# Dear fellow shareholders

_Source: `DeepSeekOCR_Ardian_pruned_1k/consumer-defensive-packaged-foods/NYSE_HRL_2018/NYSE_HRL_2018.mmd` · pages 2-8_

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Dear fellow shareholders:

We continue to distinguish ourselves as a different kind of company. Hormel Foods is differentiated from ag companies, commodity companies and consumer-packaged-goods companies. We are unlike any other food company in the world — so much so — we created our own category. We are a global branded food company.

As a global branded food company and a leader in the food space, it is our responsibility to recognize and respond to trends and changes in the industry. Today, change is happening at a faster rate than ever before. We like to say change will never be this slow again. Consumers can now find an amazing array of products to put in their physical and online shopping carts. The line between retail and foodservice is blurring with the advent of grocerants, online shopping and home delivery. Consumers can now make restaurant-quality meals with fresh food shipped directly to their homes. Change is exciting, and Hormel Foods is on the cutting edge of these trends.

Constant change requires us to think differently and more boldly in order to stay relevant. In fact, adapting to change is so important to us, it is one of the seven Cultural Beliefs \( ^{®} \)  we want every team member in the company to hold.

## CHALLENGE YOURSELF

I embrace change, innovation and strategic risk taking.

Over our 127-year history, Hormel Foods has undergone dramatic change, but some things haven't changed at all. The values that made us successful — our core culture, a spirit of innovation and brand stewardship — have not, and will not, change.

## Our formula

Our formula for adapting to change and driving shareholder value — what we call Our Formula for Success — is exceedingly simple, yet difficult to replicate. It has four ingredients: (1) Building strong brands that customers, consumers and operators trust; (2) Relentlessly pursuing innovations that are relevant in the marketplace;

Jim Snee
Chairman of the Board, President and Chief Executive Officer
(3) Making strategic and disciplined acquisitions; and
(4) Creating intentional balance in our business model. This path is not linear, and there are milestones that demonstrate the progress we have made along the way.

Building brands: One important milestone is our brand presence. When you walk through your local grocery store or shop online, you will see over 40 categories where a Hormel Foods brand holds a No. 1 or No. 2 share. There aren't many places in a grocery store where you don't encounter a Hormel Foods brand. Even with shoppers changing where and how they buy their food, we believe consumers and operators will continue to choose brands they know and trust. Building strong brands has never been more important. For this reason, we increased advertising

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SPAM \( ^{®} \)  family of products
With a commanding domestic market share
and strong international reach, the SPAM \( ^{®} \)  brand
continues to grow and remain relevant.

and promotional support for brands like SPAM \( ^{®} \) , Skippy \( ^{®} \) , Justin's \( ^{®} \) , Jennie-O \( ^{®} \) , Hormel \( ^{®} \)  Natural Choice \( ^{®} \)  and Applegate \( ^{®} \) . I'm confident our leadership position in branded food will afford us opportunities that other companies will not have.

Innovation: Innovation is in our DNA. Fiscal 2018 was a testament to this fact as we received a record number of awards for our innovative new items. Nine different products, including Hormel \( ^{®} \)  Natural Choice \( ^{®} \)  stacks and Applegate Naturals \( ^{®} \)  peppered Genoa salami, were named as best new items by Progressive Grocer Magazine. Also, the Grocery Manufacturers Association recognized Herdez \( ^{®} \)  guacamole salsa for innovation and creativity in the food space. Our innovators, food scientists, engineers and brand managers work hard every day to deliver the next wave of exciting new products to the marketplace. We continue to make excellent progress toward our goal of having 15 percent of sales in the year 2020 generated from products created in the last five years. At the end of 2018, over 14 percent of sales came from innovative new items.

Strategic acquisitions: The acquisition of Columbus Craft Meats in November 2017 is meeting our expectations. Columbus has an outstanding reputation and is a great business that has served as a catalyst to unite our deli businesses across the enterprise. We are always on the lookout for other food companies that deepen and broaden our position as a global branded food company. Finding and closing on acquisitions is never easy, but we have had recent success and will work to add more brands to our portfolio in 2019.

Balanced-business model: Our ability to bring strategic balance to our business is an important fundamental and often comes with difficult decisions. This year we announced the sale of the Fremont processing facility, which allowed us to forego major capital investments, reduce earnings volatility and ensure a steady supply of raw materials for our value-added products. Most importantly, this agreement provides a seamless transition for the 1,500 people who work there.

