Hormel Foods 10-Q 2022-07-31

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2022

or

☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________________________________ to ________________________________________

Commission File Number: 1-2402

HORMEL FOODS CORPORATION

(Exact name of registrant as specified in its charter)

Delaware						41-0319970
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

1 Hormel Place

Austin, MN 55912

(Address of Principal Executive Office, including zip code)

(507) 437-5611

(Registrant’s telephone number, including area code)

None

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class												Trading Symbol						Name of each exchange on which registered
Common Stock			$0.01465			par value						HRL						New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer			☒			Accelerated filer			☐
Non-accelerated filer			☐			Smaller reporting company			☐
						Emerging growth company			☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class						Outstanding at August 28, 2022
Common Stock						$.01465			par value			546,197,604
Common Stock Non-Voting						$.01			par value			0

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION
Item 1.						Financial Statements
			Consolidated Statements of Operations
			Consolidated Statements of Comprehensive Income
			Consolidated Condensed Statements of Financial Position
			Consolidated Statements of Changes in Shareholders' Investment
			Consolidated Condensed Statements of Cash Flows
			Notes to Consolidated Financial Statements
Item 2.						Management’s Discussion and Analysis of Financial Condition and Results of Operations
			Results of Operations
						Overview
						Consolidated Results
						Segment Results
						Related Party Transactions
			Liquidity and Capital Resources
			Critical Accounting Estimates
			Forward-looking Statements
Item 3.						Quantitative and Qualitative Disclosures About Market Risk
Item 4.						Controls and Procedures
PART II - OTHER INFORMATION
Item 1.						Legal Proceedings
Item 1A.						Risk Factors
Item 2.						Unregistered Sales of Equity Securities and Use of Proceeds
Item 6.						Exhibits
SIGNATURES

PART I – FINANCIAL INFORMATION

HORMEL FOODS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

In thousands, except per share amounts

Unaudited

			Quarter Ended												Nine Months Ended
			July 31, 2022						July 25, 2021						July 31, 2022						July 25, 2021
Net Sales			$	3,034,414					$	2,863,670					$	9,175,331					$	7,931,438
Cost of Products Sold			2,528,364						2,440,322						7,577,062						6,581,613
Gross Profit			506,049						423,348						1,598,269						1,349,825
Selling, General and Administrative			222,147						226,284						672,777						622,630
Equity in Earnings of Affiliates			7,138						10,420						19,951						37,722
Operating Income			291,040						207,484						945,443						764,917
Interest and Investment Income			14,411						8,457						20,078						36,740
Interest Expense			15,615						11,703						44,913						27,718
Earnings Before Income Taxes			289,836						204,238						920,608						773,940
Provision for Income Taxes			71,010						27,164						200,393						146,549
Net Earnings			218,826						177,074						720,215						627,390
Less: Net Earnings (Loss) Attributable to Noncontrolling Interest			(89)						157						112						290
Net Earnings Attributable to Hormel Foods Corporation			$	218,915					$	176,917					$	720,103					$	627,101
Net Earnings Per Share
Basic			$	0.40					$	0.33					$	1.32					$	1.16
Diluted			$	0.40					$	0.32					$	1.31					$	1.15
Weighted-average Shares Outstanding
Basic			546,077						541,746						544,486						540,618
Diluted			550,167						548,072						549,377						547,684

See Notes to Consolidated Financial Statements

HORMEL FOODS CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

In thousands

Unaudited

			Quarter Ended												Nine Months Ended
			July 31, 2022						July 25, 2021						July 31, 2022						July 25, 2021
Net Earnings			$	218,826					$	177,074					$	720,215					$	627,390
Other Comprehensive Income (Loss), Net of Tax:
Foreign Currency Translation			(29,228)						12,626						(14,233)						23,489
Pension and Other Benefits			2,505						4,199						7,643						12,598
Deferred Hedging			(35,138)						(8,612)						967						42,016
Total Other Comprehensive Income (Loss)			(61,861)						8,213						(5,623)						78,103
Comprehensive Income			156,965						185,287						714,592						705,493
Less: Comprehensive Income (Loss) Attributable to Noncontrolling Interest			(540)						270						(206)						671
Comprehensive Income Attributable to Hormel Foods Corporation			$	157,505					$	185,017					$	714,798					$	704,822

