HORMEL FOODS CORP /DE/ - Quarter Report: 2023 April (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the quarterly period ended April 30, 2023
or
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the transition period from ___________________________________ to ________________________________________
Commission File Number: 1-2402
HORMEL FOODS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware | 41-0319970 | |||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
1 Hormel Place, Austin Minnesota | 55912-3680 | |||||||
| (Address of principal executive offices) | (Zip Code) | |||||||
(507) 437-5611
(Registrant’s telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||||||||||||||
Common Stock | $0.01465 | par value | HRL | New York Stock Exchange | ||||||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☒ | Accelerated filer | ☐ | ||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ | ||||||||
| Emerging growth company | ☐ | ||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class | Outstanding at May 29, 2023 | ||||||||||||||||
| Common Stock | $.01465 | par value | 546,268,218 | ||||||||||||||
| Common Stock Non-Voting | $.01 | par value | 0 | ||||||||||||||
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION | ||
Critical Accounting Estimates | ||
PART II - OTHER INFORMATION | ||
2
PART I – FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
HORMEL FOODS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
In thousands, except per share amounts
Unaudited
| Quarter Ended | Six Months Ended | ||||||||||||||||||||||
| April 30, 2023 | May 1, 2022 | April 30, 2023 | May 1, 2022 | ||||||||||||||||||||
| Net Sales | $ | 2,977,639 | $ | 3,096,559 | $ | 5,948,632 | $ | 6,140,917 | |||||||||||||||
| Cost of Products Sold | 2,486,220 | 2,543,088 | 4,961,263 | 5,048,697 | |||||||||||||||||||
| Gross Profit | 491,419 | 553,471 | 987,369 | 1,092,220 | |||||||||||||||||||
| Selling, General, and Administrative | 212,492 | 224,659 | 434,548 | 450,631 | |||||||||||||||||||
Equity in Earnings of Affiliates | 16,870 | 5,916 | 32,429 | 12,814 | |||||||||||||||||||
| Operating Income | 295,798 | 334,728 | 585,250 | 654,402 | |||||||||||||||||||
| Interest and Investment Income | 1,365 | 1,799 | 11,461 | 5,668 | |||||||||||||||||||
| Interest Expense | 18,323 | 14,658 | 36,670 | 29,298 | |||||||||||||||||||
| Earnings Before Income Taxes | 278,839 | 321,868 | 560,041 | 630,772 | |||||||||||||||||||
Provision for Income Taxes | 61,624 | 60,189 | 125,175 | 129,383 | |||||||||||||||||||
| Net Earnings | 217,215 | 261,679 | 434,866 | 501,389 | |||||||||||||||||||
Less: Net Earnings (Loss) Attributable to Noncontrolling Interest | (24) | 62 | (92) | 201 | |||||||||||||||||||
Net Earnings Attributable to Hormel Foods Corporation | $ | 217,239 | $ | 261,617 | $ | 434,958 | $ | 501,188 | |||||||||||||||
Net Earnings Per Share | |||||||||||||||||||||||
| Basic | $ | 0.40 | $ | 0.48 | $ | 0.80 | $ | 0.92 | |||||||||||||||
| Diluted | $ | 0.40 | $ | 0.48 | $ | 0.79 | $ | 0.91 | |||||||||||||||
Weighted-average Shares Outstanding | |||||||||||||||||||||||
| Basic | 546,424 | 544,702 | 546,404 | 543,691 | |||||||||||||||||||
| Diluted | 549,013 | 550,036 | 549,522 | 548,982 | |||||||||||||||||||
See Notes to Consolidated Financial Statements
3
HORMEL FOODS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
In thousands
Unaudited
| Quarter Ended | Six Months Ended | ||||||||||||||||||||||
| April 30, 2023 | May 1, 2022 | April 30, 2023 | May 1, 2022 | ||||||||||||||||||||
| Net Earnings | $ | 217,215 | $ | 261,679 | $ | 434,866 | $ | 501,389 | |||||||||||||||
| Other Comprehensive Income (Loss), Net of Tax: | |||||||||||||||||||||||
| Foreign Currency Translation | 22,887 | 14,071 | 37,934 | 14,996 | |||||||||||||||||||
| Pension and Other Benefits | 2,183 | 2,603 | 5,173 | 5,138 | |||||||||||||||||||
| Deferred Hedging | (19,063) | 27,701 | (33,577) | 36,105 | |||||||||||||||||||
| Equity Method Investments | 1,408 | — | 1,408 | — | |||||||||||||||||||
Total Other Comprehensive Income (Loss) | 7,416 | 44,375 | 10,938 | 56,239 | |||||||||||||||||||
| Comprehensive Income | 224,631 | 306,054 | 445,804 | 557,628 | |||||||||||||||||||
Less: Comprehensive Income (Loss) Attributable to Noncontrolling Interest | 18 | 77 | 172 | 335 | |||||||||||||||||||
Comprehensive Income Attributable to Hormel Foods Corporation | $ | 224,613 | $ | 305,977 | $ | 445,632 | $ | 557,293 | |||||||||||||||
See Notes to Consolidated Financial Statements
4
HORMEL FOODS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION
In thousands, except share and per share amounts
Unaudited
| April 30, 2023 | October 30, 2022 | ||||||||||
| Assets | |||||||||||
| Cash and Cash Equivalents | $ | 580,496 | $ | 982,107 | |||||||
| Short-term Marketable Securities | 17,531 | 16,149 | |||||||||
Accounts Receivable (Net of Allowance for Doubtful Accounts of $3,565 at April 30, 2023, and $3,507 at October 30, 2022) | 761,898 | 867,593 | |||||||||
| Inventories | 1,745,793 | 1,716,059 | |||||||||
| Taxes Receivable | 7,230 | 7,177 | |||||||||
| Prepaid Expenses and Other Current Assets | 49,649 | 48,041 | |||||||||
| Total Current Assets | 3,162,596 | 3,637,125 | |||||||||
Goodwill | 4,929,881 | 4,925,829 | |||||||||
Other Intangibles | 1,794,668 | 1,803,027 | |||||||||
Pension Assets | 239,151 | 245,566 | |||||||||
| Investments in Affiliates | 742,290 | 271,058 | |||||||||
Other Assets | 328,010 | 283,169 | |||||||||
| Property, Plant, and Equipment | |||||||||||
| Land | 73,510 | 74,303 | |||||||||
| Buildings | 1,420,419 | 1,398,255 | |||||||||
| Equipment | 2,681,525 | 2,636,660 | |||||||||
| Construction in Progress | 200,898 | 216,246 | |||||||||
| Less: Allowance for Depreciation | (2,257,203) | (2,184,319) | |||||||||
| Net Property, Plant, and Equipment | 2,119,149 | 2,141,146 | |||||||||
| Total Assets | $ | 13,315,745 | $ | 13,306,919 | |||||||
See Notes to Consolidated Financial Statements
5
HORMEL FOODS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION
In thousands, except share and per share amounts
Unaudited
| April 30, 2023 | October 30, 2022 | ||||||||||
| Liabilities and Shareholders' Investment | |||||||||||
| Accounts Payable and Accrued Expenses | $ | 750,295 | $ | 875,405 | |||||||
| Accrued Marketing Expenses | 97,665 | 113,105 | |||||||||
| Employee Related Expenses | 228,675 | 279,072 | |||||||||
| Interest and Dividends Payable | 172,198 | 163,963 | |||||||||
| Taxes Payable | 47,434 | 32,925 | |||||||||
| Current Maturities of Long-term Debt | 8,956 | 8,796 | |||||||||
| Total Current Liabilities | 1,305,223 | 1,473,266 | |||||||||
| Long-term Debt Less Current Maturities | 3,294,438 | 3,290,549 | |||||||||
| Pension and Post-retirement Benefits | 392,914 | 385,832 | |||||||||
| Deferred Income Taxes | 466,135 | 475,212 | |||||||||
| Other Long-term Liabilities | 165,421 | 141,840 | |||||||||
| Shareholders' Investment | |||||||||||
Preferred Stock, Par Value $0.01 a Share– | — | — | |||||||||
Authorized 160,000,000 Shares: Issued–None | |||||||||||
Common Stock, Non-voting, Par Value $0.01 a Share– | — | — | |||||||||
Authorized 400,000,000 Shares: Issued–None | |||||||||||
Common Stock, Par Value $0.01465 a Share– | 8,002 | 8,002 | |||||||||
Authorized 1,600,000,000 Shares: | |||||||||||
Shares Issued as of April 30, 2023: 546,255,027 | |||||||||||
Shares Issued as of October 30, 2022: 546,237,051 | |||||||||||
| Additional Paid-in Capital | 488,100 | 469,468 | |||||||||
| Accumulated Other Comprehensive Loss | (244,887) | (255,561) | |||||||||
| Retained Earnings | 7,435,292 | 7,313,374 | |||||||||
| Hormel Foods Corporation Shareholders' Investment | 7,686,507 | 7,535,284 | |||||||||
| Noncontrolling Interest | 5,108 | 4,936 | |||||||||
| Total Shareholders' Investment | 7,691,615 | 7,540,219 | |||||||||
| Total Liabilities and Shareholders' Investment | $ | 13,315,745 | $ | 13,306,919 | |||||||
See Notes to Consolidated Financial Statements
6
HORMEL FOODS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ INVESTMENT
In thousands, except per share amounts
Unaudited
| Quarter Ended May 1, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Common Stock | Treasury Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Non- controlling Interest | Total Shareholders’ Investment | |||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at January 30, 2022 | 543,012 | $ | 7,955 | — | $ | — | $ | 377,708 | $ | 6,980,451 | $ | (265,524) | $ | 5,736 | $ | 7,106,325 | |||||||||||||||||||||||||||||||||||||
Net Earnings | 261,617 | 62 | 261,679 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Other Comprehensive Income (Loss) | 44,360 | 15 | 44,375 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based Compensation Expense | 37 | 1 | 10,039 | 10,040 | |||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of Stock Options/Restricted Shares | 3,004 | 44 | 64,089 | 64,133 | |||||||||||||||||||||||||||||||||||||||||||||||||
Declared Dividends – $0.2600 per Share | (141,338) | (141,338) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at May 1, 2022 | 546,053 | $ | 8,000 | — | $ | — | $ | 451,836 | $ | 7,100,730 | $ | (221,164) | $ | 5,812 | $ | 7,345,214 | |||||||||||||||||||||||||||||||||||||
| Quarter Ended April 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Treasury Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Non- controlling Interest | Total Shareholders’ Investment | |||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at January 29, 2023 | 546,466 | $ | 8,006 | — | $ | — | $ | 477,470 | $ | 7,380,689 | $ | (252,261) | $ | 5,089 | $ | 7,618,993 | |||||||||||||||||||||||||||||||||||||
Net Earnings | 217,239 | (24) | 217,215 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Other Comprehensive Income (Loss) | 7,374 | 42 | 7,416 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Purchases of Common Stock | (310) | (12,303) | (12,303) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based Compensation Expense | 44 | — | 10,711 | 10,711 | |||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of Stock Options/Restricted Shares | 56 | 1 | (81) | (80) | |||||||||||||||||||||||||||||||||||||||||||||||||
Shares Retired | (310) | (5) | 310 | 12,303 | (277) | (12,021) | — | ||||||||||||||||||||||||||||||||||||||||||||||
Declared Dividends – $0.2750 per Share | 277 | (150,614) | (150,337) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at April 30, 2023 | 546,255 | $ | 8,002 | — | $ | — | $ | 488,100 | $ | 7,435,292 | $ | (244,887) | $ | 5,108 | $ | 7,691,615 | |||||||||||||||||||||||||||||||||||||
See Notes to Consolidated Financial Statements
7
HORMEL FOODS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ INVESTMENT
In thousands, except per share amounts
Unaudited
Six Months Ended May 1, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Treasury Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Non- controlling Interest | Total Shareholders’ Investment | |||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at October 31, 2021 | 542,412 | $ | 7,946 | — | $ | — | $ | 360,336 | $ | 6,881,870 | $ | (277,269) | $ | 5,478 | $ | 6,978,360 | |||||||||||||||||||||||||||||||||||||
