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 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.

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.

Cost of Products Sold

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.

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.

Gross Profit

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.

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.

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 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.

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.

Equity in Earnings of Affiliates

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.

Interest and Investment Income and Interest Expense

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.

Effective Tax Rate

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.