HORMEL FOODS CORP /DE/ 10-Q

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Overview The Company is a global manufacturer and marketer of branded food products. The Company’s three reportable segments, Retail, Foodservice, and International, are described in Note 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 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. 20 Table of Contents • 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. • 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 In thousands, except per share amounts January 26, 2025 January 28, 2024 % Change 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) Net Earnings Attributable to Hormel Foods Corporation 170,575 218,863 (22.1) Diluted Earnings Per Share 0.31 0.40 (22.5) Adjusted Diluted Earnings Per Share (1) 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 (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. 21 Table of Contents Cost of Products Sold Quarter Ended In thousands January 26, 2025 January 28, 2024 % Change Cost of Products Sold $ 2,513,581 $ 2,488,178 1.0 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. Gross Profit Quarter Ended In thousands January 26, 2025 January 28, 2024 % Change Gross Profit $ 475,232 $ 508,733 (6.6) Percent of Net Sales 15.9 % 17.0 % 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 In thousands January 26, 2025 January 28, 2024 % Change SG&A $ 263,013 $ 240,386 9.4 Percent of Net Sales 8.8 % 8.0 % Adjusted SG&A (1) $ 237,481 $ 231,671 2.5 Adjusted Percent of Net Sales (1) 7.9 % 7.7 % (1) See the “Non-GAAP Measures” section below for a description of the Company’s use of measures not defined by U.S. GAAP. 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 In thousands January 26, 2025 January 28, 2024 % Change Equity in Earnings of Affiliates $ 16,111 $ 16,091 0.1 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. 22 Table of Contents Interest and Investment Income and Interest Expense Quarter Ended In thousands January 26, 2025 January 28, 2024 % Change Interest and Investment Income $ 9,204 $ 19,434 (52.6) Interest Expense 19,462 18,326 6.2 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 January 26, 2025 January 28, 2024 Effective Tax Rate 21.8 % 23.4 % 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 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 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. Equity in earnings of affiliates is included in segment profit; however, earnings attributable to the Company’s corporate venturing investments and noncontrolling interests are excluded. These items are included below as Net Unallocated Expense and Noncontrolling Interest when reconciling to Earnings Before Income Taxes. The Company is an integrated enterprise, characterized by substantial intersegment cooperation, cost allocations, and sharing of assets. Therefore, the Company does not represent that these segments, if operated independently, would report the profit and other financial information shown below. Quarter Ended In thousands January 26, 2025 January 28, 2024 % Change Net Sales Retail $ 1,890,133 $ 1,911,272 (1.1) Foodservice 930,185 913,087 1.9 International 168,495 172,552 (2.4) Total Net Sales $ 2,988,813 $ 2,996,911 (0.3) Segment Profit Retail $ 119,147 $ 149,505 (20.3) Foodservice 138,826 150,164 (7.6) International 20,845 20,031 4.1 Total Segment Profit 278,818 319,700 (12.8) Net Unallocated Expense 60,700 34,020 78.4 Noncontrolling Interest (45) (134) 66.3 Earnings Before Income Taxes $ 218,073 $ 285,547 (23.6) 23 Table of Contents Retail Quarter Ended In thousands January 26, 2025 January 28, 2024 % Change Volume (lbs.) 736,886 765,412 (3.7) Net Sales $ 1,890,133 $ 1,911,272 (1.1) Segment Profit 119,147 149,505 (20.3) 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. Foodservice Quarter Ended In thousands January 26, 2025 January 28, 2024 % Change 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) (1) See the “Non-GAAP Measures” section below for a description of the Company’s use of measures not defined by U.S. GAAP. 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 In thousands January 26, 2025 January 28, 2024 % Change Volume (lbs.) 74,569 80,135 (6.9) Net Sales $ 168,495 $ 172,552 (2.4) Segment Profit 20,845 20,031 4.1 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 24 Table of Contents 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 In thousands January 26, 2025 January 28, 2024 Net Unallocated Expense $ 60,700 $ 34,020 Noncontrolling Interest (45) (134) 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 There has been no material change in the information regarding Related Party Transactions as disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended October 27, 2024. (1) Non-GAAP Measures This filing includes measures of financial performance that are not defined by GAAP. The Company utilizes these non-GAAP measures to understand and evaluate operating performance on a consistent basis. These measures may also be used when making decisions regarding resource allocation and in determining incentive compensation. The Company believes these non-GAAP measures provide useful information to investors because they aid analysis and understanding of the Company’s results 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 calculated in accordance with GAAP and may be different from non-GAAP measures used by other companies. 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 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. 25 Table of Contents 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 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 Transform and Modernize Initiative (1) (186) (1,598) Adjusted Cost of Products Sold (Non-GAAP) $ 2,513,395 $ 2,486,580 SG&A (GAAP) $ 263,013 $ 240,386 Transform and Modernize Initiative (2) (13,968) (8,715) Loss on Sale of Business (11,324) — Litigation Settlements (240) — Adjusted SG&A (Non-GAAP) $ 237,481 $ 231,671 Operating Income (GAAP) $ 228,330 $ 284,438 Transform and Modernize Initiative (1)(2) 14,155 10,313 Loss on Sale of Business 11,324 — Litigation Settlements 240 — Adjusted Operating Income (Non-GAAP) $ 254,049 $ 294,751 Earnings Before Income Taxes (GAAP) $ 218,073 $ 285,547 Transform and Modernize Initiative (1)(2) 14,155 10,313 Loss on Sale of Business 11,324 — Litigation Settlements 240 — Adjusted Earnings Before Income Taxes (Non-GAAP) $ 243,791 $ 295,859 Provision for Income Taxes (GAAP) $ 47,543 $ 66,818 Transform and Modernize Initiative (1)(2) 3,086 2,413 Loss on Sale of Business 2,469 — Litigation Settlements 52 — Adjusted Provision for Income Taxes (Non-GAAP) $ 53,149 $ 69,231 Net Earnings Attributable to Hormel Foods Corporation (GAAP) $ 170,575 $ 218,863 Transform and Modernize Initiative (1)(2) 11,069 7,900 Loss on Sale of Business 8,855 — Litigation Settlements 188 — Adjusted Net Earnings Attributable to Hormel Foods Corporation (Non-GAAP) $ 190,687 $ 226,763 26 Table of