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 $0.33 for the second quarter of fiscal 2025, down 3 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 second quarter were comparable to the prior year. Organic net sales (1) increased 1 percent with growth from the Foodservice and International segments and comparable net sales in the Retail segment. • Total segment profit for the second quarter decreased 3 percent. Segment profit growth in the Retail segment was more than offset by declines in segment profit for each of the Foodservice and International segments. • Retail segment profit grew in the second quarter primarily due to benefits from operational efficiencies as part of the Transform and Modernize (T&M) initiative and favorable selling, general, and administrative (SG&A) expenses. • Foodservice segment profit decreased in the second quarter, as higher net sales were more than offset by margin pressures, primarily in non-core businesses. • International segment profit declined in the second quarter, as meaningful net sales growth was primarily offset by a shift in export customer mix and softness in Brazil. 21 Table of Contents • Earnings before income taxes for the second quarter decreased 6 percent, as the benefits from higher net sales and lower SG&A expenses were more than offset by higher cost of products sold and lower interest and investment income compared to the prior period. Adjusted earnings before income taxes (1) decreased 8 percent. • The pre-tax impact of non-recurring expenses related to the Company’s T&M initiative in the second quarter of fiscal 2025 was $16.6 million, most of which was recorded in SG&A. • Cash flow from operations was $366 million for the first six months of fiscal 2025, a 43 percent decrease from the comparable period of the prior year. The decline in cash flow from operations was primarily due to an inventory build in the second quarter of fiscal 2025 in advance of the important summer selling season. Changes in global trade policies, including recently announced tariffs and retaliatory tariffs, did not have a material impact on our results of operations during the second quarter or first six months of fiscal 2025. The Company continues to monitor and evaluate the impact of proposed and enacted tariffs, including proposed and enacted retaliatory tariffs, and other trade restrictions, as well as our ability to mitigate their impacts, which remains uncertain. Consolidated Results Volume, Net Sales, Earnings, and Diluted Earnings Per Share Quarter Ended Six Months Ended In thousands, except per share amounts April 27, 2025 April 28, 2024 % Change April 27, 2025 April 28, 2024 % Change Volume (lbs.) 999,390 1,059,843 (5.7) 2,054,698 2,161,397 (4.9) Organic Volume (lbs.) (1) 999,390 1,043,258 (4.2) 2,054,698 2,128,882 (3.5) Net Sales $ 2,898,810 $ 2,887,352 0.4 $ 5,887,623 $ 5,884,263 0.1 Organic Net Sales (1) 2,898,810 2,859,141 1.4 5,887,623 5,829,154 1.0 Earnings Before Income Taxes 230,489 244,139 (5.6) 448,561 529,685 (15.3) Net Earnings Attributable to Hormel Foods Corporation 180,017 189,278 (4.9) 350,592 408,140 (14.1) Diluted Earnings Per Share 0.33 0.34 (2.9) 0.64 0.74 (13.5) Adjusted Diluted Earnings Per Share (1) 0.35 0.38 (7.9) 0.70 0.79 (11.4) (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 increased and volume decreased for the second quarter and first six months of fiscal 2025 compared to the prior year. For the second quarter of fiscal 2025, net sales increased in each of the Foodservice and International segments and were comparable in the Retail segment. Organic net sales (1) growth was broad-based in the Foodservice segment, with notable contributions from the customized solutions business and the turkey portfolio. The International segment drove net sales performance through exports and robust growth in the China market. Within the Retail segment, the Mexican portfolio and value-added turkey products each delivered high-single-digit growth, which was primarily offset by the impacts of promotional timing. For the first six months of fiscal 2025, net sales increased in each of the Foodservice and International segments and decreased in the Retail segment. The Foodservice segment led the Company's overall organic net sales (1) growth through the customized solutions business, the turkey portfolio, and premium prepared proteins. In the International segment, the China market and exports were the largest contributors to top-line performance. For the Retail segment, growth from value-added turkey, Applegate ® natural and organic meats, the Mexican portfolio, and the SPAM ® family of products was primarily offset by declines in branded and