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Item 2. Management’s Discussion and Analysis

2025-02-27 compared with 2024-09-04 · 195 added, 239 removed, 187 unchanged (70% of the section changed)

2 unchanged sentences

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

The Company’s three reportable segments, 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 $0.32 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.

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

The Company reported diluted earnings per share of $0.31 for the first quarter of fiscal 2025, down 23 percent compared to the same period last year.

Adjusted diluted earnings per share (1) was $0.35.

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 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.

• Net sales for the first quarter were flat compared to the prior year while organic net sales (1) increased.

The benefit from higher organic volume (1) and organic net sales (1) in the Foodservice segment was more than offset by lower volume and net sales in the Retail and International segments.

• Total segment profit for the first quarter decreased 13 percent.

Segment profit growth in the International segment was more than offset by declines in segment profit for each of the Retail and Foodservice segments.

• Retail segment profit declined in the first quarter as benefits from the Transform and Modernize (T&M) initiative and margin growth from the Emerging Brands and Convenient Meals & Proteins verticals partially mitigated the impact from lower sales and higher raw material costs within the Snacking & Entertaining vertical, higher input costs, and unfavorable whole turkey dynamics.

• Foodservice segment profit decreased in the first quarter, as higher sales were offset by margin pressures, primarily in non-core businesses.

• International segment profit increased in the first quarter, as improved export margins and growth in China were partially offset by softness in Brazil and lower equity in earnings.

• Earnings before income taxes for the first quarter decreased 24 percent, as the impact of higher organic net sales (1) was more than offset by higher cost of products sold and higher selling, general, and administrative (SG&A) expenses compared to the prior period.

Adjusted earnings before income taxes (1) decreased 18 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.

• 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.

• The pre-tax impact of expenses related to the Company’s T&M initiative, the loss on the sale of a non-core sow operation, and an antitrust litigation settlement in the first quarter of fiscal 2025 was $25.7 million, most of which was recorded in SG&A.

• Year-to-date cash flow from operations was $309 million, a decrease of 23 percent compared to the prior year.

Consolidated Results

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

Quarter Ended Nine Months Ended

Quarter Ended

In thousands, except per share amounts

July 28, 2024 July 30, 2023 %

Change July 28, 2024 July 30, 2023 %

January 26, 2025 January 28, 2024 %

Volume (lbs.) 1,055,308 1,101,554 (4.2)

Organic Volume (lbs.) (1)

1,055,308 1,085,624 (2.8)

Net Sales $ 2,988,813 $ 2,996,911 (0.3)

Organic Net Sales (1)

2,988,813 2,970,013 0.6

Earnings Before Income Taxes 218,073 285,547 (23.6)

4 unchanged sentences

0.35 0.41 (14.6)

(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 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.

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

Volume and Net Sales

Net sales for the first quarter of fiscal 2025 decreased compared to the prior year, as the benefit from higher net sales in the Foodservice segment was more than offset by lower net sales in each of the Retail and International segments.

In the Foodservice segment, organic volume (1) and net sales growth in the first quarter of fiscal 2025 were primarily driven by strong performance across the premium prepared proteins, turkey, premium bacon, and breakfast sausage categories.

Notable products such as branded Jennie-O ® turkey items, Hormel ® Fire Braised™ meats, Café H ® globally inspired proteins, and Cure 81 ® ham delivered strong volume and net sales growth.

In the Retail segment, many of the Company's key flagship and rising brands delivered net sales growth relative to last year, including the SPAM ® family of products, Applegate ® natural and organic meats, Hormel ® Black Label ® bacon, Jennie-O ® ground turkey, Wholly ® guacamole, and Hormel ® pepperoni.

As anticipated, lower sales of snack nuts due to impacts from the production disruption at the Suffolk, Virginia facility was a primary driver of year-over-year net sales declines.

In the International segment, net sales growth in China and branded exports were more than offset by softness in Brazil and lower commodity turkey exports.

In the second quarter of fiscal 2025, the Company expects net sales growth from each segment compared to the prior year.

