Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Executive Overview

Fiscal 2018: The Company delivered record sales and earnings. The impact of the Tax Cuts and Jobs Act (Tax Act) along with strong performances by Refrigerated Foods and International & Other contributed to these results. These factors were able to offset continued weakness at JOTS, higher freight costs, and reduced sales and profitability from the CytoSport and contract manufacturing business in Grocery Products. Sales for the year were $9.5 billion, a 4 percent increase from last year. Organic net sales1 were down 1%. Diluted earnings per share for fiscal 2018 were $1.86, an 18 percent increase compared to $1.57 per share last year. Adjusted diluted earnings per share1 were $1.89, a 20 percent increase. Fiscal 2018 net earnings attributable to the Company increased 20 percent to $1,012.1 million, compared to net earnings of $846.7 million last year. (1see explanation of non-GAAP financial measures in the Consolidated Results section).

Refrigerated Foods segment results exceeded last year with contributions from the Columbus and Fontanini acquisitions. Strength in value-added products such as Hormel® Natural Choice® and Hormel® FirebraisedTM Meats overcame lower commodity profits and higher freight expense. International & Other segment results surpassed last year due to strong growth from the China business, which benefited from lower input costs and the addition of the Ceratti acquisition. The JOTS segment continued to be negatively impacted by industry oversupply leading to low commodity prices in addition to increased freight. At the beginning of fiscal 2018, the Specialty Foods segment was merged into the Grocery Products segment. Despite sales growth of Wholly Guacamole® dips and Herdez® salsas, Grocery Products segment financial performance was down from fiscal 2017 as profits were impacted by weakness in the Company's contract manufacturing business, an impairment of the CytoSport trademark, and increased freight.

Our Company continued to generate record operating cash flows, which were reinvested into the business through acquisitions and capital expenditures while returning cash back to shareholders in the form of dividends and share repurchases. We completed the acquisition of Columbus, an authentic, premium deli meat and salami company, for $857.4 million. This strategic acquisition positions us as a total deli solutions provider and enhances our other strong deli brands such as Hormel®, Jennie-O®, Applegate®, and DiLusso®. In connection with the acquisition, the Company borrowed $375.0 million under a term loan facility and $375.0 million under a revolving credit facility. As of the close of the year, we repaid the short-term debt. The annual dividend for 2019 will be $0.84 per share and marks the 53rd consecutive year of dividend increases, representing an increase of 12 percent after a 10 percent increase in fiscal 2018. We repurchased 1.4 million shares of common stock in fiscal 2018, spending $46.9 million.

Fiscal 2019 Outlook: We expect to grow sales and operating profits in fiscal 2019, with each segment contributing to growth. Momentum in branded, value-added businesses within Refrigerated Foods, especially foodservice and our newly created deli division, should more than offset the expected decline in commodity profits, increased freight, and expenses associated with the divestiture of the Fremont facility. Innovation from brands including Hormel® Bacon 1TM, Hormel® Natural Choice®, and Hormel® Fire BraisedTM meats is expected to provide incremental growth. The contributions from branded items such as the SPAM® family of products, Wholly Guacamole® dips, Herdez® salsas, and Muscle Milk are expected to drive improved Grocery Products results. We expect the JOTS segment to return to growth as industry conditions improve. We anticipate value-added sales and volume growth led by Jennie-O® lean ground turkey and Jennie-O® Oven Ready® items. The International & Other segment plans to grow sales and earnings in both the China and Brazil businesses and expects to increase sales of the SPAM® and Skippy® families of products. Additionally, our supply chain organization is expected to provide cost reductions in numerous areas across the supply chain.

On December 3, 2018, the Company completed the sale of the Fremont processing facility with WholeStone Farms. The transaction included a processing facility and a multiyear agreement to supply the Company pork raw materials. Up until the date of sale, this facility manufactured and harvested hogs for processing.

We plan to support our numerous iconic brands with continued advertising in fiscal 2019. Strong cash flow, along with a solid balance sheet, will enable us to continue to return cash to shareholders while investing capital into our value-added businesses.

Critical Accounting Policies

This 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 U.S. generally accepted accounting principles (U.S. GAAP). The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The Company evaluates, on an ongoing basis, its estimates for reasonableness as changes occur in its business environment. The Company bases its estimates on experience, the use of independent third-party specialists, and various other assumptions believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions.

Critical accounting policies are defined as those reflective of significant judgments, estimates, and uncertainties, and potentially result in materially different results under different assumptions and conditions. The Company believes the following are its critical accounting policies:

Revenue Recognition: The Company recognizes sales when title passes upon delivery of its products to customers, net of applicable provisions for discounts, returns, and allowances. Products are delivered upon receipt of customer purchase orders with acceptable terms, including price and reasonably assured collectability.

The Company offers various sales incentives to customers and consumers. Incentives offered off-invoice include prompt pay allowances, will call allowances, spoilage allowances, and temporary price reductions. These incentives are recognized as reductions of revenue at the time title passes. Coupons are used as an incentive for consumers to purchase various products. The coupons reduce revenues at the time they are offered, based on estimated redemption rates. Promotional contracts are performed by customers to promote the Company’s products to consumers. These incentives reduce revenues at the time of performance through direct payments and accrued promotional funds. Accrued promotional funds are unpaid liabilities for promotional contracts in process or completed at the end of a quarter or fiscal year. Promotional contractual accruals are based on agreements with customers for defined performance. The liability relating to these agreements is based on a review of the outstanding contracts on which performance has taken place but which the promotional payments relating to such contracts remain unpaid as of the end of the fiscal year. The level of customer performance and the historical spend rate versus contracted rates are significant estimates used to determine these liabilities.

Inventory Valuation: The Company values inventories at the lower of cost or net realizable value. For pork inventories, when the carcasses are disassembled and transferred from primal processing to various manufacturing departments, the primal values, as adjusted by the Company for product specifications and further processing, become the basis for calculating inventory values. Turkey raw materials are represented by the deboned meat quantities. The Company values these raw materials using a concept referred to as the “meat cost pool.” The meat cost pool is determined by combining the cost to grow turkeys with processing costs, less any net sales revenue from by-products created from the processing and not used in producing Company products. The Company has developed a series of ratios using historical data and current market conditions (which themselves involve estimates and judgment determinations by the Company) to allocate the meat cost pool to each meat component. Substantially all inventoriable expenses, meat, packaging, and supplies are valued by the average cost method.

Goodwill and Other Indefinite-Lived Intangibles: Estimating the fair value of the Company’s goodwill reporting units and intangible assets requires significant judgement. Accordingly, the Company obtains the assistance of third-party valuation specialists who utilize available historical information along with future expectations to value the assets. Determining the useful life of an intangible asset also requires judgement. Certain acquired brands are expected to have indefinite lives based on their history and the Company’s plans to continue to support and build the brands. Other acquired assets such as customer relationships, are expected to have determinable useful lives.

Indefinite-lived intangible assets are originally recorded at their estimated fair values at the date of acquisition and the residual of the purchase price is recorded to goodwill. Goodwill and other indefinite-lived intangible assets are allocated to reporting units that will receive the related sales and income. Goodwill and indefinite-lived intangible assets are tested annually for impairment, or more frequently if impairment indicators arise.

In conducting the annual impairment test for goodwill, the Company has the option to first assess qualitative factors to determine whether it is more likely than not (> 50% likelihood) the fair value of any reporting unit is less than its carrying amount. If the Company elects to perform a qualitative assessment and determines an impairment is more likely than not, the Company is required to perform a quantitative impairment test. Otherwise, no further analysis is required. Alternatively, the Company may elect not to perform the qualitative assessment and proceed directly to the quantitative impairment test.