private label deli meats. For the second quarter of fiscal 2025, volume growth in the International segment was more than offset by volume declines in the Retail and Foodservice segments. For the first six months of fiscal 2025, organic volume (1) in the Foodservice segment was comparable to the prior year. Volume increased in the International segment and declined in the Retail segment for the first six months of fiscal 2025. In the third quarter of fiscal 2025, the Company expects net sales growth from each of its segments compared to the prior year. 22 Table of Contents Cost of Products Sold Quarter Ended Six Months Ended In thousands April 27, 2025 April 28, 2024 % Change April 27, 2025 April 28, 2024 % Change Cost of Products Sold $ 2,414,377 $ 2,383,546 1.3 $ 4,927,957 $ 4,871,723 1.2 Cost of products sold for the second quarter and first six months of fiscal 2025 increased primarily due to higher commodity input costs, mainly nuts, pork bellies and beef. On a per pound basis, cost of products sold for the second quarter and first six months of fiscal 2025 increased compared to the prior year. Gross Profit Quarter Ended Six Months Ended In thousands April 27, 2025 April 28, 2024 % Change April 27, 2025 April 28, 2024 % Change Gross Profit $ 484,433 $ 503,806 (3.8) $ 959,666 $ 1,012,539 (5.2) Percent of Net Sales 16.7 % 17.4 % 16.3 % 17.2 % For the second quarter and first six months of fiscal 2025, gross profit as a percent of net sales declined. For the second quarter of fiscal 2025, gross profit as a percent of net sales was comparable for the Retail segment and decreased for the International and Foodservice segments. All segments benefited from savings realized as part of the Company’s T&M initiative in the second quarter and first six months of fiscal 2025. For the third quarter of fiscal 2025, 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 Retail segment, to be comparable for the Foodservice segment, and to decrease for the International segment. Selling, General, and Administrative (SG&A) Quarter Ended Six Months Ended In thousands April 27, 2025 April 28, 2024 % Change April 27, 2025 April 28, 2024 % Change SG&A $ 251,432 $ 266,668 (5.7) $ 514,445 $ 507,054 1.5 Percent of Net Sales 8.7 % 9.2 % 8.7 % 8.6 % Adjusted SG&A (1) $ 237,657 $ 244,898 (3.0) $ 475,138 $ 476,568 (0.3) Adjusted Percent of Net Sales (1) 8.2 % 8.5 % 8.1 % 8.1 % (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 second quarter of fiscal 2025, SG&A and SG&A as a percent of net sales decreased, primarily due to the lapping of prior year legal expenses and lower advertising expenses. For the first six months of fiscal 2025, SG&A and SG&A as a percent of net sales increased, as the loss on the sale of a non-core sow operation and increased expenses related to the T&M initiative were partially offset by the lapping of prior year legal expenses and lower advertising expenses. Advertising investments in the second quarter were $36 million, a decrease of 18 percent compared to last year. The decline was partially due to year over year timing impacts for investments in the Planters ® brand. For the first six months of fiscal 2025, advertising investments were $80 million, a decrease of 10 percent compared to last year. The Company expects advertising investments to increase in the second half of fiscal 2025 compared to the prior year. 23 Table of Contents Equity in Earnings of Affiliates Quarter Ended Six Months Ended In thousands April 27, 2025 April 28, 2024 % Change April 27, 2025 April 28, 2024 % Change Equity in Earnings of Affiliates $ 15,350 $ 15,182 1.1 $ 31,461 $ 31,273 0.6 Equity in earnings of affiliates for the second quarter and first six months of fiscal 2025 was comparable to the prior year as favorable results for MegaMex Foods, LLC, were offset by the results of the Company’s other equity method investments. Interest and Investment Income and Interest Expense Quarter Ended Six Months Ended In thousands April 27, 2025 April 28, 2024 % Change April 27, 2025 April 28, 2024 % Change Interest and Investment Income $ 1,653 $ 13,497 (87.8) $ 10,857 $ 32,932 (67.0) Interest Expense 19,516 21,679 (10.0) 38,977 40,005 (2.6) Interest and investment income for the second quarter and first six months of fiscal 2025 decreased predominately due to lower cash balances and performance from the rabbi trust. Interest expense decreased in the second quarter and first six months of fiscal 2025 as the benefit from lapping prior year amortization of interest rate swaps was partially offset by higher interest due to the prior year debt issuance. Effective Tax Rate Quarter Ended Six Months Ended April 27, 2025 April 28, 2024 April 27, 2025 April 28, 2024 Effective Tax Rate 22.0 % 22.5 % 21.9 % 23.0 % The effective tax rate in the second quarter of fiscal 2025 was 22.0% compared to 22.5% last year. The Company benefited primarily from higher federal deductions, the purchase of federal transferable energy tax credits, and favorable state audit settlements in the second quarter and first six months of fiscal 2025. For additional information, refer to Note L - Income Taxes of the Notes to the Consolidated Financial Statements. The effective tax rate for fiscal 2025 is expected to be between 22.0% and 23.0%. 