HORMEL FOODS CORP DE

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.

Cash Flow Highlights

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.

Cash Provided by (Used in) Operating Activities

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

–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.

–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.

–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.

–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.

Cash Provided by (Used in) Investing Activities

•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.

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

Cash Provided by (Used in) Financing Activities

•The Company paid $950 million of its senior unsecured notes upon maturity on June 3, 2024.

•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.

•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.

•Proceeds from the exercise of stock options were $34 million in the first nine months of fiscal 2024, compared to $8 million in the first nine months of fiscal 2023. The increase in proceeds was due to more options exercised during fiscal 2024 compared to fiscal 2023.

•There were no share repurchases during the first nine months of fiscal 2024. Share repurchases of $12 million were made during the first nine months of fiscal 2023.

Sources and Uses of Cash

The Company believes its balanced business model, with diversification across raw material inputs, channels, and categories, provides stability in ever-changing economic environments. The Company maintains a disciplined capital allocation strategy and uses a waterfall approach, which focuses first on core uses of cash, such as capital expenditures to maintain facilities, dividend returns to investors, mandatory debt repayments, and fulfillment of pension obligations. Next, the Company looks to strategic items in support of growth initiatives, such as capital projects, acquisitions, additional dividend increases, and working capital investments. Finally, the Company evaluates opportunistic uses, including incremental debt repayment and share repurchases.

The Company believes its anticipated income from operations, cash on hand, borrowing capacity under the current unsecured revolving credit facility, and access to capital markets will be adequate to meet all short-term and long-term commitments. The Company continues to look for opportunities to make investments and acquisitions that align with its strategic priorities. The Company has multiple sources of liquidity to complete such investments and acquisitions. For example, the Company’s historic ability to leverage its balance sheet through the issuance of debt has provided the flexibility to pursue strategic opportunities.

Dividend Payments

The Company remains committed to providing returns to investors through cash dividends. The Company has paid 384 consecutive quarterly dividends since becoming a public company in 1928. The Board of Directors approved an increased annual dividend rate for fiscal 2024 raising it to $1.13 per share from $1.10 per share, representing the 58th consecutive annual dividend increase.

Capital Expenditures

Capital expenditures are allocated to required maintenance and growth opportunities based on the needs of the business. Capital expenditures supporting growth opportunities in fiscal 2024 are expected to focus on projects related to value-added capacity, infrastructure, and new technology. Capital expenditures for fiscal 2024 are estimated to be $280 million.

Debt

As of July 28, 2024, the Company’s outstanding debt included $2.9 billion of fixed rate unsecured senior notes due in fiscal 2027, 2028, 2030, and 2051 with interest payable semi-annually. During the first nine months of fiscal 2024, the Company made $55 million of interest payments and the Company expects to make an additional $13 million of interest payments during fiscal 2024 on these notes. On March 8, 2024, the Company issued senior unsecured notes with an aggregate principal amount of $500 million. These proceeds were used, along with cash on hand, to repay $950 million in senior unsecured notes which matured on June 3, 2024. See Note J - Long-Term Debt and Other Borrowing Arrangements of the Notes to the Consolidated Financial Statements for additional information.

Borrowing Capacity

As a source of short-term financing, the Company maintains a $750 million unsecured revolving credit facility. The maximum commitment under this credit facility may be further increased by $375 million, generally by mutual agreement of the lenders and the Company, subject to certain customary conditions. Funds drawn from this facility may be used by the Company for general corporate purposes, which may include repaying existing debt, funding acquisitions, and for working capital or other general purposes. The lending commitments under the facility are scheduled to expire on May 6, 2026, at which time the Company will be required to pay in full all obligations then outstanding. As of July 28, 2024, the Company had no outstanding draws from this facility.

Debt Covenants

The Company’s debt agreements contain customary terms and conditions including representations, warranties, and covenants. These debt covenants limit the ability of the Company to, among other things, incur debt for borrowed money secured by certain liens, or engage in certain sale and leaseback transactions, and the covenants require the Company to maintain certain consolidated leverage ratios. As of July 28, 2024, the Company was in compliance with all covenants in its debt agreements and expects to maintain compliance in the future.

Cash Held by International Subsidiaries

As of July 28, 2024, the Company's international subsidiaries held $197 million of cash and cash equivalents. The Company maintains all undistributed earnings as permanently reinvested. The Company evaluates the balance and uses of cash held internationally based on the needs of the business.

Share Repurchases

The Company is authorized to repurchase 3,677,494 shares of common stock as part of an existing plan approved by the Company’s Board of Directors. Under the share repurchase authorization, the Company may repurchase shares periodically, depending on market conditions and other factors, and may do so in open market purchases or privately negotiated transactions. The share repurchase authorization has no expiration date. The Company did not repurchase any shares of stock during the first nine months of fiscal 2024. The Company continues to evaluate share repurchases as part of its capital allocation strategy.

Commitments

As previously described, on March 8, 2024, the Company issued senior unsecured notes with an aggregate principal amount of $500 million with a three-year tenor due March 2027. The notes bear interest at a fixed rate of 4.800% per annum and pay semi-annually. See Note J - Long-Term Debt and Other Borrowing Arrangements of the Notes to the Consolidated Financial Statements for additional information.

The Company used cash on hand to pay approximately $7 million during the third quarter of fiscal 2024 in respect of legal settlements. Subsequent to quarter-end but prior to the filing of this Quarterly Report on Form 10-Q, the Company used an additional $4 million of cash on hand to complete payment of these legal settlements. Also subsequent to quarter-end, the Company entered into additional legal settlements totaling $17 million, which remain subject to Court approval. Following such approval, the Company expects to pay the associated amounts using cash on hand. See Note I - Commitments and Contingencies of the Notes to the Consolidated Financial Statements for additional information.

Outside of the items mentioned above, there have been no material changes to the information regarding the Company’s future contractual financial obligations previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended October 29, 2023.

TRADEMARKS

References to the Company’s brands or products in italics within this report represent valuable trademarks owned or licensed by Hormel Foods, LLC or other subsidiaries of Hormel Foods Corporation.