BRANDS
INNOVATION
THINKING
LEADERSHIP
FLAVORS
IDEAS
JOURNEY INVESTOR DAY WEBSITE investorday.hormelfoods.com
NYSE Wi-Fi: Username: ISN, password: 19caRdUd Opening Remarks: Jim Snee – Chairman of the Board, President & CEO Refrigerated Foods: Tom Day – Executive VP, Refrigerated Foods Grocery Products: Luis Marconi – Group VP, Grocery Products AGENDA Direct Sales Force: Deanna Brady – Group VP, Consumer Product Sales
Q&A Session #1 Jim Snee – Chairman of the Board, President & CEO Tom Day – Executive VP, Refrigerated Foods Luis Marconi – Group VP, Grocery Products Deanna Brady – Group VP, Consumer Product Sales Jeff Baker – Group VP, Hormel Deli Solutions Mark Ourada – Group VP, Hormel Foodservice
Break – From Approximately 10:05 – 10:20 Jennie-O Turkey Store: Steve Lykken – Senior VP, Jennie-O Turkey Store One Supply Chain: Glenn Leitch – Executive VP, Supply Chain Plant-Based Products: Jim Splinter – Group VP, Corporate Strategy
AGENDA Q&A Session #2 Glenn Leitch – Executive VP, Supply Chain Jim Splinter – Group VP, Corporate Strategy Larry Vorpahl – Group VP, Hormel Foods International Steve Lykken – Senior VP, Jennie-O Turkey Store
Finance: Jim Sheehan – Executive VP and CFO
Q&A Session #3 Jim Snee – Chairman of the Board, President & CEO Jim Sheehan – Executive VP and CFO
Closing Remarks: Jim Snee – Chairman of the Board, President & CEO Special Lunch: Chef Tony Finnestad This presentation contains forward-looking LEGAL information based on management’s DISCLOSURE current views and assumptions. Actual events may differ materially. Please refer to the cautionary statement regarding “Forward-Looking Statements” and “Risk Factors” on pages 35-41 in the Company’s Form 10-Q for the quarterly period ended July 28, 2019, available for viewing and download on the investor page of the Company’s website – Hormelfoods.com OPENING REMARKS
Jim Snee
Chairman of the Board, President and CEO HORMEL FOODS AT A GLANCE A Global Branded Food Company
International 7%
U.S. Retail 52% U.S. Deli 10%
Net U.S. Foodservice 2731% Sales %
Source: Internal data, fiscal 2019, Q3 YTD WORLD-CLASS LEADERSHIP TEAM
Jim Jim Tom Glenn Snee Sheehan Day Leitch
Chairman of Executive Vice Executive Vice Executive Vice the Board, President and President, President, President CFO Refrigerated Supply Chain and CEO Foods
Deanna Steve Luis Jim Brady Lykken Marconi Splinter
Group Vice Senior Vice Group Vice Group Vice President; President; President, President, President, President, Jennie- Grocery Corporate Consumer Product O Turkey Store Products Strategy Sales
Jeff Larry Mark Baker Vorpahl Ourada
Group Vice Group Vice Group Vice President, President; President, Deli President, Hormel Foodservice Foods International Corporation KEY MESSAGES YOU WILL HEAR TODAY As a Global Branded Food Company, we have the ability to deliver sustainable long-term growth.
An Uncommon We have built a unique, bold culture with strong Company brands to support sustainable, long-term growth.
Improved Quality We have improved our quality of earnings of Earnings through intentional and strategic actions.
Clear Growth We have a clear growth strategy to achieve our Strategy long-term Key Results.
Significant We are advancing to the next stage in our Opportunity Ahead evolution as a Global Branded Food Company. HORMEL FOODS A Global Branded Food Company
An Uncommon Company
Executing on Our Strategy
Positioned to Win
A Clear Path Forward AN UNCOMMON COMPANY
Founded in GLOBAL Branded 1891 Food Company
25 YEARS Average 81 YEARS Management Tenure of Profit Sharing
48% OWNERSHIP
Source: Ownership as of 11/30/2018 record date OUR VISION
OUR PURPOSE A CLOSER LOOK AT OUR FOOD JOURNEYTM INVESTING in Our People
20,000 37% Employees Received Universal Workforce Represented by Stock Options in 2018 Women 50% 52% Employees with 5+ Years Workforce Represented by of Service Ethnic Minorities
MOST INNOVATION AND CREATIVITY
Source: Internal data A CLOSER LOOK AT OUR FOOD JOURNEYTM On Track to Achieve 2020 Goals
Reduce water use by 10%
IMPROVING Reduce solid Communities Where waste sent to We Live and Work landfills by 10% Reduce nonrenewable energy use by 10%
Reduce greenhouse gas emissions by 10%
Reduce product packaging by 25 million pounds
Source: 2018 Corporate Responsibility Report A CLOSER LOOK AT OUR FOOD JOURNEYTM CREATING PRODUCTS to Improve the Lives of Customers, Consumers and Operators
BRAND
BRAND LONG-TERM 9% DECISION-MAKING Other Supported by Our Ownership Structure
THE HORMEL FOUNDATION GOALS 48%
1. Preserve the independence of the Company 43% 2. Support the Austin, Minn., Institutional community Investors
3. Provide for the financial welfare of family heirs
Source: Ownership as of 11/30/2018 record date; Institutional ownership as of 10/28/2018 HORMEL FOODS A Global Branded Food Company
An Uncommon Company
Executing on Our Strategy
Positioned to Win
A Clear Path Forward Evolving to a broader food company SUCCESSFULLY DELIVERING Expanding and accelerating foodservice ON OUR Becoming a more 2017 PATH global food company FORWARD Reducing volatility and COMMODITY VALUE-ADDED increasing balance PROFITS PRODUCTS
Divesting FREMONT non-strategic assets PLANT
Modernizing our supply chain IMPROVED QUALITY OF EARNINGS Through Intentional and Strategic Actions
SEGMENT PROFIT
1. Reduced exposure to commodity profits 2. Reshaped our portfolio for higher growth and less earnings volatility 3. Delivered branded value-added 2015 Actual Commodity Divestitures Acquisitions Value-Added 2019 est Profits Products profit growth
Source: Internal data A CLOSER LOOK AT PROFIT IMPROVEMENT 1. REDUCED EXPOSURE to Commodity Profits
