145,399 2.7 299,466 281,841 6.3 25 Table of Contents Volume and net sales growth in the second quarter of fiscal 2024 were driven primarily by strength across the bacon, premium prepared proteins and turkey categories. Products such as Hormel ® Bacon 1™ cooked bacon , Hormel ® Fire Braised™ meats, Austin Blues ® smoked meats, Café H ® globally inspired proteins and Corn Nuts ® corn kernels each delivered double-digit net sales growth. For the first six months of fiscal 2024, volume and net sales growth was broad-based and across numerous categories Segment profit increased for the second quarter and first six months of fiscal 2024 primarily due to higher sales and lower logistics expenses. For the third quarter, Foodservice expects segment profit to be in line with prior year, with the impact from volume growth expected to be offset by higher SG&A compared to last year. Risks to this outlook include a softening of foodservice industry demand and higher-than-expected operating costs. International Quarter Ended Six Months Ended In thousands April 28, 2024 April 30, 2023 % Change April 28, 2024 April 30, 2023 % Change Volume (lbs.) 73,017 78,659 (7.2) 153,153 150,896 1.5 Net Sales $ 166,794 $ 179,955 (7.3) $ 339,346 $ 358,400 (5.3) Segment Profit 23,202 13,595 70.7 43,234 33,500 29.1 During the second quarter of fiscal 2024, double-digit volume and net sales increases for SPAM ® luncheon meat and refrigerated exports were more than offset by lower commodity export volume and lower net sales in China. For the first six months of fiscal 2024, net sales declined, resulting from lower export sales and lower net sales in China. Segment profit in the second quarter increased significantly, resulting from favorable costs in China, growth from our partnerships in the Philippines, South Korea, and Indonesia, as well as growth in Brazil. For the first six months of fiscal 2024, segment profit increased due to improvement from our international partnerships, favorable costs in China, and growth in Brazil. In the third quarter of fiscal 2024, International anticipates segment profit to increase significantly compared to last year. This recovery is expected to be driven by improvement across the business, including increased branded exports, growth in China and Brazil, and contributions from our investments in the Philippines, South Korea, and Indonesia. Risks to this outlook include continued softness in China and commodity headwinds impacting the export business. Unallocated Income and Expense Quarter Ended Six Months Ended In thousands April 28, 2024 April 30, 2023 April 28, 2024 April 30, 2023 Net Unallocated Expense $ 60,694 $ 33,356 $ 94,714 $ 63,111 Noncontrolling Interest (70) (24) (204) (92) For the second quarter and first six months of fiscal 2024, net unallocated expense increased driven by transform and modernize initiative costs, the impact from pork antitrust litigation settlements, and higher employee-related expenses, partially offset by higher interest income and favorable rabbi trust performance. 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 29, 2023. (1) Non-GAAP Measures This filing includes measures of financial performance that are not defined by GAAP. The Company utilizes these non-GAAP measures to understand and evaluate operating performance on a consistent basis. These measures may also be used when making decisions regarding resource allocation and in determining incentive compensation. The Company believes these non-GAAP measures provide useful information to investors because they aid analysis and understanding of the Company’s results 26 Table of Contents and business trends relative to past performance and the Company’s competitors. 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 GAAP and may be different from non-GAAP measures used by other companies. Transform and Modernize Initiative In the fourth quarter of fiscal 2023, the Company announced a multi-year transform and modernize initiative. In presenting non-GAAP measures, the Company adjusts for (i.e., excludes) expenses for this initiative that are non-recurring, comprised primarily of project-based external consulting fees and asset write-offs related to portfolio optimization (i.e., reducing the complexity and optimizing the assortment of the product portfolio). The Company believes the non-recurring costs are not reflective of the Company’s ongoing operating cost structure; therefore, the Company is excluding these discrete costs. The Company does not adjust for (i.e., does not exclude) certain costs related to the transform and modernize initiative that are expected to continue after the project ends, such as software license fees and internal employee expenses, because those costs are considered ongoing in nature as a component of normal operating costs. Pork Antitrust Litigation Settlements In the second quarter of fiscal 2024, the Company agreed to settle with three classes of plaintiffs in the pork antitrust litigation. See Note I - Commitments and Contingencies of the Notes to the Consolidated Financial Statements for additional information. These settlement amounts are not indicative of the Company’s core operating performance, do not reflect expected future operating costs, and may not be meaningful when comparing the Company’s operating performance against that of