Cost of Products Sold

Quarter Ended Nine Months Ended

July 28, 2024 July 30, 2023 %

Change July 28, 2024 July 30, 2023 %

Quarter Ended

January 26, 2025 January 28, 2024 %

Cost of Products Sold $ 2,513,581 $ 2,488,178 1.0

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 %

Cost of products sold for the first quarter of fiscal 2025 increased due primarily to higher commodity input costs.

On a per pound basis, cost of products sold for the first three months of fiscal 2025 increased compared to the prior year.

Quarter Ended

January 26, 2025 January 28, 2024 %

Gross Profit $ 475,232 $ 508,733 (6.6)

Percent of Net Sales 15.9 % 17.0 %

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.

For the first quarter of fiscal 2025, gross profit as a percent of net sales declined.

Gross profit as a percent of net sales increased in the International segment and decreased for the Retail and Foodservice segments.

All segments benefited from savings realized as part of the Company’s T&M initiative.

For the second quarter of fiscal 2025, the Company expects gross profit as a percent of net sales to decrease for each reporting segment compared to last year.

Selling, General, and Administrative (SG&A)

Quarter Ended Nine Months Ended

July 28, 2024 July 30, 2023 %

Change July 28, 2024 July 30, 2023 %

Quarter Ended

January 26, 2025 January 28, 2024 %

SG&A $ 263,013 $ 240,386 9.4

3 unchanged sentences

Adjusted Percent of Net Sales (1)

7.9 % 7.5 % 8.0 % 7.4 %

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

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.

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.

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

For the first quarter, SG&A and SG&A as a percent of net sales increased due to the loss on the sale of a non-core sow operation, employee-related expenses, and expenses related to the T&M initiative.

Adjusted SG&A as a percent of net sales (1) increased compared to last year due to employee-related expenses.

Advertising investments in the first quarter were $43 million, a decrease of 2 percent compared to last year.

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

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 28, 2024 July 30, 2023 %

Change July 28, 2024 July 30, 2023 %

Quarter Ended

In thousands January 26, 2025 January 28, 2024 %

Equity in Earnings of Affiliates $ 16,111 $ 16,091 0.1

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.

Equity in earnings of affiliates for the first quarter of fiscal 2025 is comparable to the prior year as favorable results for MegaMex Foods, LLC, were offset by the Company’s international investments.

Interest and Investment Income and Interest Expense

Quarter Ended Nine Months Ended

In thousands July 28, 2024 July 30, 2023 %

Change July 28, 2024 July 30, 2023 % Change

Quarter Ended

In thousands January 26, 2025 January 28, 2024 %

Interest and Investment Income $ 9,204 $ 19,434 (52.6)

Interest Expense 19,462 18,326 6.2

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.

Interest and investment income for the first quarter of fiscal 2025 decreased predominately due to performance from the rabbi trust.

Interest expense increased in the first quarter of fiscal 2025 due to the prior year debt issuance.

Effective Tax Rate

Quarter Ended Nine Months Ended

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

Quarter Ended

January 26, 2025 January 28, 2024

Effective Tax Rate 21.8 % 23.4 %

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 in the first quarter was 21.8% compared to 23.4% last year.

The lower effective tax rate for the first three months of fiscal 2025 is primarily due to the purchase of federal transferable energy credits in the current year.

The effective tax rate for fiscal 2025 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.

For additional information, refer to Note L - 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 does not allocate deferred compensation, non-recurring expenses associated with the T&M initiative, gains or losses on the sale of businesses, 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.

4 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 Nine Months Ended

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

Quarter Ended

January 26, 2025 January 28, 2024 % Change

Retail $ 1,890,133 $ 1,911,272 (1.1)

15 unchanged sentences

$ 218,073 $ 285,547 (23.6)

Quarter Ended Nine Months Ended

July 28, 2024 July 30, 2023 %

Change July 28, 2024 July 30, 2023 %

Quarter Ended

January 26, 2025 January 28, 2024 %

Volume (lbs.) 736,886 765,412 (3.7)

1 unchanged sentence

Segment Profit 119,147 149,505 (20.3)

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 %

In the first quarter of fiscal 2025, volume and net sales decreased compared to last year.

