North America United States Consumer Food

25 November 2008 Results

Company Company Hormel Foods Reuters: HRL.N Bloomberg: HRL UN Exchange: NYS Ticker: HRL Hold Price at 24 Nov 2008 (USD) 29.24 Price target 32.00 52-week range 42.47 - 26.42 on it Key changes EPS (USD) 2.29 to 2.18 È -4.6% Revenue (USDm) 7,012.5 to 7,168.1 Ç 2.2% Christina McGlone Eric Katzman, CFA Research Analyst Research Analyst Price/price relative (+1) 203 863-2283 (+1) 212 250-4968 [email protected] [email protected] 44 39 Highlights 34 Hormel reports F4Q08 (end Oct) EPS of $0.50, near the upper end of the pre- 29 announced range and above our estimate and the consensus forecast of $0.48. 24 Sales growth of 11.8% (core vol +2%, acq + 2%, price/mix +8%) was well above 19 our estimate. Operating income of $143 million also surpassed our forecast with a 11/05 5/06 11/06 5/07 11/07 5/08 higher than expected tax rate limiting EPS by $0.05 per share. We retain our Hold Hormel Foods

Global Markets Research rating based on solid management, strong execution, but limited by valuation, S&P 500 INDEX (Rebased) input cost volatility and foodservice exposure. Performance (%) 1m 12m Solid performance given challenges Absolute 2.7 -17.8 -22.6 S&P 500 INDEX -2.8 -34.1 -40.9 We emphasize that Hormel’s quarter was of a higher quality than we had modeled with a higher tax rate and a larger rabbi trust investment loss offsetting much Stock & option liquidity data stronger than expected performance in the refrigerated segment. Operating profit Market Cap (USDm) 3,956.2 in all segments exceeded our recently revised forecast, with only Other (Int’l) Shares outstanding (m) 135.3 profits trailing our estimate. Free float (%) 100 Volume (24 Nov 2008) 451,000 Future is mixed Option volume (und. shrs., 1M avg.) 2,948 Looking forward, relief on the cost front (pork trim, beef, corn – x/ hedges) is met with uncertainty about the impact of a weak economy on value-added portfolio Implied & Realized Volatility (3M)

items + foodservice + turkey pricing. Additionally, lower live hog availability 60% should result in higher hog prices. Given demand uncertainty (particularly around 50% exports), we do not expect this to be fully passed through in a higher cutout, thus 40% 30% squeezing processing margins. 20% 10 % Valuation and risks 0% We are reducing our F2009E EPS from $2.29 to $2.18. Our F2010E EPS is $2.43. Nov May Nov May Nov May We retain our Hold rating and price target of $32. Price target is based on a DCF 05 06 06 07 07 08 model that uses a 9.5% WACC (determined via CAPM: 0.8x beta, 6% risk free Realized Vol Implied Vol (ATM) rate, 12% expected return). Our model assumes long term growth expectations including sales (3-4%), operating profit (5-6%), EPS / cash flow (7-8%). Implied Volatility (3M, ATM) vs. Peers Additionally, we utilize our IVCC metric (which measures the PV of changes in CCE.N 93.8% future economic profit. DPS.N 59.4% Forecasts and ratios PBG.N 58.6% Year End Oct 31 2008A 2009E 2010E HRL.N 53.6% 1Q EPS1 0.64 0.47 – MKC.N 45.6% 2Q EPS 0.56 0.49 – *Weighted-avg. of index components Data as of 21-Nov-08 3Q EPS 0.38 0.48 – 4Q EPS 0.50 0.74 – FY EPS (USD) 2.08 2.18 2.43 OLD FY EPS (USD) 2.06 2.29 2.52 Dividend yield (%) 1.9 2.6 3.3 Revenue (USDm) 6,754.9 7,168.1 7,415.6 Source: Deutsche Bank estimates, company data

