Item 1A. RISK FACTORS
Business and Operational Risks
Deterioration of economic conditions could harm the Company’s business. The Company’s business may be adversely affected by changes in national or global economic conditions, including inflation, interest rates, tax rates, availability of capital, energy availability and costs (including fuel surcharges), political developments, civil unrest, and the effects of governmental initiatives to manage economic conditions. Decreases in consumer spending rates and shifts in consumer product preferences could also negatively impact the Company.
Volatility in financial markets and the deterioration of national and global economic conditions could impact the Company’s operations as follows:
▪The financial stability of the Company’s customers and suppliers may be compromised, which could result in challenges in collecting accounts receivable or non-performance by suppliers.
▪Unfavorable economic conditions may lead customers and consumers to delay or reduce purchases of the Company’s products.
▪Customer demand for products may not materialize to levels required to achieve the Company’s anticipated financial results or may decline as distributors and retailers seek to reduce inventory positions if there is an economic downturn or economic uncertainty in key markets.
▪The value of the Company’s investments in debt and equity securities may decline, including, most significantly, assets held in pension plans and the trading securities held as part of a rabbi trust to fund supplemental executive retirement plans and deferred compensation plans.
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▪Future volatility or disruption in the capital and credit markets could impair the Company’s liquidity or increase costs of borrowing.
▪The Company may be required to redirect cash flow provided by operations or explore alternative strategies, such as disposing of assets, to fulfill the payment of principal and interest on its indebtedness.
The Company has no manufacturing operations in Russia, Ukraine, or the Middle East, yet it has experienced inflated fuel costs and supply chain shortages and delays due to the impact of the military conflicts on the global economy. If these conflicts or others arise or escalate further, the Company could, among other things, face additional supply chain disruptions, rising prices for oil and other commodities, volatility in capital markets and foreign exchange rates, rising interest rates, or heightened cybersecurity risks, any of which may adversely affect the Company’s business.
The Company manages its exposure to commodity prices through hedging programs that utilize hedge accounting, where qualified, for financial reporting purposes. Volatile fluctuations in market conditions could cause these instruments to become ineffective, which could require any gains or losses associated with these instruments to be reported in the Company’s earnings each period. These instruments may limit the Company’s ability to benefit from market gains if commodity prices become more favorable than those secured under the Company’s hedging programs.
If a highly pathogenic human disease outbreak developed, such as COVID-19, it may negatively impact the global economy, demand for Company products, the supply chain, the Company’s co-manufacturers, and/or the Company’s workforce availability including leadership, and the Company’s financial results could suffer. The Company has developed contingency plans to address infectious disease scenarios and the potential impact on its operations and will continue to update these plans, as necessary. There can be no assurance given, however, that these plans will be effective in eliminating the negative effects of any such diseases on the Company’s operating results.
The Company’s operations are subject to the general risks associated with acquisitions, joint ventures, equity investments, and divestitures. The Company regularly reviews opportunities to support the Company’s strategic initiative of delivering long-term value to shareholders through acquisitions, joint ventures, and equity investments and to divest non-strategic assets. The Company has made several acquisitions, joint ventures, equity investments, and divestitures in recent years, including the purchase of a minority interest in Garudafood in fiscal 2023 and the divestiture of Hormel Health Labs, LLC in fiscal 2024. Potential risks associated with these transactions include the inability to consummate a transaction timely or on favorable terms, diversion of management’s attention from other business concerns, loss of key employees and customers of current or acquired companies, inability to integrate or divest operations successfully, assumption of unknown liabilities, disputes with buyers, sellers, or partners, inability to obtain favorable financing terms, and the inherent risks in entering markets or lines of business in which the Company has limited or no prior experience. There is also the risk of post-acquisition impairment charges if purchase assumptions are not achieved.
Due to the nature of joint ventures and equity investments, these arrangements involve further risks, including the possibility that the Company is unable to execute business strategies and manage operations given limitations of the Company’s control. Additionally, partners may make business decisions that are inconsistent with the Company’s goals, block or delay necessary decisions, or experience financial difficulties of their own. Acquisitions, joint ventures, or equity investments outside the U.S. may also present unique challenges and increase the Company’s exposure to the risks associated with foreign operations.
The Company’s level of indebtedness may increase to fund future acquisitions, joint ventures, or equity investments. Higher levels of debt may, among other things, impact the Company’s liquidity or credit rating and increase the Company’s exposure to negative fluctuations in interest rates.
Any of these risks could impact the Company’s financial results and business reputation.
Risks and uncertainties associated with intangible assets, including any future goodwill or intangible asset impairment charges, may negatively impact the Company. The Company’s goodwill and indefinite-lived intangible assets are initially recorded at fair value and are not amortized but are reviewed for impairment annually or more frequently if impairment indicators arise. Impairment testing requires judgment around estimates and assumptions and is impacted by factors such as revenue growth rates, operating margins, tax rates, royalty rates, and discount rates. An unfavorable change in these factors may lead to the impairment of goodwill and/or intangible assets. During fiscal 2023, an impairment was indicated for the Justin’s® trade name, resulting in an impairment charge of $28.4 million. In addition, during fiscal 2023, the Company recorded a $7.0 million impairment charge related to a corporate venturing investment to recognize a decline in fair value not believed to be temporary.
Fiscal 2024 net sales for Planters® snack nuts were negatively impacted by production disruptions at the Suffolk, Virginia, facility. The Company believes these impacts are short term in nature (less than one year) and projects sales to recover to historical levels shortly after supply normalizes. Should the impact last longer, or be more severe than currently anticipated, it is likely the Company would have to recognize an impairment charge on this trade name, which is currently valued at $675 million.
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The Company is subject to the risk of disruption of operations, including at owned facilities, co-manufacturers, suppliers, logistics providers, customers, or other third-party service providers. The Company’s ability, and the ability of the Company’s co‐manufacturers, suppliers, and logistics providers to manufacture, supply and distribute the Company’s products is critical to the Company’s success. A significant disruption in the operation of the Company’s manufacturing, supply, or distribution capabilities, whether Company-owned or supported by third parties, could have a negative impact on the Company’s ability to operate its business. Actions taken to mitigate the impact of any potential disruption, including increasing inventory in anticipation of a potential production or supply interruption, may adversely affect the Company’s financial results. Additionally, labor-related challenges have caused disruptions for many of these providers and may continue to impact the Company’s ability to receive inputs or distribute products.
The Company relies on its customers to sell its products to ultimate consumers. Disruptions related to significant customers or sales channels could result in a reduction in sales or a change in the mix of products sold.
The Company also relies on a variety of third-party service providers to support its operations. Disruption in services from third-party service providers used to support business functions such as benefit plan administration, payroll processing, information technology (IT) and cloud computing services could have a negative impact on the Company’s business.
The Company may not realize the anticipated cost savings or operating profit improvements associated with strategic initiatives, including its Transform and Modernize initiative. The Company implements strategic initiatives to achieve a profitable cost structure, operate more profitably, better serve customers, and optimize cash flow. These initiatives may focus on opportunities to improve the procurement, manufacturing, and logistics within the Company’s supply chain as well as general and administrative processes. A failure or delay in implementing the improvements associated with these strategic initiatives could adversely impact the Company’s results, ability to meet its long-term growth expectations, and ability to fund future initiatives.
The Company began its Transform and Modernize initiative in the second half of fiscal 2023 with a goal of contributing meaningful operating profit growth through fiscal 2026. If this initiative does not achieve the expected financial impact in the aggregate or on the expected timeline, the Company’s financial results and ability to meet its long-term growth expectations could be adversely impacted.
In addition, the Company is in the midst of multi-year data and technology transformation projects to achieve better analytics, customer service, process efficiencies, and upgrade technologies. The projects, including updating the Company’s order-to-cash process, are expected to improve the efficiency and effectiveness of certain financial and business transaction processes and the underlying systems environment. Multiple phases of these projects have already been implemented and additional phases are expected to be implemented in the upcoming years. These implementations are a major undertaking from a financial, management, and personnel perspective and may prove to be more difficult, costly, or time consuming than expected, and there can be no assurance that these projects will be beneficial to the extent anticipated.
The Company is subject to risk of the loss of a significant contract or unfavorable changes in the Company’s relationships with significant customers. The Company is a party to several supply, distribution, contract packaging and other significant contracts. The loss of a significant contract or failure to obtain new significant contracts could adversely affect the Company’s financial results.
Sales to the Company's largest customer, Walmart, accounted for approximately 16 percent of consolidated gross sales less returns and allowances during fiscal 2024. Walmart is a customer for the Company’s Retail and International segments. The Company’s top five customers collectively represented approximately 37 percent of consolidated gross sales less returns and allowances during fiscal 2024. The loss of one or more of the top customers in any of the reportable segments could have a material adverse effect upon such segment’s financial results.
The Company may be adversely impacted if the Company is affected by cybersecurity attacks, security breaches, or other IT interruptions, involving its own systems or those with whom it does business. IT systems are an important part of the Company’s business operations. The Company also increasingly relies upon third-party service providers for a variety of business functions, including cloud-based services. Cyber incidents are occurring more frequently across U.S. industries and are being made by groups and individuals with a wide range of motives and expertise. In addition, high-profile data security incidents and IT interruptions at other companies, including companies with whom the Company does business, evidence an external environment that is becoming increasingly challenging. From time to time, the Company has experienced, and may experience in the future, breaches of security measures due to human error, malfeasance, insider threats, system errors or vulnerabilities or other irregularities, none of which have been material to date. In addition, from time to time the Company has experienced disruptions to its operations due to IT interruptions at third parties with whom it does business. To date, none of these have been material.
Although the Company has programs in place related to business continuity, disaster recovery, and information security initiatives to maintain the confidentiality, integrity, and availability of systems, business applications, and customer information, the Company may not be able to anticipate or implement effective preventive measures against all potential IT interruptions or cybersecurity threats, especially because, in connection with cybersecurity threats the techniques used change frequently and
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because attacks can originate from a wide variety of sources, both domestic and foreign. Cybersecurity risk cannot be fully mitigated because of the rapidly evolving nature of the threats, targets, and consequences.
If the Company experiences a loss or significant disruption in its operations due to a cybersecurity event or other IT interruption, the Company may suffer reputational, competitive, and business harm and may be exposed to legal liability, which may adversely affect the Company’s results of operations.