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. 24 Table of Contents The Company is an integrated enterprise, characterized by substantial intersegment cooperation, cost allocations, and sharing of assets. Therefore, the Company does not represent that these segments, if operated independently, would report the profit and other financial information shown below. Quarter Ended Six Months Ended In thousands April 27, 2025 April 28, 2024 % Change April 27, 2025 April 28, 2024 % Change Net Sales Retail $ 1,783,835 $ 1,788,556 (0.3) $ 3,673,968 $ 3,699,827 (0.7) Foodservice 936,442 932,003 0.5 1,866,627 1,845,090 1.2 International 178,533 166,794 7.0 347,028 339,346 2.3 Total Net Sales $ 2,898,810 $ 2,887,352 0.4 $ 5,887,623 $ 5,884,263 0.1 Segment Profit Retail $ 137,135 $ 132,399 3.6 $ 256,281 $ 281,904 (9.1) Foodservice 140,633 149,302 (5.8) 279,459 299,466 (6.7) International 18,407 23,202 (20.7) 39,252 43,234 (9.2) Total Segment Profit 296,175 304,903 (2.9) 574,992 624,603 (7.9) Net Unallocated Expense 65,411 60,694 7.8 126,111 94,714 33.1 Noncontrolling Interest (275) (70) (291.9) (320) (204) (56.7) Earnings Before Income Taxes $ 230,489 $ 244,139 (5.6) $ 448,561 $ 529,685 (15.3) Retail Quarter Ended Six Months Ended In thousands April 27, 2025 April 28, 2024 % Change April 27, 2025 April 28, 2024 % Change Volume (lbs.) 677,277 724,994 (6.6) 1,414,162 1,490,406 (5.1) Net Sales $ 1,783,835 $ 1,788,556 (0.3) $ 3,673,968 $ 3,699,827 (0.7) Segment Profit 137,135 132,399 3.6 256,281 281,904 (9.1) Net sales in the second quarter of fiscal 2025 were comparable to the prior year, as high-single-digit growth from both our Mexican portfolio and value-added turkey products was primarily offset by the impacts of promotional timing. Two-thirds of the Retail segment's volume decline in the quarter was due to lower commodity shipments and contract manufacturing. The segment's flagship and rising brands continued to hold leadership positions in their respective categories in the quarter. Notably, the Planters ® brand exceeded volume and net sales expectations for the second quarter of fiscal 2025, while demand for Jennie-O ® lean ground turkey remained strong. For the first six months of fiscal 2025, net sales for the Retail segment declined, as growth from value-added turkey products, Applegate ® natural and organic meats, the Mexican portfolio, and the SPAM ® family of products was primarily offset by declines in branded and private label deli meats. Over one-half of the Retail segment’s volume decline for the first six months of fiscal 2025 was due to lower commodity shipments and contract manufacturing. Retail segment profit increased in the second quarter of fiscal 2025, primarily due to benefits from operational efficiencies as part of the T&M initiative and favorable SG&A expenses. For the first six months of fiscal 2025, segment profit decreased due to lower net sales and higher raw material costs. For the third quarter of fiscal 2025, Retail segment profit is anticipated to increase compared to the prior year, driven by top-line growth and year over year benefits from the T&M initiative. 25 Table of Contents Foodservice Quarter Ended Six Months Ended In thousands April 27, 2025 April 28, 2024 % Change April 27, 2025 April 28, 2024 % Change Volume (lbs.) 242,595 261,832 (7.3) 486,449 517,839 (6.1) Organic Volume (lbs.) (1) 242,595 245,246 (1.1) 486,449 485,323 0.2 Net Sales $ 936,442 $ 932,003 0.5 $ 1,866,627 $ 1,845,090 1.2 Organic Net Sales (1) 936,442 903,792 3.6 1,866,627 1,789,981 4.3 Segment Profit 140,633 149,302 (5.8) 279,459 299,466 (6.7) (1) See the “Non-GAAP Measures” section below for a description of the Company’s use of measures not defined by U.S. GAAP. Organic net sales (1) growth was broad-based in the Foodservice segment in the second quarter of fiscal 2025, with notable contributions from the customized solutions business and the turkey portfolio. Branded products such as Jennie-O ® , Hormel ® Fire Braised™ meats and Café H ® globally inspired proteins delivered another quarter of strong volume and net sales