HORMEL FOODS CORP DE

Previous wording

The Company reported diluted net earnings per share of $0.34 for the second quarter of fiscal 2024, down 15 percent compared to last year. Adjusted diluted net earnings per share(1) was $0.38. Significant factors impacting the quarter were:

Current wording

The Company reported diluted net earnings per share of $0.32 for the third quarter of fiscal 2024, up 7 percent compared to the same period last year. Adjusted diluted net earnings per share(1) was $0.37. Significant factors impacting the quarter are listed below. All comparisons are to the same period of the prior year unless otherwise noted.

Previous wording

•Net sales for the second quarter decreased 3 percent. 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.

Current wording

•Net sales for the third quarter decreased 2 percent. 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.

Previous wording

•Segment profit for the second quarter decreased 2 percent, as improved results in the International and Foodservice segments were more than offset by a decline in the Retail segment.

Current wording

•Segment profit for the third quarter decreased 6 percent. Improved results in the International segment were more than offset by declines in profit for each of the Retail and Foodservice segments.

Previous wording

•The pre-tax impact of expenses related to the Company’s transform and modernize initiative and pork antitrust litigation settlements in the second quarter was $23.6 million.

Current wording

•The pre-tax impact of expenses related to the Company’s transform and modernize initiative and antitrust litigation settlements in the third quarter of fiscal 2024 was $30.5 million, most of which was recorded in SG&A expense. The pre-tax impact of expenses related to the Company's arbitration ruling in the third quarter of fiscal 2023 was $70.0 million, all of which was recorded in SG&A expense.

Previous wording

•Year-to-date cash flow from operations was $640 million, an increase of 55 percent compared to the prior year.

Current wording

•Year-to-date cash flow from operations was $858 million, an increase of 18 percent compared to the prior year.

Previous wording

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.

Current wording

Net sales for the third 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 each of the Retail and International segments. In the Retail segment, lower volume and net sales were driven by significant year-over-year volume and pricing declines for whole bird turkeys, lower sales of Planters® snack nuts resulting from production disruptions at the Suffolk, Virginia, facility, and lower center-store and contract manufacturing volumes. In the International segment, top-line declines were driven by lower commodity export volumes and lower net sales in China.

Previous wording

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.

Current wording

For the first nine 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 pricing within the whole bird turkey markets, which primarily impact the Retail segment, lower volumes in contract manufacturing, which primarily impact the Retail segment, and lower commodity export sales and lower net sales in China, which impact the International segment.

Previous wording

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.

Current wording

Cost of products sold for the third quarter and the first nine months of fiscal 2024 decreased due primarily to lower sales. On a per pound basis, cost of products sold for the first nine months of fiscal 2024 was comparable to the same period of the prior year.

Previous wording

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.

Current wording

The Company expects costs of products sold to continue to moderate relative to the high levels of inflation the business has absorbed since the beginning of fiscal 2021. The Company expects its transform and modernize initiative to deliver cost savings, throughout fiscal 2024. The initiative targets costs throughout the Company’s organization, with a particular focus during 2024 on packaging, logistics, and production costs.

Previous wording

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.

Current wording

For the third quarter of fiscal 2024, gross profit as a percent of net sales was flat. For the first nine months of fiscal 2024, gross profit as a percent of net sales increased in the International segment and was comparable for the Retail and Foodservice segments. All segments benefited from savings realized as part of the Company’s transform and modernize initiative.

Previous wording

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.

Current wording

Looking ahead to the fourth quarter of fiscal 2024, the Company expects gross profit as a percent of net sales to increase compared 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.

Previous wording

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.

Current wording

For the third quarter, SG&A and SG&A as a percent of net sales decreased due to the accrual for an unfavorable arbitration ruling in the prior year, which was partially offset by current year litigation settlements. Adjusted SG&A as a percent of net sales(1) increased compared to last year. For the first nine months of fiscal 2024, SG&A and SG&A as a percent of net sales increased, primarily due to higher employee-related expenses.

Previous wording

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.