SEGMENT PROFIT INTENTIONAL ACTIONS Divested Farmer John and 2015 2019 Q3 YTD 17% 5% Fremont plant Commodity Commodity Converted commodity sales to value-added sales
MARKET-DRIVEN DECREASES
Jennie-O Turkey Store live production and whole birds Refrigerated Foods commodity profits 83% 95% 95% International fresh pork exports 83% Value-Added Value-Added
Source: Internal data. Commodity profits are Refrigerated Foods, Jennie-O Turkey Store and International unbranded sales and profits including fresh meat sales, fresh pork exports, and whole bird sales in addition to the Farmer John and Fremont plant divestitures. A CLOSER LOOK AT PROFIT IMPROVEMENT 2. RESHAPED OUR PORTFOLIO for Higher Growth and Less Earnings Volatility
DIVESTITURES ACQUISITIONS
Total Sales Divested Divested Margins Total Sales Acquired Acquired Margins ~$1.1B < 10% ~$1.1B > 10%
Fremont Plant
Source: Internal data for FY 2015 - 2019 A CLOSER LOOK AT PROFIT IMPROVEMENT 3. DELIVERED BRANDED VALUE-ADDED PROFIT Growth over the Last 4 Years
VALUE-ADDED SEGMENT PROFIT Foodservice growth continues to outpace the industry by 2-3x Growth in retail categories led by brands such as SPAM®, Hormel® pepperoni, Herdez® and +4-5% ® CAGR Wholly Industry-leading innovations such as Hormel® Bacon 1TM, Hormel® Fire-BraisedTM and Herdez® guacamole salsa
Declines in Jennie-O® lean ground turkey Rationalized contract manufacturing business
2015 2016 2017 2018 2019est
Source: Internal data. Excludes commodity profits, divestitures and year 1 of acquisitions. GROCERY PRODUCTS HORMEL FOODS A Global Branded Food Company
An Uncommon Company
Executing on Our Strategy
Positioned to Win
A Clear Path Forward THE FOOD INDUSTRY IS UNDERGOING SIGNIFICANT CHANGE Demographic Shifts Purpose-Driven Brands Blurring Channels Changing Consumer Preferences Snacking Personalization Globally Inspired Flavors EXPANDING OUR COMPETITIVE ADVANTAGES
Brand Stewardship Insights-Driven Innovation Strong Customer Relationships Supply Chain Capability Culture of Accountability BRAND STEWARDSHIP Supporting Retail, Deli and Foodservice Brands
RETAIL AND DELI FOODSERVICE
“Changing the Meat We Eat” “Perfectly and Fully Cooked” “Authentic Italian Meats” “Authentic Mexican Salsa” “All Natural Ingredients”
“Expanding the Reach “Genuine, Slow “Responsibly Sourced of Amazing Taste” Smoked Barbeque” Ingredients” “Artisan Crafted Meats”
“Fire Seared and Slow Cooked” “Cupping and Charring “Food That Inspires You the Pizza World” To Live Well” “Real Ingredient Goodness”
Source: IRI 52 weeks ending 11/4/2018 – MULO; Internal data; Technomic INSIGHTS AND BOLD THINKING ARE DRIVING OUR INNOVATION World-Class, Award-Winning R&D and Innovation Teams
Back-to-Back Progressive Grocer GMA Awards for Editors’ Picks Innovation and Creativity CUSTOMER-FOCUSED, SOLUTIONS-BASED Direct Sales Force 800 SALES PROFESSIONALS
Retail Foodservice Deli CREATING an Efficient and Agile Supply Chain
ASSET & CAPITAL AUTOMATION RIGHT LOGISTICS & OPTIMIZATION EFFORTS SOLUTIONS CUSTOMER SERVICE MODEL CULTURE OF ACCOUNTABILITY Empowering our Team Members to Think Differently and BE BOLD BUILDING BRANDS INNOVATION
OUR FORMULA FOR SUCCESS
ACQUISITIONS BALANCED PORTFOLIO GROCERY PRODUCTS HORMEL FOODS A Global Branded Food Company
An Uncommon Company
Executing on Our Strategy
Positioned to Win
A Clear Path Forward ANOTHER STEP FORWARD in the Continued Evolution of Hormel Foods
PRE-2013 2013-2019 2020+ MEAT-CENTRIC PROTEIN-CENTRIC GLOBAL BRANDED COMPANY COMPANY FOOD COMPANY
Pork and turkey Expanded beyond Global meat protein Leading retail, deli Retail-focused Strong growth and foodservice from foodservice brands Commodity-driven Derisked Food Forward commodity profits SIX STRATEGIC PRIORITIES
Grow our deli and OUR 2020 #1 foodservice brands
PATH Accelerate growth in #2 ethnic cuisines FORWARD as a Global Branded Pursue bold Food Company #3 new innovation
Expand our #4 global presence
Protect our #5 core brands
Continue to transform #6 our company NEAR-TERM CATALYSTS for Our Organic Growth Goals 2-3% 5-7% ORGANIC SALES GROWTH ORGANIC PROFIT GROWTH
Refrigerated Foods continues Product mix shift and innovation momentum in Foodservice and Deli improve our margin profile
Grocery Products accelerates growth in Mexican foods Our brands continue to demonstrate pricing power Jennie-O Turkey Store returns to growth Project Orion and One Supply Chain International aggressively grows in yield cost savings China and Brazil REALISTIC AND ACHIEVABLE KEY RESULTS Built on Organic Growth and Acquisitions
ORGANIC ACQUISITIONS LONG-TERM KEY RESULTS GROWTH GOALS 2-3% Strategically Aligned Organic Net 5% 10% Sales Growth Leading Top-Line Bottom-Line Growth Growth Brands 5-7% Organic Operating Disciplined 15% <1% Profit Growth Valuation of Net Sales from Controllable Innovation by 2020 Expense Growth UPDATED PRIOR Fiscal 2019 UPDATING OUR $1.76 - $1.80 $1.71 - $1.85 Earnings Per Share FISCAL 2019 1. Refrigerated Foods successfully GUIDANCE managing volatile commodity markets Updating our Earnings Per Share Guidance 2. Stabilizing Jennie-O Turkey Store Range in Line with our and reinvesting in the business Expectations 3. Grocery Products effectively navigating pricing and promotional initiatives 4. Declines in fresh pork exports due to lower global prices KEY MESSAGES YOU WILL HEAR TODAY As a Global Branded Food Company, we have the ability to deliver sustainable long-term growth.
An Uncommon We have built a unique, bold culture with strong Company brands to support sustainable, long-term growth.
Improved Quality We have improved our quality of earnings of Earnings through intentional and strategic actions.
Clear Growth We have a clear growth strategy to achieve our Strategy long-term Key Results.