See Notes to Consolidated Financial Statements

CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION

In thousands, except share and per share amounts

Unaudited

			July 31, 2022						October 31, 2021
Assets
Current Assets
Cash and Cash Equivalents			$	850,344					$	613,530
Short-term Marketable Securities			18,314						21,162
Accounts Rece

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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 $0.40 for the third quarter of fiscal 2022, up 25 percent compared to last year. Significant factors impacting the quarter were:

• Net sales for the third quarter were a record, driven by the inclusion of the Planters*®* snack nuts business, growth from the Company's foodservice businesses, and strong demand across the nut butters, Mexican and simple meals portfolios in Grocery Products. Net sales also benefited from pricing actions across the portfolio.

• Segment profit for the quarter increased 18 percent. Strong results from Jennie-O Turkey Store, Refrigerated Foods, and the contribution from the Planters*®* snack nuts business were the key contributors to growth.

• Compared to the prior year, earnings before income taxes for the quarter increased 42 percent. Last year's results were impacted by one-time acquisition costs and accounting adjustments related to the acquisition of the Planters*®* snack nuts business of $40 million.

• Jennie-O Turkey Store segment profit increased significantly due to higher commodity prices and foodservice sales.

• Refrigerated Foods segment profit growth was driven by strong results from the value-added businesses, more than offsetting higher operational and logistics costs, and lower commodity profitability.

• International & Other segment profit declined for the quarter. Profit growth in China, due primarily to lower pork input costs, did not offset the impact of lower export sales.

• Grocery Products segment profit declined due to the impact from continued inflationary pressures and lower results from MegaMex.

• Year-to-date cash flow from operations was $763 million, up 74 percent compared to the prior year.

• Fourth quarter and full year comparisons will be to fiscal 2021 results which included an extra week in the fourth quarter.

• On August 9, 2022, the Company announced a new strategic operating model and will be transitioning to three operating segments – Retail, Foodservice and International. The Company will begin operating under the new model at the beginning of fiscal 2023 on October 31, 2022. Earnings will first be reported under this structure for the first quarter of fiscal 2023.

Consolidated Results

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

			Quarter Ended																		Nine Months Ended
in thousands, except per share amounts			July 31, 2022						July 25, 2021						% Change						July 31, 2022						July 25, 2021						% Change
Volume (lbs.)			1,074,609						1,180,634						(9.0)						3,443,679						3,553,288						(3.1)
Organic Volume (1)			1,049,277						1,180,634						(11.1)						3,279,862						3,553,288						(7.7)
Net Sales			$	3,034,414					$	2,863,670					6.0						$	9,175,331					$	7,931,438					15.7
Organic Net Sales (1)			2,939,687						2,863,670						2.7						8,569,765						7,931,438						8.0
Earnings Before Income Taxes			289,836						204,238						41.9						920,608						773,940						19.0
Net Earnings Attributable to Hormel Foods Corporation			218,915						176,917						23.7						720,103						627,101						14.8
Diluted Earnings per Share			0.40						0.32						25.0						1.31						1.15						13.9
Adjusted Diluted Earnings Per Share (1)			0.40						0.39						2.6						1.31						1.21						8.3

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

Net Sales

Record net sales for the third quarter and first nine months of the year were driven primarily by the inclusion of the Planters*®* snack nuts business and by growth from the Company's foodservice businesses. All segments have benefited from pricing actions taken during the first nine months of the year to offset inflationary pressures. The third quarter marked the seventh consecutive quarter of record sales.

Cost of Products Sold

			Quarter Ended																		Nine Months Ended
in thousands			July 31, 2022						July 25, 2021						% Change						July 31, 2022						July 25, 2021						% Change
Cost of Products Sold			$	2,528,364					$	2,440,322					3.6						$	7,577,062					$	6,581,613					15.1

Cost of products sold for the third quarter and first nine months 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. In general, raw material input costs for pork, beef, turkey, chicken, and feed are anticipated to remain above historical levels.

