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. It operates in four reportable segments as described in Note M - Segment Reporting in the Notes to Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

The Company reported net earnings per diluted share of $0.44 for the first quarter of fiscal 2022, up 7 percent compared to last year. Significant factors impacting the quarter were:

• Net sales for the first quarter were a record, driven by the inclusion of the Planters*®* snack nuts business and growth from the Company's foodservice businesses.

• Segment profit for the quarter increased 13 percent. In addition to the contribution of the Planters*®* snack nuts business, growth was due to excellent results from the value-added businesses in Refrigerated Foods and the Jennie-O Turkey Store business, which benefited from favorable market conditions and the Company's initial transformative efforts.

• The Company grew earnings before income taxes, net earnings, and diluted earnings per share as its supply chain overcame significant labor shortages due to the omicron variant, severe upstream and downstream disruptions, and continued industrywide operational challenges.

• Refrigerated Foods segment profit increased as higher foodservice sales and numerous pricing actions across the other value-added businesses overcame higher operational and logistics costs. Volume, sales, and segment profit were negatively impacted by production constraints due to labor shortages.

• Jennie-O Turkey Store segment profit increased due to higher commodity prices and strong foodservice sales. The business absorbed significantly higher feed and logistics costs.

• Grocery Products segment profit increased due to the contribution from the Planters*®* snack nuts business, which more than offset lower equity in earnings from MegaMex and higher operational and logistics costs. Volume, sales, and segment profit were negatively impacted by production constraints due to labor shortages.

• International & Other segment profit declined due to lower sales across the portfolio and a decline in equity in earnings.

• Year-to-date cash flow from operations was $383.8 million, up 87 percent compared to the prior year.

Consolidated Results

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

			Quarter Ended
in thousands, except per share amounts			January 30, 2022						January 24, 2021						% Change
Volume (lbs.)			1,204,872						1,179,706						2.1
Organic Volume (1)			1,131,365						1,179,706						(4.1)
Net Sales			$	3,044,358					$	2,461,147					23.7
Organic Net Sales (1)			2,772,534						2,461,147						12.7
Earnings Before Income Taxes			308,904						277,082						11.5
Net Earnings Attributable to Hormel Foods Corporation			239,571						222,283						7.8
Diluted Earnings per Share			0.44						0.41						7.3

(1) See the "Non-GAAP Financial Measures" section below for a description of the Company's use of measures not defined by U.S. Generally Accepted Accounting Principles (GAAP).

Net Sales

Net sales for the first quarter were a record driven by the inclusion of the Planters*®* snack nuts business and growth from the Company's foodservice businesses. All segments also benefited from pricing actions during the quarter taken to offset inflationary pressures.

Cost of Products Sold

			Quarter Ended
in thousands			January 30, 2022						January 24, 2021						% Change
Cost of Products Sold			$	2,505,610					$	2,010,977					24.6

Cost of products sold for the first quarter of fiscal 2022 increased due to inflationary pressures stemming from raw materials, packaging, freight, labor and many other inputs. The inclusion of the Planters*®* snack nuts business was also a driver of higher costs.

Costs are expected to remain elevated due to the continued impacts of broad-based inflation. Raw material input costs for pork, beef, turkey, avocados, and feed are anticipated to remain above historical levels.

Gross Profit

			Quarter Ended
in thousands			January 30, 2022						January 24, 2021						% Change
Gross Profit			$	538,749					$	450,170					19.7
Percentage of Net Sales			17.7		%				18.3		%

Gross profit as a percentage of net sales for the first quarter declined, driven primarily by higher freight and operational

expenses. Gross profit as a percentage of net sales increased for the Jennie-O Turkey Store and International & Other segments but declined for Grocery Products and Refrigerated Foods during the first quarter.

Looking ahead to the second quarter of fiscal 2022, the Company expects gross profit as a percentage of net sales to improve compared to the prior year and sequentially compared to the first quarter. The Company expects to benefit from the intentional actions it has taken to offset inflationary pressures. These actions include pricing, improving promotional effectiveness, and shifting to a more profitable mix. Further input cost inflation poses the largest risk to this assumption.