Significant We are advancing to the next stage in our Opportunity Ahead evolution as a Global Branded Food Company. BRANDS
INNOVATION
THINKING
LEADERSHIP
FLAVORS
IDEAS
JOURNEY REFRIGERATED FOODS
Tom Day
Executive Vice President, Refrigerated Foods REFRIGERATED FOODS HAS A STRONG PRESENCE Across Many Channels
NET SALES MIX
~40% ~25% ~20% ~15%
FOODSERVICE RETAIL DELI COMMODITY
BRAND
Source: Internal data POSITIONED TO LEAD Through African Swine Fever
ACTIONS WE ARE TAKING Cross-functional team established
Close communication with customers
Protecting the Company’s assets DELIVERING SUSTAINABLE, LONG-TERM GROWTH Refrigerated Foods
Continued Evolution
Competing in Categories We Know Well
The Power of Refrigerated Foods THE INTENTIONAL EVOLUTION of Refrigerated Foods
ORGANIC GROWTH NET SALES SEGMENT PROFIT MARGIN
~3.5% ACQUISITIONS CAGR 12.8% +730 bps
BRAND
5.5% DIVESTITURES
Fremont 2013 2019 est 2013 2019 Q3 YTD Plant
Source: Internal data presented “as reported”, which includes the impact of Jennie-O Turkey Store deli restatement in FY 2019 REDUCING EXPOSURE TO VOLATILITY from Commodity Profits
STRATEGIC REDUCED BUSINESS EXITS COMMODITY PROFITS
Commodity Profits
”
Fremont Plant 201720172017 2018 201820182018 2018 2019 20192019 2019 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
Source: Internal data; Commodity profits include pork operations, refinery and feeds, live production, Farmer John, and fresh pork sales IMPROVING MIX AND MARGIN Through Growth in Branded Value-Added Products
A POSITIVE SHIFT IN MIX AN IMPROVED MARGIN PROFILE
Highest- Margin ~85% Items Value-Added Sales ” ~70% Value-Added Sales
Lowest- Margin Items
2013 2018 2013 2018 Shading Represents Concentration of Sales
Source: Internal data IMPROVING PROFITABILITY by Shifting Our Mix to Higher Margin Items
RESERVE
MICROWAVE
NATURAL
ORGANIC STACK
PREMIUM
CORE PROFITABILITY
CONSUMER VALUE Retail THREE HEALTHY AND GROWING BUSINESSES Different Customer Bases Foodservice Unique Direct Sales Forces
Distinct Product Portfolios
Deli COMPETING IN GROWING CATEGORIES in the Retail Channel
PACKAGED BREAKFAST VALUE-ADDED HEAT & EAT DELI MEAT MEATS PORK MEALS $9.0B $7.1B $0.5B $2.3B +2.3% +2.4% +0.2% +1.6%
Source: IRI 52 weeks ending 09/08/2019 - MULO OUR LEADING RETAIL BRANDS Drive Results
Brands are ~$1.4B #1 or #2 2018 Net Sales 10+ in the categories in which they compete
Source: Internal data; IRI 52 weeks ending 11/4/2018 - MULO EXPANDING AND ACCELERATING Our Growth in Foodservice
~$2.1B 2-3X 2018 Net Sales Industry Growth
Source: Internal data; Technomic OUR FOODSERVICE STRATEGY is to Create Solutions for Operators
LABOR CONVENIENCE NEW FLAVORS PREMIUM PREPARED PROTEINS Creating Solutions for Foodservice Operators
+22%
+8%
+5%
Source: Internal data. Net sales CAGR for 2016-2019 est. CHANNELS ARE BLURRING in the Food Industry
RETAIL DELI FOODSERVICE TODAY’S DELI IS EVOLVING and Hormel Deli Solutions is Leading the Change
~$800M 2018 Net Sales +6.8% Grab and Go +2.3% Prepared Foods
Source: Internal data; IRI Fresh weeks ending 7/14/2019 – 3-yr CAGR A STRATEGY TO SOLVE CHALLENGES for Retailers in a Quickly Changing Part of the Store
LABOR SHRINK NEW FLAVORS DELIVERING SUSTAINABLE, LONG-TERM GROWTH Refrigerated Foods
Continued Evolution
Competing in Categories We Know Well
The Power of Refrigerated Foods We’re Always the New Black®
SALES GROWTH INNOVATION Premium Bacon Sales
10% CAGR
2014 2019 est
OFFERING CONSUMERS CHOICE
Source: Internal data THE PERFECT BACON for Every Operator
BACON 1TM SALES GROWTH PREMIUM
MID-TIER 23% BRAND CAGR
ECONOMY
2016 2019 98% est Food Versatility Score
Source: Internal data; ©Datassential 2019 HORMEL® PEPPERONI Think It Up. Make It Up.™ Pep It Up!®
CATEGORY IMPORTANCE SALES GROWTH #1 Selling SKU on 5% Lunchmeat Wall CAGR 56% Dollar Share 2014 2019est
DIVERSE PRODUCT PORTFOLIO EFFECTIVE ADVERTISING
Pizza Meal Snacks Solutions Helpers To Go
Source: Internal data; IRI 52 weeks ending 8/11/2019 - MULO PERFECTLY POSITIONED to Capture Growth in the Pizza Renaissance
Pizzerias Growing at Which of the following brands of protein toppings do you purchase for your operation? Hormel 2X FoodsHormel 64%64% Foodservice Industry Growth Rate Distributor label 40%
TysonCompetitor (Bonici) 39%
83% FontaniniFontanini 19%19% Consumers Eat Pizza Swiss Swiss American 8%8% Once A Month American
All Other 8% 43% BurkeBurke 6%6% CompetitorLiguria 4% Consumers Eat Pizza Once A Week
BRAND
Source: Technomic – Pizza Consumer Trend Report 2018 FONTANINI® ITALIAN MEATS Accelerating Growth with Authentic Italian Products Across Foodservice, Retail and the Deli INCREASING OUR PRESENCE AND SCALE Across Many Categories
AUTHENTIC ITALIAN PREPARED DELI REFRIGERATED ITALIAN MEATS PROTEINS MEATS SNACKS DELIVERING SUSTAINABLE, LONG-TERM GROWTH Refrigerated Foods
Continued Evolution
Competing in Categories We Know Well
The Power of Refrigerated Foods REFRIGERATED FOODS VISION To Have the Choice of a Hormel Foods Product Everywhere You Want To Eat LEVERAGING THE POWER of Refrigerated Foods
BRAND A HISTORY OF WINNING Across Many Channels and Platforms
DELI MEAT FOODSERVICE INNOVATION ACCELERATING GROWTH Through Brand Stewardship and Innovation
HOUSEHOLD PENETRATION
11.1 +420 bps
6.9
2016 2019
Source: IRI 52 weeks ending 8/11/2019 - MULO LEVERAGING THE POWER of the Applegate® Brand to Grow Refrigerated Foods
New and exciting products Fortune 500 company capabilities
Natural & specialty Scale in retail, deli and channels + foodservice A strong company mission Consumer choice DRIVING THE MISSION with Innovation and Brand Expansion
BRANDED MEAT + PLANT CHARCUTERIE & FRESH PORK FOODSERVICE BLENDS HANDHELD SNACKS UTILIZATION RELENTLESSLY CRAFTED BRAND for Remarkable Taste
COLUMBUS NET SALES
+8%
2018 2019
Source: IRI 52 weeks ending 7/14/2019 – Total US Food BUILDING AN ENTERTAINING BRAND Pipeline to Meet Consumer and Operator Demands
AVAILABLE THIS CHARCUTERIE INTRODUCTION INTO HOLIDAY! EXPANSION FOODSERVICE BUILDING BRANDS INNOVATION
REFRIGERATED FOODS
Our Formula for Success ® Commodity
Foodservice
Deli
BRAND
Retail
ACQUISITIONS BALANCED PORTFOLIO KEY TAKEAWAYS
We are committed to shifting our business from commodity to value- added.