1 Includes the impact of FAS123R requiring the expensing of stock options.

Deutsche Bank Securities Inc. All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Independent, third-party research (IR) on certain companies covered by DBSI's research is available to customers of DBSI in the United States at no cost. Customers can access IR at http://gm.db.com/IndependentResearch/ or by calling 1-877-208-6300. DISCLOSURES AND ANALYST CERTIFICATIONS ARE

LOCATED IN APPENDIX 1. 25 November 2008 Food Hormel Foods

Solid F4Q08 performance, but future is mixed The performance of Hormel’s diversified portfolio appears to be holding up relatively well in a dynamic, strained consumer environment. Management noted strength in products such as Spam, chili, stew and hash. Additionally, foodservice sales came in flat in the quarter, outperforming the industry. We believe the foodservice performance is due to the diversity of the outlets to which Hormel sells, as well as to the benefit of its direct sales force, which appears to be taking share.

Looking ahead, as we noted in our detailed preview, the cost outlook for a number of inputs improves. Specifically, pork trim costs have fallen and we expect beef costs (to which Hormel is exposed) to also become more favorable. While we thought that the steep drop in corn prices would be a relief for the company in its JOTS division, it appears that the benefit will be moderated by hedged positions. Additionally, a consolidated turkey processing industry (with Butterball, Hormel and holding 50%+ combined share) has aggressively cut turkey eggs set. However, the impact to production is not yet readily apparent, based on weekly slaughter data, owing to the biological lag.

However, several challenges led to a more muted tone by management on today’s company- sponsored conference call. In our view, this tone does seem prudent, given severe global economic weakness and the intensifying stress (declining wealth + job insecurity) placed on consumers. Like many packaged food companies, Hormel has been focusing innovation efforts on value-added products, which emphasize convenience. However, the trend toward convenience on the part of consumers appears to be giving way to an emphasis on value. This is evident in the slowdown in sales of Hormel Compleats microwavable meals. This product, about $150-$200 million in sales, has shown strong double-digit growth since its introduction. However, management noted a softening in sales since late summer/early fall. Given these trends, Hormel noted it intends to use part of the capacity of the new Dubuque plant (previously dedicated to Compleats) for additional production of canned items.

While the input cost environment (with the important exception of live hogs) looks to be more benign, we believe that prior efforts to recover the surge in raw material prices are not fully complete. As a result, it is management’s challenge to try to push pricing through to recover prior moves in input costs and risk the impact of demand elasticity or accept lower margins until lower input costs work their way through.

Looking at hogs specifically, we note that based on farrowing intentions in the September Hogs & Pigs report, and assuming a continued increase in pigs per litter, sources indicate that 2009 hog slaughter will fall 3%. On today’s conference call, Hormel management indicated a 3-4% expected decline in the supply of market ready hogs, with the biggest impact evident in the March/April timeframe. Based on the outlook for export demand, we do not expect this to be fully passed through in the form of a higher cutout. As a result, we look for processing margins to compress from this year’s strong performance.

Estimates, valuation & risks We are reducing our F2009E (end Oct) EPS estimate from $2.29 to $2.18, within management’s guided range of $2.15-$2.25. We look for 6% top line growth, driven by Specialty, JOTS, and, to a lesser extent, Grocery Products. We assume a slight 1.5% drop in operating profits to $502.5 million, on a consolidated basis, as expected growth in JOTS, Grocery Products and Specialty is offset by expected declines in Refrigerated and Other. We have modeled recovery in JOTS profitability in F2009E (except in F1Q09E) based on the steep drop in turkey eggs set (~9%) since mid-July. However, this may prove optimistic, depending on (1) the ability of the industry to work through inventories, (2) consumer response to higher prices and (3) export demand. We look for corn prices to be pressured, at

Page 2 Deutsche Bank Securities Inc. 25 November 2008 Food Hormel Foods

least until spring, by lower demand owing to livestock/poultry liquidation and competition with feed wheat globally.