Prior to the fourth quarter of fiscal 2017, if the carrying value of a reporting unit exceeded its fair value, the Company completed the second step of the test to determine the amount of goodwill impairment loss, if any, to be recognized. In the second step, the Company estimated an implied fair value of the reporting unit’s goodwill by allocating the fair value of the reporting unit to all of the assets and liabilities other than goodwill (including any unrecognized intangible assets). The impairment loss was equal to the excess of the carrying value of the goodwill over the implied fair value of that goodwill. In the fourth quarter of fiscal 2017, the Company adopted Accounting Standards Update (ASU) 2017-04, Simplifying the Test for Goodwill Impairment. As a result, the Company recognizes an impairment loss equal to the difference between the carrying value and estimated fair value of the reporting unit if the carrying value of a reporting unit exceeds its fair value.

In conducting a qualitative assessment, the Company analyzes actual and projected growth trends for net sales, gross margin, and segment profit for each reporting unit, as well as historical performance versus plan and the results of prior quantitative tests performed. Additionally, the Company assesses critical areas that may impact its business, including macroeconomic conditions and the related impact, market-related exposures, any plans to market for sale all or a portion of their business, competitive changes, new or discontinued product lines, changes in key personnel, or any potential risks to their projected financial results.

If performed, the quantitative goodwill impairment test is performed at the reporting unit level. First, the fair value of each reporting unit is compared to its corresponding carrying value, including goodwill. The fair value of each reporting unit is estimated using discounted cash flow valuations (Level 3), which incorporate assumptions regarding future growth rates,

terminal values, and discount rates. The estimates and assumptions used consider historical performance and are consistent with the assumptions used in determining future profit plans for each reporting unit, which are approved by the Company’s Board of Directors. If the quantitative assessment results in the carrying value exceeding the fair value of any reporting unit, then the results from the quantitative analysis will be relied upon to determine both the existence and amount of goodwill impairment. An impairment loss will be recognized for the amount by which the reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of goodwill in that reporting unit.

During the fourth quarter of fiscal 2018, the Company completed its annual goodwill impairment tests and elected to perform a qualitative assessment. As a result of the qualitative testing during fiscal 2018 and 2016 and quantitative testing during fiscal 2017, no material goodwill impairment charges were recorded. An immaterial impairment charge was recorded in the second quarter of fiscal 2016 for the Company's Diamond Crystal Brands (DCB) business based on the agreed-upon sales price for the business.

In conducting the annual impairment test for its indefinite-lived intangible assets, the Company first performs a qualitative assessment to determine whether it is more likely than not (> 50% likelihood) that an indefinite-lived intangible asset is impaired. If the Company concludes this is the case, then a quantitative test for impairment must be performed. Otherwise, the Company does not need to perform a quantitative test.

In conducting the initial qualitative assessment, the Company analyzes growth rates for historical and projected net sales and the results of prior quantitative tests performed. Additionally, the Company assesses critical areas that may impact its intangible assets or the applicable royalty rates to determine if there are factors that could indicate impairment of the asset.

If performed, the quantitative impairment test compares the fair value to the carrying value of the indefinite-lived intangible asset. The fair value of indefinite-lived intangible assets is primarily determined on the basis of estimated discounted value, using the relief from royalty method (Level 3). This method incorporates assumptions regarding future sales projections and discount rates. If the carrying value exceeds fair value, the indefinite-lived intangible asset is considered impaired and an impairment charge is recorded. Even if not required, the Company periodically elects to perform the quantitative test in order to confirm the qualitative assessment.

During the 2017 annual impairment review, the Company completed a quantitative assessment of indefinite-lived intangible assets. As a result of the review, no material impairment charges were recorded; however, four trademarks were determined to have fair values exceeding their carrying values by less than a 10 percent margin. Due to the lack of excess value of these assets, the Company elected to test these assets using a quantitative analysis during fiscal 2018. For all other indefinite-lived intangible assets, the Company tested the assets using a qualitative analysis. During the qualitative review, it was determined that further assessment in the form of a quantitative test was necessary for two additional indefinite-lived intangible assets. In total, the Company performed a quantitative test for six trademarks in fiscal 2018, one of which was determined to be impaired. During the fourth quarter of fiscal 2018, a $17.3 million intangible asset impairment charge was recorded for the CytoSport trademark. As a result of the 2018 quantitative test, one trademark was determined to have fair value exceeding its carrying value by approximately a 10 percent margin. See additional discussion regarding the Company’s goodwill and intangible assets in Note D. During fiscal years 2018, 2017, and 2016, there were no other material remeasurements of assets or liabilities at fair value on a nonrecurring basis subsequent to their initial recognition.

Employee Benefit Plans: The Company incurs expenses relating to employee benefits, such as noncontributory defined benefit pension plans and post-retirement health care benefits. In accounting for these employment costs, management must make a variety of assumptions and estimates including mortality rates, discount rates, overall compensation increases, expected return on plan assets, and health care cost trend rates. The Company considers historical data as well as current facts and circumstances when determining these estimates. The Company uses third-party specialists to assist management in the determination of these estimates and the calculation of certain employee benefit expenses and the outstanding obligation.

Income Taxes: The Company records income taxes in accordance with the liability method of accounting. Deferred taxes are recognized for the estimated taxes ultimately payable or recoverable based on enacted tax law. Changes in enacted tax rates are reflected in the tax provision as they occur. Due to passage of the Tax Act, the tax provision at the end of fiscal 2018 was provisional. The Company will continue to refine such amounts within the measurement period allowed, which will be completed no later than the first quarter of fiscal 2019.

The Company computes its provision for income taxes based on the statutory tax rates and tax planning opportunities available to it in the various jurisdictions in which it operates. Significant judgment is required in evaluating the Company’s tax positions and determining its annual tax provision. While the Company considers all of its tax positions fully supportable, the Company is occasionally challenged by various tax authorities regarding the amount of taxes due. The Company recognizes a tax position in its financial statements when it is more likely than not the position will be sustained upon examination, based on the technical merits of the position. This position is then measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. A change in judgment related to the expected ultimate resolution of uncertain tax positions will be recognized in earnings in the quarter of such change.

Contingent Liabilities: At any time, the Company may be subject to investigations, legal proceedings, or claims related to the on-going operation of its business, including claims both by and against the Company. Such proceedings typically involve claims

related to product liability, contract disputes, wage and hour laws, employment practices, or other actions brought by employees, consumers, competitors, or suppliers. The Company routinely assesses the likelihood of any adverse outcomes related to these matters on a case by case basis, as well as the potential ranges of losses and fees. The Company establishes accruals for its potential exposure, as appropriate, for claims against the Company when losses become probable and reasonably estimable. Where the Company is able to reasonably estimate a range of potential losses, the Company records the amount within that range which constitutes the Company’s best estimate. The Company also discloses the nature and range of loss for claims against the Company when losses are reasonably possible and material. These accruals and disclosures are determined based on the facts and circumstances related to the individual cases and require estimates and judgments regarding the interpretation of facts and laws, as well as the effectiveness of strategies or factors beyond our control.

Results of Operations

OVERVIEW

The Company is a processor of branded and unbranded food products for retail, foodservice, and commercial customers. As a result of a business realignment at the beginning of fiscal 2018, the former Specialty Foods segment results are now reported as part of the Grocery products segment. Periods presented herein have been recast to reflect this change. The Company operates in the following four reportable segments:

Segment	Business Conducted
Grocery Products	This segment consists primarily of the processing, marketing, and sale of shelf-stable food products sold predominantly in the retail market, along with the sale of nutritional and private label shelf-stable products to retail, foodservice, and industrial customers. This segment also includes the results from the Company’s MegaMex Foods, LLC (MegaMex) joint venture.
Refrigerated Foods	This segment consists primarily of the processing, marketing, and sale of branded and unbranded pork, beef, chicken, and turkey products for retail, foodservice, deli, and commercial customers.
Jennie-O Turkey Store	This segment consists primarily of the processing, marketing, and sale of branded and unbranded turkey products for retail, foodservice, and commercial customers.
International & Other	This segment includes Hormel Foods International, which manufactures, markets, and sells Company products internationally. This segment also includes the results from the Company’s international joint ventures and royalty arrangements.