| Net Earnings | 501,188 | 201 | 501,389 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other Comprehensive Income (Loss) | 56,105 | 134 | 56,239 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based Compensation Expense | 37 | 1 | 16,367 | 16,368 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of Stock Options/Restricted Shares | 3,603 | 53 | 75,133 | 75,186 | |||||||||||||||||||||||||||||||||||||||||||||||||
Declared Dividends – $0.5200 per Share | (282,328) | (282,328) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at May 1, 2022 | 546,053 | $ | 8,000 | — | $ | — | $ | 451,836 | $ | 7,100,730 | $ | (221,164) | $ | 5,812 | $ | 7,345,214 | |||||||||||||||||||||||||||||||||||||
Six Months Ended April 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Treasury Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Non- controlling Interest | Total Shareholders’ Investment | |||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at October 30, 2022 | 546,237 | $ | 8,002 | — | $ | — | $ | 469,468 | $ | 7,313,374 | $ | (255,561) | $ | 4,936 | $ | 7,540,219 | |||||||||||||||||||||||||||||||||||||
| Net Earnings | 434,958 | (92) | 434,866 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other Comprehensive Income (Loss) | 10,674 | 264 | 10,938 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Purchases of Common Stock | (310) | (12,303) | (12,303) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based Compensation Expense | 44 | — | 15,912 | 15,912 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of Stock Options/Restricted Shares | 284 | 4 | 2,551 | 2,555 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Shares Retired | (310) | (5) | 310 | 12,303 | (277) | (12,021) | — | ||||||||||||||||||||||||||||||||||||||||||||||
Declared Dividends – $0.5500 per Share | 446 | (301,019) | (300,574) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at April 30, 2023 | 546,255 | $ | 8,002 | — | $ | — | $ | 488,100 | $ | 7,435,292 | $ | (244,887) | $ | 5,108 | $ | 7,691,615 | |||||||||||||||||||||||||||||||||||||
See Notes to Consolidated Financial Statements
8
HORMEL FOODS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
In thousands
Unaudited
| Six Months Ended | |||||||||||
| April 30, 2023 | May 1, 2022 | ||||||||||
| Operating Activities | |||||||||||
| Net Earnings | $ | 434,866 | $ | 501,389 | |||||||
| Adjustments to Reconcile to Net Cash Provided by (Used in) Operating Activities: | |||||||||||
| Depreciation and Amortization | 141,678 | 126,436 | |||||||||
| Equity in Earnings of Affiliates | (32,429) | (12,814) | |||||||||
| Distributions Received from Equity Method Investees | 13,652 | 30,539 | |||||||||
| Provision for Deferred Income Taxes | (479) | (521) | |||||||||
| Loss (Gain) on Sales of Property, Plant, and Equipment | (1,298) | 2,192 | |||||||||
| Non-cash Investment Activities | (7,097) | 14,005 | |||||||||
| Stock-based Compensation Expense | 15,912 | 16,368 | |||||||||
| Changes in Operating Assets and Liabilities, Net of Acquisitions: | |||||||||||
| Decrease (Increase) in Accounts Receivable | 106,129 | 109,297 | |||||||||
| Decrease (Increase) in Inventories | (27,310) | (226,422) | |||||||||
| Decrease (Increase) in Prepaid Expenses and Other Assets | (58,626) | 943 | |||||||||
| Increase (Decrease) in Pension and Post-retirement Benefits | 20,206 | (4,508) | |||||||||
| Increase (Decrease) in Accounts Payable and Accrued Expenses | (205,218) | (46,331) | |||||||||
| Increase (Decrease) in Net Income Taxes Payable | 11,769 | 66,538 | |||||||||
| Net Cash Provided by (Used in) Operating Activities | 411,754 | 577,111 | |||||||||
| Investing Activities | |||||||||||
| Net (Purchase) Sale of Securities | (47) | (4,367) | |||||||||
| Purchases of Property, Plant, and Equipment | (90,581) | (128,213) | |||||||||
| Proceeds from Sales of Property, Plant, and Equipment | 5,035 | 434 | |||||||||
| Proceeds from (Purchases of) Affiliates and Other Investments | (427,407) | 6,265 | |||||||||
| Proceeds from Company-owned Life Insurance | 1,933 | 70 | |||||||||
| Net Cash Provided by (Used in) Investing Activities | (511,068) | (125,811) | |||||||||
| Financing Activities | |||||||||||
| Repayments of Long-term Debt and Finance Leases | (4,376) | (5,024) | |||||||||
| Dividends Paid on Common Stock | (292,616) | (274,063) | |||||||||
| Share Repurchase | (12,303) | — | |||||||||
| Proceeds from Exercise of Stock Options | 2,555 | 75,086 | |||||||||
| Net Cash Provided by (Used in) Financing Activities | (306,739) | (204,001) | |||||||||
| Effect of Exchange Rate Changes on Cash | 4,442 | 890 | |||||||||
| Increase (Decrease) in Cash and Cash Equivalents | (401,611) | 248,189 | |||||||||
| Cash and Cash Equivalents at Beginning of Year | 982,107 | 613,530 | |||||||||
| Cash and Cash Equivalents at End of Quarter | $ | 580,496 | $ | 861,719 | |||||||
See Notes to Consolidated Financial Statements
9
HORMEL FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The accompanying unaudited consolidated financial statements of Hormel Foods Corporation (the Company) have been prepared in accordance with accounting principles generally accepted in the United States (U.S.) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include certain information and footnotes required by U.S. generally accepted accounting principles (GAAP) for comprehensive financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results and cash flows for the interim period are not necessarily indicative of the results that may be expected for the full year.
These statements should be reviewed in conjunction with the consolidated financial statements and associated notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended October 30, 2022. The significant accounting policies used in preparing these interim consolidated financial statements are consistent with those described in Note A - Summary of Significant Accounting Policies to the consolidated financial statements in the Form 10-K. The Company has determined there have been no material changes in the Company’s significant accounting policies, including estimates and assumptions, as disclosed in its Annual Report on Form 10-K for the fiscal year ended October 30, 2022.
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.
Reclassifications: Certain reclassifications of previously reported amounts have been made to conform to the current year presentation.
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.
Accounting Changes and Recent Accounting Pronouncements: Recently issued accounting standards or pronouncements not disclosed have been excluded as they are currently not relevant to the Company.
NOTE B - GOODWILL AND INTANGIBLE ASSETS
Goodwill: In the first quarter of fiscal 2023, as a result of the organizational changes referenced in Note A - Summary of Significant Accounting Policies, the Company conducted an assessment of its operating segments and reporting units. Based on this analysis, goodwill was reallocated using the relative fair value approach. The change in the carrying amount of goodwill for the six months ended April 30, 2023, is:
| in thousands | Retail | Foodservice | International | Total | |||||||||||||||||||
Balance at October 30, 2022 | $ | 2,916,796 | $ | 1,750,594 | $ | 258,440 | $ | 4,925,829 | |||||||||||||||
| Foreign Currency Translation | — | — | 4,052 | 4,052 | |||||||||||||||||||
Balance at April 30, 2023 | $ | 2,916,796 | $ | 1,750,594 | $ | 262,492 | $ | 4,929,881 | |||||||||||||||
Intangible Assets: The carrying amounts for indefinite-lived intangible assets are:
| in thousands | April 30, 2023 | October 30, 2022 | |||||||||
| Brands/Tradenames/Trademarks | $ | 1,665,190 | $ | 1,665,190 | |||||||
| Other Intangibles | 184 | 184 | |||||||||
| Foreign Currency Translation | (5,954) | (6,599) | |||||||||
| Total | $ | 1,659,420 | $ | 1,658,775 | |||||||
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The gross carrying amount and accumulated amortization for definite-lived intangible assets are:
| April 30, 2023 | October 30, 2022 | ||||||||||||||||||||||
| in thousands | Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | |||||||||||||||||||
| Customer Lists/Relationships | $ | 168,239 | $ | (76,217) | $ | 168,239 | $ | (69,779) | |||||||||||||||
| Other Intangibles | 59,241 | (13,731) | 59,241 | (11,606) | |||||||||||||||||||
| Tradenames/Trademarks | 6,540 | (4,470) | 10,536 | (7,828) | |||||||||||||||||||
| Foreign Currency Translation | — | (4,354) | — | (4,551) | |||||||||||||||||||
| Total | $ | 234,020 | $ | (98,772) | $ | 238,016 | $ | (93,764) | |||||||||||||||
Amortization expense is as follows:
| Quarter Ended | Six Months Ended | ||||||||||||||||||||||
| in thousands | April 30, 2023 | May 1, 2022 | April 30, 2023 | May 1, 2022 | |||||||||||||||||||
| Amortization Expense | $ | 4,594 | $ | 4,824 | $ | 9,201 | $ | 9,636 | |||||||||||||||
Estimated annual amortization expense for the five fiscal years after October 30, 2022, is as follows:
| in thousands | Amortization Expense | ||||
| 2023 | $ | 18,320 | |||
| 2024 | 16,331 | ||||
| 2025 | 14,628 | ||||
| 2026 | 14,172 | ||||
| 2027 | 13,940 | ||||
NOTE C - INVESTMENTS IN AFFILIATES
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 method. These investments, including balances due to or from affiliates, are reflected in the Consolidated Condensed Statements of Financial Position as Investments in Affiliates. Financial results for certain foreign entities are reported on a lag. The Company reviewed the investments in affiliates and determined that no other-than-temporary impairment existed as of April 30, 2023.
On December 15, 2022, the Company purchased a 29% common stock interest in PT Garudafood Putra Putri Jaya Tbk (Garudafood), a food and beverage company in Indonesia, from various minority shareholders. On April 12, 2023, the Company purchased additional shares increasing the ownership interest to 30%. This investment expands the Company's presence in Southeast Asia and supports the global execution of the snacking and entertaining strategic priority. The Company has the ability to exercise significant influence, but not control, over Garudafood; therefore, the investment is accounted for under the equity method.
The Company obtained the Garudafood interest for a purchase price of $425.8 million, including associated transaction costs. The transaction was funded using the Company's cash on hand. Based on a third-party valuation, the Company's basis difference between the fair value of the investment and proportionate share of the carrying value of Garudafood's net assets is $324.8 million. The basis difference related to inventory, property, plant and equipment, and certain intangible assets is being amortized through Equity in Earnings of Affiliates over the associated useful lives. As of April 30, 2023, the remaining basis difference was $322.1 million. Based on quoted market prices, the fair value of the common stock held in Garudafood was $353.9 million as of April 28, 2023.