Gross Profit

			Quarter Ended																					Nine Months Ended
in thousands			July 31, 2022						July 25, 2021						% Change									July 31, 2022						July 25, 2021						% Change
Gross Profit			$	506,049					$	423,348					19.5									$	1,598,269					$	1,349,825					18.4
Percentage of Net Sales			16.7		%				14.8		%													17.4		%				17.0		%

Gross profit as a percentage of net sales for the third quarter and first nine months of fiscal 2022 increased due primarily to improved profitability from the Jennie-O Turkey Store segment, the inclusion of the Planters*®* snack nuts business, and pricing actions to help mitigate inflationary pressures across all segments. Gross profit as a percentage of net sales also benefited from the reduction of lower margin commodity sales resulting from the Company's new pork supply agreement.

Compared to the prior year, gross profit as a percentage of net sales for the third quarter increased for the Jennie-O Turkey Store, Refrigerated Foods, and International & Other segments while declining for Grocery Products. For the first nine months of fiscal 2022, gross profit as a percentage of net sales increased for the Jennie-O Turkey Store and International & Other segments, was flat for Refrigerated Foods and lower for Grocery Products.

Looking ahead to the fourth quarter of fiscal 2022, the Company expects gross profit as a percentage of net sales to improve sequentially compared to the third quarter of fiscal 2022. The net impact of input cost inflation poses the largest risk to this assumption.

Selling, General and Administrative (SG&A)

			Quarter Ended																		Nine Months Ended
in thousands			July 31, 2022						July 25, 2021						% Change						July 31, 2022						July 25, 2021						% Change
SG&A			$	222,147					$	226,284					(1.8)						$	672,777					$	622,630					8.1
Percentage of Net Sales			7.3		%				7.9		%										7.3		%				7.9		%

For the third quarter, SG&A expenses declined as the comparable period last year included one-time acquisition-related costs associated with the Planters*®* snack nuts business. SG&A expenses for the first nine months 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 for the first nine months, driven by record sales and disciplined cost management.

Advertising investments in the third quarter were $37 million compared to $31 million last year. For the first nine months of fiscal 2022, advertising investments increased $28 million, or 29 percent, compared to the prior year. The Company plans to continue to invest in its leading brands.

Equity in Earnings of Affiliates

			Quarter Ended																		Nine Months Ended
in thousands			July 31, 2022						July 25, 2021						% Change						July 31, 2022						July 25, 2021						% Change
Equity in Earnings of Affiliates			$	7,138					$	10,420					(31.5)						$	19,951					$	37,722					(47.1)

Equity in earnings of affiliates for the third quarter and first nine months of fiscal 2022 decreased significantly due to lower results for MegaMex. MegaMex results have been negatively impacted by inflationary pressures, including significantly higher costs for avocados.

Effective Tax Rate

			Quarter Ended												Nine Months Ended
			July 31, 2022						July 25, 2021						July 31, 2022						July 25, 2021
Effective Tax Rate			24.5		%				13.3		%				21.8		%				18.9		%

The effective tax rate for the third quarter increased as last year's tax rate reflected stock option exercise benefits and a one-time foreign tax benefit. The effective tax rate for fiscal 2022 is expected 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																		Nine Months Ended
in thousands			July 31, 2022						July 25, 2021						% Change						July 31, 2022						July 25, 2021						% Change
Net Sales
Grocery Products			$	869,802					$	698,584					24.5						$	2,598,964					$	1,904,415					36.5
Refrigerated Foods			1,660,257						1,624,641						2.2						4,932,070						4,445,099						11.0
Jennie-O Turkey Store			323,796						350,897						(7.7)						1,115,554						1,035,397						7.7
International & Other			180,559						189,548						(4.7)						528,743						546,528						(3.3)
Total			$	3,034,414					$	2,863,670					6.0						$	9,175,331					$	7,931,438					15.7
Segment Profit
Grocery Products			$	76,478					$	80,791					(5.3)						$	265,263					$	270,963					(2.1)
Refrigerated Foods			177,109						153,216						15.6						517,993						467,740						10.7
Jennie-O Turkey Store			37,433						5,874						537.3						142,969						45,514						214.1
International & Other			25,334						27,915						(9.2)						75,071						84,600						(11.3)
Total Segment Profit			316,354						267,796						18.1						1,001,295						868,817						15.2
Net Unallocated Expense			26,429						63,715						(58.5)						80,799						95,166						(15.1)
Noncontrolling Interest			(89)						157						(156.7)						112						290						(61.4)
Earnings Before Income Taxes			$	289,836					$	204,238					41.9						$	920,608					$	773,940					19.0

