A Tradition of Success

2 0 0 9 A N N U A L RE P OR T HORMEL FOODS 2 0 0 9 A N N U A L R E P O R T A TRADITION OF SUCCESS S I N C E 1 8 9 1 SINCE 1891, Hormel Foods has continued to create a Tradition of Success by maintaining brand loyalty for our traditional products while developing new flavorful foods, including healthier options, to meet our consumers’ changing ta B L E O F C O nt E nt S needs. We drive long-term 02 Letter to Shareholders growth for our shareholders 06 2009 At-A-Glance by remaining relevant to 08 Maintaining Brand Loyalty generations of consumers 10 Spanning the Generations and loyal to our hardwork- 12 Celebrating Flavorful Foods ing employees. 14 Fulfilling Healthy Lifestyles 16 Sustainability 17 Financial Section 61 Shareholder Information 62 Corporate Officers 63 Board of Directors F INAN C IA L H IG HL IG H T S (in thousands, except per share amounts) 2009 2008 Change % Change Net Sales $ 6,533,671 $ 6,754,903 $(221,232) (3.3%) Net Earnings 342,813 285,500 57,313 20.1% Percent of Sales 5.25% 4.23% Earnings Per Share Basic $ 2.55 $ 2.11 $ 0.44 20.9% Diluted 2.53 2.08 0.45 21.6% Dividends Declared to Shareholders 102,016 99,732 2,284 2.3% Per Share of Common Stock 0.76 0.74 0.02 2.7% Average Common Shares Outstanding Basic 134,227 135,360 (1,133) (0.8%) Diluted 135,489 137,128 (1,639) (1.2%) Capital Expenditures $ 96,961 $ 125,890 $ (28,929) (23.0%) Depreciation and Amortization 127,138 126,189 949 0.8% Working Capital 889,704 656,945 232,759 35.4% Shareholders’ Investment 2,123,452 2,007,572 115,880 5.8% 43RD 43rd consecutive year of dividend increases 500 10YEARS named to Fortune 500 added to S&P 500 in Best Big Companies March 2009 10 years in a row $100 MILLION over $100 million paid in dividends and $38 million in share repurchases 22% 34 34 No. 1 Diluted Earnings or Per Share No. 2 up 22% brands A TRADITION OF SUCCESS 1 D EAR FELLOW SHAREHOLDERS: In the face of very challenging times for the global economy, I am proud our team was able to post strong, double-digit earnings growth in fiscal 2009. In addition to NET SALES our good financial results, we received several awards in recognitionNET EARNINGS of our stature ($ in billions) CAGR 4.8% ($ in millions) CAGR 7.7% in the industry. On March 3, 2009, our stock was added to the Standard & Poor’s 500 $8 Index, a distinguished8 list of America’s leading companies.$400 We were named one 400 $342.8 $6.5of the 100 Best7 Corporate Citizens by Corporate Responsibility Officer magazine. 6 We were also6 recognized as the Most Innovative Company300 at the 2009 American 300 Business Awards.5 All of these awards are testament to the hard work and dedication of our talented employees. 4 4 200 200 3 The effects of the recession did impact our top-line results. Sales declined in each of our business segments. 2 In part, the decline2 was attributable to changes designed to improve our business.100 These include an intentional 100 reduction of production at our Jennie-O Turkey Store segment and product rationalizations in our Grocery 1 Products segment. Sales declines also resulted from decreased pricing as various commodity costs declined, as 0 well as from our exit0 from the Carapelli joint venture olive oil business. We intend to0 restore our sales momentum 0 ’05 ’06 ’07 ’08 ’09 ’05 ’06 ’07 ’08 ’09 in fiscal 2010 and have a number of initiatives in place to support that effort. DILUTED EARNINGS ANNUAL DIVIDEND PER SHARE (dollars) CAGR 10.0% (dollars) CAGR 8.6% $1.00 1.00 $3.00 3.0 $2.53 2.50 2.5 $0.76 0.75 0.75 2.00 2.0 0.50 0.50 1.50 1.5 1.00 1.0 0.25 0.25 0.50 0.5 0 0.00 0 0.0 ’05 ’06 ’07 ’08 ’09 ’05 ’06 ’07 ’08 ’09 Jeffrey M. Ettinger Chairman of the Board, President and Chief Executive Officer NET SALES Refrigerated Foods 52% Grocery Products 14% 2 2009 ANNUAL REPORT Jennie-O Turkey Store 19% Specialty Foods 11% All Other 4% OPERATING PROFIT Refrigerated Foods 40% Grocery Products 28% Jennie-O Turkey Store 15% Specialty Foods 12% All Other 5% NET SALES BALANCED moDEL NET EARNINGS ($ in billions) CAGR 4.8% Our balanced business model helped us again during the recession, as($ insales millions) of CAGR our 7.7% retail canned meat and value-added meat products offset decreased foodservice and $8 microwave8 product sales. Buoyed by our advertising and promotional$400 efforts, items such 400 as our SPAM ® family of products and Hormel ® chili showed excellent growth during the $342.8 $6.5 7 year. Somewhat counterintuitively, sales of more expensive value-added items such as 6 Hormel6 ® pepperoni and party trays also grew strongly during the year,300 indicating that 300 value means more than just price in the eye of the consumer. 