Current wording

Advertising investments in the third quarter were $40 million, a decrease of 6 percent compared to last year. The decline was partially due to lower support for the Planters® brand due to production disruptions at the Suffolk, Virginia, facility. For the first nine months of fiscal 2024, advertising investments were $128 million, an increase of 4 percent compared to last year. The Company expects full-year advertising expense to increase compared to the prior year.

Previous wording

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.

Current wording

Equity in earnings of affiliates for the third quarter and the first nine months of fiscal 2024 decreased due to lower results for MegaMex Foods, LLC, partially offset by improvements from the Company’s international investments.

Previous wording

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.

Current wording

Interest and investment income for the third quarter and the first nine months of fiscal 2024 increased due to a higher average cash balance, favorable market interest rates, and improved performance from the rabbi trust. Interest expense increased in the third quarter and first nine months of fiscal 2024 due to the second quarter debt issuance.

Previous wording

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.

Current wording

The effective tax rate in the third quarter was flat to last year. The higher effective tax rate for the first nine months of fiscal 2024 is primarily due to higher federal deductions in the prior year partially offset by the purchase of federal transferable energy credits in the current 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.

Previous wording

For the second quarter of fiscal 2024, volume growth from the bacon and emerging brands verticals was more than offset by declines in value-added meats. Net sales increased for many items, including Hormel® Black Label® bacon, the SPAM® family of products, Applegate® natural and organic meats, Hormel® Square Table™ entrees, and Planters® snack nuts. These gains were negated by a significant year-over-year volume and pricing decline for whole bird turkeys and lower net sales in the convenient meals and proteins vertical. For the first six months of fiscal 2024, net sales declined primarily as a result of significant year-over-year volume and pricing declines for whole bird turkeys.

Current wording

In the third quarter of fiscal 2024, volume and net sales declined, primarily due to significant year-over-year volume and pricing declines for whole bird turkeys, lower sales of Planters® snack nuts resulting from production disruptions at the Suffolk, Virginia, facility, and lower center-store and contract manufacturing volumes. Partially offsetting these declines were net sales growth for many key brands, including Hormel®Black Label® bacon, Applegate® natural and organic meats, Jennie-O® ground turkey, Skippy® peanut butter, Wholly® guacamole, Herdez® salsas and sauces, and Hormel® Square Table™ entrees. For the first nine months of fiscal 2024, net sales declined primarily due to significant year-over-year declines in whole bird turkey sales and lower contract manufacturing volumes.

Previous wording

For the second quarter and first six months of fiscal 2024, segment profit declined due to lower sales and higher SG&A, which included increased advertising investments. These factors more than offset the benefit from lower logistics expenses and supply chain improvement.

Current wording

For the third quarter and first nine months of fiscal 2024, segment profit declined due to lower sales and higher SG&A. These factors more than offset the benefit from lower logistics expenses and savings from the transform and modernize initiative.

Previous wording

Volume and net sales growth in the second quarter of fiscal 2024 were driven primarily by strength across the bacon, premium prepared proteins and turkey categories. Products such as Hormel® Bacon 1™cooked bacon, Hormel® Fire Braised™meats, Austin Blues® smoked meats, Café H® globally inspired proteins and Corn Nuts® corn kernels each delivered double-digit net sales growth. For the first six months of fiscal 2024, volume and net sales growth was broad-based and across numerous categories

Current wording

Volume and net sales growth in the third quarter of fiscal 2024 were driven primarily by strong performance across the turkey, premium prepared proteins, bacon, and pepperoni categories. Notable products such as Hormel® Fire Braised™meats, Hormel® Bacon 1™cooked bacon, Café H® globally inspired proteins, and Rosa Grande® premium pepperoni delivered strong volume and net sales growth. Growth from branded Jennie-O® turkey items continued to benefit top-line results. For the first nine months of fiscal 2024, volume and net sales growth was broad-based and across numerous categories.

Previous wording

Segment profit increased for the second quarter and first six months of fiscal 2024 primarily due to higher sales and lower logistics expenses.

