Hormel Foods Our Path Forward Jim Snee President and CEO Legal - - PowerPoint PPT Presentation

Hormel Foods

Our Path Forward

Jim Snee

President and CEO

Legal

This presentation contains forward-looking information based on management’s current views and

• assumptions. Actual events may differ materially. Please

refer to the cautionary statement regarding Forward- Looking Statements and Risk Factors on pages 32-38 in the Company’s Form 10-Q for the fiscal quarter ended April 30, 2017 for more details.

Disclosure

Earnings Per Share Adjusted Revenue* 2016 Q3 $2.17

+ 1%

2017 Q3 $2.20 2016 Q3 $0.34 2017 Q3 $0.36

• 6%

In billions

THIRD QUARTER UPDATE

Segment Results

2017 Third Quarter

Record Pre-Tax Earnings

Adjusted Volume* 2016 Q3 1.12

• 1%

2017 Q3 1.11

Lbs, In billions

*Excluding Justin’s acquisition, Farmer John divestiture, and Diamond Crystal Brands divestiture. See GAAP reconciliation tables.

THIRD QUARTER UPDATE

Record Commodity Price Volatility

Margin Compression Due to

2016 2017 5 Yr. Range (CY 12-16)

Pork Belly Prices/CWT

$0 $50 $100 $150 $200 $250 $300

50% Beef Trim Price/CWT

$0 $50 $100 $150 $200 $250 Source: USDA JAN FEB MAR APR MAY JUN JUL AUG SEPT OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEPT OCT NOV DEC

THIRD QUARTER UPDATE

Continued Low Turkey Prices

Record Turkey Production Leads to

Turkey Poult Placement – YOY % Change

2016 2017

7%

• 1%

3% 3% 9% 6% 7% 7% 13% 6% 2% 2% 4% 2% 4%

• 2%
• 3%
• 2%
• 5%

20 40 60 80 100 120

Turkey Breast Cold Storage

2016 2017 5 Yr. Range (CY 12-16)

JAN FEB MAR APR MAY JUN JUL AUG SEPT OCT NOV DEC Source: USDA

Commodity Price Volatility

Brand Strength Despite

*Source: Volume Growth, IRI MULO 13 weeks ended 7/30/2017

Peanut Butter Fresh Tray Pack

Innovation Low Single-Digit Growth* Double-Digit Growth*

Lunchmeat and Bacon

High Single-Digit Growth*

Ribs

THIRD QUARTER UPDATE

THIRD QUARTER UPDATE

Segment Results

2017 Third Quarter

*Excluding Justin’s acquisition, Farmer John divestiture, and Diamond Crystal Brands divestiture. See GAAP reconciliation tables.

• High input cost environment
• Strong Refrigerated Foods and

Grocery Products segment performance

• Continued pressures for

Jennie-O Turkey Store

• Aggressive competitive activity

for CytoSport products

ADJUSTED NET SALES CHANGE* SEGMENT PROFIT CHANGE

Refrigerated Foods Grocery Products Jennie-O Turkey Store Specialty Foods International & Other Total + 5% + 3% (9%) (1%) + 1% + 1% + 15% + 10% (20%) (14%) (16%) + 2%

$0.00 $0.20 $0.40 $0.60 $0.80 $1.00 $1.20 $1.40 $1.60 $1.80

Earnings Growth

Consistent

Internal data

THIRD QUARTER UPDATE

$1.54 - $1.58

POSITIONED TO COMPETE

Across the Food Space

Strong, Branded Presence

Retail 65% Foodservice 27% International 5% Other 3%

Net Sales

Fiscal 2016 Data

POSITIONED TO COMPETE

*IRI Total U.S. MULO 52 weeks ended 4/9/2017

Across the Grocery Store

Strong, Branded Presence

Products

Restaurants College & University Healthcare Convenience Hotels

In the Foodservice Channel

Exceeding Industry Growth

K-12 Schools

Segments

* Technomic Inc. and Internal Data

POSITIONED TO COMPETE

For International Growth

Three Go-To-Market Strategies

POSITIONED TO COMPETE

POSITIONED TO COMPETE

Value-Added Protein Iconic Brands Direct Sales Force Shelf Stable Products

Expertise

Industry-Leading

POSITIONED TO COMPETE

Acquisitions

Financially Disciplined

Acquisition purchase price in millions

• Branded, value-added Italian meats & sausage company
• $240 million in sales
• $90 million tax cash flow benefit
• Available production capacity
• 3-4 cents EPS accretion in FY18

POSITIONED TO COMPETE

Hormel Foodservice

A Great Complement to

POSITIONED TO COMPETE

• First entry into South America
• Premium, authentic brand in Brazil
• Experienced professional management team
• $100 million in sales
• 1 cent EPS accretion in FY18