5 In addition, our balance between center-of-the-store items and value-added protein 4 products4 provided more diversity of product types to meet different200 consumer needs 200 within3 retail stores. For example, our canned meat and microwave tray items meet the need for an easy meal within the heat-and-eat category, while our Hormel ® refrigerated 2 2 100 100 entrees, pepperoni and party trays meet the need of a main course for a family meal, ingredients1 for a wide variety of meal options, and appetizers for all occasions. 0 2009 0opERATING HIGHLIGHTS 0 0 ’05 ’06 ’07 ’08 ’09 ’05 ’06 ’07 ’08 ’09 These recessionary times led to reduced consumer spending, even on food. Fortunately for us, we have some of the best known and trusted value-oriented products in the store. Our Grocery Products group is a repository of leading brands in theDILUTED center ofEARNINGS the ANNUAL DIVIDEND store, including the SPAM ® family of products, Hormel ® chili and Dinty MoorePER® SHARE stew, (dollars)Our CAGR balanced 10.0% “ among others. Construction of our Dubuque, Iowa, production facility is on track(dollars) and CAGR the 8.6% plant is scheduled to begin manufacturing in January. This facility will eventually be used $1.00 1.00 $3.00 3.0 business model to produce both canned meat and microwave products. helped us again We are excited about our prospects for the new MegaMex Foods joint venture which $2.53 2.50 2.5 $0.76 started operations at the beginning of fiscal year 2010. This expanded entity will provide 0.75during the recession, 0.75 retailers with a comprehensive portfolio of Mexican foods under leading brands, including 2.00 2.0 as sales of our retail Herdez ® salsa, CHI-CHI’S® salsa, La Victoria® Mexican sauces, Doña María® moles and jarred cactus, Embasa® peppers and Búfalo® hot sauce. With both authentic and main- 0.50 canned meat and 0.50 1.50 1.5 stream Mexican offerings, these products resonate across multiple demographics, allow- value-added meat ing us to become a one-stop shop for our customers. 1.00 1.0 In our Refrigerated Foods segment, the Meat Products group generated increased 0.25 products offset 0.25 sales of many products which met a variety of needs in this value-seeking time. Included 0.50 0.5 decreased among these are Hormel ® pepperoni and party trays, Hormel ® Natural Choice® lunch ® 0 foodservice and meats0.00 and the Di Lusso product line, all of which posted strong sales0 growth during 0.0 ’05 ’06 ’07 ’08 ’09 ’05 ’06 ’07 ’08 ’09 microwave the year. product sales. ” NET SALES Refrigerated Foods 52% Grocery Products 14% Jennie-O Turkey Store 19% Specialty Foods 11% All Other 4% LETTER TO SHAREHOLDERS 3 OPERATING PROFIT Refrigerated Foods 40% Grocery Products 28% Jennie-O Turkey Store 15% Specialty Foods 12% All Other 5% The Foodservice group had a more difficult time meeting their sales goals, as NET SALES NET EARNINGS decreased travel and recreational occasions contributed to the consumer trend of ($ in billions) CAGR 4.8% ($ in millions)NET SALES CAGR 7.7% NET EARNINGS eating out less often. Nevertheless, they did an excellent job of focusing on value- ($ in billions) CAGR 4.8% ($ in millions) CAGR 7.7% $8 added solution products to meet8 the needs of foodservice operators. Products that $400 400 ® $8 8 $400 400 distinguish the Hormel Foodservice team from its competitors include Hormel $342.8 7 $6.5 ® ® ® Natural Choice lunch meats, Bread Ready presliced meats, Austin Blues bar- $342.8 7 ® $6.5 6 beque meats and Café H ethnic6 meats. 300 300 Reduced production levels established by our team at Jennie-O Turkey Store 6 6 300 300 5 allowed them to minimize the impact of low commodity turkey meat prices resulting 5 4 in an improved year. Supported4 by advertising and promotional efforts around the 200 200 healthy nature of turkey, sales of value-added turkey products helped Jennie-O 4 4 200 200 3 Turkey Store stay profitable throughout the year, an achievement not duplicated by 3 2 many others in the poultry industry2 this past year. 100 100 2 2 100 100 The Specialty Foods segment1 ended the year with a small decline in segment profits, due primarily to decreased sales of nutritional and ready-to-drink products 1 0 produced by Century Foods.0 However, Specialty Products saw increased sales of 0 0 ’05 ’06 ’07 ’08 ’09 ’05 ’06 ’07 ’08 ’09 0 0 0 0 its private label products during the year.

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