We are maintaining our Hold opinion and price target of $32. Our price target is based on a DCF model that uses a 9.5% WACC (determined via CAPM: 0.8x beta, 6% risk free rate, 12% expected return). Our model assumes long term growth expectations including sales (3- 4%), operating profit (5-6%), EPS / cash flow (7-8%). This valuation method suggests a price of $34 is reasonable for Hormel's shares. Additionally, we utilize our IVCC metric (which measures the PV of changes in future economic profit); we use the same parameters in this methodology as we do for our DCF analysis to value incremental economic profit relative to the peer group through regression analysis. Utilizing this method, we derive a price in the low $30's for Hormel's shares. Averaging the two methods yields a price target of $32 per share. Risks include competition (branded, pvtlbl), input costs (energy, raw matl, packaging). To the extent grain costs increase without an increase in value-added growth in the company’s turkey segment, margins may be pressured. Additionally, volatile live hog prices historically have led to difficulty in Hormel’s ability to pass through higher prices in its Refrigerated Foods segment. Risks to the upside include a significant and sudden drop in corn prices, higher than expected increase in turkey pricing and a greater degree of price realization in Grocery than we currently forecast.

F4Q08 results summary Hormel reported F4Q08 (end Sep) EPS of $0.50 (vs. $0.70 in the year ago quarter), above our estimate and the consensus of $0.48. We note that the current quarter results did not include any 1-time items. However, we remind investors that year ago results excluded (1) $4.8 million pre-tax gain ($0.02 per share) on an asset disposal and (2) $2.0 million pre-tax gain ($0.01 per share) on a business disposal.

Consolidated sales were up 11.8% to $1.86 billion, above our $1.76 billion forecast. Acquisition contribution during the quarter was roughly 2% and core volumes were up 2%. As a result, we estimate contribution of price / mix impact to be roughly 8%.

Consolidated operating income was down 4.1% as margins contracted 130 bps. to 7.7% vs. the year ago quarter, but came in above our 6.6% forecast. Specifically, cost of goods came in at 78.7% of sales, up 190 bps. vs. year ago quarter and above our forecast of 78.1%. Selling (including marketing) & delivery costs as a percentage of sales were down 100 bps to 11.4%. Mgmt. expects advertising expenses for F2009 to be above F2008 as it intends to continue media campaigns for several product lines. Finally, administrative & general expenses as a percentage of sales were down 30 bps. year-over-year at 2.3%.

Below the operating line, the company reported other loss of $19.2 million vs. our estimate of an $8.0 million loss, which hurt EPS roughly by $0.05 (after tax) relative to our forecast. Interest expense of $7.4 million was above our $6.7 million forecast. Pretax income came in 21.5% lower YoY at $116.7 million as margins contracted 260 bps. to 6.3%. We calculate an effective tax rate of 41.9%, above our estimate of 34.8%, impacting EPS roughly by $0.05 relative to our forecast, owing to the non-tax deductibility of the mark to market loss from the rabbit trust investment. Flowing through, net income was 30.1% lower YoY on a 220 bps. margin contraction to 3.6%. Shares outstanding decreased 1.3% YoY to 136.2 million, roughly in line with our 136.8 million forecast. During the quarter, the company repurchased 367,000 shares at an average price of roughly $35.62. The company has 2.3 million shares remaining from its 10 million share repurchase authorization.

Deutsche Bank Securities Inc. Page 3 25 November 2008 Food Hormel Foods

Segment analysis 1. Grocery (14% of sales, 28% of operating profit pre-corporate expense): YoY sales rose 6.4% vs. our 6.2% forecast. Management noted strong top line growth in SPAM product lines. Sales of Hormel chili and Dinty Moore stew also increased during the quarter. However, sales of Hormel Compleats microwave meals were down YoY. Operating income decreased 3.4% YoY as margins contracted 160 bps. to 15.5% vs. the year ago period, mainly on higher input costs and unfavorable price/mix.