The Company may be adversely affected if it fails to timely replace legacy technologies. The Company has been evolving its IT infrastructure but continues to rely on a variety of legacy technologies across its business. The Company is investing significant funds to update its IT infrastructure. If the Company fails to timely complete this work, the risk of an adverse cybersecurity incident may increase, if, for example, vendors fail to continue to provide security updates. Reliance on legacy technology for an extended period may also increase the Company’s IT maintenance expense and risk of system downtime, as well as slow the Company’s adoption of more innovative technologies or ability to benefit from more sophisticated data analytics.
Deterioration of labor relations, labor availability or increases in labor costs could harm the Company’s business. A significant increase in labor costs or a deterioration of labor relations at any of the Company’s owned facilities or co-manufacturing facilities resulting in work slowdowns or stoppages could harm the Company’s financial results. Labor and skilled labor availability challenges could continue to have an adverse effect on the Company’s business.
The Company periodically renegotiates its collective bargaining agreements as such agreements expire. New or increased unionization efforts at a facility or failure to successfully negotiate with existing unions could lead to disruptions in the Company's supply chain, increases in operating costs, and constraints on operating flexibility.
Industry Risks
The Company’s operations are subject to the general risks of the food industry. The food products manufacturing industry is subject to the risks posed by a number of factors, including:
▪food contamination caused by disease-producing organisms or pathogens, such as Listeria monocytogenes, Salmonella, and pathogenic E coli.;
▪mislabeling, including with respect to food allergens;
▪food spoilage;
▪claims of false or deceptive advertising;
▪nutritional and health-related concerns;
▪federal, state, and local food processing controls;
▪consumer product liability claims;
▪product tampering; and
▪the possible unavailability and/or expense of liability insurance.
The pathogens that may cause food contamination are found generally in livestock and in the environment and thus may be present in the Company’s products. These pathogens can also be introduced to products as a result of improper handling by customers or consumers. The Company does not have control over handling procedures once products have been shipped for distribution.
If one or more of these risks were to materialize, the Company could incur significant costs, loss of sales, regulatory action, or litigation as well as negative impacts to its brand and business reputation.
During the third quarter of fiscal 2024, the Company voluntarily recalled a limited number of Planters® products due to the potential for contamination of the product with Listeria monocytogenes. Although to-date there have been no reports of illness related to the recalled products, the Company has experienced costs and business impacts associated with the event.
Outbreaks of disease among livestock and poultry flocks could harm the Company’s revenues and operating margins. The Company is subject to risks associated with the outbreak of disease in pork and beef livestock, and poultry flocks, including African swine fever (ASF), Bovine Spongiform Encephalopathy (BSE), pneumo-virus, Porcine Circovirus 2 (PCV2), Porcine Reproduction & Respiratory Syndrome (PRRS), Foot-and-Mouth Disease (FMD), Porcine Epidemic Diarrhea Virus (PEDv), and Highly Pathogenic Avian Influenza (HPAI). The outbreak of such diseases could adversely affect the Company’s supply of raw materials, increase the cost of production, reduce utilization of the Company’s harvest facilities, and reduce earnings. The impact of global climate change may increase these risks due to changes in weather or migratory patterns, which may result in certain types of diseases occurring more frequently or with more intense effects. Additionally, the outbreak of disease may hinder the Company’s ability to market and sell products both domestically and internationally.
In recent years, outbreaks of ASF have impacted hog herds in China, Asia, Europe, and the Caribbean. If an outbreak of ASF were to occur in the U.S., the Company’s supply of hogs and pork could be materially impacted.
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HPAI was detected within the Company’s turkey supply chain during fiscal 2024 and the first quarter of fiscal 2025. HPAI could continue to be detected in the future. The impact of HPAI has reduced and the Company believes it will continue to reduce production volume in the Company’s turkey facilities. The Company is continuing to monitor the situation and will take appropriate actions to protect the health of the turkeys across the supply chain.
The Company has developed business continuity plans for various disease scenarios and will continue to update these plans, as necessary. There can be no assurance given, however, that these plans will be effective in eliminating the negative effects of any such diseases on the Company’s operating results.
Fluctuations in commodity prices and availability of raw materials and other inputs could harm the Company’s earnings.The Company’s results of operations and financial condition are largely dependent upon the cost and supply of pork, poultry, beef, feed grains, nuts, energy, and other inputs, as well as the selling prices for many of the Company’s products, which are determined by dynamic market forces of supply and demand.
The Company takes a balanced approach to sourcing pork raw materials, including hogs purchased for the Austin, Minnesota processing facility, long-term supply agreements for pork, and spot market purchases of pork. This approach is designed to ensure a more stable supply of raw materials while minimizing extreme fluctuations in costs over the long-term. This may result, in the short-term, in higher or lower live hog costs compared to the cash spot market. Market-based pricing on certain product lines, and lead time required to implement pricing adjustments, may prevent all or part of these cost increases from being recovered, and these higher costs could adversely affect the Company’s short-term financial results.
The Company raises turkeys and contracts with turkey growers to meet its raw material requirements for whole birds and processed turkey products. Results in these operations are affected by the cost and supply of feed grains, which fluctuate due to climate conditions, production forecasts, and supply and demand conditions at local, regional, national, and worldwide markets. The Company attempts to manage some of its short-term exposure to fluctuations in feed prices by forward buying, using futures contracts, and pursuing pricing advances. However, these strategies may not be adequate to overcome sustained increases in market prices due to alternate uses for feed grains or other changes in these market conditions.
The Company may be subject to decreased availability or less favorable pricing for nuts, tomatoes, avocados, or other produce if poor growing conditions have a negative effect on agricultural productivity. Reductions in crop size or quality due to unfavorable growing conditions may have an adverse effect on the Company’s results.
The supplies of natural and organic proteins may impact the Company’s ability to ensure a continuing supply of these products. To mitigate this risk, the Company partners with multiple long-term suppliers.
International trade barriers and other restrictions or disruptions could result in decreased foreign demand and increased domestic supply of proteins, thereby potentially lowering prices. The Company occasionally utilizes in-country production to limit this exposure.
Market demand for the Company’s products may fluctuate, including due to private label products and lower-priced alternatives. The Company faces competition from a variety of sources, including other national brands, private label producers, and producers of alternative meats and protein sources, including pork, beef, turkey, chicken, fish, nuts, nut butters, whey, and plant-based proteins. The factors on which the Company competes include:
▪price;
▪product quality and attributes;
▪brand identification;
▪breadth of product line; and
▪customer service.
Demand for the Company’s products is also affected by competitors’ promotional spending, the effectiveness of the Company’s advertising and marketing programs, and consumer perceptions, including those related to food trends such as sustainability of product sources and animal welfare. The Company’s failure to compete successfully on these factors could lead to, among other things, reduced demand for the Company’s brands and products, which could negatively impact the Company’s financial condition and results of operations.
The Company faces risks related to its ability to respond to changing consumer preferences, diets and eating patterns, including through its innovation and marketing investments. The Company invests in consumer insights and research and development to deliver innovative products that resonate with consumers, appeal to customers, and support sales growth. Consumer preferences for food products are impacted by a variety of factors, including convenience, flavor variety and developments in options for weight management (e.g., the use of medications). If the Company is unsuccessful in developing and introducing new products that resonate with consumers, the return on the Company’s investment in new product development will be less than anticipated and the Company’s efforts to grow sales through innovation will be less successful than expected.
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Damage to the Company’s reputation or brand image can adversely affect its business. Maintaining and enhancing the perception of the reputation of the Company and its key brands is critical to business success. The reputation of the Company and its brands have been in the past, and could in the future be, adversely impacted by a number of factors, including unfavorable events or rumors, adverse publicity, and negative information disseminated through social and digital media. Failure to maintain, extend, and expand the Company’s reputation or brand image could adversely impact operating results.
Climate change, or legal, regulatory or market measures to address climate change, could have an adverse impact on the Company’s business and results of operations. There is growing concern that carbon dioxide and other greenhouse gases in the atmosphere may have an adverse impact on global temperatures, weather patterns, and the frequency and severity of extreme weather and natural disasters. If such climate change has a negative impact on agricultural productivity, the Company may have decreased availability of, or less favorable pricing for, the raw materials necessary for its operations. Climate change may also cause decreased availability of, or less favorable pricing for, water, which could have an adverse effect on the Company’s financial results, operations, and supply chain. In addition, natural disasters and extreme weather, including those caused by climate change, have caused and could continue to cause disruption in the Company’s operations and supply chain and increases in property insurance premiums.
The increasing concern over climate change may also result in greater local, state, federal, and foreign legal requirements, including requirements to limit greenhouse gas emissions or conserve water usage. If such requirements are enacted, the Company could experience significant cost increases in its operations and supply chain.
The Company has developed, publicly announced, and had validated through the Science Based Targets initiative, goals to reduce its greenhouse gas emissions. The Company’s ability to achieve its greenhouse gas emissions goals, and its other environmentally focused goals set forth in its 20 by 30 Challenge, is subject to numerous factors and conditions, many of which are outside of its control. Examples include, among others, evolving regulatory requirements, disclosure frameworks, and methodologies for reporting data. The Company’s inability to accomplish its goals related to greenhouse gas emissions reductions, or with respect to other environmental matters set forth in the 20 by 30 Challenge may disappoint stakeholders, cause decreased demand for the Company’s products, and have an adverse effect on the Company’s results of operations.
Legal and Regulatory Risks
The Company’s operations are subject to the general risks of litigation. The Company is involved on an ongoing basis in litigation arising in the ordinary course of business. Trends in litigation may include class actions involving employees, consumers, competitors, suppliers, shareholders, or others, and claims relating to product liability, contract disputes, antitrust regulations, intellectual property, advertising, labeling, wage and hour laws, employment practices or environmental matters. Neither litigation trends nor the outcomes of litigation can be predicted with certainty and adverse litigation trends and outcomes could negatively affect the Company’s financial results.
Government regulation, present and future, exposes the Company to potential sanctions and compliance costs that could adversely affect the Company’s business. The Company’s operations, and those of its suppliers, are subject to extensive regulation in the U.S. and abroad, by the U.S. Department of Agriculture, the U.S. Food and Drug Administration, the U.S. Department of Homeland Security, international, federal, and state taxing authorities and other international, federal, state, and local authorities, including those that oversee workforce mobility, taxation, animal welfare, food safety, and the processing, packaging, storage, distribution, advertising, and labeling of the Company’s products. Claims or enforcement proceedings could be brought against the Company in the future. In addition, these regulations could become more restrictive, which could lead to increased costs for the Company. For example, pork harvest facilities that the Company relies upon in its supply chain are subject to maximum production line speeds. The current maximum line speeds are under review by the government. If line speeds are required to be slowed, harvest capacity and costs may be negatively impacted.