Selling, General and Administrative (SG&A)

			Quarter Ended
in thousands			January 30, 2022						January 24, 2021						% Change
SG&A			$	225,972					$	196,380					15.1
Percentage of Net Sales			7.4		%				8.0		%

For the first quarter of fiscal 2022, SG&A expenses increased due to the addition of the Planters*®* snack nuts business and higher marketing and advertising investments. As a percent of net sales, SG&A expenses declined, driven by strong sales and disciplined cost management.

Advertising investments in the first quarter were $47 million compared to $34 million last year. The Company plans to continue to invest in its leading brands.

Equity in Earnings of Affiliates

			Quarter Ended
in thousands			January 30, 2022						January 24, 2021						% Change
Equity in Earnings of Affiliates			$	6,898					$	14,228					(51.5)

Equity in earnings of affiliates for the first quarter decreased significantly due to lower results for MegaMex and from the Company's joint venture in the Philippines. MegaMex results were negatively impacted by significantly higher costs for avocados.

Effective Tax Rate

			Quarter Ended
			January 30, 2022						January 24, 2021
Effective Tax Rate			22.4		%				19.7		%

The effective tax rate for the first quarter increased as last year's tax rate benefited from a state tax settlement. The effective tax rate for fiscal 2022 is expect to be between 20.5% and 22.5%. For further information, refer to Note K - Income Taxes.

Segment Results

Net sales and segment profit 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 profit and other financial information shown below.

			Quarter Ended
in thousands			January 30, 2022						January 24, 2021						% Change
Net Sales
Grocery Products			$	855,591					$	577,599					48.1
Refrigerated Foods			1,627,528						1,367,077						19.1
Jennie-O Turkey Store			384,471						333,321						15.3
International & Other			176,768						183,150						(3.5)
Total			$	3,044,358					$	2,461,147					23.7
Segment Profit
Grocery Products			$	99,486					$	92,202					7.9
Refrigerated Foods			162,391						141,171						15.0
Jennie-O Turkey Store			43,737						26,940						62.4
International & Other			26,084						32,204						(19.0)
Total Segment Profit			331,699						292,517						13.4
Net Unallocated Expense			22,933						15,547						47.5
Noncontrolling Interest			139						112						24.0
Earnings Before Income Taxes			$	308,904					$	277,082					11.5

Grocery Products

			Quarter Ended
in thousands			January 30, 2022						January 24, 2021						% Change
Volume (lbs.)			371,515						304,334						22.1
Net Sales			$	855,591					$	577,599					48.1
Segment Profit			99,486						92,202						7.9

For the first quarter of fiscal 2022, volume and sales increased, driven by growth from the simple meals and Mexican foods portfolios and from the inclusion of the Planters*®* snack nuts business. Brands leading the sales growth included WHOLLY*®, SPAM®, Dinty Moore®,* and Mary Kitchen*®.*

Segment profit for the first quarter increased due to the contribution from the Planters*®* snack nuts business, which more than offset lower results from MegaMex and higher operational and logistics costs.

Volume, sales and segment profit during the quarter were negatively impacted by production constraints due to labor shortages.

Grocery Products expects year-over-year volume, sales, and segment profit growth in the second quarter related to the impact from the Planters*®* snack nuts business. Risks to profitability include additional inflationary pressures and labor shortages impacting production on key product lines.

Refrigerated Foods

			Quarter Ended
in thousands			January 30, 2022						January 24, 2021						% Change
Volume (lbs.)			572,752						595,315						(3.8)
Net Sales			$	1,627,528					$	1,367,077					19.1
Segment Profit			162,391						141,171						15.0

For the first quarter, value-added volume and sales increased due to strong results from the foodservice businesses and pricing actions across most categories. Consistent with the Company's long-term strategy to better align resources to value-added growth, the overall decline in volume was due to planned lower commodity sales. Foodservice volume and sales increased with growth in every branded category and from the inclusion of the Planters*®* snack nuts business. Retail and deli sales increased with growth led by products such as Applegate*®* natural and organic meats and Hormel*®* Gatherings*®* party trays. Products such as Columbus*®* grab-and-go charcuterie also benefited from new production capacity in the Nebraska facility.