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Equity in Earnings of Affiliates consists of:
| Quarter Ended | Six Months Ended | ||||||||||||||||||||||||||||
| in thousands | % Owned | Segment | April 30, 2023 | May 1, 2022 | April 30, 2023 | May 1, 2022 | |||||||||||||||||||||||
| MegaMex Foods, LLC | 50% | Retail | $ | 12,932 | $ | 3,011 | $ | 26,613 | $ | 10,006 | |||||||||||||||||||
| Other Joint Ventures | Various (20-50%) | International | 3,939 | 2,905 | 5,816 | 2,807 | |||||||||||||||||||||||
| Total | $ | 16,870 | $ | 5,916 | $ | 32,429 | $ | 12,814 | |||||||||||||||||||||
Distributions received from equity method investees include:
| Quarter Ended | Six Months Ended | ||||||||||||||||||||||
| in thousands | April 30, 2023 | May 1, 2022 | April 30, 2023 | May 1, 2022 | |||||||||||||||||||
| Dividends | $ | 10,000 | $ | 12,500 | $ | 13,652 | $ | 30,539 | |||||||||||||||
The Company recognized a basis difference of $21.3 million associated with the formation of MegaMex Foods, LLC, of which $9.7 million is remaining as of April 30, 2023. This difference is being amortized through Equity in Earnings of Affiliates.
NOTE D - INVENTORIES
Principal components of inventories are:
| in thousands | April 30, 2023 | October 30, 2022 | |||||||||
| Finished Products | $ | 991,788 | $ | 974,160 | |||||||
| Raw Materials and Work-in-Process | 468,736 | 440,193 | |||||||||
| Operating Supplies | 181,542 | 206,289 | |||||||||
| Maintenance Materials and Parts | 103,726 | 95,417 | |||||||||
| Total | $ | 1,745,793 | $ | 1,716,059 | |||||||
NOTE E - DERIVATIVES AND HEDGING
The Company uses hedging programs to manage risk associated with commodity purchases and interest rates. These programs utilize futures, swaps, and options contracts to manage the Company’s exposure to market fluctuations. The Company has determined its designated hedging programs to be highly effective in offsetting the changes in fair value or cash flows generated by the items hedged. Effectiveness testing is performed on a quarterly basis to ascertain a high level of effectiveness for cash flow and fair value hedging programs. If the requirements of hedge accounting are no longer met, hedge accounting is discontinued immediately and any future changes to fair value are recorded directly through earnings.
Cash Flow Commodity Hedges: The Company designates grain, lean hog, and natural gas futures, swaps, and options contracts used to offset price fluctuations in the Company’s future purchases of these commodities as cash flow hedges. Effective gains or losses related to these cash flow hedges are reported in Accumulated Other Comprehensive Loss (AOCL) and reclassified into earnings, through Cost of Products Sold, in the periods in which the hedged transactions affect earnings. The Company typically does not hedge its grain or natural gas exposure beyond the next upcoming fiscal years and its hog exposure beyond the next fiscal year.
Fair Value Commodity Hedges: The Company designates the futures it uses to minimize the price risk assumed when fixed forward priced contracts are offered to the Company’s commodity suppliers as fair value hedges. The intent of the program is to make the forward priced commodities cost nearly the same as cash market purchases at the date of delivery. Changes in the fair value of the futures contracts and the gain or loss on the hedged purchase commitment are marked-to-market through earnings and recorded on the Consolidated Condensed Statements of Financial Position as a Current Asset and Current Liability, respectively. Gains or losses related to these fair value hedges are recognized through Cost of Products Sold in the periods in which the hedged transactions affect earnings.
Cash Flow Interest Rate Hedges: In the second quarter of fiscal 2021, the Company designated two separate interest rate locks as cash flow hedges to manage interest rate risk associated with the anticipated debt transactions required to fund the acquisition of the Planters® snack nuts business. The total notional amount of the Company's locks was $1.25 billion. In the third quarter of fiscal 2021, the associated unsecured senior notes were issued with a tenor of and thirty years and both locks
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were lifted (See Note I - Long-Term Debt and Other Borrowing Arrangements). Mark-to-market gains and losses on these instruments were deferred as a component of AOCL. The resulting gain in AOCL is reclassified to Interest Expense in the period in which the hedged transactions affect earnings.
Fair Value Interest Rate Hedge: In the first quarter of fiscal 2022, the Company entered into an interest rate swap to protect against changes in the fair value of a portion of previously issued senior unsecured notes attributable to the change in the benchmark interest rate. The hedge specifically designated the last $450 million of the notes due June 2024 (the 2024 Notes). The Company terminated the swap in the fourth quarter of fiscal 2022. The loss related to the swap was recorded as a fair value hedging adjustment to the hedged debt and will be amortized into earnings over the remaining life of the debt.
Other Derivatives: The Company holds certain futures and swap contracts to manage the Company's exposure to fluctuations in grain and pork commodity markets. The Company has not applied hedge accounting to these positions. Activity related to derivatives not designated as hedges is immaterial to the consolidated financial statements.
Volume: The Company's outstanding contracts related to its commodity hedging programs include:
| Volume | |||||||||||
| in millions | April 30, 2023 | October 30, 2022 | |||||||||
| Corn | 27.5 bushels | 34.3 bushels | |||||||||
| Lean Hogs | 186.9 pounds | 177.5 pounds | |||||||||
| Natural Gas | 1.2 MMBtu | — MMBtu | |||||||||
Fair Value of Derivatives: The fair values of the Company’s derivative instruments designated as hedges are:
| Gross Fair Value | ||||||||||||||
| in thousands | Location on Consolidated Condensed Statements of Financial Position | April 30, 2023 | October 30, 2022 | |||||||||||
Commodity Contracts(1) | Other Current Assets | $ | (9,833) | $ | 13,504 | |||||||||
(1) Amounts represent the gross fair value of commodity derivative assets and liabilities. The Company nets the derivative assets and liabilities for each of its commodity hedging programs, including cash collateral, when a master netting arrangement exists between the Company and the counterparty to the derivative contract. The amount or timing of cash collateral balances may impact the classification of the commodity derivative in the Consolidated Condensed Statements of Financial Position. The gross liability position as of April 30, 2023, includes the right to reclaim net cash collateral of $32.1 million contained within the master netting arrangement. The gross asset position as of October 30, 2022, is offset by the obligation to return net cash collateral of $1.3 million. See Note H - Fair Value Measurements for a discussion of these net amounts as reported in the Consolidated Condensed Statements of Financial Position.
Fair Value Hedge - Assets (Liabilities): The carrying amount of the Company's fair value hedged assets (liabilities) are:
| Carrying Amount of Hedged Assets/(Liabilities) | ||||||||||||||
| in thousands | Location on Consolidated Condensed Statements of Financial Position | April 30, 2023 | October 30, 2022 | |||||||||||
Commodity Contracts | Accounts Payable(1) | $ | 2,448 | $ | 5,725 | |||||||||
| Interest Rate Contracts | Long-term Debt Less Current Maturities(2) | (436,299) | (430,050) | |||||||||||
(1) Represents the carrying amount of fair value hedged assets and liabilities which are offset by other assets included in master netting arrangements described above.
(2) Represents the carrying amount of the hedged portion of the 2024 Notes. As of April 30, 2023, the carrying amount of the 2024 Notes included a cumulative fair value hedging adjustment of $13.7 million from discontinued hedges.
Accumulated Other Comprehensive Loss Impact: As of April 30, 2023, the Company included in AOCL hedging losses (before tax) of $17.8 million on commodity contracts and gains of $13.0 million related to interest rate settled positions. The Company expects to recognize the majority of the losses on commodity contracts over the next twelve months. Gains on interest rate contracts offset the hedged interest payments over the tenor of the associated debt instruments.
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The effect on AOCL for gains or losses (before tax) related to the Company's derivative instruments are:
Gain/(Loss) Recognized in AOCL (1) | Gain/(Loss) Reclassified from AOCL into Earnings (1) | Location on Consolidated Statements of Operations | ||||||||||||||||||||||||
| Quarter Ended | Quarter Ended | |||||||||||||||||||||||||
| in thousands | April 30, 2023 | May 1, 2022 | April 30, 2023 | May 1, 2022 | ||||||||||||||||||||||
| Cash Flow Hedges | ||||||||||||||||||||||||||
| Commodity Contracts | $ | (23,161) | $ | 50,331 | $ | 732 | $ | 11,269 | Cost of Products Sold | |||||||||||||||||
Excluded Component (2) | (1,036) | (2,271) | — | — | ||||||||||||||||||||||
Interest Rate Contracts | — | — | 247 | 247 | Interest Expense | |||||||||||||||||||||
Gain/(Loss) Recognized in AOCL (1) | Gain/(Loss) Reclassified from AOCL into Earnings (1) | Location on Consolidated Statements of Operations | ||||||||||||||||||||||||
| Six Months Ended | Six Months Ended | |||||||||||||||||||||||||
| in thousands | April 30, 2023 | May 1, 2022 | April 30, 2023 | May 1, 2022 | ||||||||||||||||||||||
| Cash Flow Hedges | ||||||||||||||||||||||||||
| Commodity Contracts | $ | (31,551) | $ | 70,611 | $ | 11,591 | $ | 19,015 | Cost of Products Sold | |||||||||||||||||
Excluded Component (2) | (691) | (3,444) | — | — | ||||||||||||||||||||||
Interest Rate Contracts | — | — | 494 | 494 | Interest Expense | |||||||||||||||||||||
(1) See Note G - Accumulated Other Comprehensive Loss for the after-tax impact of these gains or losses on Net Earnings.
(2) Represents the time value of corn options excluded from the assessment of effectiveness for which the difference between changes in fair value and periodic amortization is recorded in AOCL.
Consolidated Statements of Operations Impact: The effect on the Consolidated Statements of Operations for gains or losses (before tax) related to the Company's derivative instruments are:
| Consolidated Statements of Operations Impact | |||||||||||||||||||||||
| Quarter Ended | Six Months Ended | ||||||||||||||||||||||
| in thousands | April 30, 2023 | May 1, 2022 | April 30, 2023 | May 1, 2022 | |||||||||||||||||||
| Net Earnings Attributable to Hormel Foods Corporation | $ | 217,239 | $ | 261,617 | $ | 434,958 | $ | 501,188 | |||||||||||||||
| Cash Flow Hedges - Commodity Contracts | |||||||||||||||||||||||
| Gain (Loss) Reclassified from AOCL | 732 | 9,599 | 11,591 | 17,345 | |||||||||||||||||||
| Amortization of Excluded Component from Options | (1,497) | (1,120) | (2,909) | (1,945) | |||||||||||||||||||
Gain (Loss) Reclassified from AOCL Due to Discontinuance of Cash Flow Hedges (1) | — | 1,620 | — | 1,620 | |||||||||||||||||||
| Fair Value Hedges - Commodity Contracts | |||||||||||||||||||||||
Gain (Loss) on Commodity Futures (2) | 1,563 | (9,757) | (1,459) | (13,407) | |||||||||||||||||||
Total Gain (Loss) on Commodity Contracts (3) | $ | 798 | $ | 342 | $ | 7,223 | $ | 3,613 | |||||||||||||||
| Cash Flow Hedges - Interest Rate Locks | |||||||||||||||||||||||
| Gain (Loss) Reclassified from AOCL | 247 | 247 | 494 | 494 | |||||||||||||||||||
| Fair Value Hedge - Interest Rate Swap | |||||||||||||||||||||||
| Gain (Loss) on Interest Rate Swap | — | 699 | — | 1,491 | |||||||||||||||||||
Amortization of Loss Due to Discontinuance of Fair Value Hedge (4) | (3,125) | — | (6,250) | — | |||||||||||||||||||
Total Gain (Loss) on Interest Rate Contracts (5) | $ | (2,878) | $ | 946 | $ | (5,755) | $ | 1,985 | |||||||||||||||
| Total Gain (Loss) Recognized in Earnings | $ | (2,080) | $ | 1,288 | $ | 1,468 | $ | 5,598 | |||||||||||||||
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(1) During the second quarter of fiscal 2022, the Company discontinued hedge accounting on 0.6 million bushels of corn usage that was deemed no longer probable to occur. A gain of $1.7 million related to the discontinued hedges and an immaterial loss related to the excluded component from options was reclassified directly into earnings.