The Company’s manufacturing facilities and products are also subject to ongoing inspection by federal, state, and local authorities. The loss of the availability of government inspectors due to a government furlough could cause disruption to the Company’s manufacturing facilities.
Additionally, the Company is subject to new or modified laws, regulations, and accounting standards. The Company’s failure or inability to comply with such requirements could subject the Company to civil remedies, including fines, injunctions, recalls or seizures, as well as potential criminal sanctions.
The Company is subject to stringent environmental regulations and potentially subject to environmental litigation, proceedings, and investigations. The Company’s past and present business operations and the Company’s ownership and operation of real property are subject to stringent international, federal, state, and local environmental laws and regulations pertaining to the discharge of materials into the environment and the handling and disposition of wastes (including solid and hazardous wastes) or otherwise relating to protection of the environment. Compliance with these laws and regulations, as well as any modifications, is material to the Company’s business. Some of the Company’s facilities have been in operation for many years and, over time, the Company and other prior operators of these facilities may have generated and disposed of wastes that
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now may be considered hazardous. Future discovery of contamination of property underlying or in the vicinity of the Company’s present or former properties or manufacturing facilities and/or waste disposal sites could require the Company to incur additional expenses related to additional investigation, assessment, or other requirements. The occurrence of any of these events, the implementation of new laws and regulations or stricter interpretation of existing laws or regulations could adversely affect the Company’s financial results.
The Company’s foreign operations pose additional risks to the Company’s business. The Company operates its business and markets its products internationally. The Company’s foreign operations are subject to the risks described above, as well as risks related to fluctuations in currency values, foreign currency exchange controls, compliance with foreign regulations and tax laws, compliance with applicable U.S. laws, including the Foreign Corrupt Practices Act, and other economic or political uncertainties. International sales are subject to risks related to general economic conditions, imposition of tariffs, quotas, trade barriers and other restrictions, enforcement of remedies in foreign jurisdictions and compliance with applicable foreign laws, and other economic and political uncertainties. All of these risks could result in increased costs or decreased revenues, which could adversely affect the Company’s financial results.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 1C. CYBERSECURITY
Risk Management and Strategy
As a global organization, the Company’s information systems are subject to various risks, including, but not limited to risks associated with ransomware, system disruption, data theft, unauthorized access to information, and misuse of data. To identify, address, and mitigate these risks, the Company has developed and maintains a cybersecurity program. The Company’s cybersecurity program is informed by the National Institute of Standards and Technology (NIST) Cybersecurity Framework and the Company’s Enterprise Risk Management (ERM) process and relies on internal and external expertise.
Integration with ERM Processes
The Company maintains an ERM program with a governance structure that is designed to identify, assess, prioritize, and mitigate risks across the organization. The ERM Executive Committee, comprised of the Company’s senior leadership team, has the ultimate responsibility for overseeing the identification of the key risks facing the Company and meets regularly to discuss the Company’s approach to mitigating those risks. Through the ERM process, cybersecurity has been identified as an important risk facing the Company. As a result, the cybersecurity program is an important component of the Company’s ERM processes.
In addition to discussing the cybersecurity program at ERM Executive Committee meetings, members of the ERM Executive Committee participate in the cybersecurity incident response process. This process includes a governance model and procedures for identifying, categorizing, containing, and responding to cybersecurity incidents. As a component of the cybersecurity incident response process, the Company conducts attack simulations and exercises and has used third parties to support this work. The Company also maintains business continuity and disaster recovery plans to prepare for potential technology disruptions and to better position the Company to recover from any cybersecurity incident. The Company’s Disclosure Committee also includes a member of the ERM Executive Committee, helping to ensure timely analysis of disclosure obligations relating to cybersecurity events.
Cybersecurity Program Components
The Company’s cybersecurity program includes a focus on governance, processes, technology, and people. Components of the program include the following:
•Investments in security technology, such as vulnerability management tools, malicious software protection, email security, and around-the-clock monitoring;
•Regular monitoring and updating of the Company’s IT infrastructure, to respond to the dynamic cybersecurity threat environment;
•Use of third parties to assess, test, validate, and strengthen the cybersecurity program, including penetration testing and the periodic use of a third party to assess the quality and maturity of the program against the NIST Cybersecurity Framework; and
•Assessing and managing cybersecurity risks associated with the Company’s relationships with third parties, including technology and service providers, through due diligence efforts and the imposition of contractual obligations.
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The Company’s cybersecurity program also includes employee training and education. Frequent employee training topics include social engineering, phishing, password protection, confidential data protection, asset use, and mobile security. Training emphasizes the importance of reporting incidents promptly to the Company’s security operations team. The Company also conducts periodic phishing tests with employees and provides employees with easy-to-use tools to report potential phishing emails.
Cybersecurity Governance and Oversight
Management
The Company’s management is responsible for identifying, assessing, and managing the Company’s exposure to cybersecurity risk. The Company has an internal team that is supported by security technologies, third-party experts, and threat intelligence resources in support of cybersecurity risk reduction. The Company's internal cybersecurity team is led by the Company’s Director of Information Security and Compliance, who acts in the capacity of a chief information security officer and is responsible for overseeing the execution of cybersecurity strategy and maturing the Company’s cybersecurity posture. The Director of Information Security and Compliance reports to the Company’s Vice President of IT Services and has education, training, and experience pertinent to cybersecurity, including more than 25 years of IT experience with over 15 years in Information Security and holds the Certified Information Security Systems Professional (CISSP) certification.
Board of Directors
The Company’s Board of Directors (Board) and its Audit Committee exercise oversight of the Company’s ERM program, including the cybersecurity program. Management, led by the Director of Information Security and Compliance, provides at least three updates per year to the Audit Committee on cybersecurity topics, and the Audit Committee regularly reports to the Board on these presentations. In addition, the Director of Information Security and Compliance provides an annual cybersecurity update to the full Board. Management’s updates cover relevant cybersecurity topics, both ongoing and unique in nature, including risk exposures and management’s actions to monitor and mitigate such risks, emerging threats or regulations, and status updates on projects to strengthen and mature the Company’s systems and cybersecurity programs. Management’s escalation protocol includes reporting of certain cybersecurity threats or incidents to the Audit Committee in a prompt and timely manner.
Impact of Cybersecurity Risks and Threats
While some of the Company’s third-party service providers have experienced cybersecurity incidents and the Company has experienced threats to its data and systems, as of the date of this report, the Company’s management is not aware of any cybersecurity threats or incidents that have materially affected its business strategy, results of operations, or financial condition. This does not guarantee that future incidents or threats will not have a material impact by interrupting operations, causing reputational harm, increasing operating costs, or exposing the Company to litigation. For additional commentary on cybersecurity risks, see Part 1, Item 1A. Risk Factors under the heading “The Company may be adversely impacted if the Company is affected by cybersecurity attacks, security breaches, or other IT interruptions, involving its own systems or those with whom it does business.”
Item 2. PROPERTIES
The Company’s global headquarters is located in Austin, Minnesota. The Company has various processing plants, warehouses, and operational facilities, mainly located in the U.S. The Company maintains a national sales force through strategic placement of sales offices across the U.S. Properties are also maintained internationally to support global processing and sales. The majority of the Company’s property is owned. Leased property is used as needed for production, distribution, and sales.
The Company believes its operating facilities are well maintained and suitable for current use. The Company regularly engages in construction and other capital improvement projects with a focus on value-added capacity projects and automation, as well as projects to support regulatory requirements, maintenance needs, and cost-reduction opportunities.
Many of the Company’s domestic properties are utilized by more than one segment and utilization of these facilities can change over time. Therefore, it is impracticable to disclose them by segment. The facilities outside the U.S. serve the International segment.
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Arizona — — 2 2 2 —
Florida — — 5 5 5 —
Massachusetts — — 4 4 4 —
Michigan — — 3 3 3 —
North Carolina — — 3 3 3 —
Washington — — 2 2 2 —
Australia — — 2 2 2 —
(1) Turkey growout facilities are excluded.
Item 3. LEGAL PROCEEDINGS
Information regarding legal proceedings is available in Note J - Commitments and Contingencies of the Notes to the Consolidated Financial Statements.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
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Information About Executive Officers
The following table provides information regarding the executive officers of the Company as of December 5, 2024:
CURRENT OFFICE AND PREVIOUS
NAME AGE FIVE YEARS EXPERIENCE DATES
John F. Ghingo 52 Executive Vice President, Retail 10/2024 to Present
President, Applegate Farms, LLC (subsidiary of registrant) 04/2018 to 01/2022
Mark J. Ourada 59 Group Vice President, Foodservice 03/2018 to Present
Steve J. Lykken 54 Group Vice President, Supply Chain 02/2024 to Present
Group Vice President, Jennie-O Turkey Store 03/2021 to 02/2024
Paul R. Kuehneman 53 Vice President and Controller 02/2022 to Present
No family relationship exists among the executive officers.
PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUERPURCHASES OF EQUITY SECURITIES
Market Information
Hormel Foods Corporation’s common stock is traded on the New York Stock Exchange under the symbol HRL.
Holders
As of November 27, 2024, there were approximately 9,000 record holders of the Company’s common stock and approximately 242,000 holders whose shares were held in street name by brokerage firms and financial institutions.
Issuer Purchases of Equity Securities
There were no issuer purchases of equity securities in the quarter ended October 27, 2024. On January 29, 2013, the Company’s Board of Directors authorized the repurchase of 10,000,000 shares of its common stock with no expiration date. On January 26, 2016, the Board of Directors approved a two-for-one split of the Company’s common stock to be effective January 27, 2016. As part of the stock split resolution, the number of shares remaining to be repurchased was adjusted proportionately.
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The maximum number of shares that may yet be purchased under the repurchase plans or programs as of October 27, 2024 is 3,677,494.
Dividends
The Company has paid dividends for 385 consecutive quarters. On November 25, 2024, the Board of Directors authorized an increase to the annual dividend rate for fiscal 2025 to $1.16 per share, representing the 59th consecutive annual dividend increase. The Company is dedicated to returning cash to shareholders through dividend payments.