growth. Several categories achieved volume growth in the second quarter of fiscal 2025, despite industry softness. Volume growth in these categories was more than offset by the impact of reduced commodity shipments. For the first six months of fiscal 2025, organic net sales (1) growth in the Foodservice segment was led by the customized solutions business, the Jennie-O ® turkey portfolio, and premium prepared proteins. Organic volume (1) was comparable to the prior year period. Segment profit decreased for the second quarter and first six months of fiscal 2025 as higher net sales were more than offset by margin pressures, primarily in non-core businesses. The Foodservice segment continued to benefit from an extensive range of solutions-based products, its direct-selling organization and a diverse channel presence during the second quarter and first six months of fiscal 2025. For the third quarter of fiscal 2025, the Company expects Foodservice segment profit to increase compared to the prior year, driven by organic top-line growth. International Quarter Ended Six Months Ended In thousands April 27, 2025 April 28, 2024 % Change April 27, 2025 April 28, 2024 % Change Volume (lbs.) 79,518 73,017 8.9 154,087 153,153 0.6 Net Sales $ 178,533 $ 166,794 7.0 $ 347,028 $ 339,346 2.3 Segment Profit 18,407 23,202 (20.7) 39,252 43,234 (9.2) Double-digit volume and net sales growth in exports, and robust growth in the China market drove top-line performance in the International segment in the second quarter of fiscal 2025. Strong shipments within the refrigerated portfolio, primarily of bacon and pepperoni, made the largest contribution to export growth. Our in-country China business continued to benefit from top-line momentum in both the retail and foodservice channels, supported by innovative product launches. For the first six months of fiscal 2025, the China market and exports were the largest contributors to top-line performance. International segment profit decreased in the second quarter of fiscal 2025 as meaningful net sales growth was primarily offset by a temporary shift in export customer mix and softness in Brazil. For the first six months of fiscal 2025, segment profit declined, as net sales growth was primarily offset by softness in Brazil. In the third quarter of fiscal 2025, the Company expects International segment profit to increase compared to the prior year. Value-added growth across China is expected to be partially offset by continued softness in Brazil. 26 Table of Contents Unallocated Income and Expense Quarter Ended Six Months Ended In thousands April 27, 2025 April 28, 2024 April 27, 2025 April 28, 2024 Net Unallocated Expense $ 65,411 $ 60,694 $ 126,111 $ 94,714 Noncontrolling Interest (275) (70) (320) (204) For the second quarter of fiscal 2025, net unallocated expense increased driven by reduced interest income and unfavorable rabbi trust performance, which was partially offset by the absence of prior year pork antitrust litigation settlements. Net unallocated expense also increased for the first six months of fiscal 2025 due to these factors as well as the loss on sale of a non-core sow operation. 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, which are primarily 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 is not meaningful when comparing the Company’s operating performance against that of prior periods. Thus, the Company has adjusted for (i.e. excluded) the loss. 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 are not meaningful when comparing the Company’s operating performance against that of prior periods. The Company adjusts for (i.e., excludes) these expenses. Litigation Settlements In the second quarter of fiscal 2024, the Company agreed to settle with three classes of plaintiffs in the pork antitrust litigation. In the first quarter of fiscal 2025, the Company entered into a settlement agreement with an additional plaintiff in this matter. See Note J - Commitments and Contingencies of the Notes to the Consolidated Financial Statements for additional information. 