The Company’s fiscal year consisted of 52 weeks in fiscal years 2018 and 2017. Fiscal 2016 consisted of 53 weeks.

FISCAL YEARS 2018 AND 2017:

Consolidated Results

Net Earnings and Diluted Earnings per Share

		Fourth Quarter Ended										Year Ended
(in thousands, except per share amounts)		October 28, 2018				October 29, 2017				% Change		October 28, 2018				October 29, 2017				% Change
Net earnings		$	261,406			$	218,154			19.8		$	1,012,140			$	846,735			19.5
Diluted earnings per share		0.48				0.41				17.1		1.86				1.57				18.5

Volume and Net Sales

		Fourth Quarter Ended											Year Ended
(in thousands)		October 28, 2018				October 29, 2017				% Change			October 28, 2018				October 29, 2017				% Change
Volume (lbs.)		1,265,292				1,275,270				(0.8	)		4,798,178				4,770,485				0.6
Organic volume(1)		1,232,728				1,275,270				(3.3	)		4,622,170				4,690,031				(1.4	)
Net sales		$	2,524,697			$	2,492,608			1.3			$	9,545,700			$	9,167,519			4.1
Organic net sales(1)		2,407,405				2,492,608				(3.4	)		8,984,841				9,067,288				(0.9	)

(1) COMPARISON OF U.S. GAAP TO NON-GAAP FINANCIAL MEASUREMENTS

The non-GAAP adjusted financial measurements of organic volume and organic net sales are presented to provide investors additional information to facilitate the comparison of past and present operations. The Company believes these non-GAAP financial measurements provide useful information to investors because they are the measurements used to evaluate performance on a comparable year-over-year

basis. Non-GAAP measurements are not intended to be a substitute for U.S. GAAP measurements in analyzing financial performance. These non-GAAP measurements are not in accordance with generally accepted accounting principles and may be different from non-GAAP measures used by other companies.

Organic net sales and organic volume are defined as net sales and volume excluding the impact of acquisitions and divestitures. Organic net sales and organic volume exclude the impacts of the acquisition of Columbus Craft Meats (November 2017), the acquisition of Fontanini Italian Meats and Sausages (August 2017), and the divestiture of Farmer John (January 2017), in Refrigerated Foods and the acquisition of Ceratti (August 2017) in International. The tables below show the calculations to reconcile from the non-GAAP adjusted measures to the GAAP measures in the fourth quarter and fourth quarter and full year of fiscal 2018.

Adjusted segment profit and adjusted earnings per share exclude the impact of a non-cash impairment charge associated with the CytoSport business which was recognized in the Grocery Products segment. The tables below show the calculations to reconcile from the non-GAAP adjusted measures to the GAAP measures in the fourth quarter and fourth quarter and full year of fiscal 2018. The effective tax rate was used to determine the tax effect of the impairment.

4th Quarter

Volume (lbs.)

		FY 2018									FY 2017
(in thousands)		Reported (GAAP)			Acquisitions			Organic (Non-GAAP)			Reported (GAAP)			Organic % change
Grocery Products		350,399			—			350,399			366,485			(4.4	)
Refrigerated Foods		558,843			(22,757	)		536,086			547,196			(2.0	)
Jennie-O Turkey Store		260,450			—			260,450			270,175			(3.6	)
International & Other		95,600			(9,807	)		85,793			91,414			(6.1	)
Total Volume		1,265,292			(32,564	)		1,232,728			1,275,270			(3.3	)

Net Sales

		FY 2018												FY 2017
(in thousands)		Reported (GAAP)				Acquisitions				Organic (Non-GAAP)				Reported (GAAP)				Organic % change
Grocery Products		$	658,845			$	—			$	658,845			$	685,961			(4.0	)
Refrigerated Foods		1,232,650				(102,262		)		1,130,388				1,166,661				(3.1	)
Jennie-O Turkey Store		466,811				—				466,811				484,856				(3.7	)
International & Other		166,391				(15,030		)		151,361				155,130				(2.4	)
Total Net Sales		$	2,524,697			$	(117,292	)		$	2,407,405			$	2,492,608			(3.4	)

Full Year

Volume (lbs.)

		FY 2018									FY 2017
(in thousands)	Reported (GAAP)				Acquisitions			Organic (Non-GAAP)			Reported (GAAP)			Divestitures			Organic (Non-GAAP)			Organic % change
Grocery Products		1,345,904			—			1,345,904			1,374,665			—			1,374,665			(2.1	)
Refrigerated Foods		2,199,994			(130,301	)		2,069,693			2,180,407			(80,454	)		2,099,953			(1.4	)
Jennie-O Turkey Store		894,590			—			894,590			890,518			—			890,518			0.5
International & Other		357,690			(45,707	)		311,983			324,895			—			324,895			(4.0	)
Total Volume		4,798,178			(176,008	)		4,622,170			4,770,485			(80,454	)		4,690,031			(1.4	)

Net Sales

		FY 2018												FY 2017
(in thousands)		Reported (GAAP)				Acquisitions				Organic (Non-GAAP)				Reported (GAAP)				Divestitures				Organic (Non-GAAP)				Organic % change
Grocery Products		$	2,521,992			$	—			$	2,521,992			$	2,555,613			$	—			$	2,555,613			(1.3	)
Refrigerated Foods		4,771,836				(485,960		)		4,285,876				4,403,732				(100,231		)		4,303,501				(0.4	)
Jennie-O Turkey Store		1,627,433				—				1,627,433				1,663,160				—				1,663,160				(2.1	)
International & Other		624,439				(74,899		)		549,540				545,014				—				545,014				0.8
Total Net Sales		$	9,545,700			$	(560,859	)		$	8,984,841			$	9,167,519			$	(100,231	)		$	9,067,288			(0.9	)

4th Quarter and Full Year

Segment Profit and Diluted Earnings per Share

	FY 2018
	Grocery Products
	4th Quarter			Full Year
Non-GAAP Adjusted Segment Profit	$	98,861		$	380,029
Cytosport Impairment	(17,279		)	(17,279		)
GAAP Segment Profit	$	81,582		$	362,750
	Total Company
	4th Quarter			Full Year
Non-GAAP Adjusted Diluted EPS	$	0.51		$	1.89
Cytosport Impairment	(0.03		)	(0.03		)
GAAP Diluted EPS	$	0.48		$	1.86

The increase in net sales for the fourth quarter of fiscal 2018 was driven by the inclusion of sales from the acquisitions of the Columbus, Fontanini, and Ceratti. Higher sales of Wholly Guacamole® dips, Hormel® Natural Choice® products, Hormel® pepperoni, and foodservice sales of Jennie-O® turkey breast and Austin Blues® smoked barbecue products were more than offset by declines due to lower whole bird sales at JOTS, declines in the Company's contract manufacturing business in Grocery Products, and lower hog harvest volumes.

For fiscal 2018, the increase in net sales was primarily related to the inclusion of the Columbus, Fontanini, and Ceratti acquisitions, more than offsetting declines at JOTS, the Company's contract manufacturing business and CytoSport in Grocery Products.

