What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-09-04 compared with 2024-05-30 · 208 added, 153 removed, 218 unchanged (62% of the section changed)

3 unchanged sentences

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.

The Company reported diluted net earnings per share of $0.32 for the third quarter of fiscal 2024, up 7 percent compared to the same period last year.

Adjusted diluted net earnings per share (1) was $0.37.

Significant factors impacting the quarter were:

• Net sales for the second quarter decreased 3 percent.

Significant factors impacting the quarter are listed below.

All comparisons are to the same period of the prior year unless otherwise noted.

• Net sales for the third quarter decreased 2 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.

• Segment profit for the third quarter decreased 6 percent.

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

• Earnings before income taxes for the third quarter increased 9 percent, as the impact of lower net sales was more than offset by lower selling, general, and administrative (SG&A) expenses compared to the prior period, which included an unfavorable arbitration ruling.

Adjusted earnings before income taxes (1) decreased 8 percent.

• Retail segment profit declined in the current quarter as the benefit from lower logistics expenses and savings from the transform and modernize initiative were more than offset by the impact of lower net sales.

• Foodservice segment profit decreased in the current quarter, as higher sales were more than offset by higher SG&A expenses.

• International segment profit increased significantly in the current quarter, driven by improved export margins, growth from the Company’s investments in the Philippines and Indonesia, and favorable costs in China.

• The pre-tax impact of expenses related to the Company’s transform and modernize initiative and antitrust litigation settlements in the third quarter of fiscal 2024 was $30.5 million, most of which was recorded in SG&A expense.

The pre-tax impact of expenses related to the Company's arbitration ruling in the third quarter of fiscal 2023 was $70.0 million, all of which was recorded in SG&A expense.

• Year-to-date cash flow from operations was $858 million, an increase of 18 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.

• Subsequent to the end of the quarter, storms in the Midwest U.S.

caused roof and other damage at the Company’s Papillion, Nebraska, manufacturing facility.

The Company is assessing the financial impact for the fourth quarter of fiscal year 2024.

Consolidated Results

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

Quarter Ended Six Months Ended

Quarter Ended Nine Months Ended

In thousands, except per share amounts

April 28, 2024 April 30, 2023 %

Change April 28, 2024 April 30, 2023 %

July 28, 2024 July 30, 2023 %

Change July 28, 2024 July 30, 2023 %

Volume (lbs.) 1,018,690 1,094,518 (6.9) 3,180,087 3,256,292 (2.3)

7 unchanged sentences

(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 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.

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.

Net sales for the third 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 each of the Retail and International segments.

In the Retail segment, lower volume and net sales were driven by significant year-over-year volume and pricing declines for whole bird turkeys, lower sales of Planters ® snack nuts resulting from production disruptions at the Suffolk, Virginia, facility, and lower center-store and contract manufacturing volumes.

In the International segment, top-line declines were driven by lower commodity export volumes and lower net sales in China.

For the first nine 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 pricing within the whole bird turkey markets, which primarily impact the Retail segment, lower volumes in contract manufacturing, which primarily impact the Retail segment, and lower commodity export sales and lower net sales in China, which impact the International segment.

Cost of Products Sold

Quarter Ended Six Months Ended

April 28, 2024 April 30, 2023 %

Change April 28, 2024 April 30, 2023 %

Quarter Ended Nine Months Ended

July 28, 2024 July 30, 2023 %

Change July 28, 2024 July 30, 2023 %

Cost of Products Sold $ 2,410,075 $ 2,465,251 (2.2) $ 7,281,798 $ 7,426,514 (1.9)

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.

Quarter Ended Six Months Ended

April 28, 2024 April 30, 2023 %

Change April 28, 2024 April 30, 2023 %

Cost of products sold for the third quarter and the first nine months of fiscal 2024 decreased due primarily to lower sales.

On a per pound basis, cost of products sold for the first nine months of fiscal 2024 was comparable to the same period of the prior year.

The Company expects costs of products sold to continue to moderate relative to the high levels of inflation the business has absorbed since the beginning of fiscal 2021.

The Company expects its transform and modernize initiative to deliver cost savings,

throughout fiscal 2024.

The initiative targets costs throughout the Company’s organization, with a particular focus during 2024 on packaging, logistics, and production costs.