Collectively, flagship and rising brands delivered growth relative to last year, led by the SPAM ® brand, Applegate ® natural and organic meats, Hormel ® Black Label ® bacon, Jennie-O ® ground turkey, Wholly ® guacamole, and Hormel ® pepperoni.

As anticipated, lower sales of snack nuts due to impacts from the production disruption at the Suffolk facility was a primary driver of the year-over-year net sales decline.

For the first quarter of fiscal 2025, segment profit declined as the benefits from the T&M initiative and margin growth from the Emerging Brands and Convenient Meals & Proteins verticals partially mitigated the impact from lower sales and higher raw material costs within the Snacking & Entertaining vertical, higher input costs, and unfavorable whole turkey dynamics.

For the second quarter of fiscal 2025, Retail segment profit is anticipated to decline versus the prior year.

Year-over-year benefits from the T&M initiative and growth from the Value Added Meats and Bacon verticals are expected to be more than offset by a challenging snack nuts comparison and higher raw material costs.

Quarter Ended

January 26, 2025 January 28, 2024 %

Volume (lbs.) 243,853 256,007 (4.7)

Organic Volume (lbs.) (1)

243,853 240,077 1.6

Net Sales $ 930,185 $ 913,087 1.9

Organic Net Sales (1)

930,185 886,189 5.0

Segment Profit 138,826 150,164 (7.6)

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.

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

Organic volume (1) and net sales growth in the first quarter of fiscal 2025 were driven primarily by strong performance across the premium prepared proteins, turkey, premium bacon, and breakfast sausage categories.

Notable products such as branded Jennie-O ® turkey items, Hormel ® Fire Braised™ meats, Café H ® globally inspired proteins, and Cure 81 ® ham delivered strong volume and net sales growth.

Segment profit decreased for the first quarter of fiscal 2025 as higher sales were primarily offset by margin pressures in non-core businesses.

For the second quarter, the Company expects Foodservice segment profit to decline compared to the prior year, as organic top-line growth is expected to be more than offset by margin pressures in non-core businesses and higher input costs.

International

Quarter Ended Nine Months Ended

July 28, 2024 July 30, 2023 %

Change July 28, 2024 July 30, 2023 %

Quarter Ended

January 26, 2025 January 28, 2024 %

Volume (lbs.) 74,569 80,135 (6.9)

1 unchanged sentence

Segment Profit 20,845 20,031 4.1

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.

During the first quarter of fiscal 2025, strong volume and net sales growth in China and growth in exports such as SPAM ® luncheon meat, Skippy ® peanut butter, and fresh pork were more than offset by softness in Brazil and lower commodity turkey exports.

The China business benefited from a continued focus on new customers and product offerings, which drove sales

momentum within the foodservice channel.

Within the China retail channel, the team deployed successful initiatives to gain new distribution, launch profitable innovation and increase promotional activity to offset consumer challenges.

Strong shipments of the SPAM ® family of products to the Philippines market was the largest contribution to export growth.

Segment profit increased in the first quarter of fiscal 2025, as improved export margins and growth in China were partially offset by softness in Brazil and lower equity in earnings.

In the second quarter of fiscal 2025, the Company expects International segment profit to decrease compared to the prior year.

Value-added growth across China and Indonesia is expected to be more than offset by softness in Brazil.

Unallocated Income and Expense

Quarter Ended Nine Months Ended

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

Quarter Ended

January 26, 2025 January 28, 2024

Net Unallocated Expense $ 60,700 $ 34,020

Noncontrolling Interest (45) (134)

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.

Net unallocated expense increased for the first quarter of fiscal 2025 due to the loss on the sale of a non-core sow operation, the impact of lapping higher rabbi trust investment gains in the prior year, and higher employee-related expenses.