Shareholder Return Performance Graph
The following graph shows a comparison of cumulative total shareholder return, calculated on a dividend-reinvested basis, for the Company, the S&P 500 Index, and the S&P 500 Packaged Foods & Meats Index for the five years ended October 27, 2024. The graph assumes $100 was invested in each as of the market close on October 28, 2019. Note that historic stock price performance is not necessarily indicative of future stock price performance.
Item 6. RESERVED
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS
Executive Overview
Fiscal 2024: The Company believes fiscal 2024 demonstrated the solid execution of its strategy, the power of its portfolio and the resilience of its team. The Company achieved net sales of $11.9 billion, declining 2 percent compared to the prior year, as the benefit from broad-based growth in the Foodservice segment and value-added growth in the Retail segment from Applegate®, value-added fresh pork, bacon, and value-added turkey, was more than offset by declines in the Retail and International segments. Declines in the Retail segment were driven primarily by significant year-over-year pricing declines for whole bird and commodity turkey and softness in the Convenient Meals & Proteins vertical. International net sales declines were driven by lower commodity exports and lower net sales in China. Segment profit increased 2 percent compared to prior year, as favorable results in the International segment were partially offset by unfavorable results in the Retail segment. Segment profit for the Foodservice segment was comparable to the prior year. Net earnings increased 1 percent compared to the prior year, as improved segment profit and favorable interest and investment income were partially offset by a higher effective tax rate. Adjusted net earnings(1) — excluding the impact of costs associated with the Company’s Transform and Modernize (T&M) initiative, litigation settlements, and the gain on the divestiture of Hormel Health Labs, LLC (Hormel Health Labs) — declined 2 percent. Diluted earnings per
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share and adjusted diluted earnings per share(1) for fiscal 2024 were $1.47 and $1.58, respectively, compared to $1.45 and $1.61 last year.
International segment profit increased significantly compared to prior year due to contribution from the Company’s minority investments, improved mix and favorable costs in the Company's China business, and favorable export product mix. Segment profit for the Foodservice segment was comparable to the prior year as the benefit from higher sales and lower logistics expenses were offset by higher selling, general and administrative (SG&A) expenses. Retail segment profit declined for the full year due to lower sales, lower equity in earnings of affiliates, and higher SG&A expenses. These declines were partially offset by the benefit from lower logistics expenses, savings from the T&M initiative, and the lapping of a non-cash impairment charge associated with the Justin’s® trade name in fiscal 2023.
Fiscal 2024 was an important year of investment for the Company's multi-year T&M initiative. The Company made meaningful progress on the initiative, which is expected to deliver long-term value to the organization.
The Company again reinvested into the business through capital expenditures and returned a record amount of cash to shareholders in the form of dividends. Capital expenditures in fiscal 2024 were $256 million, including investments in capacity expansions for Hormel® Fire Braised® products, Applegate® products and the Jiaxing, China, facility. The Company continues to prioritize investments in growth, innovation, cost savings, automation, and maintenance. Dividends paid to shareholders were a record $615 million.
Fiscal 2025 Outlook(2): The Company continues to navigate through a dynamic consumer and operating environment. Organic net sales(1) growth of 1 percent to 3 percent is expected in fiscal 2025, which assumes benefits from modestly higher volumes, growth in key categories and markets, higher brand support and innovation, market-based pricing actions, and the current assumptions for raw material costs. From a bottom-line perspective, diluted earnings per share are expected to be $1.51 to $1.65 and adjusted diluted earnings per share(1) are expected to be $1.58 to $1.72. Earnings are expected to decline in the first half of the year as growth in key categories and markets is expected to be offset by the recovery from a prior year production disruption at the Company's Suffolk, Virginia, facility, the impact from lower commodity turkey markets, and higher SG&A expenses, including increased brand support through advertising. Segment profit growth from all three segments is expected in the back half of the year. Major risks to the outlook include incremental inflationary pressures and the impact of deteriorating macroeconomic conditions on the Company’s customers, consumers, and operators.
The Company remains in a strong financial position due to its consistent cash flow, liquidity, and solid balance sheet. The Company plans to continue to support the business through increased marketing and advertising investments for its leading brands. Further, continued capital expenditure investments including investments for data and technology related to its T&M initiative and capacity expansions for Hormel® Fire Braised® products, Applegate® products and the Jiaxing, China, facility. The annual dividend for 2025 will be $1.16 per share, representing an increase of 3 percent and marking the 59th consecutive year of dividend increases. Returning cash to shareholders in the form of dividends remains a top priority for the Company.
Consistent with the plan outlined at its 2023 investor day, the Company expects fiscal 2025 to be a year of acceleration in its T&M initiative. For fiscal 2025, the Company expects a benefit to net earnings from its T&M initiative.
A review of the Company’s fiscal 2024 performance compared to fiscal 2023 appears in the following section. A review of fiscal 2023 performance compared to fiscal 2022 is set forth in Part II, Item 7 of the Company’s Form 10-K for the fiscal year ended October 29, 2023, under the caption "Management’s Discussion and Analysis of Financial Condition and Results of Operations," which is incorporated herein by reference.
(1) See the "Non-GAAP Measures" section below for a description of the Company’s use of measures not defined by U.S. generally accepted accounting principles (GAAP).
(2) All forward-looking comparisons for fiscal 2025 are comparing fiscal 2024 GAAP figures to projected fiscal 2025 GAAP figures, unless otherwise noted.
Results of Operations
OVERVIEW
The Company is a processor of branded and unbranded food products for retail, foodservice, and commercial customers.
The Company reports its results in the following three reportable segments:
The Retail segment consists primarily of the processing, marketing, and sale of food products sold predominantly in the retail market in the United States. This segment also includes the results from the Company’s MegaMex Foods, LLC joint venture.
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The Foodservice segment consists primarily of the processing, marketing, and sale of food products for foodservice, convenience store, and commercial customers located in the United States.
The International segment processes, markets, and sells Company products internationally. This segment also includes the results from the Company’s international joint ventures, international equity method investments, and international royalty arrangements.
The Company’s fiscal year consisted of 52 weeks in fiscal years 2024, 2023, and 2022. Fiscal year 2025 will consist of 52 weeks.
CONSOLIDATED RESULTS
Net Earnings and Diluted Earnings Per Share
Fourth Quarter Ended Fiscal Year Ended
(1) See the "Non-GAAP Measures" section below for a description of the Company’s use of measures not defined by U.S. GAAP.
Volume and Net Sales
Fourth Quarter Ended Fiscal Year Ended
Volume for the fourth quarter and full year of fiscal 2024 declined, as higher volume in the Foodservice segment was more than offset by lower volume in the Retail segment, primarily in the Convenient Meals & Proteins and the Value-Added Meats verticals.
Net sales declined in the fourth quarter of fiscal 2024, as higher net sales in the Foodservice and International segments were more than offset by declines in the Retail segment, driven by significant year-over-year pricing declines for whole bird turkeys and lower sales of Planters®snack nuts resulting from production disruptions at the Suffolk, Virginia, facility.
Full year fiscal 2024 net sales declined compared to the prior year, as the benefit from broad-based growth in the Foodservice segment and value-added growth in the Retail segment from Applegate®, value-added fresh pork, bacon, and value-added turkey, was more than offset by declines in the Retail and International segments. Declines in the Retail segment were driven primarily by significant year-over-year pricing declines for whole bird and commodity turkey and softness in the Convenient Meals & Proteins vertical. International net sales declines were driven by lower commodity exports and lower net sales in China.
In fiscal 2025, the Company expects net sales growth, which assumes benefits from modestly higher volumes, growth in key categories and markets, higher brand support and innovation, market-based pricing actions, and the current assumptions for raw material costs. Risks to this outlook include slowing consumer demand and market price fluctuations.
Cost of Products Sold
Fourth Quarter Ended Fiscal Year Ended
October 27, October 29, October 27, October 29,
Cost of products sold for the fourth quarter and full year of fiscal 2024 decreased due to lower sales. Cost of products sold per pound increased one percent in fiscal 2024, driven primarily by product mix changes and inflationary pressures, partially offset by cost savings from the Company's T&M initiative.
In fiscal 2025, raw material costs for pork, beef, and nuts are anticipated to be above historical levels. Feed costs are expected to be lower as compared to the prior year. The Company is anticipating normalized levels of inflation for employee, packaging, and production related expenses. The Company expects its T&M initiative to deliver cost savings in fiscal 2025, targeting the procurement of ingredients and supplies, logistics, and production costs.
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Gross Profit
Fourth Quarter Ended Fiscal Year Ended
October 27, October 29, October 27, October 29,
Gross profit as a percent of net sales for the fourth quarter and full year of fiscal 2024 increased, as pricing actions and cost savings from the Company's T&M initiative were partially offset by inflationary pressures. Compared to fiscal 2023, gross profit as a percent of net sales increased for the Retail and International segments and decreased for the Foodservice segment.
In fiscal 2025, the Company expects gross profit as a percent of net sales to increase compared to the prior year. Incremental cost inflation and unfavorable sales mix pose the largest risks to this outlook.
Selling, General, and Administrative (SG&A)
Fourth Quarter Ended Fiscal Year Ended
Percent of Net Sales 7.6 % 6.8 % 8.4 % 7.8 %
Adjusted Percent of Net Sales(1) 7.2 % 6.6 % 7.8 % 7.1 %
(1) See the "Non-GAAP Measures" section below for a description of the Company’s use of measures not defined by U.S. GAAP.
SG&A expenses for the fourth quarter of fiscal 2024 increased due to higher employee-related expenses and higher consulting fees related to the Company’s T&M initiative. For full year fiscal 2024, the increase in SG&A expenses and SG&A expenses as a percent of net sales is attributed to higher employee-related expenses, higher consulting fees related to the Company’s T&M initiative, and antitrust settlements, partially offset by the lapping of an unfavorable arbitration ruling in the prior year. Adjusted SG&A expenses as a percent of net sales(1) for fiscal 2024 increased due to employee-related expenses.
Advertising investments in fiscal 2024 were $163 million, representing a 2 percent increase compared to fiscal 2023.
In fiscal 2025, the Company intends to continue investing in its leading brands and for full year advertising expense to increase compared to the prior year.
Research and development continues to be a vital part of the Company’s strategy to grow existing brands and expand into new branded items. Research and development expenses were $36.1 million in fiscal 2024, compared to $33.7 million in fiscal 2023.
