# Dear fellow shareholders

_Source: `DeepSeekOCR_Ardian_pruned_1k/consumer-defensive-packaged-foods/NYSE_HRL_2019/NYSE_HRL_2019.mmd` · pages 2-8_

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Dear fellow shareholders:

In 2019 we continued to set our company up for future growth as the strategic actions we have taken in recent years are translating into results. While the outcome of the progress we have made is not always easily visible from the outside, the result is a better and stronger business.

For example, we have delivered impressive organic growth across our branded portfolio and improved our position in the industry by acquiring some excellent businesses such as Columbus Craft Meats and Fontanini Italian Meats and Sausages.

This year we improved both our cost structure and operating margins. These efforts are impressive when you consider the dramatic reduction in commodity profits as well as the uncertainty caused by African swine fever in China and global trade dynamics.

Hormel Foods remains in a position of strength, and I am confident we are on the right path to continue growing as a global branded food company.

This year also marked the inaugural year of our newest division called Hormel Deli Solutions, completion of a highly automated state-of-the-art whole bird facility at Jennie-O Turkey Store and the exit from two nonstrategic businesses. Additionally, we strengthened our balance sheet by paying down debt related to the Columbus Craft Meats acquisition and by growing our cash position. I'm proud to say that Hormel Foods continues to have one of the strongest balance sheets in the food industry. This year we sold our Fremont processing facility, which has been an important part of our company for decades. Decisions like this are always difficult, but I am pleased to have found a home for this team and facility with WholeStone Farms, which has committed to modernizing the facility in order to keep it competitive in the industry. A multiyear supply agreement for pork was also included as part of the transaction. The sale reduced our earnings volatility and allowed us to avoid investing significant capital to modernize the facility. This is a clear indication of the direction in which we are going as a global branded food company.

## 2020 Path Forward

In our 2017 Annual Report, we outlined our 2017 Path Forward, a set of key initiatives we needed to deliver on in order to achieve long-term growth and meet the needs of today's customers, consumers and operators. I'm pleased to report we have successfully executed on these initiatives.

At our 2019 Investor Day in October, our senior leadership team had the opportunity to outline our 2020 Path Forward. These six strategic priorities will continue to set Hormel Foods apart in the food industry.

(1) We must accelerate growth in the foodservice and deli channels. We hold deep competitive advantages in these businesses, and I am confident they will continue generating shareholder value for years to come. We are investing a significant amount of capital into the Burke pizza toppings plant expansion and a new Columbus dry sausage facility. These investments will support the strong growth we are seeing in the foodservice and deli channels.

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(2) We are leaning into our ethnic-cuisine businesses with excellent brands such as Herdez \( ^{®} \)  and Wholly \( ^{®} \) . Our joint venture, MegaMex Foods, is truly unique in the industry, and we know authentic Mexican products and global flavors are on-trend with today's consumers. This year we celebrated the 10th anniversary of our partnership with Herdez Del Fuerte and surpassed 700 million in sales. We have the right business model with MegaMex to accelerate our growth.

(3) Innovation is in our DNA, and we continue to win industry awards such as the 2019 Progressive Grocer Editors' Picks for five new products, including the Applegate \( ^{®} \)  Organic Blend Burger and SKIPPY \( ^{®} \)  P.B. & Jelly Minis. We are world class when it comes to delivering innovation to the marketplace, but to use a baseball analogy, we hit a lot of singles and doubles. We are a bigger company today, and the competition is as strong as ever. That's exactly why I'm encouraging our innovation teams to be bolder and hit more home runs like we did with Hormel \( ^{®} \)  Bacon 1 \( ^{TM} \)  cooked bacon and Herdez \( ^{®} \)  guacamole salsa.
(4) Hormel Foods is a global branded food company. If we are honest with ourselves, the term global is aspirational. With more than 90 percent of our sales in the United States, we know there is a distinct opportunity to grow faster internationally. We have great multinational platforms in China and Brazil and are working hard to gain meaningful scale in each country.