Related Party Transactions

7 unchanged sentences

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

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 that non-recurring costs associated with the transform and modernize initiative are not reflective of the Company’s ongoing operating cost structure;

Transform and Modernize (T&M) Initiative

In the fourth quarter of fiscal 2023, the Company announced a multi-year T&M 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 expenses related to supply chain and portfolio optimization (e.g., asset write-offs, severance, or relocation-related costs).

The Company believes that non-recurring costs associated with the T&M 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.

The Company does not adjust for (i.e., does not exclude) certain costs related to the T&M 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.

The Company also does not adjust for savings realized through the T&M initiative as these are considered ongoing in nature and reflective of expected future operating performance.

Loss on Sale of Business

In the first quarter of fiscal 2025, the Company sold Mountain Prairie, LLC, a non-core sow operation, resulting in a loss on the sale.

The Company believes the one-time detriment from the sale, including transaction costs, is not reflective of the Company’s ongoing operating cost structure, is not indicative of the Company’s core operating performance, and may not be meaningful when comparing the Company’s operating performance against that of prior periods.

Thus, the Company adjusted for (i.e.

excluded) the loss.

Legal Matters

2 unchanged sentences

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.

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 Nine Months Ended

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

In the first quarter of fiscal 2025, the Company entered into a settlement agreement with a plaintiff in a pending antitrust litigation.

See Note J - Commitments and Contingencies of the Notes to the Consolidated Financial Statements for additional information.

Organic Volume and Organic Net Sales

The non-GAAP measures of organic volume and organic net sales are presented to provide investors with additional information to facilitate the comparison of past and present operations.

Organic volume and organic net sales exclude the impact of the sale of Hormel Health Labs, LLC in the Foodservice segment in the fourth quarter of fiscal 2024.

The tables below show 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 transactions occurred.

Quarter Ended

In thousands, except per share amounts January 26, 2025 January 28, 2024

Cost of Products Sold (GAAP) $ 2,513,581 $ 2,488,178

2 unchanged sentences

Adjusted Cost of Products Sold (Non-GAAP) $ 2,513,395 $ 2,486,580

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) $ 263,013 $ 240,386

1 unchanged sentence

(13,968) (8,715)

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)

Loss on Sale of Business (11,324) —

Litigation Settlements (240) —

Adjusted SG&A (Non-GAAP) $ 237,481 $ 231,671

2 unchanged sentences

14,155 10,313

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

Loss on Sale of Business 11,324 —

Litigation Settlements 240 —

Adjusted Operating Income (Non-GAAP) $ 254,049 $ 294,751

2 unchanged sentences

14,155 10,313

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

Loss on Sale of Business 11,324 —

Litigation Settlements 240 —

Adjusted Earnings Before Income Taxes (Non-GAAP) $ 243,791 $ 295,859

1 unchanged sentence

Transform and Modernize Initiative (1)(2)

2,931 — 8,009 —

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

Loss on Sale of Business 2,469 —

Litigation Settlements 52 —

Adjusted Provision for Income Taxes (Non-GAAP) $ 53,149 $ 69,231

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) $ 170,575 $ 218,863

Transform and Modernize Initiative (1)(2)

10,575 — 27,654 —

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

Loss on Sale of Business 8,855 —

Litigation Settlements 188 —

Adjusted Net Earnings Attributable to Hormel Foods Corporation (Non-GAAP) $ 190,687 $ 226,763

Diluted Net Earnings Per Share (GAAP) $ 0.32 $ 0.30 $ 1.07 $ 1.09

Transform and Modernize Initiative (1)(2)

Quarter Ended

In thousands, except per share amounts January 26, 2025 January 28, 2024

Diluted Earnings Per Share (GAAP)

$ 0.31 $ 0.40

Pork Antitrust Litigation Settlements — — 0.02 —

Red Meat Wages Antitrust Litigation Settlement 0.02 — 0.02 —

Poultry Wages Antitrust Litigation Settlement

Arbitration Ruling

Transform and Modernize Initiative (1)(2)

Loss on Sale of Business 0.02 —

Litigation Settlements — —

Adjusted Diluted Earnings Per Share (Non-GAAP)