Quarter Ended Nine Months Ended

July 28, 2024 July 30, 2023 %

Change July 28, 2024 July 30, 2023 %

Gross Profit $ 488,369 $ 498,048 (1.9) $ 1,500,908 $ 1,485,417 1.0

Percent of Net Sales 16.8 % 16.8 % 17.1 % 16.7 %

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.

For the third quarter of fiscal 2024, gross profit as a percent of net sales was flat.

For the first nine months of fiscal 2024, gross profit as a percent of net sales increased in the International segment and was comparable for the Retail and Foodservice segments.

All segments benefited from savings realized as part of the Company’s transform and modernize initiative.

Looking ahead to the fourth quarter of fiscal 2024, the Company expects gross profit as a percent of net sales to increase compared 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

April 28, 2024 April 30, 2023 %

Change April 28, 2024 April 30, 2023 %

Quarter Ended Nine Months Ended

July 28, 2024 July 30, 2023 %

Change July 28, 2024 July 30, 2023 %

SG&A $ 259,653 $ 291,073 (10.8) $ 766,707 $ 725,621 5.7

5 unchanged sentences

(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.

For the third quarter, SG&A and SG&A as a percent of net sales decreased due to the accrual for an unfavorable arbitration ruling in the prior year, which was partially offset by current year 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.

For the first nine months of fiscal 2024, SG&A and SG&A as a percent of net sales increased, primarily due to higher employee-related expenses.

Advertising investments in the third quarter were $40 million, a decrease of 6 percent compared to last year.

The decline was partially due to lower support for the Planters ® brand due to production disruptions at the Suffolk, Virginia, facility.

For the first nine months of fiscal 2024, advertising investments were $128 million, an increase of 4 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 28, 2024 April 30, 2023 %

Change April 28, 2024 April 30, 2023 %

Quarter Ended Nine Months Ended

In thousands July 28, 2024 July 30, 2023 %

Change July 28, 2024 July 30, 2023 %

Equity in Earnings of Affiliates $ 7,977 $ 9,784 (18.5) $ 39,250 $ 42,213 (7.0)

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.

Equity in earnings of affiliates for the third quarter and the first nine months of fiscal 2024 decreased due to lower results for MegaMex Foods, LLC, partially offset by improvements from the Company’s international investments.

Interest and Investment Income and Interest Expense

Quarter Ended Six Months Ended

In thousands April 28, 2024 April 30, 2023 %

April 28, 2024

April 30, 2023 % Change

Quarter Ended Nine Months Ended

In thousands July 28, 2024 July 30, 2023 %

Change July 28, 2024 July 30, 2023 % Change

Interest and Investment Income $ 10,484 $ 9,239 13.5 $ 43,416 $ 20,700 109.7

Interest Expense 21,459 18,372 16.8 61,464 55,042 11.7

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.

Interest and investment income for the third quarter and the first nine months of fiscal 2024 increased due to a higher average cash balance, favorable market interest rates, and improved performance from the rabbi trust.

Interest expense increased in the third quarter and first nine months of fiscal 2024 due to the second quarter debt issuance.

Effective Tax Rate

Quarter Ended Six Months Ended

April 28, 2024 April 30, 2023 April 28, 2024 April 30, 2023

Quarter Ended Nine Months Ended

July 28, 2024 July 30, 2023 July 28, 2024 July 30, 2023

Effective Tax Rate 21.7 % 21.7 % 22.6 % 22.2 %

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 in the third quarter was flat to last year.

The higher effective tax rate for the first nine months of fiscal 2024 is primarily due to higher federal deductions in the prior year partially offset by the purchase of federal transferable energy credits in the current year.

The effective tax rate for fiscal 2024 is expected to be between 22.0% and 23.0%.

9 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

April 28, 2024 April 30, 2023 % Change April 28, 2024 April 30, 2023 % Change

Quarter Ended Nine Months Ended

July 28, 2024 July 30, 2023 % Change July 28, 2024 July 30, 2023 % Change

Retail $ 1,767,251 $ 1,891,746 (6.6) $ 5,467,078 $ 5,765,786 (5.2)

15 unchanged sentences

$ 225,719 $ 207,626 8.7 $ 755,404 $ 767,666 (1.6)

Quarter Ended Six Months Ended

April 28, 2024 April 30, 2023 %

Change April 28, 2024 April 30, 2023 %

Quarter Ended Nine Months Ended

July 28, 2024 July 30, 2023 %

Change July 28, 2024 July 30, 2023 %

Volume (lbs.) 680,214 748,146 (9.1) 2,170,621 2,267,363 (4.3)

1 unchanged sentence

Segment Profit 127,932 151,128 (15.3) 409,836 459,031 (10.7)

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.