(2) Represents gains or losses on commodity contracts designated as fair value hedges that were closed during the quarter ended April 30, 2023, which were offset by a corresponding gain or loss on the underlying hedged purchase commitment. Additional gains or losses related to changes in the fair value of open commodity contracts, along with the offsetting gain or loss on the hedged purchase commitment, are also marked-to-market through earnings with no impact on a net basis.
(3) Total Gain (Loss) on Commodity Contracts is recognized in earnings through Cost of Products Sold.
(4) Represents the fair value hedging adjustment amortized into earnings.
(5) Total Gain (Loss) on Interest Rate Contracts is recognized in earnings through Interest Expense.
NOTE F - PENSION AND OTHER POST-RETIREMENT BENEFITS
Net periodic benefit cost for pension and other post-retirement benefit plans consists of:
| Pension Benefits | |||||||||||||||||||||||
| Quarter Ended | Six Months Ended | ||||||||||||||||||||||
| in thousands | April 30, 2023 | May 1, 2022 | April 30, 2023 | May 1, 2022 | |||||||||||||||||||
| Service Cost | $ | 8,902 | $ | 10,019 | $ | 17,804 | $ | 20,038 | |||||||||||||||
| 17,157 | 12,640 | 34,315 | 25,279 | ||||||||||||||||||||
| (19,571) | (27,062) | (39,142) | (54,124) | ||||||||||||||||||||
| (461) | (374) | (921) | (748) | ||||||||||||||||||||
| 3,325 | 3,132 | 6,650 | 6,264 | ||||||||||||||||||||
| Net Periodic Cost | $ | 9,353 | $ | (1,645) | $ | 18,706 | $ | (3,290) | |||||||||||||||
| Post-retirement Benefits | |||||||||||||||||||||||
| Quarter Ended | Six Months Ended | ||||||||||||||||||||||
| in thousands | April 30, 2023 | May 1, 2022 | April 30, 2023 | May 1, 2022 | |||||||||||||||||||
| Service Cost | $ | 62 | $ | 117 | $ | 123 | $ | 234 | |||||||||||||||
| Interest Cost | 3,014 | 1,921 | 6,028 | 3,840 | |||||||||||||||||||
| Amortization of Prior Service Cost | 2 | 2 | 4 | 4 | |||||||||||||||||||
| Recognized Actuarial (Gain) Loss | (7) | 610 | (14) | 1,220 | |||||||||||||||||||
| Net Periodic Cost | $ | 3,071 | $ | 2,650 | $ | 6,141 | $ | 5,298 | |||||||||||||||
Non-service cost components of net pension and post-retirement benefit cost are presented within Interest and Investment Income on the Consolidated Statements of Operations.
15
NOTE G - ACCUMULATED OTHER COMPREHENSIVE LOSS
Components of Accumulated Other Comprehensive Loss are as follows:
| in thousands | Foreign Currency Translation | Pension & Other Benefits | Derivatives & Hedging | Equity Method Investments | Accumulated Other Comprehensive Loss | ||||||||||||||||||||||||||||||
| Balance at January 29, 2023 | $ | (74,969) | $ | (192,635) | $ | 15,343 | $ | — | $ | (252,261) | |||||||||||||||||||||||||
| Unrecognized Gains (Losses) | |||||||||||||||||||||||||||||||||||
| Gross | 22,845 | 27 | (24,197) | 1,408 | 84 | ||||||||||||||||||||||||||||||
| Tax Effect | — | — | 5,898 | — | 5,898 | ||||||||||||||||||||||||||||||
| Reclassification into Net Earnings | 0 | ||||||||||||||||||||||||||||||||||
| Gross | — | 2,859 | (1) | (980) | (2) | — | 1,880 | ||||||||||||||||||||||||||||
| Tax Effect | — | (703) | 215 | — | (488) | ||||||||||||||||||||||||||||||
| Net of Tax Amount | 22,845 | 2,183 | (19,063) | 1,408 | 7,374 | ||||||||||||||||||||||||||||||
Balance at April 30, 2023 | $ | (52,124) | $ | (190,451) | $ | (3,720) | $ | 1,408 | $ | (244,887) | |||||||||||||||||||||||||
Balance at October 30, 2022 | $ | (89,793) | $ | (195,624) | $ | 29,856 | $ | — | $ | (255,561) | |||||||||||||||||||||||||
| Unrecognized Gains (Losses) | |||||||||||||||||||||||||||||||||||
| Gross | 37,669 | 1,127 | (32,241) | 1,408 | 7,963 | ||||||||||||||||||||||||||||||
| Tax Effect | — | (266) | 7,851 | — | 7,585 | ||||||||||||||||||||||||||||||
| Reclassification into Net Earnings | |||||||||||||||||||||||||||||||||||
| Gross | — | 5,719 | (1) | (12,086) | (2) | — | (6,367) | ||||||||||||||||||||||||||||
| Tax Effect | — | (1,407) | 2,899 | — | 1,492 | ||||||||||||||||||||||||||||||
| Net of Tax Amount | 37,669 | 5,173 | (33,577) | 1,408 | 10,674 | ||||||||||||||||||||||||||||||
Balance at April 30, 2023 | $ | (52,124) | $ | (190,451) | $ | (3,720) | $ | 1,408 | $ | (244,887) | |||||||||||||||||||||||||
(1) Included in the computation of net periodic cost. See Note F - Pension and Other Post-Retirement Benefits for additional information.
(2) Included in Cost of Products Sold and Interest Expense in the Consolidated Statements of Operations. See Note E - Derivatives and Hedging for additional information.
NOTE H - FAIR VALUE MEASUREMENTS
Accounting guidance establishes a fair value hierarchy which requires assets and liabilities measured at fair value to be categorized into one of the three levels below based on the inputs used in the valuation.
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.
16
The Company’s financial assets and liabilities carried at fair value on a recurring basis and their level within the fair value hierarchy are presented in the tables below.
| Fair Value Measurements at April 30, 2023 | |||||||||||||||||||||||
| in thousands | Total Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||||||
| Assets at Fair Value | |||||||||||||||||||||||
Cash and Cash Equivalents (1) | $ | 580,496 | $ | 579,647 | $ | 849 | $ | — | |||||||||||||||
Short-term Marketable Securities (2) | 17,531 | 2,641 | 14,890 | — | |||||||||||||||||||
Other Trading Securities (3) | 192,006 | — | 192,006 | — | |||||||||||||||||||
| 12,353 | 12,661 | (308) | — | ||||||||||||||||||||
| Total Assets at Fair Value | $ | 802,385 | $ | 594,949 | $ | 207,437 | $ | — | |||||||||||||||
| Liabilities at Fair Value | |||||||||||||||||||||||
Deferred Compensation (3) | $ | 59,366 | $ | — | $ | 59,366 | $ | — | |||||||||||||||
| Total Liabilities at Fair Value | $ | 59,366 | $ | — | $ | 59,366 | $ | — | |||||||||||||||
| Fair Value Measurements at October 30, 2022 | |||||||||||||||||||||||
| in thousands | Total Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||||||
| Assets at Fair Value | |||||||||||||||||||||||
Cash and Cash Equivalents (1) | $ | 982,107 | $ | 980,730 | $ | 1,377 | $ | — | |||||||||||||||
Short-term Marketable Securities (2) | 16,149 | 8,763 | 7,386 | — | |||||||||||||||||||
Other Trading Securities (3) | 186,243 | — | 186,243 | — | |||||||||||||||||||
| 12,448 | 12,228 | 220 | — | ||||||||||||||||||||
| Total Assets at Fair Value | $ | 1,196,947 | $ | 1,001,721 | $ | 195,226 | $ | — | |||||||||||||||
| Liabilities at Fair Value | |||||||||||||||||||||||
Deferred Compensation (3) | $ | 57,790 | $ | — | $ | 57,790 | $ | — | |||||||||||||||
| Total Liabilities at Fair Value | $ | 57,790 | $ | — | $ | 57,790 | $ | — | |||||||||||||||
The following methods and assumptions were used to estimate the fair value of the financial assets and liabilities above:
(1) The Company’s cash equivalents considered Level 1 consist primarily of bank deposits, money market funds rated AAA, or other highly liquid investment accounts, and have a maturity date of three months or less. Cash equivalents considered Level 2 are funds holding agency bonds or securities recognized at amortized cost.
(2) The Company holds securities as part of a portfolio maintained to generate investment income and to provide cash for operations of the Company, if necessary. The portfolio is managed by a third party who is responsible for daily trading activities, and all assets within the portfolio are highly liquid. The cash, U.S. government securities, and money market funds rated AAA held by the portfolio are classified as Level 1. The current investment portfolio also includes corporate bonds and other asset backed securities for which there is an active, quoted market. Market prices are obtained from a variety of industry providers, large financial institutions, and other third-party sources to calculate a representative daily market value, and therefore, these securities are classified as Level 2.
(3) The Company maintains a rabbi trust to fund certain supplemental executive retirement plans and deferred compensation plans. The majority of the funds held in the rabbi trust relate to supplemental executive retirement plans and have been invested primarily in fixed income funds managed by a third party. The declared rate on these funds is set based on a formula using the yield of the general account investment portfolio supporting the fund as adjusted for expenses and other charges. The rate is guaranteed for one year at issue and may be reset annually on the policy anniversary, subject to a guaranteed minimum rate. As the value is based on adjusted market rates and the fixed rate is only reset on an annual basis, these funds are classified as Level 2.
Under the Company's deferred compensation plans, participants can defer certain types of compensation and elect to receive a return based on the changes in fair value of various investment options which include equity securities, money market accounts, bond funds, or other portfolios for which there is an active quoted market. The Company also offers a fixed rate investment option to participants. The rate earned on these investments is adjusted annually based on a specified percentage of the Internal Revenue Service (I.R.S.) applicable federal rates. These liabilities are classified as Level 2. The Company maintains funding in the rabbi trust generally mirroring the selections within the deferred compensation plans. These funds are managed by a third-party insurance policy, the values of which represent their cash surrender value based on the fair value of the underlying investments in the account. These policies are classified as Level 2.