Equity in Earnings of Affiliates
Fourth Quarter Ended Fiscal Year Ended
October 27, October 29, October 27, October 29,
Equity in earnings of affiliates increased for the fourth quarter and full year of fiscal 2024 as growth in the International segment's minority interests in Indonesia and the Philippines and the lapping of an impairment of a corporate venturing investment in the prior year were partially offset by weaker results for MegaMex Foods.
The Company accounts for its majority-owned operations under the consolidation method. Investments in which the Company owns a minority interest, and for which there are no other indicators of control, are accounted for under the equity or cost method. These investments, including balances due to or from affiliates, are included on the Consolidated Statements of Financial Position as Investments in Affiliates. The composition of this line item as of October 27, 2024, was as follows:
In thousands Investments in Affiliates
Goodwill and Intangible Impairment
An impairment charge related to the Justin’s® trade name of $28.4 million was recorded in the fourth quarter of fiscal 2023.
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Interest and Investment Income and Interest Expense
Fourth Quarter Ended Fiscal Year Ended
October 27, October 29, October 27, October 29,
Interest and investment income increased in the fourth quarter of fiscal 2024 primarily due to favorable rabbi trust performance. Interest and investment income increased for the full year of fiscal 2024 due to favorable rabbi trust performance as well as higher cash balances and interest rates. Interest expense increased in fiscal 2024 due to higher interest rates on debt issued during the year.
Effective Tax Rate
Fourth Quarter Ended Fiscal Year Ended
October 27, October 29, October 27, October 29,
The effective tax rate for fiscal 2024 included a benefit from the purchase of federal energy tax credits. The fiscal 2023 effective tax rate included a benefit related to the deduction for foreign-derived intangible income that did not repeat in fiscal 2024. For additional information, refer to Note N - Income Taxes of the Notes to the Consolidated Financial Statements.
The Company expects the effective tax rate in fiscal 2025 to be between 22 and 23 percent.
SEGMENT RESULTS
Net sales and segment profit for each of the Company’s reportable segments are set forth below. The Company does not allocate deferred compensation, non-recurring expenses associated with the T&M initiative, investment income, interest expense, or interest income to its segments when measuring performance. The Company also retains various other income and expenses at the corporate level. Equity in earnings of affiliates is included in segment profit; however, earnings attributable to the Company’s corporate venturing investments and noncontrolling interests are excluded. These items are included below as Net Unallocated Expense and Noncontrolling Interest when reconciling to Earnings Before Income Taxes.
The Company is an integrated enterprise, characterized by substantial intersegment cooperation, cost allocations, and sharing of assets. Therefore, the Company does not represent that these segments, if operated independently, would report the profit and other financial information shown below.
Fourth Quarter Ended Fiscal Year Ended
October 27, October 29, October 27, October 29,
Net Sales
Segment Profit
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Retail
Fourth Quarter Ended Fiscal Year Ended
October 27, October 29, October 27, October 29,
(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 fourth quarter of fiscal 2024, growth from many branded items, including Applegate® natural and organic meats, Hormel®Black Label® bacon, the SPAM® family of products, Jennie-O® ground turkey, and Hormel® Square TableTM entrees was more than offset by volume and net sales declines driven by the Value Added Meats, Snacking & Entertaining, and Convenient Meals & Proteins verticals. Excluding the impact of last year's non-cash impairment charge, adjusted segment profit(1) increased due to continued benefits from lower logistics expenses and incremental savings from the T&M initiative.
Full year fiscal 2024 volume and net sales declined as value-added growth from many branded items was more than offset by declines in the Value Added Meats, Convenient Meals & Proteins, and Snacking & Entertaining verticals. For fiscal 2024, segment profit declined due to lower sales, lower equity in earnings of affiliates, and higher SG&A expenses. These declines were partially offset by the benefit from lower logistics expenses and savings from the T&M initiative. Additionally, a non-cash impairment charge of $28.4 million was recorded in the fourth quarter of fiscal 2023 associated with the Justin’s® trade name.
In fiscal 2025, the Company expects modest net sales growth and comparable volumes for its Retail segment. Top line growth is expected to be supported by key categories, higher brand support, and innovation. Earnings are expected to grow compared to the prior year. Risks to this outlook include slowing consumer demand, unfavorable sales mix, and higher-than-expected operating costs.
Foodservice
Fourth Quarter Ended Fiscal Year Ended
October 27, October 29, October 27, October 29,
Fourth quarter volume and net sales growth were driven by strong performance across the premium prepared proteins, salty snacks, turkey, bacon, and pizza toppings categories. Products such as Heritage Premium Meats offerings, Hormel® Fire Braised® meats, branded Jennie-O® turkey, Planters® snack nuts, and Cafe H® globally inspired proteins delivered top line growth. Segment profit decreased due to lower margins in Heritage Premium Meats, poultry, and pizza toppings as well as higher SG&A expenses.
Full year fiscal 2024 volume and net sales increased due to broad-based growth across many categories. Segment profit was comparable to prior year as the benefit from higher sales, lower logistics expenses, and savings from the T&M initiative were offset by lower fourth quarter margins and higher SG&A expenses.
In fiscal 2025, the Company anticipates year-over-year growth for volume, net sales, and segment profit from its Foodservice segment after removing the impacts from the Hormel Health Labs divestiture in the fourth quarter of fiscal 2024. Risks to this outlook include a softening of foodservice industry demand, lower-than-expected raw material markets which through market-based pricing can negatively impact net sales, and higher-than-expected operating costs.
International
Fourth Quarter Ended Fiscal Year Ended
October 27, October 29, October 27, October 29,
For the fourth quarter, net sales grew due to demand in China and strong branded exports for SPAM® luncheon meat and Skippy® peanut butter. Considerable volume declines in turkey exports resulted in lower volumes compared to prior year.
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Segment profit for the quarter was significantly above the prior year, due to improved export margins, favorable results in China, and growth from our investments in the Philippines and Indonesia.
Full year fiscal 2024 volume and net sales declined as higher branded exports were more than offset by lower commodity exports and lower net sales in China. Segment profit increased significantly due to contribution from the Company’s minority investments, improved mix and favorable costs in the Company's China business, and favorable export product mix.
In fiscal 2025, the Company anticipates year-over-year growth for volume, net sales, and segment profit from its International segment. Risks to this outlook include macroeconomic conditions in multinational markets, cost inflation, and potential political tariffs.
Unallocated Income and Expense
Fourth Quarter Ended Fiscal Year Ended
October 27, October 29, October 27, October 29,
For the fourth quarter of fiscal 2024, net unallocated expense increased as higher employee-related expenses and expenses related to the Company’s T&M initiative were partially offset by favorable rabbi trust performance and a gain on the divestiture of Hormel Health Labs. For fiscal 2024, net unallocated expense was comparable to the prior year as expenses related to the Company’s T&M initiative, higher employee-related expenses, and expenses related to antitrust settlements were offset by the lapping of an unfavorable arbitration ruling in the prior year, higher interest income, and favorable rabbi trust performance.
(1)NON-GAAP MEASURES
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.
Transform and Modernize (T&M) Initiative
In the fourth quarter of fiscal 2023, the Company announced a multi-year T&M 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 T&M 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 T&M 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. The Company also does not adjust for savings realized through the T&M initiative as these are considered ongoing in nature and reflect expected ongoing operating performance.
Legal Matters
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.
Litigation Settlements
In the second and third quarters of fiscal 2024, the Company entered into settlement agreements with certain plaintiffs in its pending antitrust litigation. See Note J - Commitments and Contingencies of the Notes to the Consolidated Financial Statements for additional information.
Arbitration Ruling
In the third quarter of fiscal 2023, the Company accrued for an unexpected, unfavorable arbitration ruling involving an isolated commercial dispute with a third party. This matter was settled in the fourth quarter of fiscal 2023.
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Gain on Sale of Business
In the fourth quarter of fiscal 2024, the Company sold the Hormel Health Labs business, resulting in a gain on the sale. The Company believes the one-time benefit from the sale is not reflective of the Company’s ongoing operating cost structure, is not indicative of the Company’s core operating performance, and may not be meaningful when comparing the Company’s operating performance against that of prior periods. Thus, the Company adjusted for (i.e. excluded) the gain.
Organic Net Sales
The non-GAAP adjusted financial measurement of organic net sales provides investors with additional information to facilitate the comparison of past and present operations. Organic net sales excludes the impact of the sale of the Hormel Health Labs business in the Foodservice segment in fiscal 2024.
Impairment Charges
In the fourth quarter of fiscal 2023, the Company incurred impairment charges associated with the Justin’s® trade name and a corporate venturing investment. The Company believes that non-recurring costs for these impairments are not reflective of the Company’s ongoing operating cost structure, 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; therefore, the Company is excluding these discrete costs.
The tables below show the calculations to reconcile from the GAAP measures to the non-GAAP measures presented in this Annual Report on Form 10-K. The tax impacts were calculated using the effective tax rate for the quarter in which the transactions occurred.
Fourth Quarter Ended Fiscal Year Ended
Pork Antitrust Litigation Settlements — — (11,750) —
Red Meat Wages Antitrust Litigation Settlement — — (13,500) —
Poultry Wages Antitrust Litigation Settlement — — (3,500) —
Goodwill and Intangible Impairment (GAAP) $ — $ 28,383 $ — $ 28,383
Adjusted Goodwill and Intangible Impairment (Non-GAAP) $ — $ — $ — $ —
Pork Antitrust Litigation Settlements — — 11,750 —
Red Meat Wages Antitrust Litigation Settlement — — 13,500 —
Poultry Wages Antitrust Litigation Settlement — — 3,500 —
Gain on Sale of Business (3,922) — (3,922) —
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Fourth Quarter Ended Fiscal Year Ended
Pork Antitrust Litigation Settlements — — 11,750 —
Red Meat Wages Antitrust Litigation Settlement — — 13,500 —
Poultry Wages Antitrust Litigation Settlement — — 3,500 —
Gain on Sale of Business (3,922) — (3,922) —
Pork Antitrust Litigation Settlements — — 2,644 —
Red Meat Wages Antitrust Litigation Settlement — — 2,930 —
Poultry Wages Antitrust Litigation Settlement — — 760 —
Gain on Sale of Business (843) — (843) —
Pork Antitrust Litigation Settlements — — 9,106 —
Red Meat Wages Antitrust Litigation Settlement — — 10,571 —
Poultry Wages Antitrust Litigation Settlement — — 2,741 —
Gain on Sale of Business (3,078) — (3,078) —
Diluted Earnings Per Share (GAAP) $ 0.40 $ 0.36 $ 1.47 $ 1.45
Pork Antitrust Litigation Settlements — — 0.02 —
Red Meat Wages Antitrust Litigation Settlement — — 0.02 —
Poultry Wages Antitrust Litigation Settlement — — — —
Gain on Sale of Business (0.01) — (0.01) —
Arbitration Ruling — — — 0.10
Impairment Charges — 0.05 — 0.05
Adjusted Diluted Earnings Per Share (Non-GAAP) $ 0.42 $ 0.42 $ 1.58 $ 1.61
Fourth Quarter Ended Fiscal Year Ended
SG&A as a Percent of Net Sales (GAAP) 7.6 % 6.8 % 8.4 % 7.8 %
Transform and Modernize Initiative(2) (0.5) (0.3) (0.4) (0.1)
Pork Antitrust Litigation Settlements — — (0.1) —
Red Meat Wages Antitrust Litigation Settlement — — (0.1) —
Poultry Wages Antitrust Litigation Settlement — — — —
Gain on Sale of Business 0.1 — — —
Arbitration Ruling — 0.1 — (0.6)
Adjusted SG&A as a Percent of Net Sales (Non-GAAP) 7.2 % 6.6 % 7.8 % 7.1 %
(1) Comprised primarily of asset write-offs related to portfolio optimization.