In fiscal 2019, the Company expects net sales growth with contributions from value-added products and innovation. The new deli organization in Refrigerated Foods is expected to drive sales of the Columbus® brand. Foodservice sales should benefit from the full integration of Fontanini and new capacity for Hormel® Bacon 1™ fully cooked bacon and Hormel® FirebraisedTM meats. The Company anticipates sales growth from products such as Wholly Guacamole® dips, Herdez® salsas, and Muscle Milk® protein beverages in the Grocery Products segment. JOTS is expecting sales growth due to increases in turkey commodity markets, improved whole-bird pricing, and continued demand for Jennie-O® branded products. The International & Other segment plans to show growth in China, Brazil, and through increased branded export sales of SPAM® luncheon meat and Skippy® peanut butter.

Cost of Products Sold

		Fourth Quarter Ended										Year Ended
		October 28,				October 29,						October 28,				October 29,
(in thousands)		2018				2017				% Change		2018				2017				% Change
Cost of products sold		$	1,987,301			$	1,981,054			0.3		$	7,550,267			$	7,164,356			5.4

The cost of products sold for the fourth quarter and fiscal year of fiscal 2018 were higher as a result of the inclusion of the Columbus, Fontanini, and Ceratti acquisitions along with higher freight costs, especially in the Refrigerated Foods and JOTS segments.

Gross Profit

		Fourth Quarter Ended										Year Ended
		October 28,				October 29,						October 28,				October 29,
(in thousands)		2018				2017				% Change		2018				2017				% Change
Gross profit		$	537,396			$	511,554			5.1		$	1,995,433			$	2,003,163			(0.4	)
Percentage of net sales		21.3		%		20.5		%				20.9		%		21.9		%

Consolidated gross profit as a percentage of net sales declined due to reduced commodity profitability, higher freight costs, and input cost volatility.

The Company expects favorable pork input costs in 2019 and modestly-improved conditions in the turkey industry. Refrigerated Foods will benefit from new manufacturing capacity and continued growth of the value-added businesses. Grocery Products and International & Other should see improvement from lower input costs on core branded items and branded exports, respectively. Turkey breast prices are anticipated to increase throughout the year, leading to a steady improvement for JOTS. The global trade environment, potential impact of hog disease in China, and market volatility pose the largest threats to the Company's profitability.

Selling, General and Administrative (SG&A)

		Fourth Quarter Ended										Year Ended
		October 28,				October 29,						October 28,				October 29,
(in thousands)		2018				2017				% Change		2018				2017				% Change
SG&A		$	204,537			$	194,218			5.3		$	838,205			$	762,104			10.0
Percentage of net sales		8.1		%		7.8		%				8.8		%		8.3		%

For the fourth quarter and fiscal 2018, SG&A expenses increased due to the inclusion of the Columbus, Fontanini, and Ceratti acquisitions, higher advertising investments, and higher employee-related expenses.

In fiscal 2019, the Company intends to continue building brand awareness through advertising investments in key brands such as Hormel® pepperoni, Columbus® Craft Meats, the SPAM® family of products, Wholly Guacamole® dips, and Jennie-O® Oven ReadyTM products.

Research and development continues to be a vital part of the Company's strategy to extend existing brands and expand into new branded items. Research and development expenses were $8.7 million and $33.8 million for the fiscal 2018 fourth quarter and year, respectively, compared to $8.2 million and $34.2 million for the corresponding periods in fiscal 2017.

Goodwill/Intangible Impairment: An impairment charge related to the CytoSport trademark totaling $17.3 million was recorded in the fourth quarter of fiscal 2018. Impairment charges related to an indefinite-lived intangible asset of $0.2 million were recorded in the fourth quarter of fiscal 2017.

Equity in Earnings of Affiliates

		Fourth Quarter Ended											Year Ended
		October 28,				October 29,							October 28,				October 29,
(in thousands)		2018				2017				% Change			2018				2017				% Change
Equity in earnings of affiliates		$	8,814			$	12,214			(27.8	)		$	58,972			$	39,590			49.0

Results for the fourth quarter and fiscal 2018 were negatively impacted by increases in advertising and freight costs at MegaMex. For fiscal 2018, strong MegaMex results and tax reform drove the significant increase over the prior year.

The Company accounts for its majority-owned operations under the consolidation method. Investments in which the Company owns a minority interest, and for which there are no other indicators of control, are accounted for under the equity or cost method. These investments, along with receivables from other affiliates, are included in the Consolidated Statements of Financial Position as investments in and receivables from affiliates. The composition of this line item at October 28, 2018, was as follows:

(in thousands)	Investments/Receivables
Country
United States	$	205,148
Foreign	68,005
Total	$	273,153

Effective Tax Rate

		Fourth Quarter Ended						Year Ended
		October 28,			October 29,			October 28,			October 29,
		2018			2017			2018			2017
Effective tax rate %		18.7	%		33.8	%		14.3	%		33.7	%

The lower effective tax rate for both the fourth quarter and fiscal year reflects the impact of The Tax Cuts and Jobs Act, signed into law on December 22, 2017. For fiscal 2018, the Company recorded a net tax benefit of $72.9 million. This provisional net tax benefit arises from a benefit of $81.2 million from re-measuring the Company’s net U.S. deferred tax liabilities, partially offset by the Company’s accrual for the transition tax and other U.S. tax law changes of $8.3 million. These one-time tax events and reduction in the federal statutory tax rate were the main drivers of the Company's effective tax rates for the fourth quarter and fiscal year of 18.7 percent and 14.3 percent, respectively, compared to 33.8 percent and 33.7 percent for the respective periods last year. For a further description, refer to Note K "Income Taxes".

The Company expects the effective tax rate in fiscal 2019 to be between 20.5 and 23.0 percent.

Segment Results

Net sales and operating profits for each of the Company’s reportable segments are set forth below. 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 operating profit and other financial information shown below. (Additional segment financial information can be found in Note P “Segment Reporting.”)

		Fourth Quarter Ended											Year Ended
		October 28,				October 29,							October 28,				October 29,
(in thousands)		2018				2017				% Change			2018				2017				% Change
Net Sales
Grocery Products		$	658,845			$	685,961			(4.0	)		$	2,521,992			$	2,555,613			(1.3	)
Refrigerated Foods		1,232,650				1,166,661				5.7			4,771,836				4,403,732				8.4
Jennie-O Turkey Store		466,811				484,856				(3.7	)		1,627,433				1,663,160				(2.1	)
International & Other		166,391				155,130				7.3			624,439				545,014				14.6
Total Net Sales		$	2,524,697			$	2,492,608			1.3			$	9,545,700			$	9,167,519			4.1
Segment Operating Profit
Grocery Products		$	81,582			$	104,848			(22.2	)		$	362,750			$	387,637			(6.4	)
Refrigerated Foods		181,988				145,613				25.0			617,626				587,929				5.1
Jennie-O Turkey Store		48,829				70,370				(30.6	)		175,684				247,322				(29.0	)
International & Other		24,802				23,113				7.3			88,953				85,304				4.3
Total Segment Operating Profit		337,201				343,944				(2.0	)		1,245,013				1,308,192				(4.8	)
Net interest and investment (income) expense		2,890				(639		)		552.3			17,637				1,824				866.9
General corporate expense		12,897				14,783				(12.8	)		46,534				28,091				65.7
Noncontrolling interest		90				209				(56.9	)		442				368				20.1
Earnings Before Income Taxes		$	321,504			$	330,009			(2.6	)		$	1,181,284			$	1,278,645			(7.6	)

Grocery Products: Results for the Grocery Products segment compared to the prior year are as follows:

		Fourth Quarter Ended											Year Ended
		October 28,				October 29,							October 28,				October 29,
(in thousands)		2018				2017				% Change			2018				2017				% Change
Volume (lbs.)		350,399				366,485				(4.4	)		1,345,904				1,374,665				(2.1	)
Net sales		$	658,845			$	685,961			(4.0	)		$	2,521,992			$	2,555,613			(1.3	)
Segment profit		81,582				104,848				(22.2	)		362,750				387,637				(6.4	)

Net sales improvement in Wholly Guacamole® dips and Herdez® salsas in the fourth quarter of fiscal 2018 were unable to offset declines in contract manufacturing. For fiscal 2018, the net sales decrease was driven by declines across the Company's contract manufacturing business and the CytoSport portfolio.