Grocery Products

			Quarter Ended																		Nine Months Ended
in thousands			July 31, 2022						July 25, 2021						% Change						July 31, 2022						July 25, 2021						% Change
Volume (lbs.)			366,609						319,216						14.8						1,111,288						937,345						18.6
Net Sales			$	869,802					$	698,584					24.5						$	2,598,964					$	1,904,415					36.5
Segment Profit			76,478						80,791						(5.3)						265,263						270,963						(2.1)

Volume and sales for the third quarter increased significantly, led by strong demand across the nut butters, Mexican and simple meals portfolios, and from the inclusion of the Planters*®* snack nuts business. Organic net sales gains in the third quarter were led by products such as SKIPPY*®* spreads, WHOLLY*®* Guacamole, Hormel*®* chili, Dinty Moore*®* beef stew and Mary Kitchen*®* hash, in addition to strategic pricing actions. For the first nine months of fiscal 2022, sales increased primarily due to the inclusion of the Planters*®* snack nuts business.

Segment profit for the third quarter and first nine months of the year decreased, as the contribution from the Planters*®* snack nuts business and organic net sales growth was more than offset by inflationary pressures and lower results from MegaMex.

Looking to the fourth quarter, Grocery Products expects improved results compared to the third quarter of fiscal 2022 due to strong demand across the business and from pricing actions effective at the beginning of the fourth quarter. Risks to profitability include higher than anticipated elasticities impacting sales volumes and production challenges on key product lines.

Refrigerated Foods

			Quarter Ended																		Nine Months Ended
in thousands			July 31, 2022						July 25, 2021						% Change						July 31, 2022						July 25, 2021						% Change
Volume (lbs.)			484,271						591,143						(18.1)						1,574,499						1,779,729						(11.5)
Net Sales			$	1,660,257					$	1,624,641					2.2						$	4,932,070					$	4,445,099					11.0
Segment Profit			177,109						153,216						15.6						517,993						467,740						10.7

For the third quarter, net sales increased due to continued strong results from the foodservice businesses, growth from many retail products, strategic pricing actions across the portfolio and the inclusion of the Planters*®* snack nuts business in the convenience channel. For the first nine months of fiscal 2022, net sales increased due to strong results from the foodservice businesses, strategic pricing actions across the portfolio, and from the inclusion of the Planters*®* snack nuts business. Consistent with the Company's long-term strategy to better align resources to value-added growth, the overall decline in volume for the third quarter and first nine months of fiscal 2022 was due primarily to lower commodity sales resulting from the Company's new pork supply agreement.

Segment profit growth during the third quarter was driven by strong results from the value-added businesses, more than offsetting higher operational and logistics costs, and lower commodity profitability. For the first nine months of fiscal 2022, segment profit growth was primarily driven by strong results from the foodservice businesses, more than offsetting higher operational and logistics costs.

For the fourth quarter, Refrigerated Foods expects profit to decline compared to the prior year as continued strength in the foodservice businesses and strong demand for its retail products are more than offset by higher raw material, operational and logistics costs.

Jennie-O Turkey Store

			Quarter Ended																		Nine Months Ended
in thousands			July 31, 2022						July 25, 2021						% Change						July 31, 2022						July 25, 2021						% Change
Volume (lbs.)			149,931						187,220						(19.9)						540,039						583,413						(7.4)
Net Sales			$	323,796					$	350,897					(7.7)						$	1,115,554					$	1,035,397					7.7
Segment Profit			37,433						5,874						537.3						142,969						45,514						214.1

As anticipated, volume and net sales declined for the third quarter of fiscal 2022 as a result of the supply impacts on the Company's vertically integrated supply chain from highly pathogenic avian influenza (HPAI). For the quarter, foodservice and whole-bird sales increased due to favorable pricing, partially offsetting lower commodity and retail sales. For the first nine months of fiscal 2022, higher foodservice and whole-bird sales due to favorable pricing drove the overall sales increases.