Segment profit increased during the first quarter as higher foodservice sales and numerous pricing actions across the other value-added businesses overcame higher operational and logistics costs.

Volume, sales and segment profit were negatively impacted by production constraints due to labor shortages.

Refrigerated Foods expects higher sales and segment profit in the second quarter, led by continued strength in the foodservice business. Risks to profitability include additional inflationary pressures and labor shortages impacting production on key product lines.

Jennie-O Turkey Store

			Quarter Ended
in thousands			January 30, 2022						January 24, 2021						% Change
Volume (lbs.)			188,500						193,569						(2.6)
Net Sales			$	384,471					$	333,321					15.3
Segment Profit			43,737						26,940						62.3

Sales for the first quarter of fiscal 2022 increased due to improved foodservice performance, increased whole bird shipments and pricing actions across the portfolio. The decline in volume was largely due to lower commodity volumes as a result of labor shortages.

For the first quarter, higher commodity prices and strong foodservice sales drove the significant improvement in segment profit. The business absorbed significantly higher feed and logistics costs.

Jennie-O Turkey Store expects improved results in the second quarter due to favorable market conditions and continued strength in the foodservice business. Labor shortages, supply chain disruption, and the domestic emergence of Highly Pathogenic Avian Influenza present the largest risks to the business.

International & Other

			Quarter Ended
in thousands			January 30, 2022						January 24, 2021						% Change
Volume (lbs.)			72,106						86,489						(16.6)
Net Sales			$	176,768					$	183,150					(3.5)
Segment Profit			26,084						32,204						(19.0)

Volume and sales declined during the first quarter due to demand softness in China caused by COVID-related restrictions, current export logistics challenges, and lower fresh pork export volume resulting from the Company's new pork supply agreement.

For the first quarter, segment profit declined due to lower sales across the portfolio and a decline in equity in earnings.

International & Other expects growth in the second quarter due to strength from exports and an improvement in equity in earnings. Continued demand softness in China and export logistics challenges pose the largest risks to profit growth.

Unallocated Income and Expenses

The Company does not allocate deferred compensation, investment income, interest expense or interest income to its segments when measuring performance. The Company also retains various other income and unallocated expenses at the corporate level. Equity in earnings of affiliates is included in segment 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.

			Quarter Ended
in thousands			January 30, 2022						January 24, 2021
Net Unallocated Expense			$	22,933					$	15,547
Noncontrolling Interest			139						112

For the first quarter, net unallocated expense increased due to lower investment income from the Company's Rabbi Trust and higher interest expense.

Non-GAAP Financial Measures

The non-GAAP adjusted financial measures of organic net sales and organic volume are presented to provide investors with additional information to facilitate the comparison of past and present operations. 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 impact of the acquisition of the Planters*®* snack nuts business (June 2021) in the Grocery Products, Refrigerated Foods and International & Other segments.

The Company believes these non-GAAP financial measures provide useful information to investors, because they are the measures used to evaluate performance on a comparable year-over-year basis. Non-GAAP measures are not intended to be a substitute for U.S. GAAP measures in analyzing financial performance. These non-GAAP measures are not in accordance with generally accepted accounting principles and may be different from non-GAAP measures used by other companies.

The tables below show the calculations to reconcile from the GAAP measures to the non-GAAP adjusted measures.

RECONCILIATION OF NON-GAAP MEASURES
ORGANIC VOLUME AND NET SALES (NON-GAAP)
			Quarter Ended
			January 30, 2022												January 24, 2021
in thousands			Reported GAAP			Acquisitions			Organic (Non-GAAP)						Reported GAAP												Organic % Change
Volume (lbs.)
Grocery Products			371,515			(63,212)			308,303						304,334												1.3
Refrigerated Foods			572,752			(8,573)			564,179						595,315												(5.2)
Jennie-O Turkey Store			188,500			—			188,500						193,569												(2.6)
International & Other			72,106			(1,722)			70,384						86,489												(18.6)
Total Volume			1,204,872			(73,507)			1,131,365						1,179,706												(4.1)
Net Sales
Grocery Products			$	855,591		$	(235,732)		$	619,859					$	577,599											7.3
Refrigerated Foods			1,627,528			(31,253)			1,596,275						1,367,077												16.8
Jennie-O Turkey Store			384,471			—			384,471						333,321												15.3
International & Other			176,768			(4,839)			171,929						183,150												(6.1)
Total Net Sales			$	3,044,358		$	(271,824)		$	2,772,534					$	2,461,147											12.7

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 31, 2021.