The rabbi trust is included in Other Assets and deferred compensation liabilities in Other Long-term Liabilities on the Consolidated Condensed Statements of Financial Position. Securities held by the rabbi trust are classified as trading securities. Unrealized gains and losses associated with these investments are
17
included in the Company's earnings. During the quarter and six months ended April 30, 2023, securities held by the rabbi trust generated gains of less than $0.1 million and $7.1 million, respectively, compared to losses of $6.6 million and $12.0 million for the quarter and six months ended May 1, 2022, respectively.
(4) The Company’s commodity derivatives represent futures, swaps, and options contracts used in its hedging or other programs to offset price fluctuations associated with purchases of corn, natural gas, hogs, and pork, and to minimize the price risk assumed when forward priced contracts are offered to the Company’s commodity suppliers. The Company’s futures and options contracts for corn are traded on the Chicago Board of Trade, while futures contracts for lean hogs are traded on the Chicago Mercantile Exchange. These are active markets with quoted prices available, and these contracts are classified as Level 1. The Company holds natural gas and pork swap contracts that are over-the-counter instruments classified as Level 2. The value of the natural gas swap contracts is calculated using quoted prices from the New York Mercantile Exchange, and the value of the pork swap contracts are calculated using a futures implied USDA estimated pork cut-out value. All derivatives are reviewed for potential credit risk and risk of nonperformance. The net balance for commodity derivatives is included in Other Current Assets or Accounts Payable, as appropriate, in the Consolidated Condensed Statements of Financial Position. As of April 30, 2023, the Company has recognized the right to reclaim net cash collateral of $32.1 million from various counterparties (including cash of $29.8 million plus $2.3 million of realized gain). As of October 30, 2022, the Company had recognized the obligation to return net cash collateral of $1.3 million from various counterparties (including cash of $27.5 million less $26.2 million of realized gain).
The Company’s financial assets and liabilities include accounts receivable, accounts payable, and other liabilities, for which carrying value approximates fair value. The Company does not carry its long-term debt at fair value in its Consolidated Condensed Statements of Financial Position. The fair value of long-term debt, utilizing discounted cash flows (Level 2), was $2.9 billion as of April 30, 2023, and $2.7 billion as of October 30, 2022. See Note I - Long-Term Debt and Other Borrowing Arrangements for additional information.
The Company measures certain nonfinancial assets and liabilities at fair value, which are recognized or disclosed on a nonrecurring basis (e.g., goodwill, intangible assets, and property, plant, and equipment). There were no material remeasurements of assets or liabilities at fair value on a nonrecurring basis subsequent to their initial recognition during the quarter and six months ended April 30, 2023 and May 1, 2022.
NOTE I - LONG-TERM DEBT AND OTHER BORROWING ARRANGEMENTS
Long-term Debt consists of:
| in thousands | April 30, 2023 | October 30, 2022 | |||||||||
Senior Unsecured Notes, with Interest at 3.050% Interest Due Semi-annually through June 2051 Maturity Date | $ | 600,000 | $ | 600,000 | |||||||
Senior Unsecured Notes, with Interest at 1.800% Interest Due Semi-annually through June 2030 Maturity Date | 1,000,000 | 1,000,000 | |||||||||
Senior Unsecured Notes, with Interest at 1.700% Interest Due Semi-annually through June 2028 Maturity Date | 750,000 | 750,000 | |||||||||
Senior Unsecured Notes, with Interest at 0.650% Interest Due Semi-annually through June 2024 Maturity Date | 950,000 | 950,000 | |||||||||
| Unamortized Discount on Senior Notes | (7,383) | (7,750) | |||||||||
| Unamortized Debt Issuance Costs | (18,067) | (19,856) | |||||||||
Interest Rate Swap Liabilities (1) | (13,701) | (19,950) | |||||||||
| Finance Lease Liabilities | 40,317 | 44,473 | |||||||||
| Other Financing Arrangements | 2,228 | 2,429 | |||||||||
| Total | 3,303,394 | 3,299,345 | |||||||||
| Less: Current Maturities of Long-term Debt | 8,956 | 8,796 | |||||||||
| Long-term Debt Less Current Maturities | $ | 3,294,438 | $ | 3,290,549 | |||||||
(1) See Note E - Derivatives and Hedging for additional information.
Senior Unsecured Notes: On June 3, 2021, the Company issued $950.0 million aggregate principal amount of its 0.650% notes due 2024 (the 2024 Notes), $750.0 million aggregate principal amount of its 1.700% notes due 2028 (the 2028 Notes), and $600.0 million aggregate principal amount of its 3.050% notes due 2051 (the 2051 Notes). The 2024 Notes may be redeemed in whole or in part one year after their issuance without penalty for early partial payments or full redemption. The 2028 Notes and 2051 Notes may be redeemed in whole or in part at any time at the applicable redemption price. Interest will accrue per annum at the stated rates with interest on the notes being paid semi-annually in arrears on June 3 and December 3 of each year, commencing December 3, 2021. Interest rate risk was hedged utilizing interest rate locks on the 2028 Notes and 2051 Notes. The Company lifted the hedges in conjunction with the issuance of these notes. See Note E - Derivatives and Hedging for additional information. If a change of control triggering event occurs, the Company must offer to purchase the notes at a purchase price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to the date of purchase.
On June 11, 2020, the Company issued senior notes in an aggregate principal amount of $1.0 billion, due June 11, 2030. The notes bear interest at a fixed rate of 1.800% per annum, with interest paid semi-annually in arrears on June 11 and December 11 of each year, commencing December 11, 2020. The notes may be redeemed in whole or in part at any time at the applicable redemption price set forth in the prospectus supplement. If a change of control triggering event occurs, the Company must offer
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to purchase the notes at a purchase price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to the date of purchase.
Unsecured Revolving Credit Facility: On May 6, 2021, the Company entered into an unsecured revolving credit agreement with Wells Fargo Bank, National Association as administrative agent, swingline lender and issuing lender, U.S. Bank National Association, JPMorgan Chase Bank, N.A. and BofA Securities, Inc. as syndication agents and the lenders party thereto. The revolving credit agreement provides for an unsecured revolving credit facility with an aggregate principal commitment amount at any time outstanding of up to $750.0 million with an uncommitted increase option of an additional $375.0 million upon the satisfaction of certain conditions.
On April 17, 2023, the Company entered into a first amendment (Amendment) to the Company’s $750.0 million revolving credit agreement. The Amendment provides for, among other things (i) the replacement of London Interbank Offered Rate (LIBOR) with Term Secured Overnight Financing Rate (SOFR) and Daily Simple Singapore Overnight Rate Average (SORA) for the Eurocurrency Rate for Dollars and Singapore Dollars, including applicable credit spread adjustments and relevant SOFR benchmark provisions, (ii) permitting two one-year extension options to be exercised at any anniversary, (iii) removing the change in debt ratings notice requirement, (iv) shortening the notice period requirements for Base Rate Loans to allow for same day notice, and (v) increasing the number of permitted interest periods from 8 to 15.
The unsecured revolving line of credit bears interest, at the Company’s election, at either a Base Rate plus margin of 0.0% to 0.150% or the Adjusted Term SOFR, Adjusted Daily Simple Risk-Free Rate (RFR) or Eurocurrency Rate plus margin of 0.575% to 1.150% and a variable fee of 0.050% to 0.100% is paid for the availability of this credit line. Extensions of credit under the facility may be made in the form of revolving loans, swingline loans and letters of credit. The lending commitments under the agreement 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 April 30, 2023, and October 30, 2022, the Company had no outstanding draws from this facility.
Debt Covenants: The Company is required by certain covenants in its debt agreements to maintain specified levels of financial ratios and financial position. As of April 30, 2023, the Company was in compliance with all of these covenants.
NOTE J - INCOME TAXES
The Company's tax provision is determined using an estimated annual effective tax rate and adjusted for discrete taxable events that may occur during the quarter. The effects of tax legislation are recognized in the period in which the law is enacted. The deferred tax assets and liabilities are remeasured using enacted tax rates expected to apply to taxable income in the years the related temporary differences are anticipated to reverse.
The Company's effective tax rate for the quarter and six months ended April 30, 2023, was 22.1 percent and 22.4 percent, respectively, compared to 18.7 percent and 20.5 percent, respectively, for the corresponding periods a year ago. The higher effective tax rate in the current quarter and first six months of fiscal 2023 is primarily due to the decrease in tax benefits from stock option exercises.
The amount of unrecognized tax benefits, including interest and penalties, is recorded in Other Long-term Liabilities. These benefits, if recognized as of April 30, 2023, would impact the Company’s effective tax rate by $19.3 million compared to $21.0 million as of May 1, 2022. The Company includes accrued interest and penalties related to uncertain tax positions in income tax expense. Interest and penalties included in income tax expense was immaterial for the quarters ended April 30, 2023, and May 1, 2022. The amount of accrued interest and penalties associated with unrecognized tax benefits was $3.0 million at April 30, 2023, and $5.8 million at May 1, 2022.
The Company is regularly audited by federal and state taxing authorities. The I.R.S. concluded their examination of fiscal year 2021 in the second quarter. Previously, the I.R.S. placed the Company in the Bridge phase of the Compliance Assurance Process (CAP) for fiscal 2020. In this phase, the I.R.S. will not accept any disclosures, conduct any reviews, or provide any assurances. The Company has elected to participate in CAP for fiscal years through 2023. The objective of CAP is to contemporaneously work with the I.R.S. to achieve federal tax compliance and resolve all or most of the issues prior to filing of the tax return. The Company may elect to continue participating in CAP for future tax years; the Company may withdraw from the program at any time.
The Company is in various stages of audit by several state taxing authorities on a variety of fiscal years, as far back as 2015. While it is reasonably possible that one or more of these audits may be completed within the next 12 months and the related unrecognized tax benefits may change based on the status of the examinations, it is not possible to reasonably estimate the effect of any amount of such change to previously recorded uncertain tax positions.
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The Inflation Reduction Act of 2022 was signed into law on August 16, 2022. The 15% corporate minimum tax will not apply to the Company until fiscal year 2024.
NOTE K - EARNINGS PER SHARE DATA
The reported net earnings attributable to the Company were used when computing basic and diluted earnings per share. The following table sets forth the shares used as the denominator for those computations:
| Quarter Ended | Six Months Ended | ||||||||||||||||||||||
| in thousands | April 30, 2023 | May 1, 2022 | April 30, 2023 | May 1, 2022 | |||||||||||||||||||
| Basic Weighted-average Shares Outstanding | 546,424 | 544,702 | 546,404 | 543,691 | |||||||||||||||||||
| Dilutive Potential Common Shares | 2,588 | 5,334 | 3,118 | 5,291 | |||||||||||||||||||
| Diluted Weighted-average Shares Outstanding | 549,013 | 550,036 | 549,522 | 548,982 | |||||||||||||||||||
| Antidilutive Potential Common Shares | 7,165 | 790 | 5,202 | 2,145 | |||||||||||||||||||
NOTE L - SEGMENT REPORTING
The Company develops, processes, and distributes a wide array of food products in a variety of markets. As discussed in Note A - Summary of Significant Accounting Policies, the Company transitioned to a new operating model in the first quarter of fiscal 2023 and now reports its results in the following three segments: Retail, Foodservice, and International, which is consistent with how the Company's chief operating decision maker (CODM) assesses performance and allocates resources. Prior period segment results have been retrospectively recast to reflect the new reportable segments.
