HORMEL FOODS CORP DE

Net sales and segment profit for each of the Company’s reportable segments are set forth below. The Company does not allocate deferred compensation, expenses associated with the transformation and modernization initiative, investment income, interest expense, or interest income to its segments when measuring performance. The Company also retains various other income and expenses at the corporate level. Equity in Earnings of Affiliates is included in segment profit; however, earnings attributable to the Company’s corporate venturing investments and noncontrolling interests are excluded. These items are included below as Net Unallocated Expense and Noncontrolling Interest when reconciling to Earnings Before Income Taxes.

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.

Retail

For the first quarter of fiscal 2024, volume growth was driven by the value-added meats, global flavors, emerging brands and bacon verticals. Net sales declined primarily due to lower contract manufacturing volume and lower commodity turkey pricing. 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.

Segment profit declined, as the benefit from higher sales in the snacking and entertaining vertical and lower logistics expenses was more than offset by the impact from lower commodity turkey pricing and lower equity in earnings from MegaMex Foods.

Looking to the second quarter of fiscal 2024, the Retail segment expects lower segment profit compared to last year. Segment profit is expected to be pressured by lower pricing in whole bird turkey markets and higher SG&A. Risks to this outlook include a further slowing in consumer demand, a higher-than-expected impact from elasticities as a result of pricing actions, and greater-than-expected pricing headwinds in the whole bird turkey business.

Foodservice

Volume and net sales growth for the first quarter of fiscal 2024 was broad-based and across numerous categories, led by Jennie-O® turkey and double-digit gains for products such as Hormel® Bacon 1™ cooked bacon, pepperoni, Austin Blues® smoked meats and Café H® globally inspired proteins. Additionally, the Company's Heritage Premium Meats group drove strong volume and double-digit net sales improvement for the quarter.

Segment profit increased primarily due to higher sales and favorable logistics expenses.

For the second quarter, the Foodservice segment expects higher segment profit compared to the prior year. Continued volume growth is expected to be offset by lower margins and higher SG&A compared to last year. Risks to this outlook include a softening of foodservice industry demand and higher-than-expected operating costs.

International

During the first quarter of fiscal 2024, higher commodity exports led to volume gains compared to last year. Net sales declined due to lower branded export sales and lower sales in China. Also in China, foodservice results improved as we lapped COVID-related disruption last year. This benefit was more than offset by continued weakness in the retail channel.

Segment profit increased for the quarter due to the inclusion of our investment in Indonesia and significantly higher results from our partnership in the Philippines, which offset the impact from lower branded export demand and lower sales in China.

In the second quarter of fiscal 2024, the International segment anticipates segment profit to increase significantly compared to last year. This recovery is expected to be driven by improvement across the business, including from its branded exports, partnership in the Philippines, and multinational business in Brazil. The Company also expects a benefit from the inclusion of its investment in Indonesia. Risks to this outlook include continued softness in China and commodity headwinds impacting the export business.

Unallocated Income and Expense

For the first quarter of fiscal 2024, net unallocated expense increased driven by transformation and modernization initiative costs and higher employee-related expenses, partially offset by favorable rabbi trust performance and higher interest income.