Current wording

Segment profit decreased for the third quarter of fiscal 2024 as higher sales were more than offset by higher SG&A expenses. Segment profit increased for the first nine months of fiscal 2024 primarily due to higher sales.

Previous wording

For the third quarter, Foodservice expects segment profit to be in line with prior year, with the impact from volume growth expected to be offset by higher SG&A compared to last year. Risks to this outlook include a softening of foodservice industry demand and higher-than-expected operating costs.

Current wording

For the fourth quarter, the Company expects Foodservice segment profit to be in line with prior year, with the impact from volume growth expected to be offset by higher SG&A compared to last year.

Previous wording

During the second quarter of fiscal 2024, double-digit volume and net sales increases for SPAM®luncheon meat and refrigerated exports were more than offset by lower commodity export volume and lower net sales in China. For the first six months of fiscal 2024, net sales declined, resulting from lower export sales and lower net sales in China.

Current wording

During the third quarter of fiscal 2024, robust volume and net sales growth for SPAM®luncheon meat, refrigerated foodservice exports, and Skippy®peanut butter exports were more than offset by the difficult comparison in the prior year to significantly higher export volumes of low-margin commodity fresh pork and turkey. For the first nine months of fiscal 2024, net sales declined due to lower commodity export sales and lower net sales in China.

Previous wording

Segment profit in the second quarter increased significantly, resulting from favorable costs in China, growth from our partnerships in the Philippines, South Korea, and Indonesia, as well as growth in Brazil. For the first six months of fiscal 2024, segment profit increased due to improvement from our international partnerships, favorable costs in China, and growth in Brazil.

Current wording

Segment profit in the third quarter of fiscal 2024 increased significantly, due to improved export margins, growth from the Company's investments in the Philippines and Indonesia, and favorable costs in China. For the first nine months of fiscal 2024, segment profit increased due to improvement from the Company's international investments, favorable costs in China, and growth in Brazil.

Previous wording

In the third quarter of fiscal 2024, International anticipates segment profit to increase significantly compared to last year. This recovery is expected to be driven by improvement across the business, including increased branded exports, growth in China and Brazil, and contributions from our investments in the Philippines, South Korea, and Indonesia. Risks to this outlook include continued softness in China and commodity headwinds impacting the export business.

Current wording

In the fourth quarter of fiscal 2024, the Company expects International segment profit to increase significantly compared to last year. This recovery is expected to be driven by improvement across the business, including increased branded exports, growth in China and Brazil, and contributions from investments in the Philippines and Indonesia.

Previous wording

For the second quarter and first six months of fiscal 2024, net unallocated expense increased driven by transform and modernize initiative costs, the impact from pork antitrust litigation settlements, and higher employee-related expenses, partially offset by higher interest income and favorable rabbi trust performance.

Current wording

Net unallocated expense decreased for the third quarter of fiscal 2024 due to the accrual for an unfavorable arbitration ruling in the prior year. For the first nine months of fiscal 2024, net unallocated expense decreased as the benefit from lapping the arbitration ruling, higher interest income, and favorable rabbi trust performance was partially offset by transform and modernize initiative costs, litigation settlements, and higher employee-related expenses.

Previous wording

This filing includes measures of financial performance that are not defined by GAAP. The Company utilizes these non-GAAP measures to understand and evaluate operating performance on a consistent basis. These measures may also be used when making decisions regarding resource allocation and in determining incentive compensation. The Company believes these non-GAAP measures provide useful information to investors because they aid analysis and understanding of the Company’s results and business trends relative to past performance and the Company’s competitors. 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 GAAP and may be different from non-GAAP measures used by other companies.

Current wording

This filing includes measures of financial performance that are not defined by GAAP. The Company utilizes these non-GAAP measures to understand and evaluate operating performance on a consistent basis. These measures may also be used when making decisions regarding resource allocation and in determining incentive compensation. The Company believes these non-GAAP measures provide useful information to investors because they aid analysis and understanding of the Company’s results and business trends relative to past performance and the Company’s competitors. Non-GAAP measures are not intended to be a substitute for GAAP measures in analyzing financial performance. These non-GAAP measures are not calculated in accordance with GAAP and may be different from non-GAAP measures used by other companies.