The Retail segment consists primarily of the processing, marketing, and sale of food products sold predominantly in the retail market. This segment also includes the results from the Company’s MegaMex Foods, LLC joint venture.
The Foodservice segment consists primarily of the processing, marketing, and sale of food and nutritional products for foodservice, convenience store, and commercial customers.
The International segment processes, markets, and sells Company products internationally. This segment also includes the results from the Company’s international joint ventures and royalty arrangements.
Intersegment sales are eliminated in consolidation and are not reviewed when evaluating segment performance. The Company does not allocate deferred compensation, 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 noncontrolling interests are excluded. These items are included below as Net Unallocated Expense and Noncontrolling Interest when reconciling to Earnings Before Income Taxes.
Financial measures for each of the Company’s reportable segments and reconciliation to consolidated Earnings Before Income Taxes are set forth below. The Company's CODM reviews assets at a consolidated level and does not use assets by segment to evaluate performance or allocate resources. Therefore, the Company does not disclose assets by segment. 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.
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| Quarter Ended | Six Months Ended | ||||||||||||||||||||||
| in thousands | April 30, 2023 | May 1, 2022 | April 30, 2023 | May 1, 2022 | |||||||||||||||||||
| Net Sales | |||||||||||||||||||||||
| Retail | $ | 1,916,243 | $ | 2,000,695 | $ | 3,874,040 | $ | 3,996,591 | |||||||||||||||
| Foodservice | 881,441 | 909,872 | 1,716,191 | 1,764,066 | |||||||||||||||||||
| International | 179,955 | 185,992 | 358,400 | 380,260 | |||||||||||||||||||
| Total Net Sales | $ | 2,977,639 | $ | 3,096,559 | $ | 5,948,632 | $ | 6,140,917 | |||||||||||||||
| Segment Profit | |||||||||||||||||||||||
| Retail | $ | 153,226 | $ | 190,186 | $ | 307,903 | $ | 359,888 | |||||||||||||||
| Foodservice | 145,399 | 135,927 | 281,841 | 270,685 | |||||||||||||||||||
| International | 13,595 | 27,130 | 33,500 | 54,369 | |||||||||||||||||||
| Total Segment Profit | 312,220 | 353,243 | 623,244 | 684,941 | |||||||||||||||||||
| Net Unallocated Expense | 33,356 | 31,436 | 63,111 | 54,370 | |||||||||||||||||||
| Noncontrolling Interest | (24) | 62 | (92) | 201 | |||||||||||||||||||
| Earnings Before Income Taxes | $ | 278,839 | $ | 321,868 | $ | 560,041 | $ | 630,772 | |||||||||||||||
The Company’s products consist primarily of meat and other food products. Total revenue contributed by classes of similar products are:
| Quarter Ended | Six Months Ended | ||||||||||||||||||||||
| in thousands | April 30, 2023 | May 1, 2022 | April 30, 2023 | May 1, 2022 | |||||||||||||||||||
| Perishable | $ | 2,073,238 | $ | 2,193,300 | $ | 4,153,699 | $ | 4,321,548 | |||||||||||||||
| Shelf-stable | 904,401 | 903,258 | 1,794,933 | 1,819,369 | |||||||||||||||||||
| Total Net Sales | $ | 2,977,639 | $ | 3,096,559 | $ | 5,948,632 | $ | 6,140,917 | |||||||||||||||
Perishable includes fresh meats, frozen items, refrigerated meal solutions, bacon, sausages, hams, guacamole, and other items that require refrigeration. Shelf-stable includes canned luncheon meats, nut butters, snack nuts, chili, shelf-stable microwaveable meals, hash, stews, tortillas, salsas, tortilla chips, nutritional food supplements, and other items that do not require refrigeration.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Overview
The Company is a global manufacturer and marketer of branded food products. The Company's three reportable segments are described in Note L - Segment Reporting in the Notes to Consolidated Financial Statements in this Quarterly Report on Form 10-Q.
The Company reported net earnings per diluted share of $0.40 for the second quarter of fiscal 2023, down 17 percent compared to last year. Significant factors impacting the quarter were:
•Net sales for the second quarter decreased, as the benefit from pricing actions to mitigate inflationary pressures was more than offset by the impact of lower volumes in each business segment and lower net pricing in certain categories, such as bacon, reflecting raw material commodity deflation. Volume and net sales declines for each segment were partially due to lower turkey availability as a result of the ongoing impacts of highly pathogenic avian influenza (HPAI) in the Company's vertically integrated turkey supply chain.
•Segment profit for the second quarter decreased 12 percent, as improved results in the Foodservice segment were more than offset by declines in the Retail and International segments.
•Earnings before income taxes for the second quarter decreased 13 percent compared to the prior year. Lower selling, general, and administrative expenses and higher equity in earnings were unable to overcome the impact of lower sales, unfavorable mix, and higher operating costs.
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•Foodservice segment profit increased primarily due to improved mix across the portfolio.
•International segment profit declined significantly due to lower sales in China and significantly lower turkey export sales.
•Retail segment profit declined due to the impact of lower net sales, unfavorable mix and higher operating costs, partially offset by the benefit from pricing actions across the portfolio, higher equity in earnings from MegaMex Foods, LLC (MegaMex Foods) and improved results for the bacon business.
•Year-to-date cash flow from operations was $412 million, down 29 percent compared to the prior year.
•During the second quarter, the Company increased its common stock interest in PT Garudafood Putra Putri Jaya Tbk (Garudafood) to approximately 30%.
Consolidated Results
Volume, Net Sales, Earnings, and Diluted Earnings Per Share
| Quarter Ended | Six Months Ended | ||||||||||||||||||||||||||||||||||
| in thousands, except per share amounts | April 30, 2023 | May 1, 2022 | % Change | April 30, 2023 | May 1, 2022 | % Change | |||||||||||||||||||||||||||||
| Volume (lbs.) | 1,099,563 | 1,164,198 | (5.6) | 2,161,774 | 2,369,070 | (8.8) | |||||||||||||||||||||||||||||
| Net Sales | $ | 2,977,639 | $ | 3,096,559 | (3.8) | $ | 5,948,632 | $ | 6,140,917 | (3.1) | |||||||||||||||||||||||||
| Earnings Before Income Taxes | 278,839 | 321,868 | (13.4) | 560,041 | 630,772 | (11.2) | |||||||||||||||||||||||||||||
| Net Earnings Attributable to Hormel Foods Corporation | 217,239 | 261,617 | (17.0) | 434,958 | 501,188 | (13.2) | |||||||||||||||||||||||||||||
| Diluted Earnings Per Share | 0.40 | 0.48 | (16.7) | 0.79 | 0.91 | (13.2) | |||||||||||||||||||||||||||||
Net Sales
Net sales for the second quarter decreased, as the benefit from pricing actions to mitigate inflationary pressures was more than offset by the impact of lower volumes in each business segment and lower net pricing in certain categories, such as bacon, reflecting raw material commodity deflation.
In the second quarter, retail brands and products such as Hormel® chili, SKIPPY®, Hormel® pepperoni, WHOLLY®, Applegate® frozen items, Hormel® Square TableTM, Hormel® Gatherings®, La Victoria®, Herdez®, Dinty Moore® and Mary Kitchen® delivered net sales growth compared to the prior year. In the Foodservice segment, the sliced meats, pizza toppings, and premium breakfast sausage categories grew volume and net sales during the quarter compared to last year. In the International segment, overall net sales declines for the quarter were partially offset by net sales growth from the SKIPPY® and Planters® brands, in addition to strong growth in Brazil.
For the first six months of the year, the benefit from pricing actions to mitigate inflationary pressures was more than offset by the impact of lower volumes in each segment. The primary drivers of lower volume were declines in commodity pork availability as a result of the Company's new pork supply agreement and lower turkey supply from the ongoing impacts of HPAI.
Cost of Products Sold
| Quarter Ended | Six Months Ended | ||||||||||||||||||||||||||||||||||
| in thousands | April 30, 2023 | May 1, 2022 | % Change | April 30, 2023 | May 1, 2022 | % Change | |||||||||||||||||||||||||||||
| Cost of Products Sold | $ | 2,486,220 | $ | 2,543,088 | (2.2) | $ | 4,961,263 | $ | 5,048,697 | (1.7) | |||||||||||||||||||||||||
Cost of products sold for the second quarter and first six months of fiscal 2023 decreased due to lower sales. On a volume basis, cost of products sold increased 8 percent for the first six months of the year driven primarily by continued inflationary pressures stemming from, among other inputs, packaging, logistics, and labor.
Costs are expected to remain elevated due to the continued impacts of broad-based inflation and higher warehousing costs. In general, raw material input costs for protein are expected to be lower for the balance of the year compared to fiscal 2022 but to remain above historical levels. Feed costs are anticipated to remain above historical levels.
22
Gross Profit
| Quarter Ended | Six Months Ended | ||||||||||||||||||||||||||||||||||
| in thousands | April 30, 2023 | May 1, 2022 | % Change | April 30, 2023 | May 1, 2022 | % Change | |||||||||||||||||||||||||||||
| Gross Profit | $ | 491,419 | $ | 553,471 | (11.2) | $ | 987,369 | $ | 1,092,220 | (9.6) | |||||||||||||||||||||||||
| Percentage of Net Sales | 16.5 | % | 17.9 | % | 16.6 | % | 17.8 | % | |||||||||||||||||||||||||||
Gross profit as a percentage of net sales for the second quarter and first six months of fiscal 2023 declined, driven primarily by unfavorable mix and the persistent impact of inflationary pressures. Pricing actions helped mitigate some of the impact from inflationary pressures. Gross profit as a percentage of net sales increased for the Foodservice segment but declined for the Retail and International segments during the second quarter and first six months of the year.
Looking ahead to the third quarter of fiscal 2023, the Company expects gross profit as a percentage of net sales to decline compared to last year. The Company expects gross profit as a percentage of net sales to increase for the Foodservice segment but decline for the Retail and International segments.
Selling, General, and Administrative (SG&A)
| Quarter Ended | Six Months Ended | ||||||||||||||||||||||||||||||||||
| in thousands | April 30, 2023 | May 1, 2022 | % Change | April 30, 2023 | May 1, 2022 | % Change | |||||||||||||||||||||||||||||
| SG&A | $ | 212,492 | $ | 224,659 | (5.4) | $ | 434,548 | $ | 450,631 | (3.6) | |||||||||||||||||||||||||
| Percentage of Net Sales | 7.1 | % | 7.3 | % | 7.3 | % | 7.3 | % | |||||||||||||||||||||||||||
For the second quarter, SG&A expenses decreased due to lower employee-related expenses and advertising investments. For the first six months of fiscal 2023, SG&A expenses as a percent of net sales were comparable to the prior year.
Advertising investments in the second quarter were $35 million, down 11 percent compared to last year. The Company expects full-year advertising expense to increase compared to the prior year.
Equity in Earnings of Affiliates
| Quarter Ended | Six Months Ended | ||||||||||||||||||||||||||||||||||
| in thousands | April 30, 2023 | May 1, 2022 | % Change | April 30, 2023 | May 1, 2022 | % Change | |||||||||||||||||||||||||||||
| Equity in Earnings of Affiliates | $ | 16,870 | $ | 5,916 | 185.2 | $ | 32,429 | $ | 12,814 | 153.1 | |||||||||||||||||||||||||
Equity in earnings of affiliates for the second quarter and first six months of fiscal 2023 increased due to significantly higher results for MegaMex Foods. MegaMex Foods results reflect a benefit from pricing actions and lower avocado input costs.