For the third quarter and first nine months of the year, higher commodity prices and foodservice sales drove the substantial improvement in segment profit.

Jennie-O Turkey Store remains on pace to exceed profit expectations for the year, with significant profit growth in the fourth quarter. Sales volumes are projected to decline approximately 30 percent in the fourth quarter due to continued supply gaps in its vertically integrated supply chain and whole bird sales pulled forward into the third quarter. Risks to the outlook include a material impact to production and sales volumes from HPAI in the vertically integrated supply chain.

International & Other

			Quarter Ended																		Nine Months Ended
in thousands			July 31, 2022						July 25, 2021						% Change						July 31, 2022						July 25, 2021						% Change
Volume (lbs.)			73,797						83,055						(11.1)						217,853						252,801						(13.8)
Net Sales			$	180,559					$	189,548					(4.7)						$	528,743					$	546,528					(3.3)
Segment Profit			25,334						27,915						(9.2)						75,071						84,600						(11.3)

Volume and sales declined during the third quarter as higher global sales of SPAM*®* luncheon meat and improved results in Brazil did not overcome an overall decline in export sales and lower sales in China. Export volumes declined as a result of current export logistics challenges and lower commodity sales due to the Company's new pork supply agreement. Sales in China

were negatively affected by COVID-related restrictions and temporary plant shutdowns. Volume and sales declined during the first nine months of the year as a result of lower commodity sales due to the Company's new pork supply agreement and ongoing export logistics challenges.

Segment profit for the third quarter and first nine months of fiscal 2022 declined due in large part to lower results from the export business, which has been negatively impacted by logistics challenges and meaningfully higher freight expenses.

The International & Other segment anticipates growth in the fourth quarter driven by branded exports and improved profitability in China. Persistent shipping interruptions pose a risk to export sales and profit growth, while additional COVID-related restrictions in China could pressure in-country results.

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												Nine Months Ended
in thousands			July 31, 2022						July 25, 2021						July 31, 2022						July 25, 2021
Net Unallocated Expense			$	26,429					$	63,715					$	80,799					$	95,166
Noncontrolling Interest			(89)						157						112						290

For the third quarter and first nine months of fiscal 2022, net unallocated expense decreased due to one-time acquisition costs and accounting adjustments of $40 million and $43 million, respectively, related to the acquisition of the Planters*®* snack nuts business in the prior year. Higher interest expense and lower investment income net of deferred compensation this year have been the primary drivers of higher expenses to-date.

Non-GAAP Financial Measures

The non-GAAP adjusted financial measure of adjusted diluted earnings per share is presented to provide investors with additional information to facilitate the comparison of past and present operations. Adjusted diluted earnings per share excludes the impact of the acquisition-related expenses and accounting adjustments related to the acquisition of the Planters*®* snack nuts business. The tax impact was calculated using the effective tax rate for the quarter in which the expenses and accounting adjustments were incurred.