LIQUIDITY AND CAPITAL RESOURCES

When assessing liquidity and capital resources, the Company evaluates cash and cash equivalents, short-term and long-term investments, income from operations, and borrowing capacity.

Cash Flow Highlights

			Quarter Ended
in millions			January 30, 2022			January 24, 2021
Cash and Cash Equivalents			$	824		$	1,752
Cash Provided by (Used in) Operating Activities			384			206
Cash Provided by (Used in) Investing Activities			(50)			(39)
Cash Provided by (Used in) Financing Activities			(124)			(135)

Cash and cash equivalents increased $211 million in the first quarter of fiscal 2022 as cash from operating activities was sufficient to cover dividend payments and capital expenditures. Cash and cash equivalents decreased compared to the prior year due to funding the purchase of the Planters*®* snack nuts business. Additional details related to significant drivers of cash flows are provided below.

Cash Provided by (Used in) Operating Activities

• Cash flows from operating activities benefited from earnings and favorable working capital in the first quarter of fiscal 2022.

–Accounts receivable declined $85 million in the first quarter of fiscal 2022 as a result of the timing of sales and collections following holiday shipments. In comparison, accounts receivable increased $3 million in the first quarter of fiscal 2021.

–Accounts payable and accrued expenses decreased $86 million and $124 million in the first quarter of fiscal 2022 and 2021, respectively, primarily due to annual incentive compensation and deferred livestock payments.

Cash Provided by (Used in) Investing Activities

• Capital expenditures were $50 million and $40 million in the first quarter of fiscal 2022 and 2021, respectively. Capital expenditures for fiscal 2022 are estimated to be $310 million. The largest spend in both years was related to capacity expansion in Omaha, Nebraska. Looking to the remainder of the year, the Company will prioritize projects which increase value added production capacity, drive cost savings and leverage automation.

Cash Provided by (Used in) Financing Activities

• Cash dividends paid to the Company’s shareholders continue to be an ongoing financing activity for the Company with payments totaling $133 million in the first quarter of fiscal 2022 compared to $126 million in the comparable period of fiscal 2021. For fiscal 2022, the annual dividend rate was increased 6 percent to $1.04 per share, representing the 56th consecutive annual dividend increase. The Company has paid dividends for 374 consecutive quarters.

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 applies a waterfall approach to capital resource allocation, which focuses first on required uses of cash such as capital expenditures to maintain facilities, dividend returns to investors, and mandatory debt repayments. Next, the Company looks to strategic items in support of growth initiatives such as acquisitions and innovation investments, which is followed by opportunistic uses including incremental debt repayment and share repurchases. The Company believes its anticipated income from operations, cash on hand, and borrowing capacity under the current credit facility will be adequate to meet all short-term and long-term commitments. The Company's ability to leverage its balance sheet through the issuance of debt provides the flexibility to take advantage of strategic opportunities which may require additional funding.

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 31, 2021.

The Company is required by certain covenants in its debt agreements to maintain specified levels of financial ratios and financial position. As of January 30, 2022, the Company was in compliance with all of these debt covenants and expects to maintain this compliance.

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

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. 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 to the Consolidated Financial Statements in the Form 10-K with the exception of new requirements adopted in the first quarter of fiscal 2022.

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. The Company has considered the impact of COVID-19 and determined 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 31, 2021. As conditions resulting from the COVID-19 pandemic evolve, the Company expects these judgments and estimates may be subject to change, which could materially impact future periods.

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 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 discussion of risk factors 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.

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, changes resulting from the COVID-19 pandemic, economic conditions, political developments, civil unrest, currency exchange rates, interest and inflation rates, accounting standards, taxes, and laws and regulations affecting the Company and its markets.