For the fourth quarter and fiscal year, segment profit decreased as a result of declines in contract manufacturing, a $17.3 million impairment of the CytoSport trademark, and increased freight. Looking ahead to fiscal 2019, the Company anticipates positive momentum to continue in Herdez® salsas and Wholly Guacamole® dips along with improvement at CytoSport.

Refrigerated Foods: Results for the Refrigerated Foods segment compared to the prior year are as follows:

		Fourth Quarter Ended										Year Ended
		October 28,				October 29,						October 28,				October 29,
(in thousands)		2018				2017				% Change		2018				2017				% Change
Volume (lbs.)		558,843				547,196				2.1		2,199,994				2,180,407				0.9
Net sales		$	1,232,650			$	1,166,661			5.7		$	4,771,836			$	4,403,732			8.4
Segment profit		181,988				145,613				25.0		617,626				587,929				5.1

For the fourth quarter and fiscal 2018, volume and net sales increases were driven by the Columbus and Fontanini acquisitions in addition to strong retail sales of Hormel® pepperoni, Applegate® natural and organic products, and Hormel® Natural Choice® products, and foodservice sales of Austin Blues® authentic barbeque products. Lower hog harvest volumes offset some of these gains.

For the fourth quarter and fiscal year, Refrigerated Foods delivered increases in segment profit as the benefit from acquisitions and strong performances from the value-added businesses overcame significant declines in commodity profits, a double-digit increase in per-unit freight costs, and higher advertising investments.

Looking forward, the Company anticipates value-added growth in the foodservice and retail channels as well as a benefit from the new deli organization.

Jennie-O Turkey Store: Results for the JOTS segment compared to the prior year are as follows:

		Fourth Quarter Ended											Year Ended
		October 28,				October 30,							October 28,				October 30,
(in thousands)		2018				2017				% Change			2018				2017				% Change
Volume (lbs.)		260,450				270,175				(3.6	)		894,590				890,518				0.5
Net sales		$	466,811			$	484,856			(3.7	)		$	1,627,433			$	1,663,160			(2.1	)
Segment profit		48,829				70,370				(30.6	)		175,684				247,322				(29.0	)

For the fourth quarter and fiscal 2018, volume and sales decreased primarily due to lower whole bird sales. Jennie-O® premium deli products and Jennie-O® lean ground turkey delivered strong sales gains, partially offsetting the decline.

Segment profit for the fourth quarter and 2018 decreased as a result of lower profits from whole bird and commodity sales, increased freight costs, and increased advertising investments.

JOTS expects value-added volume and sales growth in fiscal 2019, led by Jennie-O® lean ground turkey and foodservice products. Segment profit is expected to be modestly ahead of fiscal 2018 as conditions in the industry improve.

International & Other: Results for the International & Other segment compared to the prior year are as follows:

		Fourth Quarter Ended										Year Ended
		October 28,				October 29,						October 28,				October 29,
(in thousands)		2018				2017				% Change		2018				2017				% Change
Volume (lbs.)		95,600				91,414				4.6		357,690				324,895				10.1
Net sales		$	166,391			$	155,130			7.3		$	624,439			$	545,014			14.6
Segment profit		24,802				23,113				7.3		88,953				85,304				4.3

Volume and sales increases for the quarter and fiscal year were driven by the addition of the Ceratti business and stronger branded exports, partially offset by lower fresh pork exports due to tariffs.

Segment profit increased for both the fourth quarter and fiscal year primarily reflecting improved profitability for the China business due to favorable input costs, the inclusion of the Ceratti business, and stronger exports of branded items. Global trade uncertainty negatively impacted the profitability of pork exports.

Entering fiscal 2019, the International & Other segment anticipates continued expansion in China and Brazil as well as improved export results across all key brands, including SPAM® and Skippy®. Tariffs impacting global trade and hog disease in China present near-term risk.

Unallocated Income and Expense: The Company does not allocate investment income, interest expense, or interest income to its segments when measuring performance. The Company also retains various other income and unallocated expenses at corporate. Equity in earnings of affiliates is included in segment operating profit; however, earnings attributable to the Company’s noncontrolling interests are excluded. These items are included in the segment table for the purpose of reconciling segment results to earnings before income taxes.

		Fourth Quarter Ended								Year Ended
		October 28,				October 29,				October 28,				October 29,
(in thousands)		2018				2017				2018				2017
Interest and investment income		$	3,439			$	4,216			$	8,857			$	10,859
Interest expense		(6,329		)		(3,577		)		(26,494		)		(12,683		)
General corporate expense		(12,897		)		(14,783		)		(46,534		)		(28,091		)
Noncontrolling interest		90				209				442				368

Net interest and investment income was lower for the fourth quarter and fiscal year, which was driven by reduced deferred compensation accruals. Interest expense was higher for the fourth quarter and fiscal year due to additional debt related to the Columbus acquisition. General corporate expense was marginally lower for the fourth quarter, reflecting positive accrual adjustments. For the year, general corporate expenses were higher as a result of higher employee-related expenses and the universal stock option grant.

FISCAL YEARS 2017 AND 2016:

Consolidated Results

Net Earnings and Diluted Earnings per Share

		Fourth Quarter Ended											Year Ended
(in thousands, except per share amounts)		October 29, 2017				October 30, 2016				% Change			October 29, 2017				October 30, 2016				% Change
Net earnings		$	218,154			$	243,940			(10.6	)		$	846,735			$	890,052			(4.9	)
Diluted earnings per share		0.41				0.45				(8.9	)		1.57				1.64				(4.3	)

Volume and Net Sales

		Fourth Quarter Ended											Year Ended
(in thousands)		October 29, 2017				October 30, 2016				% Change			October 29, 2017				October 30, 2016				% Change
Volume (lbs.)		1,275,270				1,420,986				(10.3	)		4,770,485				5,192,027				(8.1	)
Organic volume(1)		1,250,659				1,231,044				1.6			4,658,990				4,588,581				1.5
Net sales		$	2,492,608			$	2,627,941			(5.1	)		$	9,167,519			$	9,523,224			(3.7	)
Organic net sales(1)		2,439,006				2,325,779				4.9			8,970,540				8,710,616				3.0

(1) COMPARISON OF U.S. GAAP TO NON-GAAP FINANCIAL MEASUREMENTS

The non-GAAP adjusted financial measurements of organic volume and organic net sales are presented to provide investors additional information to facilitate the comparison of past and present operations. The Company believes these non-GAAP financial measurements provide useful information to investors because they are the measurements used to evaluate performance on a comparable year-over-year basis. Non-GAAP measurements are not intended to be a substitute for U.S. GAAP measurements in analyzing financial performance. These non-GAAP measurements are not in accordance with generally accepted accounting principles and may be different from non-GAAP measures used by other companies.

Organic net sales and organic volume are defined as net sales and volume excluding the impact of acquisitions, divestitures and the impact of the 53rd reporting week in 2016. Organic net sales and organic volume exclude the impacts of the acquisition of Justin’s (May 2016) in Grocery Products, the acquisition of Fontanini Italian Meats and Sausages (August 2017) and the divestiture of Farmer John (January 2017), in Refrigerated Foods, the divestiture of Diamond Crystal Brands (May 2016) from Grocery Products, and the acquisition of Ceratti (August 2017) in International. The tables below show the calculations to reconcile from the non-GAAP adjusted measures to the GAAP measures in the fourth quarter and the full year of fiscal 2016 and fiscal 2017.

4th Quarter

Volume (lbs.)