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 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
In thousands, except per share amounts
ADJUSTED DILUTED EARNINGS PER SHARE (NON-GAAP)
			Quarter Ended
			July 31, 2022									July 25, 2021
			Reported GAAP															Reported GAAP			Acquisition Costs and Adjustments			Non-GAAP						Non-GAAP % Change
Net Sales			$	3,034,414														$	2,863,670		$	—		$	2,863,670					6.0
Cost of Products Sold			2,528,364															2,440,322			(12,900)			2,427,422						4.2
Gross Profit			506,049															423,348			12,900			436,248						16.0
Selling, General and Administrative			222,147															226,284			(27,462)			198,822						11.7
Equity in Earnings of Affiliates			7,138															10,420			—			10,420						(31.5)
Operating Income			291,040															207,484			40,362			247,846						17.4
Interest and Investment Income (Expense)			14,411															8,457			—			8,457						70.4
Interest Expense			15,615															11,703			—			11,703						33.4
Earnings Before Income Taxes			289,836															204,238			40,362			244,600						18.5
Provision for Income Taxes			71,010															27,164			5,368			32,532						118.3
Net Earnings			218,826															177,074			34,994			212,068						3.2
Less: Net Earnings Attributable to Noncontrolling Interest			(89)															157			—			157						(156.6)
Net Earnings Attributable to Hormel Foods Corporation			$	218,915														$	176,917		$	34,994		$	211,911					3.3
Diluted Net Earnings Per Share			$	0.40														$	0.32		$	0.06		$	0.39					2.6
			Nine Months Ended
			July 31, 2022									July 25, 2021
			Reported GAAP															Reported GAAP			Acquisition Costs and Adjustments			Non-GAAP						Non-GAAP % Change
Net Sales			$	9,175,331														$	7,931,438		$	—		$	7,931,438					15.7
Cost of Products Sold			7,577,062															6,581,613			(12,900)			6,568,713						15.4
Gross Profit			1,598,269															1,349,825			12,900			1,362,725						17.3
Selling, General and Administrative			672,777															622,630			(30,303)			592,327						13.6
Equity in Earnings of Affiliates			19,951															37,722			—			37,722						(47.1)
Operating Income			945,443															764,917			43,203			808,120						17.0
Interest and Investment Income (Expense)			20,078															36,740			—			36,740						(45.3)
Interest Expense			44,913															27,718			—			27,718						62.0
Earnings Before Income Taxes			920,608															773,940			43,203			817,143						12.7
Provision for Income Taxes			200,393															146,549			5,975			152,524						31.4
Net Earnings			720,215															627,390			37,228			664,618						8.4
Less: Net Earnings Attributable to Noncontrolling Interest			112															290			—			290						(61.4)
Net Earnings Attributable to Hormel Foods Corporation			$	720,103														$	627,101		$	37,228		$	664,329					8.4
Diluted Net Earnings Per Share			$	1.31														$	1.15		$	0.06		$	1.21					8.3

ORGANIC VOLUME AND NET SALES (NON-GAAP)
			Quarter Ended
			July 31, 2022												July 25, 2021
			Reported GAAP			Acquisitions			Organic (Non-GAAP)						Reported GAAP												Organic % Change
Volume (lbs.)
Grocery Products			366,609			(20,825)			345,785						319,216												8.3
Refrigerated Foods			484,271			(3,946)			480,325						591,143												(18.7)
Jennie-O Turkey Store			149,931			—			149,931						187,220												(19.9)
International & Other			73,797			(561)			73,236						83,055												(11.8)
Total Volume			1,074,609			(25,332)			1,049,277						1,180,634												(11.1)
Net Sales
Grocery Products			$	869,802		$	(78,202)		$	791,600					$	698,584											13.3
Refrigerated Foods			1,660,257			(14,968)			1,645,289						1,624,641												1.3
Jennie-O Turkey Store			323,796			—			323,796						350,897												(7.7)
International & Other			180,559			(1,557)			179,002						189,548												(5.6)
Total Net Sales			$	3,034,414		$	(94,727)		$	2,939,687					$	2,863,670											2.7
			Nine Months Ended
			July 31, 2022												July 25, 2021
			Reported GAAP			Acquisitions			Organic (Non-GAAP)						Reported GAAP												Organic % Change
Volume (lbs.)
Grocery Products			1,111,288			(138,187)			973,101						937,345												3.8
Refrigerated Foods			1,574,499			(22,128)			1,552,372						1,779,729												(12.8)
Jennie-O Turkey Store			540,039			—			540,039						583,413												(7.4)
International & Other			217,853			(3,503)			214,350						252,801												(15.2)
Total Volume			3,443,679			(163,817)			3,279,862						3,553,288												(7.7)
Net Sales
Grocery Products			$	2,598,964		$	(514,709)		$	2,084,256					$	1,904,415											9.4
Refrigerated Foods			4,932,070			(80,980)			4,851,090						4,445,099												9.1
Jennie-O Turkey Store			1,115,554			—			1,115,554						1,035,397												7.7
International & Other			528,743			(9,877)			518,865						546,528												(5.1)
Total Net Sales			$	9,175,331		$	(605,565)		$	8,569,765					$	7,931,438											8.0

