Hormel Foods : 2023 Annual Report

2023 Annual Report

INVEST TRANSFORM GROW

Dear fellow shareholders: In fiscal 2023, we achieved our second consecutive year of net sales exceeding $12 billion, continued to reinvest in the growth of our leading brands, drove strong operating cash flows of $1 billion, returned a record amount of cash to our shareholders in the form of dividends and achieved the safest year in our Company's history. We also made progress in our evolution as a global branded food company, including the implementation of our new operating model, GoFWD, and the integration of Jennie-O Turkey Store.

Fiscal 2023 was also a challenging year for the organization as we navigated an environment that remained volatile, complex and high cost. Regardless, our results did not meet our expectations.

Invest. Transform. Grow.

We announced at our 2023 Investor Day actions to further transform and modernize our organization to better position the Company for long-term growth. When combined with the growth from our current business, we expect to drive operating income growth of $250 million or more

by fiscal 2026.

We have already made significant progress in our evolution to become a stronger, more balanced and less volatile company, and we are embarking on this next era of growth from a position of strength:

• We have iconic and diverse brands, with leading positions in more than 40 categories at retail,* trusted and reputable brands in foodservice, and brands recognized around the world, including SPAM®, Skippy®, Hormel® Black Label®, Jennie-O® and Planters®.

• We are increasingly balanced across the channels in which we compete, including scale in the U.S. retail and foodservice channels, and through the investments we have made in global markets and emerging channels.
• We are led by an experienced and proven management team and are now organized for long-term growth, headlined by our GoFWD reorganization, centralized One Supply Chain and direct-selling teams.
• We are focused on reducing our commodity exposure, staying disciplined in our financial strategy and driving consistent cash flows to grow our business and return cash to shareholders.
• We are committed to corporate citizenship, guided by Our Food Journey™, our 20 By 30 Challenge and our desire to support the communities where we live and work.

Over the next three years, we will be investing in our people, processes, data and technology, and brands … to transform and modernize our processes, portfolios and how we create value as a company … to grow our business and the impact we have on the world.

The Company transitioned to three operating segments - Retail, Foodservice and International - at the beginning of fiscal 2023. These segments are supported by Brand Fuel, which houses enterprisewide brand management expertise, e-commerce capabilities, insights-led innovation and analytical support; One Supply Chain, the Company's centralized supply chain function; and other centers of excellence.

*Circana 52 weeks ending 11/5/2023 - MULO; SPINS 52 weeks ending 11/5/2023.

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To support these actions, we updated our strategic priorities to better align with our new business segments and enterprisewide initiatives.

We must drive focus and growth in our Retail business - our nearly $8 billion powerhouse of leading brands, talented people and strong capabilities. Our brands remain a staple in U.S. homes, and we expect to drive continued growth for our brands, including SPAM®, Hormel® Black Label®, Planters®, Jennie-O® and Hormel® pepperoni.

We will continue to expand leadership in Foodservice. This business emerged from the pandemic stronger, delivered excellent results again in fiscal 2023 and continues to outpace industry growth. Our portfolio is designed to solve for labor pressures and diversify menu offerings. It is resonating with operators, led by brands such as Hormel® Bacon 1™, Austin Blues®, Café H®, Hormel® Fire Braised™ and Fontanini®.

We are aggressively developing our global presence through our legacy export business, multinational businesses in China and Brazil, recent investment in Indonesia and through our partnerships around the world. We are confident that our international teams will resume delivering accelerated growth over the coming years.

We must execute our enterprise entertaining and snacking vision, and we are positioned to win in this space with brands and products such as Planters®, Corn Nuts®, Hormel® pepperoni, Columbus®, Hormel Gatherings® and Skippy®. We plan to use our leading positions and innovation capabilities to drive growth in this important category, especially for younger and more diverse consumers.

Jim Snee

Chairman of the Board, President

and Chief Executive Officer

We are future-fitting our One Supply Chain, which to us means reducing cost and minimizing complexity, while investing in long-term growth. Our immediate focus areas are simplifying our portfolios and improving efficiency across all parts of the supply chain.