Effective Tax Rate
| Quarter Ended | Six Months Ended | ||||||||||||||||||||||
| April 30, 2023 | May 1, 2022 | April 30, 2023 | May 1, 2022 | ||||||||||||||||||||
| Effective Tax Rate | 22.1 | % | 18.7 | % | 22.4 | % | 20.5 | % | |||||||||||||||
The higher effective tax rate in the second quarter and first six months of fiscal 2023 is primarily due to the decrease in tax benefits from stock option exercises. The effective tax rate for fiscal 2023 is expected to be between 21.0% and 23.0%. For further information, refer to Note J - Income Taxes.
23
Segment Results
Net sales and segment profit for each of the Company’s reportable segments are set forth below. 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.
| Quarter Ended | Six Months Ended | ||||||||||||||||||||||||||||||||||
| in thousands | April 30, 2023 | May 1, 2022 | % Change | April 30, 2023 | May 1, 2022 | % Change | |||||||||||||||||||||||||||||
| Net Sales | |||||||||||||||||||||||||||||||||||
| Retail | $ | 1,916,243 | $ | 2,000,695 | (4.2) | $ | 3,874,040 | $ | 3,996,591 | (3.1) | |||||||||||||||||||||||||
| Foodservice | 881,441 | 909,872 | (3.1) | 1,716,191 | 1,764,066 | (2.7) | |||||||||||||||||||||||||||||
| International | 179,955 | 185,992 | (3.2) | 358,400 | 380,260 | (5.7) | |||||||||||||||||||||||||||||
| Total | $ | 2,977,639 | $ | 3,096,559 | (3.8) | $ | 5,948,632 | $ | 6,140,917 | (3.1) | |||||||||||||||||||||||||
| Segment Profit | |||||||||||||||||||||||||||||||||||
| Retail | $ | 153,226 | $ | 190,186 | (19.4) | $ | 307,903 | $ | 359,888 | (14.4) | |||||||||||||||||||||||||
| Foodservice | 145,399 | 135,927 | 7.0 | 281,841 | 270,685 | 4.1 | |||||||||||||||||||||||||||||
| International | 13,595 | 27,130 | (49.9) | 33,500 | 54,369 | (38.4) | |||||||||||||||||||||||||||||
Total Segment Profit | 312,220 | 353,243 | (11.6) | 623,244 | 684,941 | (9.0) | |||||||||||||||||||||||||||||
Net Unallocated Expense | 33,356 | 31,436 | 6.1 | 63,111 | 54,370 | 16.1 | |||||||||||||||||||||||||||||
Noncontrolling Interest | (24) | 62 | (138.3) | (92) | 201 | (146.0) | |||||||||||||||||||||||||||||
Earnings Before Income Taxes | $ | 278,839 | $ | 321,868 | (13.4) | $ | 560,041 | $ | 630,772 | (11.2) | |||||||||||||||||||||||||
Volume and net sales declined for each segment for the first six months of fiscal 2023 primarily due to lower fresh pork availability resulting from the Company's new pork supply agreement and lower turkey volumes due to the ongoing impacts of HPAI in the Company's vertically integrated turkey supply chain.
Retail
| Quarter Ended | Six Months Ended | ||||||||||||||||||||||||||||||||||
| in thousands | April 30, 2023 | May 1, 2022 | % Change | April 30, 2023 | May 1, 2022 | % Change | |||||||||||||||||||||||||||||
| Volume (lbs.) | 766,330 | 824,539 | (7.1) | 1,519,217 | 1,693,478 | (10.3) | |||||||||||||||||||||||||||||
| Net Sales | $ | 1,916,243 | $ | 2,000,695 | (4.2) | $ | 3,874,040 | $ | 3,996,591 | (3.1) | |||||||||||||||||||||||||
| Segment Profit | 153,226 | 190,186 | (19.4) | 307,903 | 359,888 | (14.4) | |||||||||||||||||||||||||||||
For the second quarter, net sales growth from the global flavors vertical was more than offset by lower net sales across the other retail verticals. Brands and products such as Hormel® chili, SKIPPY®, Hormel® pepperoni, WHOLLY®, Applegate® frozen items, Hormel® Square TableTM, Hormel® Gatherings®, La Victoria®, Herdez®, Dinty Moore® and Mary Kitchen® delivered net sales growth compared to the prior year. Additionally, Planters® snack nuts and Hormel® Black Label® bacon grew volume during the quarter, partially overcoming the headwind from lower turkey volumes, the impact of elasticities related to pricing actions, and lower contract manufacturing volumes.
Net sales declined for the first six months of fiscal 2023 primarily due to lower fresh pork availability and lower turkey volumes.
Segment profit declined for the second quarter and first six months of the year due to the impact from lower net sales, unfavorable mix and higher operating costs, partially offset by the benefit from pricing actions across the portfolio, higher equity in earnings from MegaMex Foods, and improved results for the bacon business.
Looking to the third quarter, the Retail segment expects lower segment profit compared to last year. From a net sales perspective, the impact of pricing actions and rebounding turkey volumes are expected to more than offset lower pricing across the bacon portfolio and strong SKIPPY® peanut butter sales in the prior year. Declines in segment profit are expected as a result of unfavorable mix and higher operating expenses. Further risks to the outlook include higher-than-expected elasticities and lower sales volumes as a result of softer consumer demand.
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Foodservice
| Quarter Ended | Six Months Ended | ||||||||||||||||||||||||||||||||||
| in thousands | April 30, 2023 | May 1, 2022 | % Change | April 30, 2023 | May 1, 2022 | % Change | |||||||||||||||||||||||||||||
| Volume (lbs.) | 254,575 | 257,914 | (1.3) | 491,662 | 510,164 | (3.6) | |||||||||||||||||||||||||||||
| Net Sales | $ | 881,441 | $ | 909,872 | (3.1) | $ | 1,716,191 | $ | 1,764,066 | (2.7) | |||||||||||||||||||||||||
| Segment Profit | 145,399 | 135,927 | 7.0 | 281,841 | 270,685 | 4.1 | |||||||||||||||||||||||||||||
Volume and net sales declined during the second quarter, as growth in the sliced meats, pizza toppings, and premium breakfast sausage categories was more than offset by the impact of lower turkey volumes and lower net pricing in certain categories, such as bacon, reflecting raw material commodity deflation. Brands such as Cafe H®, Hormel® Bacon 1TM, Old Smokehouse® and Hormel® Fire BraisedTM also delivered volume gains compared to the prior year.
Net sales declined for the first six months of fiscal 2023 primarily due to lower fresh pork availability, lower turkey volumes, and lower net pricing in certain categories reflecting raw material commodity deflation.
Segment profit increased during the second quarter and first six months of fiscal 2023 due to improved mix across the portfolio.
For the third quarter, the Foodservice segment expects higher segment profit compared to the prior year. The Company expects rebounding turkey volumes and improved mix to be the primary drivers of growth. Risks to the outlook include further softening of foodservice industry demand and higher-than-expected operating costs.
International
| Quarter Ended | Six Months Ended | ||||||||||||||||||||||||||||||||||
| in thousands | April 30, 2023 | May 1, 2022 | % Change | April 30, 2023 | May 1, 2022 | % Change | |||||||||||||||||||||||||||||
| Volume (lbs.) | 78,659 | 81,745 | (3.8) | 150,896 | 165,429 | (8.8) | |||||||||||||||||||||||||||||
| Net Sales | $ | 179,955 | $ | 185,992 | (3.2) | $ | 358,400 | $ | 380,260 | (5.7) | |||||||||||||||||||||||||
| Segment Profit | 13,595 | 27,130 | (49.9) | 33,500 | 54,369 | (38.4) | |||||||||||||||||||||||||||||
During the second quarter, volume and net sales growth from the SKIPPY® and Planters® brands, in addition to strong growth in Brazil, was more than offset by lower commodity turkey export sales and lower results in China. Foodservice sales in China improved sequentially throughout the second quarter, helping offset the difficult comparison to retail pantry loading and sales to food-security programs last year.
Net sales declined for the first six months of fiscal 2023 primarily due to lower turkey volumes and lower sales in China.
Segment profit for the second quarter and first six months of fiscal 2023 declined significantly due to lower sales in China and lower turkey export sales.
In the third quarter, the International segment anticipates segment profit to decline compared to last year but show sequential improvement to the second quarter. The segment expects to benefit from strong branded export margins, gradually improving conditions in China, and more normalized turkey export volumes by the end of the quarter. Further risks to the outlook include weaker-than-expected export demand, deteriorating economic conditions in China, and continued disruption impacting the Company's turkey exports.
Unallocated Income and Expenses
The Company does not allocate deferred compensation, investment income, interest expense, or interest income to its segments when measuring performance. The Company also retains various other income and unallocated expenses at the corporate level. Equity in earnings of affiliates is included in Segment Profit; however, earnings attributable to the Company’s noncontrolling interests are excluded. These items are included in the segment table for the purpose of reconciling segment results to earnings before income taxes.
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| Quarter Ended | Six Months Ended | ||||||||||||||||||||||
| in thousands | April 30, 2023 | May 1, 2022 | April 30, 2023 | May 1, 2022 | |||||||||||||||||||
| Net Unallocated Expense | $ | 33,356 | $ | 31,436 | $ | 63,111 | $ | 54,370 | |||||||||||||||
| Noncontrolling Interest | (24) | 62 | (92) | 201 | |||||||||||||||||||
For the second quarter and first six months of fiscal 2023, net unallocated expense increased due to higher pension costs, which were partially offset by improved rabbi investment results.
Related Party Transactions
There has been no material change in the information regarding Related Party Transactions as disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended October 30, 2022.
LIQUIDITY AND CAPITAL RESOURCES
When assessing 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
| Six Months Ended | |||||||||||
| in thousands | April 30, 2023 | May 1, 2022 | |||||||||
| Cash and Cash Equivalents | $ | 580,496 | $ | 861,719 | |||||||
| Cash Provided by (Used in) Operating Activities | 411,754 | 577,111 | |||||||||
| Cash Provided by (Used in) Investing Activities | (511,068) | (125,811) | |||||||||
| Cash Provided by (Used in) Financing Activities | (306,739) | (204,001) | |||||||||
Cash and cash equivalents decreased $402 million for the six months ended April 30, 2023 primarily due to the purchase of a minority interest in Garudafood for $426 million. 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.
–Accounts receivable decreased $106 million during the six months ended April 30, 2023 primarily due to lower sales and decreased $109 million during the six months ended May 1, 2022 as a result of the timing of sales and collections.
–Accounts payable and accrued expenses decreased $205 million and $46 million in the six months ended April 30, 2023, and May 1, 2022, respectively, due to the general timing of invoice payments and annual incentive payments.
–Inventory increased $27 million for the first half of 2023 compared to $226 million in the prior year. The increase in inventory during fiscal 2023 was due to production outpacing sales and the higher inventory value in fiscal 2022 was primarily driven by increased raw material costs.
Cash Provided by (Used in) Investing Activities
•During the six months ended April 30, 2023, the Company purchased a minority interest in Garudafood for $426 million.