Global presence

Expanding Our

+ + +

For Success

Our Formula

Building Brands Innovation Acquisitions Balanced Portfolio

A STRATEGY FOR LONG-TERM GROWTH

• 1. Evolving to a broader food company
• 2. Expanding and accelerating foodservice
• 3. Becoming a more global food company
• 4. Reducing volatility and increasing balance
• 5. Divesting non-strategic assets
• 6. Modernizing our supply chain

Our Path Forward

Hormel Foods

A STRATEGY FOR LONG-TERM GROWTH

Food Company

Evolving to a Broader

+

Meat Protein Company Broader Food Company Non-Meat Protein Flavor Enhancers

A STRATEGY FOR LONG-TERM GROWTH

Accelerating Foodservice

Expanding and

A STRATEGY FOR LONG-TERM GROWTH

Global Food Company

Becoming a More

China Capacity

Lbs

• 1. #1 or #2 brands
• 2. Product mix – shelf stable &

perishable

• 3. Channel mix – foodservice & retail
• 4. No vertical integration

Recreating the U.S. Model Globally Geographic Expansion

A STRATEGY FOR LONG-TERM GROWTH

Pork and Turkey

Beef, Nuts, Tomatoes and Avocados

Retail Foodservice Domestic International Protein Packaged Foods

• 1. Continuing to shift our mix

to value-added products

• 2. Fewer commodity sales
• 3. Expanding our portfolio of

raw materials

Increasing Balance Reducing Volatility and

Reducing Volatility By:

A STRATEGY FOR LONG-TERM GROWTH

Divesting Non-Strategic Assets

Portfolio Management

A STRATEGY FOR LONG-TERM GROWTH

Internal data

Supply Chain

Modernizing Our

SIMPLIFY MODERNIZE OPTIMIZE RATIONALIZE

A STRATEGY FOR LONG-TERM GROWTH

Internal data

2017 Investor Day Strategic Actions Since

Evolving to a broader food company Expanding and accelerating foodservice Becoming a more global food company Reducing volatility & increasing balance Divesting non-strategic assets Modernizing our supply chain

A STRATEGY FOR LONG-TERM GROWTH

Jim Sheehan

Senior Vice President, Chief Financial Officer

• Strategic cost

management

• Improving our

cash cycle

• Optimizing our

capital structure

Strategy

Our Financial

FINANCIAL STRATEGY

$0.00 $0.20 $0.40 $0.60 $0.80 $1.00 $1.20 $1.40 $1.60 $1.80

Internal data

$1.54 - $1.58

Earnings Growth

Consistent

FINANCIAL STRATEGY

$100 invested on 8/29/07 in stock or index – including reinvestment of dividends

Hormel Foods $417

S&P 500 Pkg Food & Meats $273 S&P 500 $207

Shareholders Returns

Delivering Long-Term

$0 $100 $200 $300 $400 $500 $600

FINANCIAL STRATEGY

Strategic Cost

Management

FINANCIAL STRATEGY

Less Mission Critical

0% CAGR General & Administrative Budget 2017 2018

Strategic Less Mission Critical Strategic

Digital & E-commerce

50 48 2013 2016 2018

Aggressive Improvement

Days

Our Cash Cycle

Improving

Cash Conversion Cycle

• Obtain industry-leading

accounts payable terms

• Aggressively enforce

agreed upon selling terms

• Optimize inventory levels

Internal Data

FINANCIAL STRATEGY

For Growth

Optimizing the Balance Sheet

Internal data as of fiscal Q3 2017

FINANCIAL STRATEGY

• 5%

0% 5% 10% 15% 20% 25% 30% 35% 40%

High ROIC

Resulting in Consistently

Factset data based on fiscal 2012-2016 data for Hormel Foods and time-relative data for peers listed in Company 2016 proxy statement.

• Rigorous valuation process
• Long-term weighted average

cost of capital

• Post investment analysis

Investment Principles

FINANCIAL STRATEGY

Cash to Shareholders

Commitment to Returning

Internal Data

Dividends

FINANCIAL STRATEGY

• Strategic cost management
• Improving our cash cycle
• Optimizing our capital structure
• Maintain dividend growth
• Invest to support high ROIC
• Continue share repurchases

Our Path Forward

Hormel Foods

FINANCIAL STRATEGY

Hormel Foods

Our Path Forward

GAAP Reconciliation:

ADJUSTED FINANCIAL MEASURES Adjusted net sales and volume excludes the impact from the Justin’s, LLC acquisition in May 2016, and the divestitures of the Diamond Crystal Brands business in May 2016, and the Farmer John business in January 2017. Results below reflect only the incremental sales and tonnage through period 7 of fiscal 2017 for the Justin’s, LLC acquisition and only through the date of divestiture, or period 7 of fiscal 2016, for the Diamond Crystal Brands divestiture. The tables below show the calculations to reconcile from the non-GAAP adjusted measures to the GAAP measures in the third quarter and third quarter year-to-date of fiscal 2016 and fiscal 2017.

3rd Quarter