		FY 2017												FY 2016
(in thousands)		Reported (GAAP)			Acquisitions			Divestitures			Organic (Non-GAAP)			Reported (GAAP)			Divestitures			53rd Week			Organic (Non-GAAP)			Organic % change
Grocery Products		366,485			—			—			366,485			385,439			—			(27,531	)		357,908			2.4
Refrigerated Foods		547,196			(16,727	)		—			530,469			658,506			(95,246	)		(40,233	)		523,027			1.4
Jennie-O Turkey Store		270,175			—			—			270,175			291,587			—			(20,828	)		270,759			(0.2	)
International & Other		91,414			(7,884	)		—			83,530			85,454			—			(6,104	)		79,350			5.3
Total Volume		1,275,270			(24,611	)		—			1,250,659			1,420,986			(95,246	)		(94,696	)		1,231,044			1.6

Net Sales

		FY 2017																FY 2016
(in thousands)		Reported (GAAP)				Acquisitions				Divestitures				Organic (Non-GAAP)				Reported (GAAP)				Divestitures				53rd Week				Organic (Non-GAAP)				Organic % change
Grocery Products		$	685,961			$	—			$	—			$	685,961			$	708,398			$	—			$	(50,600	)		$	657,798			4.3
Refrigerated Foods		1,166,661				(44,450		)		—				1,122,211				1,237,276				(123,256		)		(79,573		)		1,034,447				8.5
Jennie-O Turkey Store		484,856				—				—				484,856				541,409				—				(38,672		)		502,737				(3.6	)
International & Other		155,130				(9,152		)		—				145,978				140,858				—				(10,061		)		130,797				11.6
Total Net Sales		$	2,492,608			$	(53,602	)		$	—			$	2,439,006			$	2,627,941			$	(123,256	)		$	(178,906	)		$	2,325,779			4.9

Full Year

Volume (lbs.)

		FY 2017												FY 2016
(in thousands)		Reported (GAAP)			Acquisitions			Divestitures			Organic (Non-GAAP)			Reported (GAAP)			Divestitures			53rd Week			Organic (Non-GAAP)			Organic % change
Grocery Products		1,374,665			(6,430	)		—			1,368,235			1,489,469			(133,733	)		(27,531	)		1,328,205			3.0
Refrigerated Foods		2,180,407			(16,727	)		(80,454	)		2,083,226			2,493,358			(375,017	)		(40,233	)		2,078,108			0.2
Jennie-O Turkey Store		890,518			—			—			890,518			902,073			—			(20,828	)		881,245			1.1
International & Other		324,895			(7,884	)		—			317,011			307,127			—			(6,104	)		301,023			5.3
Total Volume		4,770,485			(31,041	)		(80,454	)		4,658,990			5,192,027			(508,750	)		(94,696	)		4,588,581			1.5

Net Sales

		FY 2017																FY 2016
(in thousands)		Reported (GAAP)				Acquisitions				Divestitures				Organic (Non-GAAP)				Reported (GAAP)				Divestitures				53rd Week				Organic (Non-GAAP)				Organic % change
Grocery Products		$	2,555,613			$	(43,146	)		$	—			$	2,512,467			$	2,623,890			$	(140,084	)		$	(50,600	)		$	2,433,206			3.3
Refrigerated Foods		4,403,732				(44,450		)		(100,231		)		4,259,051				4,647,173				(493,618		)		(79,573		)		4,073,982				4.5
Jennie-O Turkey Store		1,663,160				—				—				1,663,160				1,740,968				—				(38,672		)		1,702,296				(2.3	)
International & Other		545,014				(9,152		)		—				535,862				511,193				—				(10,061		)		501,132				6.9
Total Net Sales		$	9,167,519			$	(96,748	)		$	(100,231	)		$	8,970,540			$	9,523,224			$	(633,702	)		$	(178,906	)		$	8,710,616			3.0

The impact of one fewer week in fiscal 2017 was the primary driver for lower sales in the fourth quarter. International & Other posted sales growth in the fourth quarter while the other four segments showed declines. For the full year, sales declined in Grocery Products and Refrigerated Foods due to the divestitures of DCB and Farmer John. JOTS sales were lower for the fourth quarter and fiscal year due to the impact of record low commodity prices.

Cost of Products Sold

		Fourth Quarter Ended											Year Ended
		October 29,				October 30,							October 29,				October 30,
(in thousands)		2017				2016				% Change			2017				2016				% Change
Cost of products sold		$	1,981,054			$	2,029,421			(2.4	)		$	7,164,356			$	7,365,049			(2.7	)

The decrease in cost of products sold for the fourth quarter of fiscal 2017 is primarily a result of the divestiture of Farmer John, which was partially offset by the acquisitions of Fontanini and Ceratti. For the full year, cost of products sold decreased due to the divestiture of Farmer John.

Gross Profit

		Fourth Quarter Ended											Year Ended
		October 29,				October 30,							October 29,				October 30,
(in thousands)		2017				2016				% Change			2017				2016				% Change
Gross profit		$	511,554			$	598,520			(14.5	)		$	2,003,163			$	2,158,175			(7.2	)
Percentage of net sales		20.5		%		22.8		%					21.8		%		22.7		%

Lower margins from the JOTS, Refrigerated Foods, and Grocery Products segments in the fourth quarter of fiscal 2017 more than offset improved results in the International & Other segment. The lower gross profit for JOTS was due to lower commodity meat prices. Refrigerated Foods and Grocery Products segment margins were impacted by higher input costs, though Grocery Products margins finished marginally up for the year. The International & Other segment delivered higher gross margins for the fourth quarter due to improved multinational business results and stronger branded exports. Full year margins also benefited from strong pork exports.

Selling, General and Administrative (SG&A)

		Fourth Quarter Ended											Year Ended
		October 29,				October 30,							October 29,				October 30,
(in thousands)		2017				2016				% Change			2017				2016				% Change
SG&A		$	194,218			$	244,006			(20.4	)		$	762,104			$	871,974			(12.6	)
Percentage of net sales		7.8		%		9.3		%					8.3		%		9.2		%

Selling, general and administrative expenses decreased as the Company reduced advertising expenses by $68.6 million and incurred lower employee-related expenses.

Research and development expenses were $8.2 million and $34.2 million for the fiscal 2017 fourth quarter and year, respectively, compared to $9.6 million and $34.7 million for the corresponding periods in fiscal 2016.

Goodwill/Intangible Impairment: Impairment charges related to an indefinite-lived intangible asset of $0.2 million were recorded in the fourth quarter of fiscal 2017. Goodwill impairment charges related to the divestiture of DCB of $1.0 million were recorded in the second quarter of fiscal 2016.

Equity in Earnings of Affiliates

		Fourth Quarter Ended											Year Ended
		October 29,				October 30,							October 29,				October 30,
(in thousands)		2017				2016				% Change			2017				2016				% Change
Equity in earnings of affiliates		$	12,214			$	11,236			8.7			$	39,590			$	38,685			2.3

The increase for both the fourth quarter and fiscal 2017 was largely the result of improved earnings from the Company’s 50 percent-owned MegaMex joint venture.

The Company accounts for its majority-owned operations under the consolidation method. Investments in which the Company owns a minority interest, and which there are no other indicators of control, are accounted for under the equity or cost method. These investments, along with receivables from other affiliates, are included in the Consolidated Statements of Financial Position as investments in and receivables from affiliates. The composition of this line item at October 29, 2017, was as follows:

(in thousands)	Investments/Receivables
Country
United States	$	177,657
Foreign	64,712
Total	$	242,369

Effective Tax Rate

		Fourth Quarter Ended						Year Ended
		October 29,			October 30,			October 29,			October 30,
		2017			2016			2017			2016
Effective tax rate %		33.8	%		33.0	%		33.7	%		32.4	%

The fiscal 2017 rate was higher as the fiscal 2016 rate benefited from a foreign tax credit.