Previous wording

In the fourth quarter of fiscal 2023, the Company announced a multi-year transform and modernize initiative. In presenting non-GAAP measures, the Company adjusts for (i.e., excludes) expenses for this initiative that are non-recurring, comprised primarily of project-based external consulting fees and asset write-offs related to portfolio optimization (i.e., reducing the complexity and optimizing the assortment of the product portfolio). The Company believes the non-recurring costs are not reflective of the Company’s ongoing operating cost structure; therefore, the Company is excluding these discrete costs. The Company does not adjust for (i.e., does not exclude) certain costs related to the transform and modernize initiative that are expected to continue after the project ends, such as software license fees and internal employee expenses, because those costs are considered ongoing in nature as a component of normal operating costs.

Current wording

In the fourth quarter of fiscal 2023, the Company announced a multi-year transform and modernize initiative. In presenting non-GAAP measures, the Company adjusts for (i.e., excludes) expenses for this initiative that are non-recurring, comprised primarily of project-based external consulting fees and asset write-offs related to portfolio optimization (i.e., reducing the complexity and optimizing the assortment of the product portfolio). The Company believes that non-recurring costs associated with the transform and modernize initiative are not reflective of the Company’s ongoing operating cost structure; therefore, the Company is excluding these discrete costs. The Company does not adjust for (i.e., does not exclude) certain costs related to the transform and modernize initiative that are expected to continue after the project ends, such as software license fees and internal employee expenses, because those costs are considered ongoing in nature as a component of normal operating costs.

Previous wording

In the second quarter of fiscal 2024, the Company agreed to settle with three classes of plaintiffs in the pork antitrust litigation. See Note I - Commitments and Contingencies of the Notes to the Consolidated Financial Statements for additional information. These settlement amounts are not indicative of the Company’s core operating performance, do not reflect expected future operating costs, and may not be meaningful when comparing the Company’s operating performance against that of prior periods.

Current wording

From time to time, the Company incurs expenses related to discrete legal matters that the Company believes are not indicative of the Company’s core operating performance, do not reflect expected future operating costs, and may not be meaningful when comparing the Company’s operating performance against that of prior periods. The Company adjusts for (i.e., excludes) these expenses.

Previous wording

The table below shows the calculations to reconcile from the GAAP measures to the non-GAAP measures. The tax impacts were calculated using the effective tax rate for the quarter in which the expenses were incurred.

Current wording

The table below shows the calculations to reconcile from the GAAP measures to the non-GAAP measures presented in this Quarterly Report on Form 10-Q. The tax impacts were calculated using the effective tax rate for the quarter in which the expenses were incurred.

Previous wording

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.

Current wording

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

Previous wording

Cash and cash equivalents increased $750 million during the first six months of fiscal 2024, primarily as a result of proceeds received from the issuance of long-term debt. Additionally, cash provided by operating activities was sufficient to cover dividend payments and capital expenditures. The purchase of a minority interest in PT Garudafood Putra Putri Jaya Tbk (Garudafood) 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.

Current wording

Cash and cash equivalents decreased $199 million during the first nine months of fiscal 2024, primarily as a result of the Company repaying a portion of long-term debt by using existing cash on hand and the proceeds from new debt issued in fiscal 2024. Cash provided by operating activities has been sufficient to cover dividend payments and capital expenditures during the first nine months of fiscal 2024. The purchase of a minority interest in PT Garudafood Putra Putri Jaya Tbk (Garudafood) 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.

Previous wording

•Cash flows from operating activities were largely impacted by changes in operating assets and liabilities.

Current wording

•Cash flows from operating activities during the first nine months of fiscal 2024 were largely impacted by changes in operating assets and liabilities.

Previous wording

–Accounts receivable decreased $88 million and $106 million during the six months ended April 28, 2024 and April 30, 2023, respectively, primarily due to lower sales.

Current wording

–Accounts receivable decreased $89 million and $81 million during the nine months ended July 28, 2024 and July 30, 2023, respectively, primarily due to lower sales.

