HORMEL FOODS CORP DE

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

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

Net Sales

Net sales for the first quarter increased, led by the benefit from higher volumes in each segment and strong growth in Foodservice, more than offsetting lower sales in the Retail and International segments.

In Retail, net sales increased in the global flavors and snacking and entertaining verticals, and declined in the value-added meats, convenient meals and proteins, and bacon verticals. Demand was strong for many products, including Skippy® peanut butter, Planters® snack nuts, Wholly® dips, Herdez® salsas and sauces, La Victoria® salsas, Jennie-O® ground turkey, Hormel® Square Table™ entrees and Hormel® pepperoni, which each delivered volume and net sales improvement during the quarter. Foodservice net sales growth was broad-based, led by the Heritage Premium meats business and growth from Hormel® Bacon 1™ precooked bacon, premium prepared proteins, Jennie-O® branded turkey items, and pepperoni. International net sales declined due to lower branded export sales and lower sales in China.

Cost of Products Sold

Total cost of products sold for the first quarter of fiscal 2024 increased due primarily to higher sales. On a per pound basis, cost of products sold decreased 3 percent, consistent with the Company's assumption for cost moderation in fiscal 2024.

Costs are expected to continue to moderate relative to the high levels of inflation the business has absorbed since the beginning of fiscal 2021. Raw material input costs for pork, beef, and feed are anticipated to remain volatile and above historical levels. The Company expects its transformation and modernization initiative to deliver cost savings throughout fiscal 2024, targeting packaging, logistics, and production costs.

Gross Profit

Gross profit as a percent of net sales for the first quarter of fiscal 2024 increased due to improvement in the Foodservice and Retail segments, more than offsetting a decline in International. Both the Foodservice and Retail segments benefited from lower logistics expenses on a volume basis. Lower logistics expenses are due to lower industrywide freight rates and savings realized as part of our transformation and modernization initiative.

Looking ahead to the second quarter of fiscal 2024, the Company expects gross profit as a percent of net sales to be comparable to last year. The Company expects gross profit as a percent of net sales to increase for the International segment but decline for the Retail and Foodservice segments.

Selling, General, and Administrative (SG&A)

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

For the first quarter of fiscal 2024, SG&A and SG&A as a percent of net sales increased. This was due to higher employee and external expenses, driven in part by the Company's transformation and modernization initiative. Adjusted SG&A as a percent of net sales(1) increased marginally compared to last year.

Advertising investments in the first quarter were $44 million, a decrease of 5 percent compared to last year. The Company expects full-year advertising expense to increase compared to the prior year.

Equity in Earnings of Affiliates

Equity in earnings of affiliates for the first quarter of fiscal 2024 increased due to the inclusion of our investment in Indonesia and significantly higher results from our partnership in the Philippines, offsetting lower results for MegaMex Foods.

Interest and Investment Income and Interest Expense

Interest and investment income for the first quarter of fiscal 2024 increased primarily due to improved performance from the rabbi trust and higher interest income.

Effective Tax Rate

The higher effective tax rate in the first quarter of fiscal 2024 is primarily due to the impact of certain discrete items and higher federal deductions last year. The effective tax rate for fiscal 2024 is expected to be between 21.0% and 23.0%. For further information, refer to Note K - Income Taxes of the Notes to the Consolidated Financial Statements.