Segment Results

Net sales and operating profits for each of the Company’s reportable segments are set forth below. 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 operating profit and other financial information shown below. (Additional segment financial information can be found in Note P “Segment Reporting.”)

		Fourth Quarter Ended											Year Ended
		October 29,				October 30,							October 29,				October 30,
(in thousands)		2017				2016				% Change			2017				2016				% Change
Net Sales
Grocery Products		$	685,961			$	708,398			(3.2	)		$	2,555,613			$	2,623,890			(2.6	)
Refrigerated Foods		1,166,661				1,237,276				(5.7	)		4,403,732				4,647,173				(5.2	)
Jennie-O Turkey Store		484,856				541,409				(10.4	)		1,663,160				1,740,968				(4.5	)
International & Other		155,130				140,858				10.1			545,014				511,193				6.6
Total Net Sales		$	2,492,608			$	2,627,941			(5.1	)		$	9,167,519			$	9,523,224			(3.7	)
Segment Operating Profit
Grocery Products		$	104,848			$	102,916			1.9			$	387,637			$	379,378			2.2
Refrigerated Foods		145,613				168,040				(13.3	)		587,929				585,652				0.4
Jennie-O Turkey Store		70,370				92,299				(23.8	)		247,322				329,427				(24.9	)
International & Other		23,113				19,570				18.1			85,304				78,409				8.8
Total Segment Operating Profit		343,944				382,825				(10.2	)		1,308,192				1,372,866				(4.7	)
Net interest and investment (income) expense		(639		)		1,017				(162.8	)		1,824				6,680				(72.7	)
General corporate expense		14,783				17,325				(14.7	)		28,091				49,436				(43.2	)
Noncontrolling interest		209				250				(16.4	)		368				465				(20.9	)
Earnings Before Income Taxes		$	330,009			$	364,733			(9.5	)		$	1,278,645			$	1,317,215			(2.9	)

Grocery Products: Results for the Grocery Products segment compared to the prior year are as follows:

		Fourth Quarter Ended											Year Ended
		October 29,				October 30,							October 29,				October 30,
(in thousands)		2017				2016				% Change			2017				2016				% Change
Volume (lbs.)		366,485				385,439				(4.9	)		1,374,665				1,489,469				(7.7	)
Net sales		$	685,961			$	708,398			(3.2	)		$	2,555,613			$	2,623,890			(2.6	)
Segment profit		104,848				102,916				1.9			387,637				379,378				2.2

Full-year results reflect the addition of Justin’s, acquired on May 25, 2016, in addition to increased sales of Wholly Guacamole® dips, Herdez® salsas, and the SPAM® family of products. Results were offset by the impact of one fewer week compared to fiscal 2016. The volume, sales, and segment profit for the fourth quarter and fiscal year were also negatively offset by increased competitive activity for Muscle Milk® ready-to-drink protein beverages in the convenience store channel stemming from the impact of the recall in fiscal 2016.

Refrigerated Foods: Results for the Refrigerated Foods segment compared to the prior year are as follows:

		Fourth Quarter Ended											Year Ended
		October 29,				October 30,							October 29,				October 30,
(in thousands)		2017				2016				% Change			2017				2016				% Change
Volume (lbs.)		547,196				658,506				(16.9	)		2,180,407				2,493,358				(12.6	)
Net sales		$	1,166,661			$	1,237,276			(5.7	)		$	4,403,732			$	4,647,173			(5.2	)
Segment profit		145,613				168,040				(13.3	)		587,929				585,652				0.4

The results for the fourth quarter and fiscal year reflect the January 2017 divestiture of Farmer John, resulting in lower sales and volume in fiscal 2017. The results of Fontanini have been included as of the date of acquisition on August 24, 2017. Product lines showing exceptional sales growth for the quarter include foodservice sales of Hormel® Bacon 1™ fully cooked bacon and Hormel® Fire Braised™ meats along with retail sales of Hormel® Natural Choice® meats. Segment profit was impacted by the divestiture of Farmer John, which was partially offset by the addition of Fontanini and strong value-added product growth.

Jennie-O Turkey Store: Results for the JOTS segment compared to the prior year are as follows:

		Fourth Quarter Ended											Year Ended
		October 29,				October 30,							October 29,				October 30,
(in thousands)		2017				2016				% Change			2017				2016				% Change
Volume (lbs.)		270,175				291,587				(7.3	)		890,518				902,073				(1.3	)
Net sales		$	484,856			$	541,409			(10.4	)		$	1,663,160			$	1,740,968			(4.5	)
Segment profit		70,370				92,299				(23.8	)		247,322				329,427				(24.9	)

Net sales, volume, and segment profit were lower than last year as the segment continued to be impacted by higher industry supply and corresponding lower commodity meat prices. Pricing pressure from competing proteins and higher expenses also contributed to the lower results for the full year.

Segment profit for the fourth quarter was lower than last year as continued softness in the commodity and whole turkey markets and a more competitive industry environment pressured value-added margins.

International & Other: Results for the International & Other segment compared to the prior year are as follows:

		Fourth Quarter Ended											Year Ended
		October 29,				October 30,							October 29,				October 30,
(in thousands)		2017				2016				% Change			2017				2016				% Change
Volume (lbs.)		91,414				85,454				7.0			324,895				307,127				5.8
Net sales		$	155,130			$	140,858			10.1			$	545,014			$	511,193			6.6
Segment profit		23,113				19,570				18.1			85,304				78,409				8.8

Volume and sales for the fourth quarter were driven by improved export sales of Skippy® peanut butter products and SPAM® luncheon meat and also reflect the September 2017 acquisition of the Ceratti® brand. For the fiscal year, improved market conditions resulted in an overall increase in export sales. In China, the Skippy® peanut butter business continued to grow in both retail and foodservice channels and the Company’s meat business experienced more favorable markets throughout fiscal 2017.

Segment profit results for both the fourth quarter and fiscal year primarily reflect better margins for the China business and improved exports of branded items.

Unallocated Income and Expense: The Company does not allocate investment income, interest expense, and interest income to its segments when measuring performance. The Company also retains various other income and unallocated expenses at

corporate. Equity in earnings of affiliates is included in segment operating profit; however, earnings attributable to the Company’s noncontrolling interests are excluded. These items are included in the segment table for the purpose of reconciling segment results to earnings before income taxes.

		Fourth Quarter Ended								Year Ended
		October 29,				October 30,				October 29,				October 30,
(in thousands)		2017				2016				2017				2016
Net interest and investment income		$	4,216			$	2,271			$	10,859			$	6,191
Interest expense		(3,577		)		(3,288		)		(12,683		)		(12,871		)
General corporate expense		(14,783		)		(17,325		)		(28,091		)		(49,436		)
Noncontrolling interest		209				250				368				465

Net interest and investment expense was lower in fiscal 2017 than in fiscal year 2016 due to higher interest income, favorable currency exchange, and improved returns on the rabbi trust. General corporate expense was lower for both the fourth quarter and fiscal year primarily reflecting lower employee-related expenses.

Liquidity and Capital Resources

Cash and cash equivalents were $459.1 million at the end of fiscal 2018 compared to $444.1 million at the end of fiscal 2017 and $415.1 million at the end of fiscal 2016.

During fiscal 2018, cash provided by operating activities was $1,241.7 million compared to $1,033.9 million in fiscal 2017 and $1,040.0 million in fiscal 2016. The increase in fiscal 2018 was primarily due to a lower tax rate and improvements in working capital.