Quarter Ended Six Months Ended

April 28, 2024 April 30, 2023 %

Change April 28, 2024 April 30, 2023 %

In the third quarter of fiscal 2024, volume and net sales declined, primarily due to significant year-over-year volume and pricing declines for whole bird turkeys, lower sales of Planters ® snack nuts resulting from production disruptions at the Suffolk, Virginia, facility, and lower center-store and contract manufacturing volumes.

Partially offsetting these declines were net sales growth for many key brands, including Hormel ® Black Label ® bacon, Applegate ® natural and organic meats, Jennie-O ® ground turkey, Skippy ® peanut butter, Wholly ® guacamole, Herdez ® salsas and sauces, and Hormel ® Square Table™ entrees.

For the first nine months of fiscal 2024, net sales declined primarily due to significant year-over-year declines in whole bird turkey sales and lower contract manufacturing volumes.

For the third quarter and first nine months of fiscal 2024, segment profit declined due to lower sales and higher SG&A.

These factors more than offset the benefit from lower logistics expenses and savings from the transform and modernize initiative.

For the fourth quarter of fiscal 2024, Retail segment profit is expected to be comparable to the prior year, excluding the impact of last year's non-cash impairment charge.

The Company expects continued benefits from lower logistics expenses and incremental savings from the transform and modernize initiative to mitigate the negative impacts from lower volumes, unfavorable commodity whole turkey dynamics, and lingering production disruptions at the Suffolk facility.

Quarter Ended Nine Months Ended

July 28, 2024 July 30, 2023 %

Change July 28, 2024 July 30, 2023 %

Volume (lbs.) 259,947 255,822 1.6 777,785 747,484 4.1

1 unchanged sentence

Segment Profit 142,487 146,270 (2.6) 441,952 428,110 3.2

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.

Volume and net sales growth in the third quarter of fiscal 2024 were driven primarily by strong performance across the turkey, premium prepared proteins, bacon, and pepperoni categories.

Notable products such as Hormel ® Fire Braised™ meats, Hormel ® Bacon 1™ cooked bacon , Café H ® globally inspired proteins, and Rosa Grande ® premium pepperoni delivered strong volume and net sales growth.

Growth from branded Jennie-O ® turkey items continued to benefit top-line results.

For the first nine months of fiscal 2024, volume and net sales growth was broad-based and across numerous categories.

Segment profit decreased for the third quarter of fiscal 2024 as higher sales were more than offset by higher SG&A expenses.

Segment profit increased for the first nine months of fiscal 2024 primarily due to higher sales.

For the fourth quarter, the Company expects Foodservice 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.

International

Quarter Ended Six Months Ended

April 28, 2024 April 30, 2023 %

Change April 28, 2024 April 30, 2023 %

Quarter Ended Nine Months Ended

July 28, 2024 July 30, 2023 %

Change July 28, 2024 July 30, 2023 %

Volume (lbs.) 78,529 90,550 (13.3) 231,681 241,445 (4.0)

1 unchanged sentence

Segment Profit 21,792 12,222 78.3 65,026 45,723 42.2

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.

During the third quarter of fiscal 2024, robust volume and net sales growth for SPAM ® luncheon meat, refrigerated foodservice exports, and Skippy ® peanut butter exports were more than offset by the difficult comparison in the prior year to significantly

higher export volumes of low-margin commodity fresh pork and turkey.

For the first nine months of fiscal 2024, net sales declined due to lower commodity export sales and lower net sales in China.

Segment profit in the third quarter of fiscal 2024 increased significantly, due to improved export margins, growth from the Company's investments in the Philippines and Indonesia, and favorable costs in China.

For the first nine months of fiscal 2024, segment profit increased due to improvement from the Company's international investments, favorable costs in China, and growth in Brazil.

In the fourth quarter of fiscal 2024, the Company expects International 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 investments in the Philippines and Indonesia.