We are well-positioned to continue delivering sustainable long-term growth. BRANDS
INNOVATION
THINKING
LEADERSHIP
FLAVORS
IDEAS
JOURNEY GROCERY PRODUCTS
Luis Marconi
Group Vice President, Grocery Products GROWINGGROCERY PRODUCTS AND EVOLVING WITH TODAY’S CONSUMER Grocery Products
Long-Term Growth Story
Creating Value in Center Store
Accelerating Growth in Mexican Foods LONG-TERM, CONSISTENT GROWTH in Sales and Earnings
NET SALES SEGMENT PROFIT
Net Sales Segment Profit
~7% ~6% CAGR CAGR
2009 2019 est 2009 2019 est
Source: Internal data, excluding the impact of DCB and CytoSport AN INDUSTRY-LEADING PORTFOLIO of Center Store Brands
NET SALES MIX
~40% ~30% ~15% ~15%
SIMPLE MEXICAN NUT FUNCTIONAL MEALS FOODS BUTTERS NUTRITION
Source: Internal data OUR PORTFOLIO RESONATES Across Generations
BOOMERS GENERATION X MILLENNIALS
SIMPLE MEALS NUT BUTTERS MEXICAN FOODS 113 103 112 Consumption Index Consumption Index Consumption Index
Source: IRI 52 weeks ending 8/11/2019 – MULO – Buyer’s index GROWINGGROCERY PRODUCTS AND EVOLVING WITH TODAY’S CONSUMER Grocery Products
Long-Term Growth Story
Creating Value in Center Store
Accelerating Growth in Mexican Foods THE CENTER STORE IS GROWING and Important to Retailers
DOLLAR SALES (IN BILLIONS) CENTER STORE HEADWINDS
$183 Total Points of Distribution
+1.2% -1.2% vs. year ago 3-YR $103 CAGR Private Label Points of Distribution
+1.0% $66 +5.4% $55 3yr CAGR +2.5% +1.7% $34 Private Label Dollar Share +3.1% +0.5% GENERALCENTER STORE FOOD REFRIGERATEDREFRIGERATED BEVERAGESBEVERAGES FROZENFROZEN LIQUOR FOODS Vs. 2016
Source: IRI 52 weeks ending 8/11/2019 – MULO DRIVING BRAND RELEVANCE in Center Store
LEADING BRAND BUILDING INNOVATION EXECUTION MARKET SHARES
Advertising Investment ($)
2X 90% 41%
86% 79% 2009 2019 est
Source: Internal data; IRI 52 weeks ending 8/11/2019 – MULO BRANDS WELL-POSITIONED Against Private Label
PRIVATE #1 BRAND #2 BRAND LABEL SHARE
Luncheon Meats Competitor 4%
Chili Competitor 6%
Stew Competitor 7%
BRAND
Microwave Trays Competitor 0%
Hash Competitor 15%
Nut Butters Competitor 22%
Source: IRI 52 weeks ending 8/11/2019 – MULO THREE BRANDS CREATING VALUE IN CENTER STORE
BRAND GROWTH EFFECTIVE ADVERTISING
SPAM® Net Sales
On Track for 3.4% CAGR 5 Consecutive Years Record Growth 13.0% +1.1MM Buyer Increase 2014 2019 est HHP 2017-2019
CONSUMER TAILWINDS
Hispanic Asian Consumption Americans Americans Index 144 454
Source: Internal data; IRI 52 weeks ending 8/11/2019 – MULO; IRI 52 weeks ending 8/11/2019 – MULO – Buyer’s index
AN ALL-AMERICAN CLASSIC BRAND
BRAND BUILDING HEARTY BUYER GROWTH
Dollar Sales Buyers (in Millions)
+4.5% CAGR +2.1% CAGR 5.7
5.4
20163YA 20172YA 2018YA 2019TY 20163YA 2019TY
Strong 79% Brand Market Equity Share
Source: IRI 52 weeks ending 8/11/2019 – MULO A SMOOTH BRAND THAT SPREADS SIMPLE FUN
LONG-TERM CREATING VALUE IN PEANUT BUTTER SHARE GROWTH SKIPPY® Spreads Branding Innovation Execution Market Share
18.4 +140 bps
17.0
2014 2019
Source: IRI 52 weeks ending 8/11/2019 – MULO GROWINGGROCERY PRODUCTS AND EVOLVING WITH TODAY’S CONSUMER Grocery Products
Long-Term Growth Story
Creating Value in Center Store
Accelerating Growth in Mexican Foods Mexican Food is On Trend MEXICAN FOOD IS ON-TREND Across Demographics and Menus
DEMOGRAPHIC MENUS RETAIL SALES
Racial Profile of U.S. Menu Mentions Dollar Sales Population 2045 Growth (3-Year)
23.6% 2.7% +370 bps
1.2% 19.9%
2009 2019 CENTER STORE MEXICAN FOODS 25% FOODS AND SAUCE Hispanic
Source: William H Frey analysis of U.S. Census population projections released March 2018; Datassential MenuTrends™; IRI 52 weeks ending 8/11/19 - MULO MEGAMEX IS REIMAGINING MEXICAN FLAVORS with a Portfolio of Authentic Products
AUTHENTIC OUTGROWING A ACCELERATING MEXICAN PRODUCTS GROWTH CATEGORY GROWTH
+8.1% 3X
Our 10-year-old Joint Venture is +2.7% Competitively Advantaged Mexican Foods
Source: Internal data; IRI 52 weeks ending 8/11/2019 – MULO WINNING FASTEST-GROWING NEW AND BOLD WITH SALSA IN AMERICA ADVERTISING INNOVATION Dollar Sales
8.0% 16% CAGR share Introduced: 2016 Dollar Share: 2.4% 4.8%
share BRAND
Introduced: 2018 Dollar Share: 6.7% 2016 2019
Source: IRI 52 weeks ending 8/11/2019 – MULO
#1 GUACAMOLE IN PLANT-BASED COMPETITIVE STRONG PIPELINE AMERICA SUPERFOOD SUPPLY CHAIN OF INNOVATION
Dollar Sales
+13% CAGR
2016 2019
Household Penetration
Avocados 71% WHOLLY® guacamole 10%
Source: IRI 52 weeks ending 8/11/2019 – MULO; Numerator Insights for 52 weeks ending as of 7/23/2019
BUILDING BRANDS INNOVATION
GROCERY PRODUCTS
Functional Our Formula for Success Nutrition
Simple Nut Butters Meals
Mexican Foods
ACQUISITIONS BALANCED PORTFOLIO GROCERY PRODUCTS KEY TAKEAWAYS
We possess the capabilities to continue to drive value in center store.