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

			Nine Months Ended
in millions			July 31, 2022			July 25, 2021
Cash and Cash Equivalents			$	850		$	291
Cash Provided by (Used in) Operating Activities			763			438
Cash Provided by (Used in) Investing Activities			(172)			(3,530)
Cash Provided by (Used in) Financing Activities			(344)			1,664

Cash and cash equivalents increased $237 million in the nine months ended July 31, 2022 as cash from operating activities was sufficient to cover dividend payments and capital expenditures. The use of cash to fund the acquisition of the Planters*®* snack nuts business was the primary driver of the decline in cash and cash equivalents in the prior year. 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, while changes in operating assets and liabilities during the nine months ended July 31, 2022 were overall unfavorable.

–Inventory increased $311 million compared to $202 million in the prior year. The higher inventory value in fiscal 2022 was primarily due to a recovery in inventory volumes and sustained higher raw material costs. The increase in inventory levels during fiscal 2021 was the result of inflation in raw materials and supplies along with the additional inventory activity for the Planters*®* snack nuts business since its acquisition.

–Accounts receivable declined $97 million in the nine months ended July 31, 2022 as a result of the timing of sales and collections. In comparison, accounts receivable rose $192 million in the nine months ended July 25, 2021 with the additional accounts receivable activity for the Planters*®* snack nuts business since its acquisition.

–Accounts payable and accrued expenses decreased $84 million and $30 million in the nine months ended July 31, 2022 and July 25, 2021, respectively, primarily due to the timing of invoice payments.

Cash Provided by (Used in) Investing Activities

• Capital expenditures were $189 million and $139 million in the nine months ended July 31, 2022 and July 25, 2021, respectively. The Company's target for capital expenditures for fiscal 2022 is $310 million. The largest spend in both years was related to capacity expansion in Omaha, Nebraska. Additional projects include a new production line for the SPAM*®* family of products in Dubuque, Iowa in fiscal 2022 and Project Orion in fiscal 2021. For the remainder of the fiscal year, the Company will prioritize projects which increase value added production capacity, improve infrastructure, drive cost savings and leverage automation.

•In the nine months ended July 25, 2021, the Company acquired the Planters® snack nuts business for $3.4 billion. See Note B - Acquisitions and Divestitures for more information.

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 $416 million in the nine months ended July 31, 2022 compared to $390 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 376 consecutive quarters.

• Proceeds from exercise of stock options was $78 million in the nine months ended July 31, 2022 compared to $44 million in the comparable period of fiscal 2021. The increase in proceeds was caused by the number of options exercised with 3.7 million shares issued during fiscal 2022 compared to 2.8 million shares during fiscal 2021.

•The Company issued unsecured senior notes in an aggregate principal amount of $2.3 billion to fund the acquisition of the Planters® snack nuts business in the nine months ended July 25, 2021. See Note J - Long-term Debt and Other Borrowing Arrangements for more information.

• The Company repaid $250.0 million of its senior unsecured notes upon maturity in April 2021.

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 July 31, 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 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. 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.

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 discussions of risk factors in the Company's most recent Annual Report on Form 10-K and in Part II, Item 1A of this Quarterly Report on Form 10-Q contain certain cautionary statements regarding the Company’s business, which should be considered by investors and others. 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 changes in the national and worldwide economic environment, which could include, among other things, risks related to the deterioration of economic conditions; the COVID-19 pandemic; risks associated with acquisitions and divestitures; potential disruption of operations including at co-manufacturers, suppliers, logistics providers, customers, or other third-party service providers; risk of loss of a material contract; the Company’s inability to protect information technology systems against, or effectively respond to, cyber attacks or security breaches; deterioration of labor relations, labor availability or increases to labor costs; general risks of the food industry, including food contamination; outbreaks of disease among livestock and poultry flocks; fluctuations in commodity prices and availability of raw materials and other inputs; fluctuations in market demand for the Company’s products; risks of litigation; potential sanctions and compliance costs arising from government regulation; compliance with stringent environmental regulation and potential environmental litigation; and risks arising from the Company’s foreign operations.