Unallocated Income and Expense

Quarter Ended Six Months Ended

April 28, 2024 April 30, 2023 April 28, 2024 April 30, 2023

Quarter Ended Nine Months Ended

July 28, 2024 July 30, 2023 July 28, 2024 July 30, 2023

Net Unallocated Expense $ 66,526 $ 101,886 $ 161,239 $ 164,997

Noncontrolling Interest 34 (108) (170) (200)

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.

Net unallocated expense decreased for the third quarter of fiscal 2024 due to the accrual for an unfavorable arbitration ruling in the prior year.

For the first nine months of fiscal 2024, net unallocated expense decreased as the benefit from lapping the arbitration ruling, higher interest income, and favorable rabbi trust performance was partially offset by transform and modernize initiative costs, litigation settlements, and higher employee-related expenses.

Related Party Transactions

4 unchanged sentences

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

and business trends relative to past performance and the Company’s competitors.

The Company believes these non-GAAP measures provide useful information to investors because they aid analysis and understanding of the Company’s results 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.

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

Transform and Modernize Initiative

1 unchanged sentence

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;

The Company believes that non-recurring costs associated with the transform and modernize initiative 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.

Legal Matters

From time to time, the Company incurs expenses related to discrete legal matters that the Company believes 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 Company adjusts for (i.e., excludes) these expenses.

Litigation Settlements

In the second and third quarters of fiscal 2024, the Company entered into settlement agreements with certain plaintiffs in its pending 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.

Arbitration Ruling

In the third quarter of fiscal 2023, the Company received an unexpected, unfavorable arbitration ruling involving an isolated commercial dispute with a third party.

The table below shows the calculations to reconcile from the GAAP measures to the non-GAAP measures presented in this Quarterly Report on Form 10-Q.

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

Quarter Ended Nine Months Ended

In thousands, except per share amounts July 28, 2024 July 30, 2023 July 28, 2024 July 30, 2023

Cost of Products Sold (GAAP) $ 2,410,075 $ 2,465,251 $ 7,281,798 $ 7,426,514

2 unchanged sentences

Adjusted Cost of Products Sold (Non-GAAP) $ 2,408,848 $ 2,465,251 $ 7,277,152 $ 7,426,514

Gross Profit (GAAP) $ 488,369 $ 498,048 $ 1,500,908 $ 1,485,417

Transform and Modernize Initiative (1)

1,226 — 4,646 —

Adjusted Gross Profit (Non-GAAP) $ 489,595 $ 498,048 $ 1,505,554 $ 1,485,417

SG&A (GAAP) $ 259,653 $ 291,073 $ 766,707 $ 725,621

2 unchanged sentences

Pork Antitrust Litigation Settlements — — (11,750) —

Red Meat Wages Antitrust Litigation Settlement (13,500) — (13,500) —

Poultry Wages Antitrust Litigation Settlement

(3,500) — (3,500) —

Arbitration Ruling

— (70,000) — (70,000)

Adjusted SG&A (Non-GAAP) $ 230,373 $ 221,073 $ 706,941 $ 655,621

3 unchanged sentences

Pork Antitrust Litigation Settlements — — 11,750 —

Red Meat Wages Antitrust Litigation Settlement 13,500 — 13,500 —

Poultry Wages Antitrust Litigation Settlement

3,500 — 3,500 —

Arbitration Ruling

— 70,000 — 70,000

Adjusted Operating Income (Non-GAAP) $ 267,200 $ 286,759 $ 837,864 $ 872,009

3 unchanged sentences

Pork Antitrust Litigation Settlements — — 11,750 —

Red Meat Wages Antitrust Litigation Settlement 13,500 — 13,500 —

Poultry Wages Antitrust Litigation Settlement

3,500 — 3,500 —

Arbitration Ruling

— 70,000 — 70,000

Adjusted Earnings Before Income Taxes (Non-GAAP) $ 256,225 $ 277,626 $ 819,816 $ 837,666

3 unchanged sentences

Pork Antitrust Litigation Settlements — — 2,644 —

Red Meat Wages Antitrust Litigation Settlement 2,930 — 2,930 —

Poultry Wages Antitrust Litigation Settlement

Arbitration Ruling

— 15,190 — 15,190

Adjusted Provision for Income Taxes (Non-GAAP) $ 55,603 $ 60,245 $ 185,074 $ 185,420

Quarter Ended Nine Months Ended

In thousands, except per share amounts July 28, 2024 July 30, 2023 July 28, 2024 July 30, 2023