Mexican foods is a runway for growth. BRANDS
INNOVATION
THINKING
LEADERSHIP
FLAVORS
IDEAS
JOURNEY DIRECTDIRECT SALES SALES FORCE FORCE
Deanna Brady
Group Vice President President, Consumer Products Sales (CPS) HORMEL FOODS DIRECT SALES FORCE Our Competitive Advantage to Drive Growth for Our Customers
RETAIL FOODSERVICE DELI 800 Direct Selling Professionals 11 Years Average Tenure
Channel-Specific Training Program
Source: Internal data OUR DIRECT Insights SALES FORCE Enables Us to Innovation Partner With Our Customers to Deliver Solutions Relationships
Analytics
Marketing OUR DIRECT SALES FORCE Enables Brand Extensions Across Channels
RETAIL DELI FOODSERVICE POSITIONED TO SUCCEED IN AN EVER-CHANGING MARKETPLACE Direct Sales Force
Total Food Growth
E-Commerce
Revenue Growth Management Refrigerated Meats TFG HELPS DRIVE Center Store GROWTH
Hormel Foods brands are found in 86% of Frozen U.S. households
Foodservice The Hormel Foods shopper is 15% more valuable than the average shopper
Produce We are introducing a
Deli BRAND new sales playbook
Source: Kantar research
POSITIONED TO SUCCEED IN AN EVER-CHANGING MARKETPLACE Direct Sales Force
Total Food Growth
E-Commerce
Revenue Growth Management A CLEAR SET OF PRIORITIES to Accelerate Our Growth in E-Commerce #1 #2 #3 #4 SUPPORT OUR EXPAND LAUNCH SELECT CONTINUE TO ASSORTMENT FOR CORE GP ONLINE GROCERY PERISHABLE ENHANCE OUR PORTFOLIO PICKUP PRODUCT LINES ANALYTICS
SHOP FROM ANYWHERE. Buy groceries & schedule a delivery or pickup time. ON TRACK TO EXCEED $100M In E-Commerce Retail Sales by the End of FY 2019
IMPLEMENTED ESTABLISHED INITIAL STRUCTURE, TECHNOLOGY PRODUCT ASSORTMENT SUCCESSES TO DATE AND ANALYTICS Hormel Foods Digital Experience Group Gaining Market Share
Penetrating Fresh
Exceeding Sales Goals
Source: Internal data Continued investment in A LOGICAL online grocery pickup PATH TO Further optimization DOUBLING of packaging
E-COMMERCE Customer expansion SALES and diversification Over the Next Three Years POSITIONED TO SUCCEED IN AN EVER-CHANGING MARKETPLACE Direct Sales Force
Total Food Growth
E-Commerce
Revenue Growth Management REVENUE GROWTH MANAGEMENT Driving Profitable Growth and Supporting Our Key Results
RGM is: Brand + Trade + Customer = Improved ROI
Within same brands and accounts
To other opportunities across accounts or brands Reallocate Inefficient To other more effective marketing-mix opportunities Trade Into new products
Driving Profitable Take to the bottom line Growth RGM IN ACTION A Case Study on Driving Growth in 2020
BRAND INSIGHT ACTION IN 2020 EXPECTED ANALYSIS RESULTS
Increased household penetration Ineffective trade Shifting ineffective expense was trade expenses to Increased providing a negative media and advertising consumer loyalty return to the company Increased net sales RGM WILL CONTRIBUTE MEANINGFULLY to Our Growth Goals
ALIGNMENT PEOPLE
WHAT IS IT WORTH? Increased ROI for our Promotional and Advertising PROCESS INFRASTRUCTURE Investments KEY TAKEAWAYS
Our customer-focused, solutions-based direct sales force is a competitive advantage. Total Food Growth is aimed at growing with and inspiring customers. Our E-commerce and Revenue Growth Management capabilities will contribute meaningfully to the company’s Key Results. Jim Tom Jeff Snee Day Baker
Chairman of Executive Vice Group Vice the Board, President, President, President Refrigerated Deli and CEO Foods
Mark Luis Deanna Ourada Marconi Brady
Group Vice Group Vice Group Vice President; President, President, Grocery President, Foodservice Consumer Products Product Sales BRANDS
INNOVATION
THINKING
LEADERSHIP
FLAVORS
IDEAS
JOURNEY JENNIE-O TURKEY STORE
Steve Lykken
Senior Vice President; President, Jennie-O Turkey Store, Inc. A LEADING POSITION in Retail and Foodservice Turkey
NET SALES MIX
~40% ~40% ~20%
RETAIL FOODSERVICE COMMODITY
Source: Internal data A WORLD-CLASS SUPPLY CHAIN in the Turkey Industry VERTICALLY INTEGRATED EFFICIENT AND CENTRALLY LOCATED LIVE PRODUCTION DISTRIBUTION NETWORK
One-and- a-half days MODERN
PRODUCTION FACILITIES Two days Production Facility Distribution Center TWO VOLUNTARY RECALLS IN 2018 VOLUNTARY RECALLS LED TO Latest ground turkey recall: 164,000 more A SHARP DECLINE pounds affected in ongoing salmonella outbreak IN SALES More than 164,000 pounds of raw ground turkey have been recalled amid an ongoing salmonella outbreak that has now sickened 216 people since November. A global turkey supply chain challenge with a specific type of salmonella DRAMATIC DECLINE IN LEAN GROUND TURKEY impacted virtually all SALES AFTER A DECADE OF GROWTH turkey companies
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 est
Source: USA Today; Internal data CURRENT INDUSTRY CYCLE More Challenging and Longer than Other Cycles
FOURTH CONSECUTIVE YEAR TURKEY MARKETS HAVE YET TO SHOW OF INDUSTRY OVERSUPPLY MEANINGFUL INCREASES Turkey Breast Prices ($/LB) Breast meat in cold $7.00 $6.00 $5.00 storage above the 5-year $4.00 $3.00 average $2.00 $1.00 $0.00 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Lower hen poult Whole Bird Prices ($/LB) placements $1.60 $1.40 $1.20 $1.00 Increased tom poult $0.80 $0.60 $0.40 placements $0.20 $0.00 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19
Source: Urner Barry DECISIVE ACTION TAKEN to Reignite Growth at Jennie-O Turkey Store
New sales and marketing leadership to drive bold thinking
New media strategies activated in select markets driving strong sales growth
Significant investments in infrastructure A PATH TO ACHIEVE 12% Segment Profit Margins by 2023
GETTING BACK TO OUR PLAYBOOK
1 2 REGAIN REBUILD lean ground turkey customer confidence distribution in our brand
3 4 REINVIGORATE REALIGN our innovation our cost structure pipeline to invest in growth REGAIN LEAN GROUND DISTRIBUTION The JENNIE-O® Brand is Still the Category Leader
SHARE TOTAL POINTS OF GROWTH DISTRIBUTION
+99
Raw Ground + 2.2% +42 Turkey 34% Ground Turkey - 2.2% Excluding 66% Jennie-O® Raw Ground Ground Turkey Turkey Excluding Jennie-O®
- 8.9% -58 JENNIE-O® is the share JENNIE-O® has lost distribution Growth rates for the category have leader with 34% of raw while competitive brands grew been impacted by ground turkey volume. their on-shelf presence during JENNIE-O® declines. Competitive our recall events. brands are growing due to the points of distribution they gained.