(2) Comprised primarily of project-based external consulting fees.
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Adjusted Segment Profit (Non-GAAP)
Fourth Quarter Ended
Segment Profit
(1) Net Unallocated Expense adjustments in the fourth quarter of fiscal 2024 comprised of non-recurring T&M initiative costs and the gain on the sale of Hormel Health Labs.
(2) Retail segment profit adjustment in the fourth quarter of fiscal 2023 is due to an impairment charge associated with the Justin’s® trade name. Net Unallocated Expense adjustments for the fourth quarter of fiscal 2023 comprised of an unfavorable arbitration ruling, impairment charge associated with a corporate venturing investment, and non-recurring T&M initiative costs.
Fiscal Year Ended
Segment Profit
(1) Net Unallocated Expense adjustments in fiscal 2024 comprised of non-recurring T&M initiative costs, litigation settlements for pork, red meat wages, and poultry wages antitrust cases, and the gain on the sale of Hormel Health Labs.
(2) Retail segment profit adjustment in fiscal 2023 is due to an impairment charge associated with the Justin’s® trade name. Net Unallocated Expense adjustments in fiscal 2023 comprised of an unfavorable arbitration ruling, impairment charge associated with a corporate venturing investment, and non-recurring T&M initiative costs.
Forward-looking U.S. GAAP to Non-GAAP Measures
The tables below show the calculations to reconcile from the estimated fiscal 2025 GAAP measures to the estimated adjusted non-GAAP measures.
Fiscal 2025 Outlook - Organic Net Sales (Non-GAAP)
To facilitate the comparison of past and present net sales performance, the Company’s fiscal 2025 outlook for net sales growth has been adjusted to reflect organic net sales. Organic net sales exclude the impact of the sale of the Hormel Health Labs business in the fourth quarter of fiscal 2024. The adjustment removes the full year fiscal 2024 net sales of the operation, which were reported within the Foodservice segment.
In thousands Fiscal 2025 Outlook 2024 Results Change
Hormel Health Labs Divestiture — - — (107,643)
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Fiscal 2025 Outlook - Adjusted Diluted Earnings per Share (Non-GAAP)
The non-GAAP measure of adjusted diluted earnings per share excludes estimated charges associated with the T&M initiative. The Company’s strategic investments in the T&M initiative are expected to cease at the end of the investment period, are not expected to recur in the foreseeable future, and are not considered representative of the Company’s underlying operating performance.
Diluted Earnings per Share (GAAP) $ 1.51 - $ 1.65
Transform and Modernize Initiative 0.07 - 0.07
Adjusted Diluted Earnings per Share (Non-GAAP) $ 1.58 - $ 1.72
Supplemental Financial Measures (Non-GAAP)
EBIT and EBITDA (Non-GAAP)
The Company provides earnings before interest and taxes (EBIT) and earnings before interest, taxes, depreciation, and amortization (EBITDA) because it believes these measures are useful to management and investors as indicators of operating performance net of non-operating income and expenses, and because they are commonly used to benchmark the Company’s performance.
Fiscal Year Ended
EBIT (Non-GAAP):
Net Earnings Attributable to Hormel Foods Corporation $ 805,038 $ 793,572
EBITDA (Non-GAAP):
LIQUIDITY AND CAPITAL RESOURCES
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
Fiscal Year Ended
Cash and Cash Equivalents at End of Period $ 742 $ 737
Cash Provided by (Used in) Operating Activities 1,267 1,048
Cash Provided by (Used in) Investing Activities (237) (690)
Cash Provided by (Used in) Financing Activities (1,030) (600)
Increase (Decrease) in Cash and Cash Equivalents 5 (246)
Cash and cash equivalents was comparable to the prior year, increasing $5 million during fiscal 2024. The Company repaid 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 fiscal 2024. The purchase of a minority interest in 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 were largely impacted by changes in operating assets and liabilities.
–In fiscal 2024, inventory decreased $95 million due to a better alignment of product levels with customer demand as well as less turkey and associated feed supplies. The $36 million decrease in fiscal 2023 was a result of strategic inventory management efforts implemented to address elevated inventory levels.
–Prepaid expenses and other assets decreased $13 million in fiscal 2024 compared to an increase of $69 million in fiscal 2023. This activity was primarily related to settlements associated with the Company’s hedging activities.
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–In fiscal 2024, accounts receivable was comparable to the prior year, decreasing $2 million. The $49 million decrease in fiscal 2023 was primarily due to timing of sales and more efficient collections.
–Accounts payable and accrued expenses decreased $27 million in fiscal 2024 related to the timing of payments which was partially offset by higher employee-related and promotional expenses. In fiscal 2023, accounts payable and accrued expenses decreased $141 million related to the timing of payments and lower promotional and incentive compensation expenses.
Cash Provided by (Used in) Investing Activities
▪Capital expenditures were $256 million and $270 million in fiscal 2024 and 2023, respectively. The most notable projects in fiscal 2024 were investments for capacity expansions in Barron, Wisconsin and at the Jiaxing, China, facility. Significant projects for fiscal 2023 included investments in a new production line for the SPAM® family of products in Dubuque, Iowa, the initial phases of the transition from harvest to value-added capacity in Barron, Wisconsin, wastewater infrastructure in Austin, Minnesota, and pepperoni capacity in Omaha, Nebraska.
▪In 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 fiscal 2024. The Company issued senior unsecured notes with an aggregate principal amount of $500 million due March 2027.
▪Cash dividends paid to the Company’s shareholders are an ongoing financing activity for the Company with payments totaling $615 million in fiscal 2024 and $593 million in fiscal 2023. The annualized dividend rate was $1.13 per share in fiscal 2024, compared to $1.10 per share in fiscal 2023.
▪During fiscal 2023, the Company repurchased 310,000 shares of its common stock for $12 million.
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 other 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 385 consecutive quarterly dividends since becoming a public company in 1928. The Board of Directors approved an increased annual dividend rate for fiscal 2025, raising it to $1.16 per share from $1.13 per share, representing the 59th 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 2025 are expected to focus on projects related to value-added capacity, infrastructure, and new technology. Capital expenditures for fiscal 2025 are estimated to be $275 million to $300 million.
Debt
As of October 27, 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 fiscal 2024, the Company made $69 million of interest payments and the Company expects to make $73 million of interest payments in fiscal 2025 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 L - Long-term Debt and Other Borrowing Arrangements of the Notes to the Consolidated Financial Statements for additional information.
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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 October 27, 2024, the Company had no outstanding borrowings 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 October 27, 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 October 27, 2024, the Company’s international subsidiaries held $225 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 fiscal 2024. The Company continues to evaluate share repurchases as part of its capital allocation strategy.
Commitments
The Company’s material cash commitments as of October 27, 2024 are as follows:
In millions Payments Due by Periods
Total Less than 1 year 1-3 years 3-5 years More than 5 years
(1)The Company commits to purchase quantities of livestock, grain, and other raw materials to ensure a steady supply of production inputs. The Company uses hedging programs to manage price risk associated with a portion of the future grain and hog commitments. The purchase commitments listed above do not reflect the impact of the hedging instruments that manage the risk of fluctuating commodity markets. See Note F - Derivatives and Hedging and Note J - Commitments and Contingencies of the Notes to the Consolidated Financial Statements for additional information.
(2) As of October 27, 2024, the Company’s outstanding debt included unsecured senior notes due in fiscal 2027, 2028, 2030, and 2051. The Company is required by certain covenants in its debt agreements to maintain specified levels of financial ratios and financial position. See Note L - Long-term Debt and Other Borrowing Arrangements of the Notes to the Consolidated Financial Statements for additional information.
(3) Represents pension and other post-retirement benefit payments related to the Company’s unfunded defined benefit plans. Benefit payments reflect expectations for the next ten years as estimates are not readily available beyond that point. See Note G - Pension and Other Post-Retirement Benefits of the Notes to the Consolidated Financial Statements for additional information.
(4) See Note K - Leases of the Notes to the Consolidated Financial Statements for additional detail. Lease payments exclude $36.0 million of legally binding minimum lease payments for leases signed but not yet commenced.
(5) Includes obligations related to infrastructure improvements supporting various manufacturing facilities and a media advertising agreement.
Off Balance Sheet Arrangements
As of October 27, 2024, the Company had $49.3 million of standby letters of credit issued on its behalf. The standby letters of credit are primarily related to the Company’s self-insured workers' compensation programs. This amount includes revocable standby letters of credit totaling $2.7 million for obligations of an affiliated party that may arise under workers' compensation claims. Letters of credit are not reflected on the Consolidated Statements of Financial Position.
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CRITICAL ACCOUNTING ESTIMATES
Management’s discussion and analysis of financial condition and results of operations is based upon the Company’s consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires the Company to make estimates, judgments, and assumptions that can have a meaningful effect on the reporting of consolidated financial statements. See Note A - Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements for additional information.