prior periods. The table below shows the calculations to reconcile from the GAAP measures to the non-GAAP measures. The tax impacts were calculated using the effective tax rate for the quarter in which the expenses were incurred. Quarter Ended Six Months Ended In thousands, except per share amounts April 28, 2024 April 30, 2023 April 28, 2024 April 30, 2023 Cost of Products Sold (GAAP) $ 2,383,546 $ 2,486,220 $ 4,871,723 $ 4,961,263 Transform and Modernize Initiative (1) (1,823) — (3,420) — Adjusted Cost of Products Sold (Non-GAAP) $ 2,381,723 $ 2,486,220 $ 4,868,303 $ 4,961,263 SG&A (GAAP) $ 266,668 $ 212,492 $ 507,054 $ 434,548 Transform and Modernize Initiative (2) (10,021) — (18,736) — Pork Antitrust Litigation Settlements (3) (11,750) — (11,750) — Adjusted SG&A (Non-GAAP) $ 244,898 $ 212,492 $ 476,568 $ 434,548 Operating Income (GAAP) $ 252,320 $ 295,798 $ 536,758 $ 585,250 Transform and Modernize Initiative (1)(2) 11,843 — 22,156 — Pork Antitrust Litigation Settlements (3) 11,750 — 11,750 — Adjusted Operating Income (Non-GAAP) $ 275,914 $ 295,798 $ 570,665 $ 585,250 Earnings Before Income Taxes (GAAP) $ 244,139 $ 278,839 $ 529,685 $ 560,041 Transform and Modernize Initiative (1)(2) 11,843 — 22,156 — Pork Antitrust Litigation Settlements (3) 11,750 — 11,750 — Adjusted Earnings Before Income Taxes (Non-GAAP) $ 267,732 $ 278,839 $ 563,591 $ 560,041 Provision for Income Taxes (GAAP) $ 54,931 $ 61,624 $ 121,749 $ 125,175 Transform and Modernize Initiative (1)(2) 2,665 — 4,985 — Pork Antitrust Litigation Settlements (3) 2,644 — 2,644 — Adjusted Provision for Income Taxes (Non-GAAP) $ 60,240 $ 61,624 $ 129,378 $ 125,175 Net Earnings Attributable to Hormel Foods Corporation (GAAP) $ 189,278 $ 217,239 $ 408,140 $ 434,958 Transform and Modernize Initiative (1)(2) 9,179 — 17,171 — Pork Antitrust Litigation Settlements (3) 9,106 — 9,106 — Adjusted Net Earnings Attributable to Hormel Foods Corporation (Non-GAAP) $ 207,562 $ 217,239 $ 434,418 $ 434,958 27 Table of Contents Quarter Ended Six Months Ended In thousands, except per share amounts April 28, 2024 April 30, 2023 April 28, 2024 April 30, 2023 Diluted Net Earnings Per Share (GAAP) $ 0.34 $ 0.40 $ 0.74 $ 0.79 Transform and Modernize Initiative (1)(2) 0.02 — 0.03 — Pork Antitrust Litigation Settlements (3) 0.02 — 0.02 — Adjusted Diluted Net Earnings Per Share (Non-GAAP) $ 0.38 $ 0.40 $ 0.79 $ 0.79 SG&A as a Percent of Net Sales (GAAP) 9.2 % 7.1 % 8.6 % 7.3 % Transform and Modernize Initiative (2) (0.3) — (0.3) — Pork Antitrust Litigation Settlements (3) (0.4) — (0.2) — Adjusted SG&A as a Percent of Net Sales (Non-GAAP) 8.5 % 7.1 % 8.1 % 7.3 % Operating Margin (GAAP) 8.7 % 9.9 % 9.1 % 9.8 % Transform and Modernize Initiative (1)(2) 0.4 — 0.4 — Pork Antitrust Litigation Settlements (3) 0.4 — 0.2 — Adjusted Operating Margin (Non-GAAP) 9.6 % 9.9 % 9.7 % 9.8 % (1) Comprised primarily of asset write-offs related to portfolio optimization. (2) Comprised primarily of project-based external consulting fees. (3) Settlements for pork antitrust litigation. Refer to Note I - Commitments and Contingencies of the Notes to the Consolidated Financial Statements for additional information . 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 Six Months Ended In thousands April 28, 2024 April 30, 2023 Cash and Cash Equivalents at End of Period $ 1,486,368 $ 580,496 Cash Provided by (Used in) Operating Activities 640,127 411,754 Cash Provided by (Used in) Investing Activities (112,716) (511,068) Cash Provided by (Used in) Financing Activities 221,072 (306,739) Increase (Decrease) in Cash and Cash Equivalents 749,836 (401,611) Cash and cash equivalents increased $750 million during the first six months of fiscal 2024, primarily as a result of proceeds received from the issuance of long-term debt. Additionally, cash provided by operating activities was sufficient to cover dividend payments and capital expenditures. The purchase of a minority interest in PT Garudafood Putra Putri Jaya Tbk (Garudafood) was the primary driver of the decline in cash and cash equivalents in the prior year. 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 $88 million and $106 million during the six months ended April 28, 2024 and April 30, 2023, respectively, primarily due to lower sales. – Prepaid expenses and other assets decreased $10 million during the six months ended April 28, 2024, compared to an increase of $59 million during the six months ended April 30, 2023. This activity was primarily due to cash collateral requirements associated with the Company’s hedging activities. – Inventory decreased $7 million during the first six months of fiscal 2024 compared to an increase of $27 million in the comparable period of the prior year. The decrease in inventory during fiscal 2024 was due to improvements in the Company’s supply chain, partially offset by higher levels of turkey on hand. The increase in inventory during fiscal 2023 was due to production outpacing sales. – Accounts payable and accrued expenses decreased $78 million during the first six months of fiscal 2024 due to general timing of payments, feed and livestock deferral payments, and annual incentive payments. These decreases were partially offset by higher accruals for marketing, incentives, and legal expenses. Accounts payable 28 Table of Contents and accrued expenses decreased $205 million