•Capital expenditures were $91 million and $128 million in the six months ended April 30, 2023, and May 1, 2022, respectively. The largest spend in both years was related to capacity expansion for pepperoni and the SPAM® family of products.
Cash Provided by (Used in) Financing Activities
•Cash dividends paid to the Company’s shareholders continue to be an ongoing financing activity for the Company with payments totaling $293 million during the six months ended April 30, 2023 compared to $274 million in the comparable period of fiscal 2022.
•Share repurchases were $12 million during the six months ended April 30, 2023 compared with no share repurchases during fiscal 2022.
•Proceeds from exercise of stock options was $3 million in the six months ended April 30, 2023 compared to $75 million in the comparable period of fiscal 2022. The decrease in proceeds was due to fewer options exercised during fiscal 2023 compared to fiscal 2022.
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Sources and Uses of Cash
The Company's 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 by applying a waterfall approach, which focuses first on required uses of cash such as capital expenditures to maintain facilities, dividend returns to investors, mandatory debt repayments, and pension obligations. Next, the Company looks to strategic items in support of growth initiatives such as capital projects, acquisitions, additional dividend increases, and working capital investments. Finally, the Company evaluates opportunistic uses including incremental debt repayment and share repurchases.
The Company believes its anticipated income from operations, cash on hand, borrowing capacity under the current 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's ability to leverage its balance sheet through the issuance of debt provides the flexibility to pursue strategic opportunities which may require additional funding.
Dividend Payments
The Company remains committed to providing returns to investors through cash dividends. The Company has paid 379 consecutive quarterly dividends since becoming a public company in 1928. The annual dividend rate for fiscal 2023 increased to $1.10 per share, representing the 57th consecutive annual dividend increase.
Capital Expenditures
Capital expenditures are first allocated to required maintenance and then growth opportunities based on the needs of the business. Capital expenditures supporting growth opportunities in fiscal 2023 will focus on projects for capacity, innovation, automation, and new technology. Capital expenditures for fiscal 2023 are estimated to be $280 million.
Debt
As of April 30, 2023, the Company’s outstanding debt included $3.3 billion of fixed rate unsecured senior notes due in fiscal 2024, 2028, 2030, and 2051 with interest payable semi-annually. During the first six months of fiscal 2023, the Company made $28 million of interest payments and expects to make an additional $28 million of interest payments during fiscal 2023 on these notes. See Note I - Long-Term Debt and Other Borrowing Arrangements for additional information.
Borrowing Capacity
As a source of short-term financing, the Company maintains a $750 million unsecured revolving credit facility. The maximum commitment under this credit facility may be further increased by $375 million, generally by mutual agreement of the lenders and the Company, subject to certain customary conditions. Funds drawn from this facility may be used by the Company to refinance existing debt, for working capital or other general corporate purposes, and for funding acquisitions. 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 April 30, 2023, the Company had no outstanding draws from this facility.
Debt Covenants
The Company’s debt and credit 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 and engage in certain sale and leaseback transactions, and require maintenance of certain consolidated leverage ratios. As of April 30, 2023, the Company was in compliance with all covenants and expects to maintain compliance in the future.
Cash Held by International Subsidiaries
As of April 30, 2023, the Company had $205 million of cash and cash equivalents held by international subsidiaries. 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. During the second quarter of fiscal 2023, the Company repurchased 310,000 shares for $12 million.
Commitments
There have been no material changes to the information regarding the Company’s future contractual financial obligations previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended October 30, 2022.
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TRADEMARKS
References to the Company’s brands or products in italics within this report represent valuable trademarks owned or licensed by Hormel Foods, LLC or other subsidiaries of Hormel Foods Corporation.
CRITICAL ACCOUNTING ESTIMATES
This 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. The significant accounting policies used in preparing these Consolidated Financial Statements are consistent with those described in Note A - Summary of Significant Accounting Policies to the Consolidated Financial Statements in the Form 10-K.
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. There have been no material changes in the Company’s Critical Accounting Estimates as disclosed in its Annual Report on Form 10-K for the fiscal year ended October 30, 2022.
FORWARD-LOOKING STATEMENTS
This report contains “forward-looking” information within the meaning of the federal securities laws. The “forward-looking” information may include statements concerning the Company’s outlook for the future as well as other statements of beliefs, future plans, strategies, or anticipated events and similar expressions concerning matters that are not historical facts.
The Private Securities Litigation Reform Act of 1995 (the Reform Act) provides a “safe harbor” for forward-looking statements to encourage companies to provide prospective information. The Company is filing this cautionary statement in connection with the Reform Act. When used in this Quarterly Report on Form 10-Q, the Company’s Annual Report to Stockholders, other filings by the Company with the Securities and Exchange Commission, the Company’s press releases, and oral statements made by the Company’s representatives, the words or phrases “should result,” “believe,” “intend,” “plan,” “are expected to,” “targeted,” “will continue,” “will approximate,” “is anticipated,” “estimate,” “project,” or similar expressions are intended to identify forward-looking statements within the meaning of the Reform Act. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those anticipated or projected.
In connection with the “safe harbor” provisions of the Reform Act, the Company is identifying risk factors that could affect financial performance and cause the Company’s actual results to differ materially from opinions or statements expressed with respect to future periods. The discussions of risk factors in the Company's most recent Annual Report on Form 10-K and in Part II, Item 1A of this Quarterly Report on Form 10-Q contain certain cautionary statements regarding the Company’s business, which should be considered by investors and others. Such risk factors should be considered in conjunction with any discussions of operations or results by the Company or its representatives, including any forward-looking discussion, as well as comments contained in press releases, presentations to securities analysts or investors, or other communications by the Company.
In making these statements, the Company is not undertaking, and specifically declines to undertake, any obligation to address or update each or any factor in future filings or communications regarding the Company’s business or results, and is not undertaking to address how any of these factors may have caused changes to discussions or information contained in previous filings or communications. Though the Company has attempted to list comprehensively these important cautionary risk factors, the Company wishes to caution investors and others that other factors may in the future prove to be important in affecting the Company’s business or results of operations.
The Company cautions readers not to place undue reliance on forward-looking statements, which represent current views as of the date made. Forward-looking statements are inherently at risk to changes in the national and worldwide economic environment, which could include, among other things, risks related to the deterioration of economic conditions; the COVID-19 pandemic; risks associated with acquisitions and divestitures; potential disruption of operations including at co-manufacturers, suppliers, logistics providers, customers, or other third-party service providers; risk of loss of a material contract; the Company’s inability to protect information technology systems against, or effectively respond to, cyber attacks or security breaches; deterioration of labor relations, labor availability or increases to labor costs; general risks of the food industry, including food contamination; outbreaks of disease among livestock and poultry flocks; fluctuations in commodity prices and availability of raw materials and other inputs; fluctuations in market demand for the Company’s products; damage to the Company's reputation or brand image; climate change, or legal, regulatory, or market measures to address climate change; risks of litigation; potential sanctions and compliance costs arising from government regulation; compliance with stringent environmental regulations and potential environmental litigation; and risks arising from the Company’s foreign operations.
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Item 3. 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. The Company utilizes derivative instruments to mitigate earnings fluctuations due to market volatility.
Commodity Price Risk: The Company is subject to commodity price risk primarily through the grain, live hog, and natural gas 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 April 30, 2023, was $(12.1) million compared to $21.6 million as of October 30, 2022. 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 April 30, 2023, by $30.3 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 April 30, 2023, the Company’s long-term debt had a fair value of $2.9 billion compared to $2.7 billion as of October 30, 2022. 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 April 30, 2023, by $81.4 million. A 10 percent increase would have negatively impacted the long-term debt by $76.2 million.
Foreign Currency Exchange Rate Risk: The fair values of certain assets are subject to fluctuations in foreign currency exchange rates. The Company's net asset position in foreign currencies as of April 30, 2023, was $1,125.7 million, compared to $652.4 million as of October 30, 2022, with most of the exposure existing in Indonesian rupiah, Chinese yuan 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 April 30, 2023, the balance of these securities totaled $192.0 million compared to $186.2 million as of October 30, 2022. 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 pretax earnings by approximately $8.3 million, while a 10 percent increase in value would have a positive impact of the same amount.
Item 4. CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures.
As of the end of the period covered by this report (the Evaluation Date), the Company carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act)). In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures were effective to provide reasonable assurance that information the Company is required to disclose in reports it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
(b) Internal Controls.
There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the second quarter of fiscal 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is a party to various legal proceedings related to the ongoing operation of its business, including claims both by and against the Company. At any time, such proceedings typically involve claims related to product liability, labeling, contracts, antitrust regulations, intellectual property, competition laws, employment practices, or other actions brought by employees, customers, consumers, competitors, or suppliers. The Company establishes accruals for its potential exposure, as appropriate, for claims against the Company when losses become probable and reasonably estimable. However, future developments or settlements are uncertain and may require the Company to change such accruals as proceedings progress. Resolution of any currently known matters, either individually or in the aggregate, is not expected to have a material effect on the Company’s financial condition, results of operations, or liquidity.
The Company is a defendant in four sets of antitrust lawsuits broadly targeting the pork and turkey industries. None of these cases involve allegations of bid rigging or other criminal conduct. The Company has not established reserves as it does not believe it will have liability in any of these cases.
Item 1A. RISK FACTORS
The Company's business, operations, and financial condition are subject to various risks and uncertainties. There have been no material changes to the risk factors previously disclosed in Part I, Item 1A. Risk Factors in the Company's Annual Report on Form 10-K for the fiscal year ended October 30, 2022.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
| Issuer Purchases of Equity Securities | |||||||||||||||||||||||
| Quarter Ended April 30, 2023 | |||||||||||||||||||||||
| Period | Total Number of Shares Purchased (1) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) | Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs (1) | |||||||||||||||||||
| January 30, 2023 - March 5, 2023 | — | $ | — | — | 3,987,494 | ||||||||||||||||||
| March 6, 2023 - April 2, 2023 | 210,000 | 39.42 | 210,000 | 3,777,494 | |||||||||||||||||||
| April 3, 2023 - April 30, 2023 | 100,000 | 40.25 | 100,000 | 3,677,494 | |||||||||||||||||||
| Total | 310,000 | $ | — | 310,000 | |||||||||||||||||||
(1) 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.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. MINE SAFETY DISCLOSURES
None.
Item 5. OTHER INFORMATION
None.
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Item 6. EXHIBITS
| 101 | The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended April 30, 2023, formatted in Inline XBRL: (i) Consolidated Statements of Operations, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Condensed Statements of Financial Position, (iv) Consolidated Statements of Changes in Shareholders' Investment, (v) Consolidated Condensed Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements. | ||||
| 104 | The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended April 30, 2023, formatted in Inline XBRL (included as Exhibit 101). | ||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| HORMEL FOODS CORPORATION | ||||||||
| (Registrant) | ||||||||
| Date: June 1, 2023 | By | /s/ JACINTH C. SMILEY | ||||||
| JACINTH C. SMILEY | ||||||||
| Executive Vice President and Chief Financial Officer | ||||||||
| (Principal Financial Officer) | ||||||||
| Date: June 1, 2023 | By | /s/ PAUL R. KUEHNEMAN | ||||||
| PAUL R. KUEHNEMAN | ||||||||
| Vice President and Controller | ||||||||
| (Principal Accounting Officer) | ||||||||
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