Source: IRI 52 weeks ending 8/11/2019 - MULO; IRI 52 weeks ending 8/11/2019 – TPDs; IRI 13 weeks ending 8/11/2019 - MULO JENNIE-O® BRAND IS IMPORTANT for Lean Ground Turkey Category Growth
VOLUME SEGMENTATION
Ground Turkey Retailers with No JENNIE-O® Category Growth JENNIE-O® in Points of Distribution* Distribution Retailers with Significantly ® JENNIE-O in Reduced vs. Distribution Last Year
+0.2% +0.3% -4.3% -4.5%
Source: IRI retailer analysis 13 weeks ending 08/11/2019. Indicates retailers that reduced Jennie-O points of distribution by > 50% in the latest 13 weeks vs Year Ago REBUILD CUSTOMER CONFIDENCE Unaided Brand Awareness and Future Purchase Interest are Up in 2019
2019 2018
Awareness and Purchase TOTAL GROUND OTHER TOTAL GROUND OTHER TURKEY TURKEY FORMAT TURKEY TURKEY FORMAT % selecting BUYERS BUYERS BUYERS BUYERS BUYERS BUYERS % % % % % %
Unaided Awareness 38% 40% 37% 33% 36% 30%
91% 92% 91% 93% 94% 92% Aided Awareness
Regular Purchase 39% 45% 39% 38% 43% 38%
Top 2 Box 72% 76% 74% 66% 71% 64% Future Purchase
Source: Internal brand equity research REBUILD CUSTOMER CONFIDENCE by Reactivating Our Proven Media Campaigns
JENNIE-O® LEAN GROUND TURKEY LIFT 16.5%
3X 5.4%
Los Angeles Market Benchmark
Media Campaign Generated Over 3x the Benchmark Sales Lift
Source: IRI POS retailer data for 6/24/2019 – 7/21/2019. Test Market: Los Angeles, CA. Control Market: Sacramento, CA REINVIGORATE Our Innovation Pipeline REALIGN OUR COST STRUCTURE TO INVEST IN GROWTH Our investments will eliminate labor, drive productivity and improve ergonomics A PATH TO ACHIEVE 12% Segment Profit Margins by 2023
GETTING BACK TO OUR PLAYBOOK
1 2 REGAIN REBUILD lean ground turkey customer confidence distribution in our brand
3 4 REINVIGORATE REALIGN our innovation our cost structure pipeline to invest in growth KEY TAKEAWAYS
Jennie-O Turkey Store remains a leader within the turkey industry in the face of challenging industry and business dynamics.
Decisive and intentional actions are underway.
We have a plan to return this business to growth. BRANDS
INNOVATION
THINKING
LEADERSHIP
FLAVORS
IDEAS
JOURNEY ONE SUPPLY CHAIN
Glenn Leitch
Executive Vice President, Supply Chain A SIGNIFICANT SHIFT WITHIN SUPPLY CHAIN Since Our 2017 Investor Day
THE PAST November THE FUTURE Separately managed supply chains 2017 A single view of the world Announced Minimal centralized management Centralized management One Supply Chain Savings mostly bottom-up Initiative Savings are bottom-up and top-down ONE SUPPLY CHAIN Expanding Our Competitive Advantages in All Areas of Supply Chain
Operations
Engineering SIMPLIFY Industrial Engineering
Quality Control MODERNIZE
Purchasing
Logistics/Transportation OPTIMIZE Demand Planning Research and RATIONALIZE Development CREATING AN EFFICIENT AND AGILE SUPPLY CHAIN One Supply Chain
Making Significant Progress
Managing Our Pork Supply
Controlling Costs
Investing in Growth EARLY SUCCESSES Additional High-Speed Slicing Lines Labor Savings and Overhead Improvement of 10-20%
Source: Internal data Extended Line Runs 15-20% Increase in Production Capacity on Selected Lines
Source: Internal data Utilizing Lowest- Cost Formulas on Additional SKUs $1-2M Annual Savings
Source: Internal data In-Housing Dry Sausage Production $1-2M Annual Savings
Source: Internal data Ham Boning
Optimization Albert Lea, Austin, $1-2M Annual Savings MN MN
Rochelle, IL
Source: Internal data Production Capacity Sharing $2-3M Annual Savings
Source: Internal data Increased Use of Frozen and Tempered Raw Material $2-3M Annual Savings
Source: Internal data Co-Manufacturing Optimization $2-3M Annual Savings
Source: Internal data Raw Material Sourcing Changes $2-3M Annual Savings
Source: Internal data Expansion of Central Buying Capabilities $3-4M Annual Savings
Source: Internal data Renovated Spice Blending Operation ~$0.40-$1.00 per LB. Procurement Savings
Source: Internal data WINS BEYOND THE BOTTOM LINE New Training Developing our Skilled Labor Across the Company Collaboration and Sharing of Best Practices Driving Improvement Across Production Facilities Universal Facility Scorecards and Rankings Provide a Single View of Supply Chain Performance CREATING AN EFFICIENT AND AGILE SUPPLY CHAIN One Supply Chain
Making Significant Progress
Managing Our Pork Supply
Controlling Costs
Investing in Growth MORE THAN JUST A PORK COMPANY A Balanced Portfolio of Products
NET SALES BY KEY INPUTS
Chicken Pork Turkey Non-Meat Beef & Other 50-55% 18-22% 16-18% 8-10% 2-4%
Source: Internal data based on FY 2018 actual results MANAGING PORK INPUT COST While Supporting Growth and Reducing Volatility
AUSTIN HARVEST WHOLESTONE EXTERNAL PORK OPERATION FARMS PURCHASES ~20,000 hogs/day AGREEMENT~10,000 hogs/day Externally procured pork such as bellies, trim & Hogs purchased on 100% of raw material spare ribs multiple contracts based purchased at market on hog, pork, grain and prices through 2021 Co-manufactured futures markets finished goods Own first right of refusal to second-shift harvest Pork procured in China and Brazil
Source: Internal data PREPARED TO MANAGE Through Uncertainty Related to African Swine Fever
U.S. PREVENTION MEASURES IN DOMESTIC SUPPLY IS ROBUST RESPONSE TO ASF THREAT
Increased surveillance at ports of entry and restricting imports of pork products from affected countries
Strict on-farm biosecurity protocols and best practices across the hog industry
Coordinated response plans between the U.S. pork industry, producers and states
Standardized indemnification process for 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 hog producers
Source: USDA – NASS 9/27/2019 CREATING AN EFFICIENT AND AGILE SUPPLY CHAIN One Supply Chain
Making Significant Progress
Managing Our Pork Supply
Controlling Costs
Investing in Growth A STRATEGIC AND DISCIPLINED APPROACH to Controlling Costs and Supporting Key Results
INVEST IN AUTOMATION ASSET UTILIZATION
KEY RESULT
Hold Controllable Expense Growth to SYNERGY CAPTURE NETWORK OPTIMIZATION <1% Per Year
BRAND INVESTING IN AUTOMATION Remains a Top Priority
Simplifies Workflow
Improves Decreases Automation Labor Yields Costs
Improves Throughput SYNERGY CAPTURE Incremental to Acquisition Benefits
BRAND
AREAS IDENTIFIED IMPACT
Co-packer In-housing of production at a optimization reduced cost to the business
Reduces inefficient SKUs and SKU rationalization improves gross margin
Increased efficiency, Utilization of fresh vs capacity and improved frozen raw material raw material utilization IMPROVING ASSET UTILIZATION at Our Production Facilities
PRODUCTION MOVED BENEFITS
Long Prairie, Delays capital spend MN Increases capacity for an on-trend and growing product line
More effectively utilizes our assets at both facilities Alma, KS OPTIMIZING OUR LOGISTICS NETWORK to Reduce Costs and Improve Service
PREVIOUS DRY NETWORK CURRENT DRY NETWORK
3 DCs 5 DCs
~$4M in freight savings BENEFITS ~3M freight mile reduction
Source: Internal data Improved service metrics A BALANCED APPROACH to Cost Savings
Raw Material Purchasing Procurement $2-3M $14-16M
Manufacturing Packaging and Improvement $75M Formulation $42-46M FY 2019 COST $5-7M SAVINGS GOAL
Co-Manufacturing Other Optimization $2-4M $2-3M
Source: Internal data CREATING AN EFFICIENT AND AGILE SUPPLY CHAIN One Supply Chain
Making Significant Progress
Managing Our Pork Supply
Controlling Costs
Investing in Growth Complete
Fontanini ~$20M Capacity Expansion Meatballs Precooked Toppings Complete
Dold ~$130M Capacity Expansion Bacon1™ Precooked Bacon On Track for H2, 2020
Burke ~$150M Capacity Expansion Core Pizza Toppings Plant-Based Toppings GROCERY REFRIGERATED PRODUCTS FOODS PLANNING TO Pizza toppings INVEST ~$1B Over the Next Three Sliced meats Years to Drive Growth
JENNIE-O TURKEY INTERNATIONAL STORE AND CORPORATE KEY TAKEAWAYS
Significant progress is being made on our One Supply Chain initiative.