Net Earnings Attributable to Hormel Foods Corporation (GAAP) $ 176,701 $ 162,679 $ 584,842 $ 597,637

2 unchanged sentences

Pork Antitrust Litigation Settlements — — 9,106 —

Red Meat Wages Antitrust Litigation Settlement 10,571 — 10,571 —

Poultry Wages Antitrust Litigation Settlement

2,741 — 2,741 —

Arbitration Ruling

— 54,810 — 54,810

Adjusted Net Earnings Attributable to Hormel Foods Corporation (Non-GAAP) $ 200,588 $ 217,489 $ 634,913 $ 652,447

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) $ 0.32 $ 0.30 $ 1.07 $ 1.09

2 unchanged sentences

Pork Antitrust Litigation Settlements — — 0.02 —

Red Meat Wages Antitrust Litigation Settlement 0.02 — 0.02 —

Poultry Wages Antitrust Litigation Settlement

Arbitration Ruling

— 0.10 — 0.10

4 unchanged sentences

Pork Antitrust Litigation Settlements — — (0.1) —

Red Meat Wages Antitrust Litigation Settlement (0.5) — (0.2) —

Poultry Wages Antitrust Litigation Settlement

Arbitration Ruling

— (2.4) — (0.8)

3 unchanged sentences

Pork Antitrust Litigation Settlements — — 0.1 —

Red Meat Wages Antitrust Litigation Settlement 0.5 — 0.2 —

Poultry Wages Antitrust Litigation Settlement

Arbitration Ruling

Adjusted Operating Margin (Non-GAAP) 9.2 % 9.7 % 9.5 % 9.8 %

1 unchanged sentence

(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.

When assessing its 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

April 28, 2024 April 30, 2023

Nine Months Ended

July 28, 2024 July 30, 2023

Cash and Cash Equivalents at End of Period

4 unchanged sentences

Increase (Decrease) in Cash and Cash Equivalents (199,057) (312,983)

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.

Cash and cash equivalents decreased $199 million during the first nine months of fiscal 2024, primarily as a result of the Company repaying a portion of long-term debt by using existing cash on hand and the proceeds from new debt issued in fiscal 2024.

Cash provided by operating activities has been sufficient to cover dividend payments and capital expenditures during the first nine months of fiscal 2024.

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.

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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.

• Cash flows from operating activities during the first nine months of fiscal 2024 were largely impacted by changes in operating assets and liabilities.

– Accounts receivable decreased $89 million and $81 million during the nine months ended July 28, 2024 and July 30, 2023, respectively, primarily due to lower sales.

– Inventory decreased $31 million during the first nine months of fiscal 2024 compared to an increase of $21 million in the comparable period of the prior year.

The decrease in inventory during fiscal 2024 was due to benefits in supply chain processes associated with the Company's transform and modernize initiative as well as the impact of production disruptions at the Suffolk, Virginia manufacturing facility.

These reduced levels of inventory were partially offset by higher levels of turkey on hand in fiscal 2024.

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

and accrued expenses decreased $205 million during the first six months of fiscal 2023 due to general timing of payments and annual incentive payments.

– Accounts payable and accrued expenses decreased $95 million during the first nine months of fiscal 2024 due to the general timing of payments, feed and livestock deferral payments, and annual incentive payments.

These decreases were partially offset by higher accruals for marketing and legal expenses.

Accounts payable and accrued expenses decreased $131 million during the first nine months of fiscal 2023 due to the general timing of payments and annual incentive payments, partially offset by higher accruals for legal expenses.

– Prepaid expenses and other assets increased $8 million during the nine months ended July 28, 2024, compared to an increase of $52 million during the nine months ended July 30, 2023.

This activity was primarily related to settlements associated with the Company’s hedging activities.

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.

• Capital expenditures were $173 million and $169 million during the first nine 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.

• During the first nine 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 paid $950 million of its senior unsecured notes upon maturity on June 3, 2024.

• Proceeds from the issuance of long-term debt were $498 million during the first nine months of 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.

• Cash dividends paid to the Company’s shareholders were $460 million during the first nine months of fiscal 2024, compared to $443 million in the comparable period of fiscal 2023.

• Proceeds from the exercise of stock options were $34 million in the first nine months of fiscal 2024, compared to $8 million in the first nine 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.

