HORMEL FOODS CORP DE

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

(1) See the “Non-GAAP 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 second quarter of fiscal 2024 decreased as the benefit from higher volume and net sales in the Foodservice segment was more than offset by lower volume and net sales in the Retail and International segments.

For the first six months of fiscal 2024, the benefit from improved volume in the Foodservice segment was more than offset by lower net sales in the Retail and International segments. The declines in net sales are related to a significant year-over-year decline in whole bird turkey markets, primarily impacting the Retail segment, and lower export sales and lower net sales in China, impacting the International segment.

Cost of Products Sold

Cost of products sold for the second quarter and the first six months of fiscal 2024 decreased due primarily to lower sales. On a per pound basis for the first six months of fiscal 2024, cost of products sold decreased 2 percent.

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 transform and modernize 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 second quarter of fiscal 2024 increased due primarily to improvement in the Retail and International segments. For the first six months of fiscal 2024, gross profit as a percent of net sales increased for all segments. All segments benefited from lower logistics expenses on a volume basis. Logistics expenses declined due to lower industry-wide freight rates and savings realized as part of the Company’s transform and modernize initiative.

Looking ahead to the third 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 and be comparable for the Retail and Foodservice segments.

Selling, General, and Administrative (SG&A)

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

For the second quarter and the first six months of fiscal 2024, SG&A and SG&A as a percent of net sales increased. This was due to higher employee-related and external expenses, driven in part by the Company’s transform and modernize initiative as well as the impact from pork antitrust litigation settlements. Adjusted SG&A as a percent of net sales(1) increased compared to last year.

Advertising investments in the second quarter were $44 million, an increase of 27 percent compared to last year. For the first six months of fiscal 2024, advertising investments were $88 million, an increase of 9 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 second quarter and the first six months of fiscal 2024 decreased due to lower results for MegaMex Foods, LLC, partially offset by improvement from our international partnerships.

Interest and Investment Income and Interest Expense

Interest and investment income for the second quarter and the first six months of fiscal 2024 increased as interest income due to a higher cash balance and more favorable market interest rates as well as improved performance from the rabbi trust more than offset higher interest expense associated with the recent debt issuance.

Effective Tax Rate

The higher effective tax rate in the second quarter and first six months of fiscal 2024 is primarily due to the impact of higher federal deductions last year. The effective tax rate for fiscal 2024 is expected to be between 22.0% and 23.0%. For further information, refer to Note K - Income Taxes of the Notes to the Consolidated Financial Statements.