$ 0.35 $ 0.41

Adjusted Diluted Net Earnings Per Share (Non-GAAP) $ 0.37 $ 0.40 $ 1.16 $ 1.19

SG&A as a Percent of Net Sales (GAAP) 8.8 % 8.0 %

Transform and Modernize Initiative (2)

(0.4) — (0.4) —

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)

Loss on Sale of Business (0.4) —

Litigation Settlements — —

Adjusted SG&A as a Percent of Net Sales (Non-GAAP) 7.9 % 7.7 %

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Transform and Modernize Initiative (1)(2)

Pork Antitrust Litigation Settlements — — 0.1 —

Red Meat Wages Antitrust Litigation Settlement 0.5 — 0.2 —

Poultry Wages Antitrust Litigation Settlement

Arbitration Ruling

Loss on Sale of Business 0.4 —

Litigation Settlements — —

Adjusted Operating Margin (Non-GAAP) 8.5 % 9.8 %

(1) Comprised primarily of asset write-offs related to portfolio optimization.

(1) Comprised primarily of asset write-offs and severance expenses related to supply chain and portfolio optimization.

(2) Comprised primarily of project-based external consulting fees.

ORGANIC VOLUME AND ORGANIC NET SALES (NON-GAAP)

Quarter Ended

January 26, 2025 January 28, 2024

In thousands GAAP GAAP Divestiture

Non-GAAP Organic

Volume (lbs.)

Retail 736,886 765,412 — 765,412 (3.7)

Foodservice 243,853 256,007 (15,930) 240,077 1.6

International 74,569 80,135 — 80,135 (6.9)

Total Volume (lbs.) 1,055,308 1,101,554 (15,930) 1,085,624 (2.8)

Retail $ 1,890,133 $ 1,911,272 $ — $ 1,911,272 (1.1)

Foodservice 930,185 913,087 (26,898) 886,189 5.0

International 168,495 172,552 — 172,552 (2.4)

Total Net Sales $ 2,988,813 $ 2,996,911 $ (26,898) $ 2,970,013 0.6

LIQUIDITY AND CAPITAL RESOURCES

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Cash Flow Highlights

Nine Months Ended

July 28, 2024 July 30, 2023

Quarter Ended

January 26, 2025 January 28, 2024

Cash and Cash Equivalents at End of Period

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Increase (Decrease) in Cash and Cash Equivalents 98,516 226,680

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.

Cash and cash equivalents increased $99 million and $227 million during the first quarter of fiscal 2025 and fiscal 2024, respectively.

Cash provided by operating activities was sufficient to cover dividend payments and capital expenditures in both years.

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

Cash Provided by (Used in) Operating Activities

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

– Accounts receivable decreased $57 million and $68 million during the first quarter of fiscal 2025 and fiscal 2024, respectively, primarily due to lower sales compared to the fourth quarter of the prior year.

– Inventory decreased $56 million during the first quarter of fiscal 2025 compared to a decrease of $104 million in the comparable period of the prior year.

The decrease in inventory during fiscal 2025 was primarily driven by holiday sales and constrained turkey inventories.

The decrease in inventory during fiscal 2024 was due to improvement in the Company's supply chain and the negative impact of Highly Pathogenic Avian Influenza on turkey operations.

– Accounts payable and accrued expenses decreased $56 million and $132 million during the first quarter of fiscal 2025 and fiscal 2024, respectively.

These decreases were driven by annual incentive payments as well as livestock and feed deferral payments which were partially offset by higher marketing accruals.

The decrease during fiscal 2024 was also due to the general timing of payments and inventory management.

– Net income taxes payable decreased $14 million during the first quarter of fiscal 2025, compared to an increase of $63 million in the comparable period of the prior year.

The decrease in fiscal 2025 was the result of purchasing federal transferable energy tax credits.

Cash Provided by (Used in) Investing Activities

• 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 nine months of fiscal 2023, the Company purchased a minority interest in Garudafood for $426 million.