• There were no share repurchases during the first nine months of fiscal 2024.

Share repurchases of $12 million were made during the first nine 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.

The Company believes its 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 and uses a waterfall approach, which focuses first on core uses of cash, such as capital expenditures to maintain facilities, dividend returns to investors, mandatory debt repayments, and fulfillment of 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 believes its anticipated income from operations, cash on hand, borrowing capacity under the current unsecured revolving 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.

The Company has multiple sources of liquidity to complete such investments and acquisitions.

For example, the Company’s historic ability to leverage its balance sheet through the issuance of debt has provided the flexibility to pursue strategic opportunities.

Dividend Payments

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The Company has paid 384 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.

The Board of Directors approved an increased

annual dividend rate for fiscal 2024 raising it to $1.13 per share from $1.10 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 are allocated to required maintenance and 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.

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.

As of July 28, 2024, the Company’s outstanding debt included $2.9 billion of fixed rate unsecured senior notes due in fiscal 2027, 2028, 2030, and 2051 with interest payable semi-annually.

During the first nine months of fiscal 2024, the Company made $55 million of interest payments and the Company expects to make an additional $13 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.

These proceeds were used, along with cash on hand, to repay $950 million in senior unsecured notes which matured on June 3, 2024.

See Note J - Long-Term Debt and Other Borrowing Arrangements of the Notes to the Consolidated Financial Statements for additional information.

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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.

Funds drawn from this facility may be used by the Company for general corporate purposes, which may include repaying existing debt, funding acquisitions, and for working capital or other general purposes.

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.

As of July 28, 2024, 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, 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.

The Company’s debt 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, or engage in certain sale and leaseback transactions, and the covenants require the Company to maintain certain consolidated leverage ratios.

As of July 28, 2024, the Company was in compliance with all covenants in its debt agreements 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.

As of July 28, 2024, the Company's international subsidiaries held $197 million of cash and cash equivalents.

The Company maintains all undistributed earnings as permanently reinvested.

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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.

Under the share repurchase authorization, the Company may repurchase shares periodically, depending on market conditions and other factors, and may do so in open market purchases or privately negotiated transactions.

The share repurchase authorization has no expiration date.

The Company did not repurchase any shares of stock during the first nine months of fiscal 2024.

The Company continues to evaluate share repurchases as part of its capital allocation strategy.

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.

As previously described, 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.

The Company used cash on hand to pay approximately $7 million during the third quarter of fiscal 2024 in respect of legal settlements.

Subsequent to quarter-end but prior to the filing of this Quarterly Report on Form 10-Q, the Company used an additional $4 million of cash on hand to complete payment of these legal settlements.

Also subsequent to quarter-end, the Company entered into additional legal settlements totaling $17 million, which remain subject to Court approval.

Following such approval, the Company expects to pay the associated amounts using cash on hand.

See 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.

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The Company is filing this cautionary statement in connection with the Reform Act.

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.

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.

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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;

Forward-looking statements are inherently at risk to changes in the Company’s business as well as the national and worldwide economic environment.

The risks and uncertainties that could cause actual results to differ from those anticipated or projected 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;

the risk of disruption of operations, including at owned facilities, co-manufacturers, suppliers, logistics providers, customers, or other third-party service providers;

risk related to the remediation of production disruptions at the Suffolk, Virginia, facility;

the risk that the Company will fail to realize anticipated cost savings or operating efficiencies associated with strategic initiatives, including the transform and modernize initiative;

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;

risk of the Company’s inability to protect information technology systems against, or effectively respond to, cyber attacks against it or others with whom it does business, security breaches or other IT interruptions;

deterioration of labor

relations or labor availability or increases to labor costs;

general risks of the food industry, including food contamination or 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;

risks related to the Company's ability to respond to changing consumer preferences and the success of innovation and marketing investments;

damage to the Company’s reputation or brand image;

climate change, or legal, regulatory, or market measures to address climate change;

risks associated with climate change, or legal, regulatory, or market measures to address climate change;

risks of litigation;

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compliance with stringent environmental regulations and potential environmental litigation;

and risks arising from the Company’s foreign operations.

risks and uncertainties associated with intangible assets, including any future goodwill or intangible assets impairment charges;

and risks arising from the Company’s foreign operations, including geopolitical risk, exchange rate risk, and risks associated with tariffs.

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