Critical accounting estimates are defined as those reflective of significant judgments, estimates and uncertainties, which may result in materially different results under different assumptions and conditions. The Company believes the following are its critical accounting estimates:
Trade Promotions
Description: The Company promotes products through consumer incentives and trade promotions. These promotional programs include, but are not limited to, discounts, slotting fees, coupons, rebates, and in-store display incentives. Customer trade promotion and consumer incentive activities are recorded as a reduction to revenue and a corresponding accrued liability based on amounts estimated as variable consideration.
Judgments and Uncertainties: The Company estimates variable consideration associated with promotional programs using the expected value method to determine the total expected consideration. Estimating variable consideration requires judgment and is based largely on an assessment of anticipated performance informed by historical experience, expected participation, and current market trends.
Sensitivity of Estimate to Change: The liability relating to these promotional activities is based on a review of the outstanding contracts for which performance has taken place but which remain unpaid. As of October 27, 2024 and October 29, 2023, the Company's accrued trade promotion liabilities were $81.8 million and $64.1 million, respectively.
Income Taxes
Description: The Company records income taxes in accordance with the liability method of accounting. Deferred taxes are recognized for the estimated taxes ultimately payable or recoverable based on enacted tax law. Changes in enacted tax rates are reflected in the tax provision as they occur.
Judgments and Uncertainties: The Company computes its provision for income taxes based on the statutory tax rates and tax planning opportunities available to it in the various jurisdictions in which it operates. Judgment is required in evaluating the Company’s tax positions and determining its annual tax provision.
Sensitivity of Estimate to Change: While the Company considers all of its tax positions fully supportable, the Company is occasionally challenged by various tax authorities regarding the amount of taxes due. The Company recognizes a tax position in its financial statements when it is more likely than not the position will be sustained upon examination, based on its technical merits. The position is then measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. A change in judgment related to the expected ultimate resolution of uncertain tax positions will be recognized in earnings in the quarter of such change. As of October 27, 2024, the Company had $20.1 million of unrecognized tax benefits, including estimated interest and penalties, recorded in Other Long-term Liabilities.
Goodwill and Other Indefinite-Lived Intangibles
Description: Other indefinite-lived intangible assets primarily include trade names obtained through business acquisitions which are originally recorded at their estimated fair values at the date of acquisition. Goodwill is the residual after allocating the purchase price to net assets acquired and is allocated across the Company’s reporting units: Retail, Foodservice, and International. Goodwill and indefinite-lived intangible assets are not amortized but tested annually for impairment, or more frequently if impairment indicators arise. If the carrying value of the reporting unit or indefinite-lived intangible asset exceeds the estimated fair value, it is considered impaired which requires a reduction to earnings. See Note A - Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements for additional details regarding the Company’s procedures.
Judgments and Uncertainties: Determining whether impairment indicators exist and estimating the fair value of the Company’s goodwill reporting units and indefinite-lived intangible assets for impairment testing requires significant judgment. Indefinite-lived trade names are evaluated for impairment using an income approach utilizing the relief from royalty method. Significant assumptions include royalty rate, annual projected revenue, discount rate, and estimated long-term growth rate. Estimating the fair value of goodwill reporting units using the discounted cash flow model requires management to make assumptions and projections of future cash flows, revenues, earnings, discount rates, long-term growth rates, and other factors.
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Sensitivity of Estimate to Change: The assumptions used to assess impairment consider historical trends, macroeconomic conditions, and projections consistent with the Company’s operating strategy. Changes in these estimates can have a significant impact on the assessment of fair value which could result in material impairment losses.
During the fourth quarter of fiscal 2024, the Company performed a qualitative assessment to evaluate its goodwill and indefinite-lived intangible assets for impairment. No impairment charges were recorded as a result of the testing.
Fiscal 2024 net sales for Planters® snack nuts were negatively impacted by production disruptions at the Suffolk, Virginia, facility. The Company believes these impacts are short term in nature (less than one year) and projects sales to recover to historical levels shortly after supply normalizes. Should the impact last longer, or be more severe than currently anticipated, it is likely the Company would have to recognize an impairment charge on this trade name, which is currently valued at $675 million.
Pension and Other Post-Retirement Benefits
Description: The Company sponsors several defined benefit pension and post-retirement health care benefit plans and recognizes the associated expenses, assets, and liabilities.
Judgments and Uncertainties: In accounting for these employment costs and the associated benefit obligations, management must make a variety of assumptions and estimates including mortality rates, discount rates, compensation increases, expected return on plan assets, health care cost trend rates, and interest crediting rates. The Company considers historical data as well as current facts and circumstances when determining these estimates. Expected long-term rate of return on plan assets is based on fair value, composition of the asset portfolio, historical long-term rates of return, and estimates of future performance. Mortality and discount rates used are based on actuarial tables elected at each fiscal year-end. The Company uses third-party specialists to assist in the determination of these estimates and the calculation of certain employee benefit expenses and the outstanding obligation.
Benefit plan assets are reported at fair value. Due to the lack of readily available market prices, fund managers value private equity investments using models that include a combination of available market data and unobservable inputs that consider earnings multiples, discounted cash flows, and other qualitative and quantitative factors. Other benefit plan investments are measured at Net Asset Value (NAV) per share of the fund’s underlying investments as a practical expedient.
Sensitivity of Estimate to Change: The assumed discount rate, expected long-term rate of return on plan assets, rate of future compensation increase, interest crediting rate, and the health care cost trend rate have a significant impact on the amounts reported for the benefit plans. For the year ended October 27, 2024, the Company had $1.3 billion and $191.6 million in pension benefit obligation and post-retirement benefit obligation, respectively. For fiscal 2025, the Company expects pension benefit costs of $44.9 million and post-retirement benefit costs of $9.9 million. A one-percentage-point change in these rates would have the following effects:
One-Percentage-Point
Benefit Cost Benefit Obligation
In millions Increase Decrease Increase Decrease
Pension Benefits
Expected Long-term Rate of Return on Plan Assets (12.9) 12.9 — —
Rate of Future Compensation Increase 3.1 (2.7) 4.3 (3.7)
Post-retirement Benefits
As of October 27, 2024, the Company had $87.3 million of private equity and real estate funds and $724.5 million of investments carried at NAV. These valuations are subject to judgments and assumptions of the funds which may prove to be incorrect, resulting in risks of incorrect valuation of these investments. The Company seeks to mitigate these risks by performing various procedures, such as comparing the expected returns based on appropriate benchmarks to reported market values and performing price tests on certain underlying investments. Additionally, a look back comparison of values from audited financial statements to unaudited statements and roll forward calculations of known cash activity are completed to obtain further assurance of reporting accuracy. These procedures cover a majority of the value held in the private equity and NAV investments for each investment type. Variances larger than specified thresholds are investigated further to verify the reported values are reasonable.
See Note G - Pension and Other Post-Retirement Benefits of the Notes to the Consolidated Financial Statements for additional information.
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Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to various forms of market risk as a part of its ongoing business practices including commodity price risk, interest rate risk, foreign currency exchange rate risk, and investment risk, among others.
Commodity Price Risk: The Company is subject to commodity price risk through grain, lean hog, natural gas, and diesel fuel markets. To reduce these exposures and offset the fluctuations caused by changes in market conditions, the Company employs hedging programs. These programs utilize futures, swaps, and options contracts and are accounted for as cash flow hedges. The fair value of the Company’s cash flow commodity contracts as of October 27, 2024, was $(5.9) million compared to $(17.1) million as of October 29, 2023. The Company measures its market risk exposure on its cash flow commodity contracts using a sensitivity analysis, which considers a hypothetical 10 percent change in the market prices. A 10 percent decrease in the market price would have negatively impacted the fair value of the Company’s cash flow commodity contracts as of October 27, 2024, by $26.7 million, which in turn would lower the Company’s future cost on purchased commodities by a similar amount.
Interest Rate Risk: The Company is subject to interest rate risk primarily from changes in fair value of long-term fixed rate debt. As of October 27, 2024, the Company’s long-term debt had a fair value of $2.5 billion compared to $2.7 billion as of October 29, 2023. The Company measures its market risk exposure of long-term fixed rate debt using a sensitivity analysis, which considers a 10 percent change in interest rates. A 10 percent decrease in interest rates would have positively impacted the fair value of the Company’s long-term debt as of October 27, 2024, by $73.8 million. A 10 percent increase would have negatively impacted the long-term debt by $68.9 million.
Foreign Currency Exchange Rate Risk: The fair values of certain of the Company’s assets are subject to fluctuations in foreign currency exchange rates. The Company’s net asset position in foreign currencies as of October 27, 2024, was $1.2 billion, compared to $1.1 billion as of October 29, 2023, with most of the exposure existing in Chinese yuan, Indonesian rupiah and Brazilian real. The Company currently does not use market risk sensitive instruments to manage this risk.
Investment Risk: The Company has corporate-owned life insurance policies classified as trading securities as part of a rabbi trust to fund certain supplemental executive retirement plans and deferred income plans. As of October 27, 2024, the balance of these securities totaled $209.7 million compared to $188.2 million as of October 29, 2023. The rabbi trust is invested primarily in fixed income funds. The Company is subject to market risk due to fluctuations in the value of the remaining investments as unrealized gains and losses associated with these securities are included in the Company’s net earnings on a mark-to-market basis. A 10 percent decline in the value of the investments not held in fixed income funds would have negatively impacted the Company’s pre-tax earnings by approximately $10.0 million, while a 10 percent increase in value would have a positive impact of the same amount.
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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Management
Management’s Responsibility for Financial Statements
The accompanying financial statements were prepared by the management of Hormel Foods Corporation which is responsible for their integrity and objectivity. These statements have been prepared in accordance with U.S. generally accepted accounting principles appropriate in the circumstances and, as such, include amounts that are based on our best estimates and judgments.
Hormel Foods Corporation has developed a system of internal controls designed to assure that the records reflect the transactions of the Company and that the established policies and procedures are adhered to. This system is augmented by well-communicated written policies and procedures, a strong program of internal audit and well-qualified personnel.
These financial statements have been audited by Ernst & Young LLP, an independent registered public accounting firm, and their report is included herein. The audit was conducted in accordance with the standards of the U.S. Public Company Accounting Oversight Board and includes a review of the Company’s accounting and financial controls and tests of transactions.
The Audit Committee of the Board of Directors, composed solely of outside directors, meets periodically with the independent auditors, management, and the internal auditors to assure that each is carrying out its responsibilities. Both Ernst & Young LLP and our internal auditors have full and free access to the Audit Committee, with or without the presence of management, to discuss the results of their audit work and their opinions on the adequacy of internal controls and the quality of financial reporting.