We are prepared to manage through African swine fever.
We are focused on controlling costs and investing in future growth. BRANDS
INNOVATION
THINKING
LEADERSHIP
FLAVORS
IDEAS
JOURNEY PLANT-BASED PRODUCTS
Jim Splinter
Group Vice President, Corporate Strategy CONVERGENCE OF TRENDS Unprecedented Change is Happening in the Food Industry A FOOD FORWARD COMPANY Utilizing Insights and Innovation to Drive Sustainable Long-Term Growth
Using Insights to Identify White Space
Leveraging Our Differentiating Capabilities FOOD FORWARD People are becoming more “plant curious” with their eating
Source: Internal research PLANT-CURIOUS CONSUMER Attitudes and Motivations
I don’t expect My family needs a ‘plant to like it. burger’ to “ “ taste like meat, but I do .” expect it to I need protein to taste good..” “ keep me full..” RECENT STUDY SHOWS 1/3 of consumers plan to buy more plant-based foods
Source: Internal research; Mintel’s BFY Eating Trends – April 2018 SIGNIFICANT UPSIDE POTENTIAL for Plant-Based Alternative Proteins 12% of US Households Consume Plant-Based Meat Proteins
$10B - $15B Addressable Market in the Next 5 to 7 Years
Source: Internal data; IRi Rise of Plant-Based Foods 03/11/2019 Focus on Taste IDENTIFYING THE WHITE White SPACE Space Our consumer insights Plant Reduce or team identified a clear Positive Eliminate Meat opportunity to fill a void in the plant-based alternative protein marketplace.
Focus on Mission
Source: Internal data A FOOD FORWARD COMPANY Utilizing Insights and Innovation to Drive Sustainable Long-Term Growth
Using Insights to Identify White Space
Leveraging Our Differentiating Capabilities A FOOD FORWARD COMPANY Utilizing Insights and Innovation to Drive Sustainable Long-Term Growth
Using Insights to Identify White Space
Leveraging Our Differentiating Capabilities DEVELOPING THE PRODUCT FROM INSIGHT to Launch with a Focus on Meeting the Needs of Our Consumers
COMPLETE A FOCUS ON TASTE POSITIVE BRAND PROTEIN AND VERSATILITY ATTITUDE
1-for-1 Replacement for Ground Beef
20g Soy Protein 180 Calories Using Plant 7g Fat Positivity to show how foods “made No Preservatives with plants” fit No Cholesterol perfectly into a consumer’s meal All 9 Amino Acids and lifestyle Per 4oz serving TM
brand BRINGING THE POWER of Our Retail and Foodservice Businesses to Plant-Based Proteins UTILIZING OUR COMPETITIVE ADVANTAGES to Win in the Plant-Based Alternative Protein Marketplace
VENTURING / NIMBLE SUPPLY DIRECT SALES INCUBATOR / AGILE CHAIN FORCE
Agile KEY TAKEAWAYS
Our entire portfolio of plant-based alternative protein offerings is well- positioned to win in the marketplace.
We will continue to leverage our differentiating capabilities to enter new white spaces. Glenn Steve Larry Jim Leitch Lykken Vorpahl Splinter
Executive Vice Senior Vice Group Vice President; Group Vice President, President; President, Hormel President, Supply Chain President, Jennie- Foods International Corporate O Turkey Store Corporation Strategy BRANDS
INNOVATION
THINKING
LEADERSHIP
FLAVORS
IDEAS
JOURNEY FINANCE
Jim Sheehan
Executive Vice President, Chief Financial Officer KEY MESSAGES
Progress Since Since Investor Day 2017, we have made 2017 progress against our key initiatives.
Capital Allocation We take a disciplined and thoughtful approach Strategy to capital allocation.
Strong Balance Our strong and flexible balance sheet positions Sheet us for growth through acquisitions.