• Capital expenditures were $72 million and $47 million during the first quarter of fiscal 2025 and fiscal 2024, respectively.

The largest project during both years was for the transition from harvest to value-added capacity for Hormel ® Fire Braised ® products and Applegate ® products at the facility in Barron, Wisconsin.

Other significant projects included equipment upgrades for chili production in Beloit, Wisconsin during fiscal year 2025 and wastewater infrastructure to support operations in Austin, Minnesota during both fiscal year 2025 and fiscal year 2024.

• Proceeds from the sale of business were $13.6 million during the first quarter of fiscal 2025 as the Company sold its equity interest in Mountain Prairie, LLC.

There were no divestitures during the first three months of fiscal 2024.

Cash Provided by (Used in) Financing Activities

• 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.

• 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 nine months of fiscal 2024.

Share repurchases of $12 million were made during the first nine months of fiscal 2023.

• Cash dividends paid to the Company’s shareholders totaled $155 million during the first quarter of fiscal 2025, compared to $150 million in the comparable period of fiscal 2024.

Sources and Uses of Cash

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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.

Next, the Company looks to strategic items in support of growth initiatives, such as other capital projects, acquisitions, additional dividend increases, and working capital investments.

Finally, the Company evaluates opportunistic uses, including incremental debt repayment and share repurchases.

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The Company continues to look for opportunities to make investments and acquisitions that align with its strategic priorities.

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

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.

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The Company has paid 386 consecutive quarterly dividends since becoming a public company in 1928.

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.

The Board of Directors approved an increased annual dividend rate for fiscal 2025, raising it to $1.16 per share from $1.13 per share, representing the 59th consecutive annual dividend increase.

Capital Expenditures

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Capital expenditures supporting growth opportunities in fiscal 2025 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 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.

Capital expenditures for fiscal 2025 are estimated to be $275 million to $300 million.

As of January 26, 2025, 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 three months of fiscal 2025, the Company made $25 million of interest payments and the Company expects to make an additional $49 million of interest payments during fiscal 2025 on these notes.

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

Borrowing Capacity

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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 28, 2024, the Company had no outstanding draws from this facility.

As of January 26, 2025, the Company had no outstanding borrowings from this facility.

Debt Covenants

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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.

As of January 26, 2025, 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 July 28, 2024, the Company's international subsidiaries held $197 million of cash and cash equivalents.

As of January 26, 2025, the Company’s international subsidiaries held $234 million of cash and cash equivalents.

The Company maintains all undistributed earnings as permanently reinvested.

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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 did not repurchase any shares of stock during the first three months of fiscal 2025.

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

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.

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.

Subsequent to quarter-end but prior to the filing of this Quarterly Report on Form 10-Q, the Company used $13.5 million of cash on hand to pay the Red Meat Wages Antitrust Litigation settlement.

See Note J - Commitments and Contingencies of the Notes to the Consolidated Financial Statements for additional information.

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 27, 2024.

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.

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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.

Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results 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.

The discussion 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.

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

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risks associated with acquisitions, joint ventures, equity investments, and divestitures;

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

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;

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;

the risk that the Company may fail to realize anticipated cost savings or operating profit improvements associated with strategic initiatives, including the Transform and Modernize initiative;

risk of loss of a significant contract or unfavorable changes in the Company’s relationships with significant customers;

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

risk of the Company’s failure to timely replace legacy technologies;

deterioration of labor relations or labor availability or increases to labor costs;

general risks of the food industry, including those related to food safety, such as costs resulting from food contamination, product recalls, the remediation of food safety events at its facilities, including the production disruption at the Suffolk, Virginia, facility, 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;

fluctuations in market demand for the Company’s products, including due to private label products and lower-priced alternatives;

risks related to the Company’s ability to respond to changing consumer preferences, diets and eating patterns, and the success of innovation and marketing investments;

damage to the Company’s reputation or brand image;

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compliance with stringent environmental regulations and potential environmental litigation;

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.

and risks arising from the Company’s foreign operations, including geopolitical risk, exchange rate risk, legal, tax, and regulatory 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