Finally, we continue to transform and modernize our Company, which is a critical piece to our growth over the next three years. We will be investing in our people, implementing new processes that are best in class, modernizing our technology solutions, and ensuring the relevancy, profitability

Invest

in people, processes, data and technology, and brands

Transform

and modernize processes, portfolios and how we create value as a company

Grow

net sales, earnings and the impact we have on the world

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and staying power of our leading brands. Through transformational work, we expect to build significant capabilities for the future. This is truly exciting work for the organization!

As we look ahead to fiscal 2024, our team continues to navigate through a dynamic environment characterized by slowing consumer demand and persistent inflationary pressures. We expect fiscal 2024 to be a year of investment, as we remain focused on our proven strategies, executing our transformation and modernization initiative, fueling our innovation pipeline and exiting the year with momentum in our business segments.

Capital Management

We remain committed to dividend growth, investing in our business and maintaining an investment-grade rating. Our consistent cash flows and disciplined financial strategy directly support these commitments.

In fiscal 2023, we returned a record $593 million in dividends to our shareholders. Fiscal 2024 will represent a remarkable 58th consecutive year of dividend increases. We recently announced an increase to our dividend of 3%, for an annual dividend of $1.13 per share.

We also invested $270 million in capital, led by capacity expansions to support growth for our retail and foodservice pepperoni, and for the SPAM® family of products. We continued to seek opportunities to automate difficult,

highly repetitive jobs, and improve employee retention and satisfaction, as evidenced by a best-in-class automation project at the Faribault, Minn., facility.

Lastly, we purchased a minority interest in PT Garudafood Putra Putri Jaya Tbk (Garudafood), one of the largest food and beverage companies in Indonesia. This investment expands our presence in Southeast Asia and supports the global execution of our entertaining and snacking strategy.

Senior Leadership and Board Member Changes

Fiscal 2023 included a series of leadership appointments and advancements to new positions as we better structured our business. We continue to have an experienced, deep and talented bench of leaders who can drive growth for our business, lead change and develop future leaders for the Company.

At the beginning of fiscal year 2023, Henry Hsia was elevated to vice president of Retail marketing - snacking and entertaining. In July 2023, 33-year company veteran Scott Aakre, who was instrumental in standing up Brand Fuel, was promoted to the newly created role of group vice president and chief marketing officer of the Retail business. Lisa Selk advanced to senior vice president of Brand Fuel following Scott's promotion. Natosha Walsh was appointed vice president of marketing for convenient meals and proteins, replacing Lisa, and Lynn Egner was promoted to vice president of Retail sales - west, following Natosha's advancement.

Update on Strategic Priorities The Company updated its six strategic priorities to better align with its new business segments and support earnings growth over the next three years.

Drive focus and growth	Execute our enterprise entertaining
in our Retail business	& snacking vision

By uniting our leading brands, sales and marketing organizations, and Brand Fuel center of excellence.

By unlocking the power of our brands across the channels in which we compete.

Expand leadership in	Future-fit our
Foodservice	One Supply Chain

By leveraging our expertise, partnerships and solutions-based portfolio.

By minimizing complexity, reducing cost and investing for growth.

Aggressively develop our	Continue to transform &
global presence	modernize our Company
By bringing meaningful scale to select global markets.	By investing in our people, processes, data and
	technology.

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Company recognition We are consistently recognized for our commitment to consumers, team members and the communities where we live and work.

During the year, Terry Crews retired from our Board of Directors. Terry served for more than 15 years on our Board, and we thank him for his valuable contributions during that time. In March, Ray Young, former vice chairman and chief financial officer of Archer-Daniels-Midland Company, and Mike Zechmeister, chief financial officer of C.H. Robinson Worldwide, Inc., were elected to the Board of Directors. Both Ray and Mike will be great additions to our exceptional team of directors, given their extensive financial and operational experience with some of the most well-known companies in the world.