2. Refrigerated Foods (51% of sales, 39% of operating profit pre-corporate expense): Sales during the quarter were $941 million vs. our $848 million forecast. Acquisitions contributed roughly 3.0% of the consolidated 10.7% sales growth. Management noted higher sales (on volume gains) in Hormel Natural Choice deli meats, flavored pork lines and Hormel refrigerated entrees. Volumes in the Foodservice business unit were flat during the quarter. Operating income was up 12.1% as margins expanded 10 bps. to 6.1% vs. the year ago quarter.

3. Jennie-O Turkey (20% of sales, 16% of operating profit pre-corporate expense): Sales increased 11.0% on higher pricing and volume gains. Sales of $374 million were slightly above our $367 million estimate. Sales growth in the value-added retail product lines was mainly driven by fresh tray pack, turkey burgers and marinated tenders. Operating profit declined 43.7% as margins declined from 12.5% YoY to 6.3% mainly on 1) lower breast meat prices due to an oversupply in the industry; and 2) higher grain costs (up $40 million - $0.19 per share- YoY) and fuel costs.

4. Specialty Foods (11% of sales, 13% of operating profit pre-corporate expense): Sales increased 20% (up 16% excluding acquisition) to $214 million. Operating income was up 48.8% YoY on 180 bps. margin expansion to 9.1% vs. our 8.8% forecast. The strong performance was a result of higher sales and income at (1) the Specialty Products unit on contract manufacturing and savory products; (2) Diamond Crystal Brands mainly on higher nutritional sales and the acquisition of Boca Grande Foods in F3Q08; and (3) Century Foods International business unit due to higher sales of value added products and ready-to-drink products.

5. All Other (4% of sales, 4% of operating profit pre-corporate expense): This segment comprises Hormel’s international business. Sales during the quarter increased to $68 million vs. $51 million in the year ago quarter and compared to our $64 million forecast. Sales growth was mostly driven by exports of SPAM product lines and fresh pork. Operating income came in at $6.3 million vs. $6.9 million in the year ago quarter, mainly on higher input costs and an unfavorable currency impact.

Page 4 Deutsche Bank Securities Inc. 25 November 2008 Food Hormel Foods

Appendix 1

Important Disclosures Additional information available upon request

Disclosure checklist Company Ticker Recent price* Disclosure Hormel Foods HRL.N 29.24 (USD) 24 Nov 08 2

*Prices are sourced from local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies.

Important Disclosures Required by U.S. Regulators Disclosures marked with an asterisk may also be required by at least one jurisdiction in addition to the United States. See “Important Disclosures Required by Non-US Regulators” and Explanatory Notes. 2. Deutsche Bank and/or its affiliate(s) makes a market in securities issued by this company.

Important Disclosures Required by Non-U.S. Regulators Please also refer to disclosures in the “Important Disclosures Required by US Regulators” and the Explanatory Notes. 2. Deutsche Bank and/or its affiliate(s) makes a market in securities issued by this company.

For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com.

Analyst Certification The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s) about the subject issuer and the securities of the issuer. In addition, the undersigned lead analyst(s) has not and will not receive any compensation for providing a specific recommendation or view in this report. Christina McGlone

Deutsche Bank Securities Inc. Page 5 25 November 2008 Food Hormel Foods

Historical recommendations and target price: Hormel Foods (HRL.N) (as of 11/24/2008)

45.00 7 Previous Recommendations 6 3 40.00 1 2 5 Strong Buy 8 Buy 35.00 4 Market Perform Underperform 30.00 Not Rated Suspended Rating 25.00 Current Recommendations Buy 20.00 Hold Sell

Security Price Security 15.00 Not Rated Suspended Rating 10.00 *New Recommendation Structure as of September 9, 2002 5.00