Cash used in investing activities increased to $1,235.4 million in fiscal 2018 from $587.2 million in fiscal 2017 and $408.5 million in fiscal 2016. Fiscal 2018 included $857.4 million to purchase Columbus. Fiscal 2017 included $520.5 million to purchase Fontanini and Ceratti, partially offset by the sale of Farmer John for $135.9 million. Fiscal 2016 included $280.9 million to purchase Justin’s, partially offset by the sale of DCB for $110.1 million. Capital expenditures in fiscal 2018 increased to $389.6 million, from $221.3 million in 2017, and $255.5 million in 2016. Projects in fiscal 2018 included the expansion of value-added capacity at Dold Foods in Wichita, Kansas, a highly automated whole bird facility in Melrose, Minnesota, and ongoing investments for food and employee safety. Projects in fiscal 2017 included completion of the Company’s plant in Jiaxing, China, replacement of the JOTS whole bird production facility in Melrose, Minnesota, and the bacon expansion in Wichita, Kansas. Capital expenditures in fiscal 2016 are primarily related to the Company's new plant in Jiaxing, China, and a lean ground turkey expansion at JOTS. Capital expenditures for fiscal 2019 are estimated to be approximately $350.0 million. Major projects include the expansion of value-added capacity, investments to improve efficiencies, and expanded automation in the Company's operations.

Cash provided by financing activities was $11.6 million in fiscal 2018 compared to cash used in financing activities of $418.8 million in fiscal 2017 and $557.3 million in fiscal 2016. In connection with the purchase of Columbus, the Company borrowed $375.0 million under a revolving credit facility, which was paid off during the year, and $375.0 million under a term loan facility, which was paid off during the year. The Company repurchased $46.9 million of its common stock in fiscal 2018 compared to $94.5 million and $87.9 million repurchased during fiscal 2017 and 2016, respectively. For additional information pertaining to the Company’s share repurchase plans or programs, see Part II, Item 2 “Unregistered Sales of Equity Securities and Use of Proceeds.”

During fiscal 2018, the Company repurchased 1.4 million shares of its common stock at an average price per share of $33.86. During fiscal 2017, the Company repurchased 2.7 million shares of its common stock at an average price per share of $34.51. During fiscal 2016, the Company repurchased 2.4 million shares of its common stock at an average price per share of $36.84. On January 29, 2013, the Company’s Board of Directors authorized the repurchase of 10.0 million shares of its common stock with no expiration date, which was adjusted for the stock split during the first quarter of fiscal 2016. As of the end of fiscal 2018, there were 9.1 million shares remaining for repurchase under that authorization.

Cash dividends paid to the Company’s shareholders continues to be an ongoing financing activity for the Company, with $388.1 million in dividends paid in fiscal 2018 compared to $346.0 million in the fiscal 2017 and $296.5 million in fiscal 2016. The dividend rate was $0.75 per share in fiscal 2018, which reflected a 10.3 percent increase over the fiscal 2017 rate of $0.68 per share. The Company has paid dividends for 361 consecutive quarters. The annual dividend rate for fiscal 2019 was increased 12.0 percent to $0.84 per share, representing the 53rd consecutive annual dividend increase.

Cash flows from operating activities continue to provide the Company with its principal source of liquidity. The Company does not anticipate a significant risk to cash flows from this source in the foreseeable future because the Company operates in a relatively stable industry and has strong brands across many categories and channels.

The Company is dedicated to returning excess cash flow to shareholders through dividend payments. Growing the business through innovation and evaluating opportunities for strategic acquisitions remains a focus for the Company. Reinvestments in

the business to ensure employee and food safety are a top priority for the Company. Capital spending to enhance and expand current operations will also be a significant cash outflow in fiscal 2019.

Contractual Obligations and Commercial Commitments

The following table outlines the Company’s future contractual financial obligations as of October 28, 2018, (for additional information regarding these obligations, see Note F “Long-term Debt and Other Borrowing Arrangements” and Note N “Commitments and Contingencies"):

		Payments Due by Periods
Contractual Obligations (in thousands)		Total				Less Than 1 Year				1-3 Years				3-5 Years				More Than 5 Years
Purchase obligations:
Hog and turkey commitments(1)		$	2,381,549			$	1,013,544			$	1,071,379			$	278,100			$	18,526
Grain commitments(1)		116,100				114,718				1,382				—				—
Turkey grow-out contracts(2)		151,430				19,522				33,441				28,574				69,893
Current and long-term debt		624,840				—				624,840				—				—
Interest payments on long-term debt(3)		29,484				14,412				15,072				—				—
Leases		62,470				12,886				15,984				9,754				23,846
Other long-term liabilities(4) (5)		64,839				6,420				11,919				11,189				35,311
Total Contractual Cash Obligations		$	3,430,712			$	1,181,502			$	1,774,017			$	327,617			$	147,576

(1) In the normal course of business, the Company commits to purchase fixed quantities of livestock, grain, and raw materials from producers to ensure a steady supply of production inputs. Some of these contracts are based on market prices at the time of delivery, for which the Company has estimated the purchase commitment using current market prices as of October 28, 2018.

(2) The Company utilizes grow-out contracts with independent farmers to raise turkeys for the Company. Under these contracts, the turkeys, feed, and other supplies are owned by the Company. The farmers provide the required labor and facilities, and receive a fee per pound when the turkeys are delivered. Some of the facilities are sub-leased by the Company to the independent farmers. As of October 28, 2018, the Company had approximately 100 active contracts ranging from one to twenty-five years in duration. The grow-out activity is assumed to continue through the term of these active contracts, and amounts in the table represent the Company’s obligation based on turkeys expected to be delivered from these farmers.

(3) See Note F, "Long-term Debt and Other Borrowing Arrangements".

(4) Other long-term liabilities represent payments under the Company’s deferred compensation plans. Excluded from the table above are payments under the Company’s defined benefit pension and other post-retirement benefit plans. (See estimated benefit payments for the next ten fiscal years in Note G “Pension and Other Post-retirement Benefits.”)

(5) As discussed in Note K "Income Taxes," the total liability for unrecognized tax benefits, including interest and penalties, at October 28, 2018, was $26.3 million, which is not included in the table above as the ultimate amount or timing of settlement of the Company's reserves for income taxes cannot be reasonably estimated.

In addition to the commitments set forth in the above table, at October 28, 2018, the Company had $45.5 million in standby letters of credit issued on behalf of the Company. The standby letters of credit are primarily related to the Company’s self-insured workers compensation programs.

The Company believes its financial resources, including a revolving credit facility for $400.0 million and anticipated funds from operations, will be adequate to meet all current commitments.

Off-Balance Sheet Arrangements

As of October 28, 2018, the Company had $45.5 million of standby letters of credit issued on its behalf. The standby letters of credit are primarily related to the Company’s self-insured workers compensation programs. However, this amount includes revocable standby letters of credit totaling $2.4 million for obligations of an affiliated party that may arise under workers compensation claims. Letters of credit are not reflected in the Company’s Consolidated Statements of Financial Position.

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.

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 the Company’s Annual Report to Stockholders, other filings by the Company with the U.S. 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.

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 following discussion of risk factors 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.

In making these statements, the Company is not undertaking, and specifically declines to undertake, any obligation to address or update each or any factor in future filings or communications regarding the Company’s business or results, and is not undertaking to address how any of these factors may have caused changes to discussions or information contained in previous filings or communications. Though the Company has attempted to list comprehensively these important cautionary risk factors, the Company wishes to caution investors and others that other factors may in the future prove to be important in affecting the Company’s business or results of operations.

The Company cautions readers not to place undue reliance on forward-looking statements, which represent current views as of the date made. Forward-looking statements are inherently at risk to any changes in the national and worldwide economic environment, which could include, among other things, economic conditions, political developments, currency exchange rates, interest and inflation rates, accounting standards, taxes, and laws and regulations affecting the Company and its markets.