Long-Term We remain focused on long-term investments Investments that drive exceptional shareholder returns. STRATEGIC COST IMPROVED OUR MANAGEMENT CASH CYCLE
SG&A (less advertising) Cash Conversion Cycle (Days) % of Sales EXCELLENT 49 7.2% 47 46 7.0% PROGRESS 6.8% ~ 70 bp 6.6% DECREASE 40 Made on Our 6.4% Commitments from 6.2% 6.0% Investor Day 2017 2016 2019 Q3 YTD 2016 2017 2018 LTM
OPTIMIZING OUR CAPITAL STRUCTURE
$560 Million Maintained Investment Maintained Dividend in Cash Grade Rating Aristocrat Membership
Source: Internal data. Cash balance as of Q3, 2019. LTM (last twelve months) as of Q3, 2019. NET OPERATING AND FREE CASH FLOW
DELIVERING STRONG, LONG-TERM
GROWTH 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 LTM Net Operating Cash Flow Free Cash Flow
Strong Cash Generating Business $1,116M $812M Average Cash Average Free from Operations Cash Flow
Source: Average of fiscal year 2017, 2018 and Q3, 2019 LTM (last twelve months). Free cash flow is a non-GAAP measure. See reconciliation table in Appendix for details. REQUIRED
• Increase Dividend • Maintenance CapEx • Mandatory Debt Repayment ALIGNING • Pension Obligations OUR CAPITAL STRATEGIC • Growth CapEx ALLOCATION • Incremental Dividend Increases • Acquisitions STRATEGY • Investments in Working Capital with Our Vision OPPORTUNISTIC as a Growth Company • Share Repurchases • Incremental Debt Repayment • Cash Build CAPITAL ALLOCATION Making Disciplined Investments & Returning Cash to Shareholders
~$3.3B INVESTING IN THE Cash from Operations RETURNING CASH BUSINESS 2017-2019 est. TO SHAREHOLDERS $2.3B $1.5B
ACQUISITIONS CAPEX DIVIDENDS REPURCHASES
$1.4B $0.9B $1.2B $0.3B
BRAND BRAND Maintain Opportunistic Dividend Aristocrat and based on Membership our Internal Valuation
Source: Internal data INVESTING IN STRATEGIC ACQUISITIONS to Transform and Grow Our Company
$1.4B BRAND Invested
$640M Total Sales BRAND Acquired
Accretive Margins
Source: Internal data for FY 2017 – 2019 est STRATEGIC INVESTMENTS Bacon 1 picture to Grow Our Business While Enhancing Our Infrastructure 75% Growth CapEx
~$100-300M annually
Based on the needs of the businesses
Primarily for capacity, 25% innovation, equipment Maintenance CapEx and new technology $900M ~$100M annually in Capital Spend Since 2016 Primarily for replacement of equipment and infrastructure
Source: Internal data A DIVIDEND ARISTOCRAT
Dividends
RETURNING ~16% $1.2B OF CASH TO CAGR SHAREHOLDERS Over the Last Three Years While Increasing
Our Dividend 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019Eest
Dividend Payout Ratio
53 11 45% +1000 Consecutive Consecutive Years of bps Years of Dividend Double-Digit 35% Increases Increases FY 2016 2019 LTM
Source: Internal data. 2019 includes dividend declared 9/23/2019; FactSet. STOCK REPURCHASES
$200 $170M $180 $160 $140 $120 REPURCHASING $100
$80 (in millions $) millions(in STOCK $60 $40 OPPORTUNISTICALLY $20 $- 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 YTD Returning $300M of Cash to 2019 Shareholders Since 2016 Current Authorization to Repurchase ~5M Shares
The Hormel Foundation’s Ownership Level is Currently 48%
Based on Our Internal Valuation
Source: FactSet Source: Internal data; Ownership as of 11/30/2018 record date A STRONG BALANCE SHEET Positioned to be Leveraged for Growth
Priority Debt Capacity Maintain $3.5B in debt generates Investment- EBITDA coverage of Grade Rating approximately 2 times
Current Net $560M $250M Debt/EBITDA in Cash in Debt < 0
Source: Internal data as of Q3, 2019 A CONTINUED FOCUS on Long-term Investments
INVESTING IN INVESTING IN THE DELIVERING BRANDS BUSINESS STRONG ROIC ~$1B in CapEx Planned in 5-Year ROIC: the Next 3 Years 18% Top-Quartile of Peer Group
Source: Internal data; FactSet data based on fiscal 2014-2018 data for Hormel Foods and time relative data for peers listed in Company’s 2018 proxy statement TOTAL RETURN
$140 Hormel Foods DELIVERING $132 $130 S&P 500 LEADING $120 $127
$110 RETURNS S&P 500 Pkg to Our Shareholders $100 Foods & Meats $100 $90
$80
$70 Jun-17 Jun-18 Jun-19
Source: FactSet. $100 invested on 6/15/17 in stock or index – including reinvestment of dividends PROJECT ORION GOAL Create a unified, Oracle cloud-based platform that Robotic Process brings the conveniences Automation and technology of our SETTING everyday lives to the THE PATH business environment. for the Future of Our Company Analytics
Insights KEY MESSAGES
Progress Since Since Investor Day 2017, we have made 2017 progress against our key initiatives.
Capital Allocation We take a disciplined and thoughtful approach Strategy to capital allocation.
Strong Balance Our strong and flexible balance sheet positions Sheet us for growth through acquisitions.
Long-Term We remain focused on long-term investments Investments that drive exceptional shareholder returns. BRANDS
INNOVATION
THINKING
LEADERSHIP
FLAVORS
IDEAS
JOURNEY Jim Snee
Chairman of the Board, President and CEO Tom Continued evolution toward branded KEY Day value-added products Executive Vice President, Strong growth from retail, deli and foodservice TAKEAWAYS Refrigerated Foods FROM Luis Creating value in center store with brand TODAY Marconi building and innovation Group Vice President, Grocery Products Accelerating growth in Mexican foods
Deanna Our direct sales force is a competitive Brady advantage Group Vice President; President, CPS Total Food Growth, Revenue Growth Management and E-commerce will drive growth KEY Jim Using insights to identify white space in Splinter plant-based alternative proteins Group Vice President, TAKEAWAYS Corporate Strategy Leveraging our differentiating capabilities TM FROM to launch the Happy Little Plants brand TODAY
Steve Getting back to our proven playbook at Lykken Jennie-O Turkey Store Senior Vice President; President, JOTS Clear plan to return the business to growth KEY Glenn Significant progress made on our Leitch One Supply Chain initiative Executive Vice TAKEAWAYS President, Focused on controlling costs while investing FROM Supply Chain in future growth TODAY
Jim Disciplined and intentional capital allocation Sheehan with a focus on long-term decision making Executive Vice President and CFO Strong balance sheet offers flexibility and positions us for growth BUILDING BRANDS INNOVATION
OUR FORMULA FOR SUCCESS
ACQUISITIONS BALANCED PORTFOLIO SIX STRATEGIC PRIORITIES
Grow our deli and OUR 2020 #1 foodservice brands
PATH Accelerate growth in #2 ethnic cuisines FORWARD as a Global Branded Pursue bold Food Company #3 new innovation
Expand our #4 global presence
Protect our #5 core brands
Continue to transform #6 our company REALISTIC AND ACHIEVABLE KEY RESULTS Built on Organic Growth and Acquisitions
ORGANIC ACQUISITIONS LONG-TERM KEY RESULTS GROWTH GOALS 2-3% Strategically Aligned Organic Net 5% 10% Sales Growth Leading Top Line Bottom Line Growth Growth Brands 5-7% Organic Operating Disciplined 15% <1% Profit Growth Valuation of Net Sales from Controllable Innovation by 2020 Expense Growth KEY MESSAGES HEARD TODAY As a Global Branded Food Company, we have the ability to deliver sustainable long-term growth.
An Uncommon We have built a unique, bold culture with strong Company brands to support sustainable, long-term growth.
Improved Quality We have improved our quality of earnings of Earnings through intentional and strategic actions.
Clear Growth We have a clear growth strategy to achieve our Strategy long-term Key Results.
Significant We are advancing to the next stage in our Opportunity Ahead evolution as a Global Branded Food Company. GROCERY PRODUCTS
APPENDIX NON-GAAP RECONCILIATION TABLE
Free cash flow represents net cash provided from operating activities less purchases of plant, property and equipment. Hormel considers free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business after the purchases of plants, property, equipment and technology. Free cash flow should not be used as a substitute for the most comparable GAAP measure in assessing the company’s liquidity for the periods presented. An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP. In the table that follows, free cash flow for each period presented is reconciled to net cash provided by operating activities.
(in thousands)