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 (U.S.) Generally Accepted Accounting Principles (GAAP).

Volume and Net Sales

Net sales increased and volume decreased for the second quarter and first six months of fiscal 2025 compared to the prior year.

For the second quarter of fiscal 2025, net sales increased in each of the Foodservice and International segments and were comparable in the Retail segment. Organic net sales(1) growth was broad-based in the Foodservice segment, with notable contributions from the customized solutions business and the turkey portfolio. The International segment drove net sales performance through exports and robust growth in the China market. Within the Retail segment, the Mexican portfolio and value-added turkey products each delivered high-single-digit growth, which was primarily offset by the impacts of promotional timing.

For the first six months of fiscal 2025, net sales increased in each of the Foodservice and International segments and decreased in the Retail segment. The Foodservice segment led the Company's overall organic net sales(1) growth through the customized solutions business, the turkey portfolio, and premium prepared proteins. In the International segment, the China market and exports were the largest contributors to top-line performance. For the Retail segment, growth from value-added turkey, Applegate® natural and organic meats, the Mexican portfolio, and the SPAM® family of products was primarily offset by declines in branded and private label deli meats.

For the second quarter of fiscal 2025, volume growth in the International segment was more than offset by volume declines in the Retail and Foodservice segments. For the first six months of fiscal 2025, organic volume(1) in the Foodservice segment was comparable to the prior year. Volume increased in the International segment and declined in the Retail segment for the first six months of fiscal 2025.

In the third quarter of fiscal 2025, the Company expects net sales growth from each of its segments compared to the prior year.

Cost of Products Sold

Cost of products sold for the second quarter and first six months of fiscal 2025 increased primarily due to higher commodity input costs, mainly nuts, pork bellies and beef. On a per pound basis, cost of products sold for the second quarter and first six months of fiscal 2025 increased compared to the prior year.

Gross Profit

For the second quarter and first six months of fiscal 2025, gross profit as a percent of net sales declined. For the second quarter of fiscal 2025, gross profit as a percent of net sales was comparable for the Retail segment and decreased for the International and Foodservice segments. All segments benefited from savings realized as part of the Company’s T&M initiative in the second quarter and first six months of fiscal 2025.

For the third quarter of fiscal 2025, 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 Retail segment, to be comparable for the Foodservice segment, and to decrease for the International segment.

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 U.S. GAAP.

For the second quarter of fiscal 2025, SG&A and SG&A as a percent of net sales decreased, primarily due to the lapping of prior year legal expenses and lower advertising expenses. For the first six months of fiscal 2025, SG&A and SG&A as a percent of net sales increased, as the loss on the sale of a non-core sow operation and increased expenses related to the T&M initiative were partially offset by the lapping of prior year legal expenses and lower advertising expenses.

Advertising investments in the second quarter were $36 million, a decrease of 18 percent compared to last year. The decline was partially due to year over year timing impacts for investments in the Planters® brand. For the first six months of fiscal 2025, advertising investments were $80 million, a decrease of 10 percent compared to last year. The Company expects advertising investments to increase in the second half of fiscal 2025 compared to the prior year.

Equity in Earnings of Affiliates

Equity in earnings of affiliates for the second quarter and first six months of fiscal 2025 was comparable to the prior year as favorable results for MegaMex Foods, LLC, were offset by the results of the Company’s other equity method investments.

Interest and Investment Income and Interest Expense

Interest and investment income for the second quarter and first six months of fiscal 2025 decreased predominately due to lower cash balances and performance from the rabbi trust. Interest expense decreased in the second quarter and first six months of fiscal 2025 as the benefit from lapping prior year amortization of interest rate swaps was partially offset by higher interest due to the prior year debt issuance.

Effective Tax Rate

The effective tax rate in the second quarter of fiscal 2025 was 22.0% compared to 22.5% last year. The Company benefited primarily from higher federal deductions, the purchase of federal transferable energy tax credits, and favorable state audit settlements in the second quarter and first six months of fiscal 2025. For additional information, refer to Note L - Income Taxes of the Notes to the Consolidated Financial Statements.

The effective tax rate for fiscal 2025 is expected to be between 22.0% and 23.0%.