## Capital management

In 2018 we invested \(390 million in capital, the largest capital investment in our history. Much of this went toward value-added production capacity for businesses such as Jennie-O Turkey Store and Hormel Foodservice. As mentioned earlier, we completed the \)857 million acquisition of Columbus, the largest in our history.

Strong cash flow allowed us to return over \(388 million in dividends at an annual rate of \)0.75 per share. Fiscal 2019 will represent the 53 \( ^{rd} \)  consecutive year of dividend increases as we increased our dividend by 12% to $0.84 per share.

At the end of 2017, the Tax Cuts and Jobs Act was signed into law. The passing of tax reform decreased our federal statutory tax rate from 35 percent to 21 percent, increasing our cash flow by well over $100 million. We intend to use these tax benefits to continue making strategic and disciplined investments in our brands, facilities and team members. This year we were also excited to grant universal stock options to our 20,000 team members.

## Outlook

Fiscal 2019 represents a year of capturing the benefits from investments we made in both capital expenditures and acquisitions. Our new deli division will have its inaugural

20,000
Employees received a Universal Stock Option Award

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Universal stock options
This award gives team members companywide the opportunity to be shareholders of our great organization and to share in our growth and success.

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year and we are excited to start production in our new state-of-the-art facilities in Melrose, Minn., and Wichita, Kan.

The emphasis we place on growing branded value-added products has never been stronger, and we expect meaningful sales gains from each segment in 2019. We also expect earnings growth from all four segments, led by brands such as Wholly Guacamole \( ^{®} \) , Applegate \( ^{®} \) , Jennie-O \( ^{®} \)  and SPAM \( ^{®} \) .

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## Dividends

As of the August dividend payment, the company has paid uninterrupted quarterly dividends for the last 360 quarters, dating back to 1928.

## Senior leadership and board member changes

I often speak about the exceptional leadership within our company, including our leadership team and board of directors. We announced several retirements and advancements this year. In November 2017, Glenn Leitch was named to the new position of executive vice president of supply chain. Succeeding Glenn, Steve Lykken was named senior vice president and president of Jennie-O Turkey Store.

In February 2018, Jeff Baker was named group vice president of deli and will lead our newly-formed deli division. As a result of Jeff's advancement, Mark Ourada was named group vice president of foodservice. Following Mark's promotion, David Weber was named vice president of foodservice sales and Jeff Frank was named vice president of foodservice marketing.

In May 2018, Steve Binder, executive vice president and president of Hormel Business Units, retired after 38 years of service to our company. Steve was an important leadership force within Hormel Foods and achieved a great track record of success throughout his career. Subsequent to Steve's retirement, Tom Day advanced to executive vice president of Refrigerated Foods. Don Kremlin, group vice president of Specialty Foods, retired in August 2018 after a successful 34-year career with our company, spanning across multiple business units.

John (Jack) Morrison, managing director of Goldner Hawn Johnson & Morrison, served on our board from 2003 to January 2018. Jack's valuable input and insights into our business will be missed. In November 2018, Bill Newlands, president and chief executive officer elect for Constellation Brands, was elected to our board of directors. Bill is a highly regarded business leader with significant experience in innovation, corporate development, consumer product marketing and international business. Bill will be a great addition to our exceptional and dynamic slate of directors.

## Inspired People. Inspired Food. \( ^{™} \) 

We like to say that Hormel Foods is an uncommon company. Hormel Foods is unique in so many ways — 80 years of distributing annual profit sharing for our employees, 90 consecutive years of paying a quarterly dividend, an average of 26 years of tenure on our senior management team, 29 out of 33 years of growing earnings and the list goes on.

We are uncommon people delivering uncommon results – and it is getting noticed. This year we were ranked No. 16 on the list of 100 Best Corporate Citizens, ranked No. 8 among the most admired food companies in the world by Fortune magazine and recognized by Forbes as one of the world's best employers. We truly have a group of inspired people making inspired food.

To our shareholders and employees across the world, thank you for joining us on Our Food Journey \( ^{™} \) . None of this happens without you.

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James P. Snee
Chairman of the Board, President
and Chief Executive Officer