0.00 Nov 05 Feb 06 May 06 Aug 06 Nov 06 Feb 07 May 07 Aug 07 Nov 07 Feb 08 May 08 Aug 08 Date

1. 5/25/2006: Hold, Target Price Change USD36.00 5. 11/20/2007: Hold, Target Price Change USD37.00 2. 11/22/2006: Hold, Target Price Change USD39.00 6. 2/11/2008: Hold, Target Price Change USD40.00 3. 5/16/2007: Hold, Target Price Change USD40.00 7. 5/22/2008: Hold, Target Price Change USD39.00 4. 8/9/2007: Hold, Target Price Change USD35.00 8. 10/20/2008: Hold, Target Price Change USD32.00

Equity rating key Equity rating dispersion and banking relationships

Buy: Based on a current 12- month view of total share- holder return (TSR = percentage change in share price 600 58% from current price to projected target price plus pro- 500 jected dividend yield ) , we recommend that investors 400 39% buy the stock. 300 Sell: Based on a current 12-month view of total share- 38% 32% holder return, we recommend that investors sell the 200 3% 38% stock 100 Hold: We take a neutral view on the stock 12-months 0 out and, based on this time horizon, do not recommend Buy Hold Sell either a Buy or Sell. Notes: Companies Covered Cos. w/ Banking Relationship 1. Newly issued research recommendations and target prices always supersede previously published research. North American Universe 2. Ratings definitions prior to 27 January, 2007 were: Buy: Expected total return (including dividends) of 10% or more over a 12-month period Hold: Expected total return (including dividends) between -10% and 10% over a 12-month period Sell: Expected total return (including dividends) of - 10% or worse over a 12-month period

Page 6 Deutsche Bank Securities Inc. 25 November 2008 Food Hormel Foods

Regulatory Disclosures 1. Important Additional Conflict Disclosures Aside from within this report, important conflict disclosures can also be found at https://gm.db.com/equities under the "Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this information before investing.

2. Short-Term Trade Ideas Deutsche Bank equity research analysts sometimes have shorter-term trade ideas (known as SOLAR ideas) that are consistent or inconsistent with Deutsche Bank's existing longer term ratings. These trade ideas can be found at the SOLAR link at http://gm.db.com.

3. Country-Specific Disclosures Australia: This research, and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. EU countries: Disclosures relating to our obligations under MiFiD can be found at http://globalmarkets.db.com/riskdisclosures. Japan: Disclosures under the Financial Instruments and Exchange Law: Company name - Deutsche Securities Inc. Registration number - Registered as a financial instruments dealer by the Head of the Kanto Local Finance Bureau (Kinsho) No. 117. Member of associations: JSDA, The Financial Futures Association of Japan. Commissions and risks involved in stock transactions - for stock transactions, we charge stock commissions and consumption tax by multiplying the transaction amount by the commission rate agreed with each customer. Stock transactions can lead to losses as a result of share price fluctuations and other factors. Transactions in foreign stocks can lead to additional losses stemming from foreign exchange fluctuations. New Zealand: This research is not intended for, and should not be given to, "members of the public" within the meaning of the New Zealand Securities Market Act 1988. Russia: This information, interpretation and opinions submitted herein are not in the context of, and do not constitute, any appraisal or evaluation activity requiring a license in the Russian Federation.

Deutsche Bank Securities Inc. Page 7

Deutsche Bank Securities Inc.

North American locations

Deutsche Bank Securities Inc. Deutsche Bank Securities Inc. Deutsche Bank Securities Inc. Deutsche Bank Securities Inc. 60 Wall Street 225 Franklin Street 222 South Riverside Plaza 3033 East First Avenue New York, NY 10005 25th Floor 30th Floor Suite 303, Third Floor Tel: (212) 250 2500 Boston, MA 02110 , IL 60606 Denver, CO 80206 Tel: (617) 988 8600 Tel: (312) 537-3758 Tel: (303) 394 6800

Deutsche Bank Securities Inc. Deutsche Bank Securities Inc. Deutsche Bank Securities Inc. 1735 Market Street 101 California Street 700 Louisiana Street 24th Floor 46th Floor Houston, TX 77002 Philadelphia, PA 19103 San Francisco, CA 94111 Tel: (832) 239-4600 Tel: (215) 854 1546 Tel: (415) 617 2800