Our Food Journey™ and 20 By 30 Challenge**

Guided by Our Food Journey™, we believe that being a successful company means more than just delivering exceptional products to consumers. It means understanding and embracing our global impact - the broader responsibility we have to the planet and society.

We again made progress with our 20 By 30 Challenge, including:

• Matching 100% of our U.S. and 96% of global electricity usage with renewable sources.
• Receiving validation for our greenhouse gas (GHG) reduction targets by the Science Based Targets initiative.
• Announcing an expansion of our college tuition program for eligible team members in the U.S. to earn their degrees or complete nondegree programs for free.
• Achieving the safest year in our Company's history.
• Remaining on track to achieve our goal of providing the equivalent of 70 million meals to those in need.
• As a convener of local agencies and nonprofit organizations, the Hometown Food Security Project was launched in Austin, Minn.

Additionally, we were named to Fortune magazine's World's Most Admired Companies list, recognized as one of America's best companies to work for by U.S. News & World Report,

named one of America's most trustworthy companies and one of America's greatest workplaces by Newsweek, honored as a best-for-vets employer for the 11th consecutive year, named to the annual Drucker Institute Management Top 250 List of America's best-run companies, recognized as one

of Barron's Most Sustainable U.S. Companies, ranked as one of the 50 best companies to sell for by Selling Power magazine and named one of Fast Company's best workplaces for innovators.

We are proud of these accolades, our long track record of strong corporate citizenship and the progress we are making on our aggressive goals to achieve by 2030. I encourage you to read our 17th annual Global Impact Report, which has more information about our progress in these important areas.

As we turn the page to fiscal 2024, we have a realistic and achievable path to deliver earnings growth and improve our business over the next three years. Achieving our goals is expected to return the business to its historical earnings trajectory, supply the fuel necessary to drive future growth and support further dividend increases. I remain confident that we have the right brands, strategy, people and culture to deliver on this commitment to improve our business and drive long-term shareholder returns and growth.

To our team members: THANK YOU for all the hard work to set us up for future success.

To our shareholders: THANK YOU for your continued trust and support.

James P. Snee

Chairman of the Board, President

and Chief Executive Officer

**More information on the 20 By 30 Challenge can be found in the Company's 2022 Annual Global Impact Report available online at hormelfoods.com in the Responsibility section.

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INVEST TRANSFORM GROW

Retail	in the marketplace
	Leveraging our leading
	consumer brands and scale

The Retail segment is an almost $8 billion powerhouse of leading brands, talented people and strong capabilities. Home to many long-established, trusted brands and products - such as SPAM® products, Hormel® Black Label® bacon, Hormel® pepperoni and Jennie-O® turkey - our large, balanced and scalable retail portfolio remains relevant and positioned for growth. We are driving focus and growth in our Retail business by investing in our brands, leading with innovation, and constantly evolving our portfolio to meet the changing needs of our consumers and our customers.

Aligning with today's consumers

Many of our brands have emerged from the pandemic stronger and more relevant with consumers. Our brands continue to hold a No. 1 or No. 2 position in more than 40 categories,1 with approximately 84% of all households in the United States purchasing products sold by Hormel Foods.2

Economic uncertainty	Demographic changes
®
	BRAND

Sustaining the good

Holistic well-being

~84%

BRAND

U.S. households purchasing Hormel Foods retail products2

	Insights and
	analytics	Digital experience
Innovation	+5%CAGR in advertising

investments since 2019

®

BRAND

Standing up Brand Fuel

Our newest center of excellence, Brand Fuel, is focused on consumer and shopper insights, data analytics, product innovation and media strategy. It also houses the Digital Experience Group, the e-commerce and digital content team that supports the Company's brands and businesses in the virtual marketplace. Brand Fuel allows team members with specialized skills to create solutions benefiting the entire organization.

Source: (1) Circana 52 weeks ending 11/5/2023 - MULO; SPINS 52 weeks ending 11/5/2023; (2) Circana Scan Panel, Total US All Outlet, 52 weeks ending 11/5/2023;

(3) Circana 2023 Snacking Survey; (4) The NPD Group/CREST®, YE Feb. 2022.