Contents Quarter Ended In thousands, except per share amounts January 26, 2025 January 28, 2024 Diluted Earnings Per Share (GAAP) $ 0.31 $ 0.40 Transform and Modernize Initiative (1)(2) 0.02 0.01 Loss on Sale of Business 0.02 — Litigation Settlements — — Adjusted Diluted Earnings Per Share (Non-GAAP) $ 0.35 $ 0.41 SG&A as a Percent of Net Sales (GAAP) 8.8 % 8.0 % Transform and Modernize Initiative (2) (0.5) (0.3) Loss on Sale of Business (0.4) — Litigation Settlements — — Adjusted SG&A as a Percent of Net Sales (Non-GAAP) 7.9 % 7.7 % Operating Margin (GAAP) 7.6 % 9.5 % Transform and Modernize Initiative (1)(2) 0.5 0.3 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 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 Non-GAAP % Change 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) Net Sales 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 27 Table of Contents LIQUIDITY AND CAPITAL RESOURCES 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 Quarter Ended In thousands January 26, 2025 January 28, 2024 Cash and Cash Equivalents at End of Period $ 840,398 $ 963,212 Cash Provided by (Used in) Operating Activities 309,206 403,980 Cash Provided by (Used in) Investing Activities (60,333) (48,154) Cash Provided by (Used in) Financing Activities (143,063) (133,365) Increase (Decrease) in Cash and Cash Equivalents 98,516 226,680 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 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 $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 • 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 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 other 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 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 28 Table of Contents 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 The Company remains committed to providing returns to investors through cash dividends. 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 2025, raising it to $1.16 per share from $1.13 per share, representing the 59th consecutive annual dividend increase. Capital Expenditures Capital expenditures are allocated to required maintenance and growth opportunities based on the needs of the business. 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 2025 are estimated to be $275 million to $300 million. Debt 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 As a source of short-term financing, the Company maintains a $750 million unsecured revolving credit facility. The maximum commitment under this credit facility may be further increased by $375 million, generally by mutual agreement of the lenders and the Company, subject to certain customary conditions. Funds drawn from this facility may be used by the Company 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 January 26, 2025, the Company had no outstanding borrowings from this facility. Debt Covenants 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 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 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. The Company evaluates the balance and uses of cash held internationally based on the needs of the business. Share Repurchases The Company is authorized to repurchase 3,677,494 shares of common stock as part of an existing plan approved by the Company’s Board of Directors. 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 three months of fiscal 2025. The Company continues to evaluate share repurchases as part of its capital allocation strategy. Commitments 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. 29 Table of Contents TRADEMARKS References to the Company’s brands or products in italics within this report represent valuable trademarks owned or licensed by Hormel Foods, LLC or other subsidiaries of Hormel Foods Corporation. CRITICAL ACCOUNTING ESTIMATES Management’s discussion and analysis of financial condition and results of operations is based upon the Company’s consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires the Company to make estimates, judgments, and assumptions that can have a meaningful effect on the reporting of consolidated financial statements. The significant accounting policies used in preparing these consolidated financial statements are consistent with those described in Note A - Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements in the Form 10-K. Critical accounting estimates are defined as those reflective of significant judgments, estimates, and uncertainties, which may result in materially different results under different assumptions and conditions. There have been no material changes in the Company’s Critical Accounting Estimates as disclosed in its Annual Report on Form 10-K for the fiscal year ended October 27, 2024. FORWARD-LOOKING STATEMENTS This report contains “forward-looking” information within the meaning of the federal securities laws. The “forward-looking” information may include statements concerning the Company’s outlook for the future as well as other statements of beliefs, future plans, strategies, or anticipated events and similar expressions concerning matters that are not historical facts. The Private Securities Litigation Reform Act of 1995 (the Reform Act) provides a “safe harbor” for forward-looking statements to encourage companies to provide prospective information. The Company is filing this cautionary statement in connection with the Reform Act. When used in this Quarterly Report on Form 10-Q, the Company’s Annual Report to Stockholders, other filings by the Company with the Securities and Exchange Commission, the Company’s press releases, and oral statements made by the Company’s representatives, the words or phrases “should result,” “believe,” “intend,” “plan,” “are expected to,” “targeted,” “will continue,” “will approximate,” “is anticipated,” “estimate,” “project,” or similar expressions are intended to identify forward-looking statements within the meaning of the Reform Act. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical 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 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. 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. 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; 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; 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; 30 Table of Contents fluctuations in commodity prices and availability of raw materials and other inputs; 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; risks associated with climate change, or legal, regulatory, or market measures to address climate change; risks of litigation; potential sanctions and compliance costs arising from government regulation; compliance with stringent environmental regulations and potential environmental litigation; and risks arising from the Company’s foreign operations, including geopolitical risk, exchange rate risk, legal, tax, and regulatory risk, and risks associated with tariffs.