Previous wording

–Inventory decreased $7 million during the first six months of fiscal 2024 compared to an increase of $27 million in the comparable period of the prior year. The decrease in inventory during fiscal 2024 was due to improvements in the Company’s supply chain, partially offset by higher levels of turkey on hand. The increase in inventory during fiscal 2023 was due to production outpacing sales.

Current wording

–Inventory decreased $31 million during the first nine months of fiscal 2024 compared to an increase of $21 million in the comparable period of the prior year. The decrease in inventory during fiscal 2024 was due to benefits in supply chain processes associated with the Company's transform and modernize initiative as well as the impact of production disruptions at the Suffolk, Virginia manufacturing facility. These reduced levels of inventory were partially offset by higher levels of turkey on hand in fiscal 2024. The increase in inventory during fiscal 2023 was due to production outpacing sales.

Previous wording

–Accounts payable and accrued expenses decreased $78 million during the first six months of fiscal 2024 due to general timing of payments, feed and livestock deferral payments, and annual incentive payments. These decreases were partially offset by higher accruals for marketing, incentives, and legal expenses. Accounts payable and accrued expenses decreased $205 million during the first six months of fiscal 2023 due to general timing of payments and annual incentive payments.

Current wording

–Accounts payable and accrued expenses decreased $95 million during the first nine months of fiscal 2024 due to the general timing of payments, feed and livestock deferral payments, and annual incentive payments. These decreases were partially offset by higher accruals for marketing and legal expenses. Accounts payable and accrued expenses decreased $131 million during the first nine months of fiscal 2023 due to the general timing of payments and annual incentive payments, partially offset by higher accruals for legal expenses.

Previous wording

–Prepaid expenses and other assets decreased $10 million during the six months ended April 28, 2024, compared to an increase of $59 million during the six months ended April 30, 2023. This activity was primarily due to cash collateral requirements associated with the Company’s hedging activities.

Current wording

–Prepaid expenses and other assets increased $8 million during the nine months ended July 28, 2024, compared to an increase of $52 million during the nine months ended July 30, 2023. This activity was primarily related to settlements associated with the Company’s hedging activities.

Previous wording

•Capital expenditures were $107 million and $91 million during the first six months of fiscal 2024 and fiscal 2023, respectively. The largest spend during fiscal 2024 was for the transition from harvest to value-added capacity at the facility in Barron, Wisconsin and wastewater infrastructure to support operations in Austin, Minnesota. The largest spend during fiscal 2023 was related to capacity expansion for pepperoni and the SPAM® family of products.

Current wording

•Capital expenditures were $173 million and $169 million during the first nine months of fiscal 2024 and fiscal 2023, respectively. The largest spend during fiscal 2024 was for the transition from harvest to value-added capacity at the facility in Barron, Wisconsin and wastewater infrastructure to support operations in Austin, Minnesota. The largest spend during fiscal 2023 was related to capacity expansion for pepperoni and the SPAM® family of products.

Previous wording

•During the first six months of fiscal 2023, the Company purchased a minority interest in Garudafood for $426 million.

Current wording

•During the first nine months of fiscal 2023, the Company purchased a minority interest in Garudafood for $426 million.

Previous wording

•Proceeds from the issuance of long-term debt were $498 million during the first six months fiscal 2024. The Company issued senior unsecured notes with aggregate principal amount of $500 million. The proceeds were placed in a short-term bank deposit, which is classified as Cash and Cash Equivalents on the Consolidated Condensed Statements of Financial Position.

Current wording

•Proceeds from the issuance of long-term debt were $498 million during the first nine months of fiscal 2024. The Company issued senior unsecured notes with aggregate principal amount of $500 million.

Previous wording

•Cash dividends paid to the Company’s shareholders were $305 million during the first six months of fiscal 2024, compared to $293 million in the comparable period of fiscal 2023.

Current wording

•Cash dividends paid to the Company’s shareholders were $460 million during the first nine months of fiscal 2024, compared to $443 million in the comparable period of fiscal 2023.