during the first six months of fiscal 2023 due to general timing of payments and annual incentive payments. Cash Provided by (Used in) Investing Activities • Capital expenditures were $107 million and $91 million during the first six months of fiscal 2024 and fiscal 2023, respectively. The largest spend during fiscal 2024 was for the transition from harvest to value-added capacity at the facility in Barron, Wisconsin and wastewater infrastructure to support operations in Austin, Minnesota. The largest spend during fiscal 2023 was related to capacity expansion for pepperoni and the SPAM ® family of products. • During the first six months of fiscal 2023, the Company purchased a minority interest in Garudafood for $426 million. Cash Provided by (Used in) Financing Activities • Proceeds from the issuance of long-term debt were $498 million during the first six months fiscal 2024. The Company issued senior unsecured notes with aggregate principal amount of $500 million. The proceeds were placed in a short-term bank deposit, which is classified as Cash and Cash Equivalents on the Consolidated Condensed Statements of Financial Position. • Cash dividends paid to the Company’s shareholders were $305 million during the first six months of fiscal 2024, compared to $293 million in the comparable period of fiscal 2023. • Proceeds from the exercise of stock options were $27 million in the first six months of fiscal 2024, compared to $3 million in the first six months of fiscal 2023. The increase in proceeds was due to more options exercised during fiscal 2024 compared to fiscal 2023. • There were no share repurchases during the first six months of fiscal 2024. Share repurchases of $12 million were made during the first six months of fiscal 2023. 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 383 consecutive quarterly dividends since becoming a public company in 1928. The annual dividend rate for fiscal 2024 increased to $1.13 per share, representing the 58th 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 2024 are expected to focus on projects related to value-added capacity, infrastructure, and new technology. Capital expenditures for fiscal 2024 are estimated to be $280 million. Debt As of April 28, 2024, the Company’s outstanding debt included $3.8 billion of fixed rate unsecured senior notes due in fiscal 2024, 2027, 2028, 2030, and 2051 with interest payable semi-annually. During the first six months of fiscal 2024, the Company made $28 million of interest payments and expects to make an additional $41 million of interest payments during fiscal 2024 on these notes. On March 8, 2024, the Company issued senior unsecured notes with an aggregate principal amount of $500 million, which is intended, along with cash on hand, to pay the $950 million notes due June 2024 upon maturity. See Note J - Long-Term Debt and Other Borrowing Arrangements of the Notes to the Consolidated Financial Statements 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 April 28, 2024, the Company had no outstanding draws from this facility. 29 Table of Contents 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, engage in certain sale and leaseback transactions, and require maintenance of certain consolidated leverage ratios. As of April 28, 2024, the Company was in compliance with all covenants and expects to maintain compliance in the future. Cash Held by International Subsidiaries As of April 28, 2024, the Company had $195 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. 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. The Company did not repurchase any shares of stock during the first six months of fiscal 2024. The Company continues to evaluate share repurchases as part of its capital allocation strategy. Commitments On March 8, 2024, the Company issued senior unsecured notes with an aggregate principal amount of $500 million with a three-year tenor due March 2027. The notes bear interest at a fixed rate of 4.800% per annum and pay semi-annually. See Note J - Long-Term Debt and Other Borrowing Arrangements of the Notes to the Consolidated Financial Statements for additional information. In the third quarter of fiscal 2024, the Company expects to utilize cash on hand to pay approximately $12 million to settle with certain plaintiffs from the pork antitrust litigation. Refer to Note I - Commitments and Contingencies of the Notes to the Consolidated Financial Statements for additional information. Outside of the items mentioned above, 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 29, 2023. 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 Management’s 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 of the Notes 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 29, 2023. 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 30 Table of Contents 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, 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; risks associated with acquisitions, joint ventures, equity investments, and divestitures; potential disruption of operations, including at co-manufacturers, suppliers, logistics providers, customers, or other third-party service providers; failure to realize anticipated cost savings or operating efficiencies associated with strategic initiatives; 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.