27 Table of Contents 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 Six Months Ended In thousands, except per share amounts April 27, 2025 April 28, 2024 April 27, 2025 April 28, 2024 Cost of Products Sold (GAAP) $ 2,414,377 $ 2,383,546 $ 4,927,957 $ 4,871,723 Transform and Modernize Initiative (1) (2,777) (1,823) (2,963) (3,420) Adjusted Cost of Products Sold (Non-GAAP) $ 2,411,600 $ 2,381,723 $ 4,924,994 $ 4,868,303 SG&A (GAAP) $ 251,432 $ 266,668 $ 514,445 $ 507,054 Transform and Modernize Initiative (2) (13,775) (10,021) (27,743) (18,736) Loss on Sale of Business — — (11,324) — Litigation Settlements — (11,750) (240) (11,750) Adjusted SG&A (Non-GAAP) $ 237,657 $ 244,898 $ 475,138 $ 476,568 Operating Income (GAAP) $ 248,352 $ 252,320 $ 476,682 $ 536,758 Transform and Modernize Initiative (1)(2) 16,552 11,843 30,706 22,156 Loss on Sale of Business — — 11,324 — Litigation Settlements — 11,750 240 11,750 Adjusted Operating Income (Non-GAAP) $ 264,903 $ 275,914 $ 518,952 $ 570,665 Earnings Before Income Taxes (GAAP) $ 230,489 $ 244,139 $ 448,561 $ 529,685 Transform and Modernize Initiative (1)(2) 16,552 11,843 30,706 22,156 Loss on Sale of Business — — 11,324 — Litigation Settlements — 11,750 240 11,750 Adjusted Earnings Before Income Taxes (Non-GAAP) $ 247,040 $ 267,732 $ 490,831 $ 563,591 Provision for Income Taxes (GAAP) $ 50,747 $ 54,931 $ 98,289 $ 121,749 Transform and Modernize Initiative (1)(2) 3,641 2,665 6,727 4,985 Loss on Sale of Business — — 2,469 — Litigation Settlements — 2,644 52 2,644 Adjusted Provision for Income Taxes (Non-GAAP) $ 54,388 $ 60,240 $ 107,537 $ 129,378 Net Earnings Attributable to Hormel Foods Corporation (GAAP) $ 180,017 $ 189,278 $ 350,592 $ 408,140 Transform and Modernize Initiative (1)(2) 12,910 9,179 23,979 17,171 Loss on Sale of Business — — 8,855 — Litigation Settlements — 9,106 188 9,106 Adjusted Net Earnings Attributable to Hormel Foods Corporation (Non-GAAP) $ 192,928 $ 207,562 $ 383,615 $ 434,418 Diluted Earnings Per Share (GAAP) $ 0.33 $ 0.34 $ 0.64 $ 0.74 Transform and Modernize Initiative (1)(2) 0.02 0.02 0.04 0.03 Loss on Sale of Business — — 0.02 — Litigation Settlements — 0.02 — 0.02 Adjusted Diluted Earnings Per Share (Non-GAAP) $ 0.35 $ 0.38 $ 0.70 $ 0.79 28 Table of Contents Quarter Ended Six Months Ended April 27, 2025 April 28, 2024 April 27, 2025 April 28, 2024 SG&A as a Percent of Net Sales (GAAP) 8.7 % 9.2 % 8.7 % 8.6 % Transform and Modernize Initiative (2) (0.5) (0.3) (0.5) (0.3) Loss on Sale of Business — — (0.2) — Litigation Settlements — (0.4) — (0.2) Adjusted SG&A as a Percent of Net Sales (Non-GAAP) 8.2 % 8.5 % 8.1 % 8.1 % Operating Margin (GAAP) 8.6 % 8.7 % 8.1 % 9.1 % Transform and Modernize Initiative (1)(2) 0.6 0.4 0.5 0.4 Loss on Sale of Business — — 0.2 — Litigation Settlements — 0.4 — 0.2 Adjusted Operating Margin (Non-GAAP) 9.1 % 9.6 % 8.8 % 9.7 % (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 April 27, 2025 April 28, 2024 In thousands GAAP GAAP Divestiture Non-GAAP Organic Non-GAAP % Change Volume (lbs.) Retail 677,277 724,994 — 724,994 (6.6) Foodservice 242,595 261,832 (16,585) 245,246 (1.1) International 79,518 73,017 — 73,017 8.9 Total Volume (lbs.) 999,390 1,059,843 (16,585) 1,043,258 (4.2) Net Sales Retail $ 1,783,835 $ 1,788,556 $ — $ 1,788,556 (0.3) Foodservice 936,442 932,003 (28,211) 903,792 3.6 International 178,533 166,794 — 166,794 7.0 Total Net Sales $ 2,898,810 $ 2,887,352 $ (28,211) $ 2,859,141 1.4 Six Months Ended April 27, 2025 April 28, 2024 In thousands GAAP GAAP Divestiture Non-GAAP Organic Non-GAAP % Change Volume (lbs.) Retail 1,414,162 1,490,406 — 1,490,406 (5.1) Foodservice 486,449 517,839 (32,516) 485,323 0.2 International 154,087 153,153 — 153,153 0.6 Total Volume (lbs.) 2,054,698 2,161,397 (32,516) 2,128,882 (3.5) Net Sales Retail $ 3,673,968 $ 3,699,827 $ — $ 3,699,827 (0.7) Foodservice 1,866,627 1,845,090 (55,109) 1,789,981 4.3 International 347,028 339,346 — 339,346 2.3 Total Net Sales $ 5,887,623 $ 5,884,263 $ (55,109) $ 5,829,154 1.0 29 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 Six Months Ended In thousands April 27, 2025 April 28, 2024 Cash and Cash Equivalents at End of Period $ 669,688 $ 1,486,368 Cash Provided by (Used in) Operating Activities 365,646 640,127 Cash Provided by (Used in) Investing Activities (138,668) (112,716) Cash Provided by (Used in) Financing Activities (292,629) 221,072 Increase (Decrease) in Cash and Cash Equivalents (72,193) 749,836 Cash and cash equivalents decreased $72 million during the first six months of fiscal 2025 as the Company utilized cash on hand to make additional purchases of inventory, capital assets, and energy tax credits as well as fund regular dividend payments. During the first six months of fiscal 2024, cash and cash equivalents increased $750 million primarily as a result of proceeds received from the issuance of long-term debt. Cash provided by operating activities was sufficient to cover dividend payments and capital expenditures during the first six months of fiscal 2024. 