Management’s Report on Internal Control Over Financial Reporting
Management of Hormel Foods Corporation is responsible for establishing and maintaining adequate internal control over financial reporting for the Company, as such term is defined in Exchange Act Rule 13a–15(f). The Company’s internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Under the supervision, and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework).
Based on our evaluation under the framework in Internal Control - Integrated Framework, we concluded that our internal control over financial reporting was effective as of October 27, 2024. Our internal control over financial reporting as of October 27, 2024, has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included herein.
/s/ James P. Snee /s/ Jacinth C. Smiley
James P. Snee Jacinth C. Smiley
Chairman of the Board, Executive Vice President
President and Chief Executive Officer and Chief Financial Officer
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Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Hormel Foods Corporation
Opinion on Internal Control Over Financial Reporting
We have audited Hormel Foods Corporation’s internal control over financial reporting as of October 27, 2024, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Hormel Foods Corporation (the Company) maintained, in all material respects, effective internal control over financial reporting as of October 27, 2024, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial position of the Company as of October 27, 2024 and October 29, 2023, the related consolidated statements of operations, comprehensive income, changes in shareholders’ investment and cash flows for each of the three years in the period ended October 27, 2024, and the related notes and financial statement schedule listed in the Index at Item 15 and our report dated December 5, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
December 5, 2024
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Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Hormel Foods Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial position of Hormel Foods Corporation (the Company) as of October 27, 2024 and October 29, 2023, the related consolidated statements of operations, comprehensive income, changes in shareholders’ investment and cash flows for each of the three years in the period ended October 27, 2024, and the related notes and financial statement schedule listed in the Index at Item 15 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at October 27, 2024 and October 29, 2023, and the results of its operations and its cash flows for each of the three years in the period ended October 27, 2024, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of October 27, 2024, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated December 5, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.
Valuation of Pension Plan Assets
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/s/ Ernst & Young LLP
We have served as the Company's auditor since 1931.
Minneapolis, Minnesota
December 5, 2024
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Consolidated Statements of Operations
Fiscal Year Ended
October 27, October 29, October 30,
Goodwill and Intangible Impairment — 28,383 —
Net Earnings Per Share:
Weighted-average Shares Outstanding:
See Notes to the Consolidated Financial Statements
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Consolidated Statements of Comprehensive Income
Fiscal Year Ended
October 27, October 29, October 30,
Other Comprehensive Income (Loss), Net of Tax:
See Notes to the Consolidated Financial Statements
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Consolidated Statements of Financial Position
October 27, October 29,
In thousands, except share and per share amounts 2024 2023
Assets
Prepaid Expenses and Other Current Assets 35,265 39,014
Property, Plant, and Equipment
Liabilities and Shareholders’ Investment
Shareholders’ Investment
See Notes to the Consolidated Financial Statements
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Consolidated Statements of Changes in Shareholders’ Investment
Hormel Foods Corporation Shareholders
share amounts Shares Amount Shares Amount
Contribution from Noncontrolling Interest 6,508 6,508
See Notes to the Consolidated Financial Statements
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Consolidated Statements of Cash Flows
Fiscal Year Ended
October 27, October 29, October 30,
Operating Activities
Adjustments to Reconcile to Net Cash Provided by (Used in) Operating Activities:
Goodwill and Intangible Impairment — 28,383 —
Changes in Operating Assets and Liabilities, Net of Divestitures:
Investing Activities
Net Sale (Purchase) of Securities (6,088) (42) 2,493
Proceeds from Sale of Business 25,006 — —
Proceeds from Sales of Property, Plant, and Equipment 474 5,322 1,224
Financing Activities
Payment of Debt Issuance Costs (1,105) — —
Repayments of Long-term Debt and Finance Leases (959,017) (8,827) (8,673)
Share Repurchase — (12,303) —
Proceeds from Noncontrolling Interest 6,508 — —
Supplemental Non-cash Financing and Investing Activities:
See Notes to the Consolidated Financial Statements
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Notes to the Consolidated Financial Statements
Note A
Summary of Significant Accounting Policies
Principles of Consolidation: The Consolidated Financial Statements include the accounts of Hormel Foods Corporation (the Company) and all its majority-owned subsidiaries after elimination of intercompany accounts, transactions, and profits. Financial information from certain foreign subsidiaries is reported on a one-month lag.
Use of Estimates: The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Rounding: Certain amounts in the Consolidated Financial Statements and associated notes may not foot due to rounding. All percentages have been calculated using unrounded amounts.
Fiscal Year: The Company’s fiscal year ends on the last Sunday in October. Fiscal years 2024, 2023, and 2022 consisted of 52 weeks. Fiscal year 2025 will consist of 52 weeks.
Reportable Segments: As of October 30, 2022, the Company had four operating and reportable segments: Grocery Products, Refrigerated Foods, Jennie-O Turkey Store, and International and Other. At the beginning of fiscal 2023, the Company transitioned to a new strategic operating model, which aligns its businesses to be more agile, consumer and customer focused, and market driven. Effective on October 31, 2022, the Company operates with the following three operating and reportable segments: Retail, Foodservice, and International, which are consistent with how the Company’s chief operating decision maker assesses performance and allocates resources. This change had no impact on the consolidated results of operations, financial position, shareholders’ investment, or cash flows. Prior period segment results have been retrospectively recast to reflect the new reportable segments.
Cash and Cash Equivalents: The Company considers all investments with an original maturity of three months or less on their acquisition date to be cash equivalents. The Company’s cash equivalents as of October 27, 2024 and October 29, 2023, consisted primarily of bank deposits, money market funds rated AAA, or other highly liquid investment accounts. The Net Asset Value (NAV) of the Company’s money market funds is based on the market value of the securities in the portfolio.
Fair Value Measurements: Pursuant to the provisions of Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures, the Company measures certain assets and liabilities at fair value or discloses the fair value of certain assets and liabilities recorded at cost in the Consolidated Financial Statements. Fair value is calculated as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). ASC 820 establishes a fair value hierarchy which requires assets and liabilities measured at fair value to be categorized into one of three levels based on the inputs used in the valuation. The Company classifies assets and liabilities in their entirety based on the lowest level of input significant to the fair value measurement. The three levels are defined as follows:
Level 1: Observable inputs based on quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Observable inputs, other than those included in Level 1, based on quoted prices for similar assets and liabilities in active markets, or quoted prices for identical assets and liabilities in inactive markets.
Level 3: Unobservable inputs that reflect an entity’s own assumptions about what inputs a market participant would use in pricing the asset or liability based on the best information available in the circumstances.
See additional discussion regarding the Company’s fair value measurements in Note F - Derivatives and Hedging, Note G - Pension and Other Post-Retirement Benefits, and Note I - Fair Value Measurements.
Compensation: The Company maintains a rabbi trust to fund certain supplemental executive retirement plans and deferred compensation plans. The rabbi trust is reflected in Other Assets and deferred compensation liabilities in Other Long-term Liabilities on the Consolidated Statements of Financial Position. The securities held by the trust are classified as trading securities. Therefore, unrealized gains and losses associated with these investments are included in Interest and Investment Income on the Consolidated Statements of Operations. The Company also has corporate-owned life insurance policies on
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certain participants in the deferred compensation plans. The cash surrender value of these policies is included in Other Assets on the Consolidated Statements of Financial Position.
Inventories: Inventories are stated at the lower of cost or net realizable value. Cost is determined principally under the average cost method. Adjustments to the Company’s lower of cost or net realizable value inventory reserve are reflected in Cost of Products Sold in the Consolidated Statements of Operations.
Property, Plant, and Equipment: Property, Plant, and Equipment are stated at cost and the Company recognizes depreciation using the straight-line method over the estimated useful life of the assets. Costs associated with software developed or obtained for internal use, including third-party development fees incurred during the application development stage, are capitalized and amortized on a straight-line basis. Depreciation has been computed principally using asset lives of 20 to 40 years for buildings and 3 to 14 years for software and equipment.
Leases: The Company determines if an arrangement contains a lease at inception. Right-of-use assets and lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at the commencement date. Leases with an initial term of twelve months or less are not recorded on the Consolidated Statements of Financial Position. The Company combines lease and non-lease components together in determining the minimum lease payments for all leases.
The length of the lease term used in recording right-of-use assets and lease liabilities is based on the contractually required lease term adjusted for any options to renew, early terminate, or purchase the lease that are reasonably certain of being exercised. Most leases include one or more options to renew or terminate. The exercise of lease renewal and termination options is at the Company’s discretion and generally is not reasonably certain at lease commencement. The Company’s lease agreements typically do not contain material residual value guarantees. The Company has one lease with an immaterial residual value guarantee that is included in the minimum lease payments.
Certain lease agreements include rental payment increases over the lease term that can be fixed or variable. Fixed payment increases and variable payment increases based on an index or rate are included in the initial lease liability using the index or rate at commencement date. Variable payment increases not based on an index or rate are recognized as incurred.
If the rate implicit in the lease is not readily determinable, the Company used its periodic incremental borrowing rate, based on the information available at commencement date, to determine the present value of future lease payments. Leases and right-of-use assets that existed prior to the adoption of Accounting Standards Update 2016-02, Leases (Topic 842) were valued using the incremental borrowing rate on October 28, 2019.
Impairment of Long-Lived Assets and Definite-Lived Intangible Assets: Definite-lived intangible assets are amortized over their estimated useful lives. The Company reviews long-lived assets and definite-lived intangible assets for impairment annually, or more frequently when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If impairment indicators are present and the estimated future undiscounted cash flows are less than the carrying value of the assets and any related goodwill, the carrying value is reduced to the estimated fair value. The Company recorded no material impairment charges for long-lived or definite-lived assets in fiscal years 2024, 2023, or 2022.
Goodwill and Other Indefinite-Lived Intangibles: Indefinite-lived intangible assets are originally recorded at their estimated fair values at the date of acquisition. Goodwill is the residual after allocating the purchase price to net assets acquired. Acquired goodwill and other indefinite-lived intangible assets are allocated to reporting units that will receive the related benefits. Goodwill and indefinite-lived intangible assets are tested annually for impairment during the fourth quarter or more frequently if impairment indicators arise.
See additional discussion regarding the Company’s goodwill and intangible assets in Note C - Goodwill and Intangible Assets.
Goodwill