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Winning in entertaining and snacking

Snacking is a growing lifestyle in the United States, especially for the younger generations.3 We are positioned to win in this on-trend category, and are using our powerful and complementary portfolio of brands to innovate for younger and more diverse consumers.

®

®

®

Innovating in global flavors

Through our joint venture with MegaMex Foods, we are innovating in Mexican flavors, with a portfolio of authentic, high-quality and convenient items. The Herdez® and Wholly® brand teams are expanding beyond their core products to create dynamic innovation pipelines.

Mexican is the top ethnic cuisine in the United States with millennials,4 both at and away from home

Changing the Meat We Eat®

We know consumers are increasingly seeking and supporting brands that are genuinely advancing ESG initiatives. Our Applegate® brand remains an industry leader in natural and organic meats, offering choice for diverse taste profiles, lifestyles and eating occasions.

	INVEST
	TRANSFORM
7	GROW

Delivering high-quality,

Foodservice innovative culinary solutions with an operator-first mentality

Our Foodservice segment is a highly differentiated business focused on delivering innovative solutions to solve for operator challenges. We have grown our leadership position within foodservice through our direct sales force, industry expertise, balanced go-to-market strategy, and high-quality and versatile products. Our portfolio is designed to simplify operations, save time and maximize available labor, all while providing operators the flexibility they need to create their own unique menu offerings.

Combining brands across the organization

Through our GoFWD initiative, we have combined our leading foodservice brands across the organization to drive accelerated growth. Our trusted and well-known portfolio of brands helps address the needs and challenges of operators in today's dynamic environment.

®

D

N

B

Delivering above-industry growth

By aligning with industry trends, operator shifts and macroeconomic changes, we have consistently outpaced foodservice industry growth. Our focus on building and maintaining decadeslong relationships within the industry has been a key to our success.

Source: (1) NACS State of the Industry 2022.

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Growing our key categories

We are seen as an industry leader and authority in bacon, pizza toppings, prepared proteins and turkey. We have robust plans to continue growing in these areas, while further unlocking value and opportunities from the integration of the Jennie-O Turkey Store foodservice business.

		Premium
Bacon	Pizza toppings	prepared proteins	Turkey

Expanding our c-store presence

With the addition of the Planters® snack nuts business, our team is focused on expanding our presence in the convenience store channel, which will further balance our business in an important, growing and relevant industry subsegment. Our products align with many key areas of the convenience store, presenting a compelling and attractive opportunity for future growth.

Key categories in c-stores1

Prepared foods

Salty snacks

#1Inside sales contributor	#5Inside sales contributor
	®

Leveraging our differentiated capabilities

We are structured for long-term growth, organized as a full-solutions provider across branded, customized and distributor label spaces. Our vision is to continue to outpace industry growth by delivering value- added, differentiated products to the market through the leading sales team in the industry.

Solutions-based portfolio

Direct-selling model Operator-focused innovation

	INVEST
	TRANSFORM
9	GROW

Aggressively developing

International our global presence by bringing meaningful scale to select global markets

Our ambitions to accelerate growth internationally remain strong. We are continuing to develop our global presence by: leveraging our global brands, including SPAM®, Skippy® and Hormel®; replicating our balanced business model in China and Brazil; continuing to grow our partnerships in South Korea, Europe and the Philippines; and expanding our business into Indonesia and Southeast Asia with our investment in Garudafood.

Exports	Partnerships	Multinational
business

Growing and expanding in China

For almost 30 years, we have been developing our presence in China. Today, our team focuses on four categories: refrigerated meats, canned foods, condiments, and entertaining and snacking. We are continuously innovating to stay relevant with our customers, consumers and operators to drive retail and foodservice growth in this important market.

Expanding our global entertaining and snacking presence

Our minority investment in Garudafood is driving the execution of our entertaining and snacking strategy globally. Garudafood is a market leader, with strong and reputable brands, local expertise and a best-in-class distribution network. This investment allows us to increase our presence in high-growth geographies and in the snacking and entertaining category.

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