Hormel Foods Reports First Quarter Fiscal 2023 Results

EXECUTIVE COMMENTARY

“The operating environment at the beginning of fiscal 2023 remained challenging,” said Jim Snee, chairman of the board, president and chief executive officer. “While many areas of the business performed ahead of last year, our results were disappointing and below our expectations, reflecting the persistent impact from inflationary pressures, supply chain inefficiencies and lower-than-expected sales volumes across our business segments.”

“In general, demand from consumers and operators remains elevated in key categories, and we are delivering balanced growth between volume and price across many parts of our portfolio,” Snee said. “Specific to the first quarter, our top-line results were mixed. We continued to see strong demand for many of our center-store, refrigerated, Mexican and premium items at retail, including Hormel^® Black Label^® bacon, Columbus^® charcuterie, Hormel^® chili, Hormel^® pepperoni, Applegate^® breaded chicken, Herdez^® products, Hormel^® Square Table™ entrees and Mary Kitchen^® hash. Likewise, solutions-based items in our Foodservice segment had another strong quarter, with volume growth in sliced meats and from brands such as Cafe H^®, Hormel^® Fire Braised™, Hormel^® Bacon 1™ and Austin Blues^®. These gains, however, were offset by the planned volume declines in commodity pork, continued volume impacts across our turkey supply chain, and lower sales of snack nuts. Our team in China also faced incredibly difficult operating conditions throughout the quarter.”

OUTLOOK

“We remain well positioned in the retail, foodservice and international channels, and expect to drive net sales growth in each of our segments this year,” Snee said. “Demand for our leading retail brands remains favorable, our Foodservice segment expects strong growth for the remainder of the year, and we anticipate the near-term challenges for our International segment to abate over the coming months. Compared to our expectations heading into the year, earnings are being pressured by increased inefficiencies across our supply chain related to higher inventory levels and softness in the snack nuts category.”

“To address these challenges, our teams will be focused on three areas,” Snee said. “First, we are taking immediate action to combat inventory levels and warehousing costs. These actions are expected to result in short-term margin compression. Second, we will execute strategies to drive improvement for our Planters^® business and the snack nuts category, including optimizing brand and promotional support, introducing innovation and expanding assortments. Third, we will continue to implement our new operating model, GoFWD, including capturing the synergies from fully integrating our Jennie-O Turkey Store business and standing up our Brand Fuel center of excellence. Our new operating model should better enable improved business performance as the year progresses.”

For the full year, the Company expects net sales growth of 1-3% compared to last year, consistent with its previous guidance. Full-year diluted net earnings per share are now expected to be $1.70 to $1.82 per share. Additionally, the Company is reaffirming its previously communicated expectations for effective tax rate, depreciation and amortization, and capital expenditures.

UPDATE ON STRATEGIC PRIORITIES

Protect & grow our core brands

• We grew volume and sales in the marketplace¹ on many core product lines, including Hormel^® chili, Hormel^® Square Table™ entrees, Dinty Moore^® stew and Hormel^® Black Label^® bacon.
• We are benefiting from additional capacity for our core bacon and pepperoni products and expect additional SPAM^® capacity beginning in the second quarter. We expect to reintroduce 7-ounce SPAM^® into the marketplace after a three-year hiatus.

Amplify scale in snacking & entertaining

• The Planters^® brand launched the ad campaign The Roast of Mr. Peanut^® during the Big Game, including a 30-second ad during the game and a 12-minute online feature. The campaign has garnered more than 2.5 billion earned impressions.²
• The Columbus^® brand maintained share during the quarter¹ and remains in the No. 1 dollar and volume share¹ position in the dry deli lunchmeat category.

Enhance growth of our ethnic & Food Forward portfolios

• The MegaMex team grew or maintained dollar and volume share³ in the salsa and refrigerated guacamole categories behind the Herdez^®, WHOLLY^®, CHI-CHI’S^® and La Victoria^® brands.
• Our Applegate^® products grew dollar sales 6% in the most recent quarter.⁴

Expand leadership in foodservice

• We recently invested in our Culinary Collective, an effort to centralize and leverage our talented culinary teams across the organization to bring Food Forward and innovative ideas to the marketplace. This group is driving new sales opportunities and highlighting the versatility and value of our foodservice products with customers and operators.
• Over the last year, the Corn Nuts^® brand has grown sales double-digits by increasing distribution across channels.⁵ Consistent with our focus on innovation, we are launching a new flavor variety, Corn Nuts^® Mexican Style Street Corn, in the second quarter.

Aggressively develop our global presence

• In December, we purchased approximately 29% of the shares of Garudafood, one of the largest food and beverage companies in Indonesia. This investment further supports the global execution of our snacking and entertaining strategic priority.

Continue to transform our company

• We transitioned to our new strategic operating model, GoFWD, on Oct. 31, 2022.
• We made significant progress toward fully integrating Jennie-O Turkey Store into the Company’s One Supply Chain and new operating segments.