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. – Inventory increased $156 million during the first six months of fiscal 2025 compared to a decrease of $7 million in the comparable period of the prior year. The increase in inventory during fiscal 2025 was driven by intentional seasonal and promotional inventory build, as well as softer sales. The decrease in inventory during fiscal 2024 was due to improvements in the Company’s supply chain, partially offset by higher levels of turkey on hand. – Accounts payable and accrued expenses decreased $77 million and $78 million during the first six months of fiscal 2025 and fiscal 2024, respectively. The decrease during fiscal 2025 was driven by annual incentive payments, legal settlements, and livestock and feed deferral payments which were partially offset by higher marketing accruals. The decrease during fiscal 2024 was caused by the general timing of payments, annual incentive payments, and livestock and feed deferral payments, which were partially offset by higher accruals for marketing and legal expenses. – Net income taxes payable decreased $12 million during the first six months of fiscal 2025, compared to an increase of $29 million in the comparable period of the prior year. The decrease in fiscal 2025 was the result of purchasing federal transferable energy tax credits. – Accounts receivable decreased $71 million and $88 million during the first six months of fiscal 2025 and fiscal 2024, respectively, primarily due to lower sales compared to the fourth quarter of the prior year. Cash Provided by (Used in) Investing Activities • Capital expenditures were $147 million and $107 million during the first six months 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 investments in data and technology during fiscal 2025 and wastewater infrastructure to support operations in Austin, Minnesota during fiscal 2024. • Proceeds from the sale of business were $13.1 million during the first six months of fiscal 2025, primarily from the sale of the Company’s equity interest in Mountain Prairie, LLC. Cash Provided by (Used in) Financing Activities • In the first six months of fiscal 2024, proceeds from the issuance of long-term debt were $498 million due to the Company's issuance of senior unsecured notes with aggregate principal amount of $500 million. • Cash dividends paid to the Company’s shareholders totaled $314 million during the first six months of fiscal 2025, compared to $305 million in the comparable period of fiscal 2024. • Proceeds from the exercise of stock options were $26 million in the first six months of fiscal 2025, compared to $27 million in the first six months 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 30 Table of Contents 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 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 on its common stock. The Company has paid 387 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 April 27, 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 six months of fiscal 2025, the Company made $37 million of interest payments and the Company expects to make an additional $37 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 upon the satisfaction of certain conditions. Extensions of credit under the facility may be applied by the Company to refinance existing indebtedness and for working capital and other general corporate purposes, including acquisition funding, and may be made in the form of revolving loans, swing line loans, and letters of credit. The lending commitments under the facility are scheduled to expire on March 25, 2030, at which time the Company will be required to pay in full all obligations then outstanding. As of April 27, 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 financial ratios. As of April 27, 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 April 27, 2025, the Company’s international subsidiaries held $247 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 six months of fiscal 2025. The Company continues to evaluate share repurchases as part of its capital allocation strategy. Commitments There have been no material changes to the information regarding the Company’s future contractual financial obligations previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended October 27, 2024. 31 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 contains 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, food-specific laws or regulations, or outbreaks of disease 32 Table of Contents 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, 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 fact that the Company operates globally, with product manufactured and sold in foreign markets and a variety of inputs sourced from around the world, these risks including geopolitical risk, exchange rate risk, legal, tax, and regulatory risk, and risks associated with trade policies, export and import controls, and tariffs.