International locations

Deutsche Bank Securities Inc. Deutsche Bank AG London Deutsche Bank AG Deutsche Bank AG 60 Wall Street 1 Great Winchester Street Große Gallusstraße 10-14 Deutsche Bank Place New York, NY 10005 London EC2N 2EQ 60272 Frankfurt am Main Level 16

United States of America United Kingdom Germany Corner of Hunter & Phillip Streets Tel: (1) 212 250 2500 Tel: (44) 20 7545 8000 Tel: (49) 69 910 00 Sydney, NSW 2000 Australia Tel: (61) 2 8258 1234 Deutsche Bank AG Deutsche Securities Inc. Level 55 2-11-1 Nagatacho Cheung Kong Center Sanno Park Tower 2 Queen's Road Central Chiyoda-ku, Tokyo 100-6171 Hong Kong Japan Tel: (852) 2203 8888 Tel: (81) 3 5156 6701

Global Disclaimer

The information and opinions in this report were prepared by Deutsche Bank AG or one of its affiliates (collectively "Deutsche Bank"). The information herein is believed to be reliable and has been obtained from public sources believed to be reliable. Deutsche Bank makes no representation as to the accuracy or completeness of such information.

Deutsche Bank may (1) engage in securities transactions in a manner inconsistent with this research report, (2) with respect to securities covered by this report, sell to or buy from customers on a principal basis, and (3) consider this report in deciding to trade on a proprietary basis.

Opinions, estimates and projections in this report constitute the current judgment of the author as of the date of this report. They do not necessarily reflect the opinions of Deutsche Bank and are subject to change without notice. Deutsche Bank has no obligation to update, modify or amend this report or to otherwise notify a recipient thereof in the event that any opinion, forecast or estimate set forth herein, changes or subsequently becomes inaccurate. Prices and availability of financial instruments are subject to change without notice. This report is provided for informational purposes only. It is not an offer or a solicitation of an offer to buy or sell any financial instruments or to participate in any particular trading strategy.

The financial instruments discussed in this report may not be suitable for all investors and investors must make their own informed investment decisions. Stock transactions can lead to losses as a result of price fluctuations and other factors. If a financial instrument is denominated in a currency other than an investor's currency, a change in exchange rates may adversely affect the investment. Past performance is not necessarily indicative of future results.

Unless governing law provides otherwise, all transactions should be executed through the Deutsche Bank entity in the investor's home jurisdiction. In the U.S. this report is approved and/or distributed by Deutsche Bank Securities Inc., a member of the NYSE, the NASD, NFA and SIPC. In Germany this report is approved and/or communicated by Deutsche Bank AG Frankfurt authorized by the BaFin. In the United Kingdom this report is approved and/or communicated by Deutsche Bank AG London, a member of the London Stock Exchange and regulated by the Financial Services Authority for the conduct of investment business in the UK and authorized by the BaFin. This report is distributed in Hong Kong by Deutsche Bank AG, Hong Kong Branch, in Korea by Deutsche Securities Korea Co. and in Singapore by Deutsche Bank AG, Singapore Branch. In Japan this report is approved and/or distributed by Deutsche Securities Inc. The information contained in this report does not constitute the provision of investment advice. In Australia, retail clients should obtain a copy of a Product Disclosure Statement (PDS) relating to any financial product referred to in this report and consider the PDS before making any decision about whether to acquire the product. Deutsche Bank AG Johannesburg is incorporated in the Federal Republic of Germany (Branch Register Number in South Africa: 1998/003298/10). Additional information relative to securities, other financial products or issuers discussed in this report is available upon request. This report may not be reproduced, distributed or published by any person for any purpose without Deutsche Bank's prior written consent. Please cite source when quoting. Copyright © 2008 Deutsche Bank AG