(5) It is vital we protect our core brands such as SPAM \( ^{®} \) , SKIPPY \( ^{®} \) , Jennie-O \( ^{®} \) , Hormel \( ^{®} \)  and the 40-plus other No. 1 and No. 2 brands we own. Protecting our brands shouldn't be confused with not growing. In fact, this year represented the fifth consecutive year of record domestic sales for our SPAM \( ^{®} \)  family of products. That is quite an accomplishment for a brand that is 82 years young. These brands and many others are the reason why our company has been, and will continue to be, successful.

(6) Finally, we will continue to transform our company's operations through investments in One Supply Chain and Project Orion. These initiatives will give us a leadership position in the industry with regard to how we operate our financial, supply chain and human resource systems.

## Our 2020 Path Forward

as a global branded food company

![](images/3_0.jpg)

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## Capital management

In 2019 we generated \(923 million in cash from operations. The confidence we have in our business is reflected in our investments in our production facilities. Over \)290 million in capital was invested this year to add capacity for branded products such as SPAM \( ^{®} \)  luncheon meat, Hormel \( ^{®} \)  and Burke \( ^{®} \)  pizza toppings, and Fontanini \( ^{®} \)  meatballs, in addition to numerous other projects.

Our strong cash flow allowed us to return \(437 million in dividends back to our shareholders at an annual rate of \)0.84 per share. Fiscal 2020 will represent the 54th consecutive year of dividend increases and the 11th consecutive year of double-digit dividend increases as we increased our dividend by 11 percent to \(0.93 per share. In fiscal 2019, we also opportunistically repurchased \)174 million in common stock.

## Outlook

As we continue on Our Food Journey \( ^{™} \) , our focus is on the successful execution of our 2020 Path Forward. I am excited about the opportunities we have in the foodservice, retail and deli channels. Next year, like always, will present its share of opportunities and challenges. Our team will remain focused on executing against the things we can control while at the same time staying agile as things outside of our control evolve. I know we have the right strategy, business model, leadership team and team members to deliver long-term sustainable growth.

## Senior leadership and board member changes

Each year we see accomplished leaders retire from our company and new leaders promoted. This year is no exception. In October 2019 and after nearly 40 years of service to Hormel Foods, Tom Day, executive vice president of Refrigerated Foods, announced his retirement effective at the end of the first quarter of 2020. Tom developed a reputation for his ability to instill a growth-oriented culture across the company, build high-performing teams and deliver key results.

Succeeding Tom, Deanna Brady advanced to executive vice president of Refrigerated Foods. Following Deanna's promotion, P.J. Connor was named group vice president of Consumer Products Sales, and Tony Hoffman was named vice president of Consumer Products Sales.
In January 2019, Jim Sheehan advanced to executive vice president and chief financial officer. Jim previously held the role of senior vice president and chief financial officer.

In March 2019, Jose Luis Prado, vice chairman and former CEO of Evans Food Group, was elected to our Board of Directors. Jose Luis is an accomplished leader in the packaged food and snack industry and has extensive domestic and international experience.

In November 2019, Prama Bhatt, senior vice president, digital and eCommerce at Ulta Beauty, was also elected to our Board of Directors. Prama has in-depth knowledge and experience with consumer-facing companies leveraging e-commerce growth and driving digital transformation. Both Prama and Jose Luis are excellent additions to our experienced Board of Directors.

## Our Food Journey \( ^{™} \) 

I have a strong sense of pride in what we have accomplished in our business and also in the lives we touch. Over our 128-year history, Hormel Foods has never wavered or shied away from doing what is right. Today is no different. We know that good business and good stewardship go hand in hand, and through Our Food Journey \( ^{™} \) , we are leading the industry in making a positive impact in the lives of our team members, consumers and operators, as well as in the communities where we do business.

Our efforts continue to be recognized. We were recently named one of the World's Best Employers by Forbes, coming in at No. 72, which is up from No. 234 last year. We are ranked No. 7 in the consumer foods product category on Fortune's list of the World's Most Admired Companies; named a Best for Vets Employer by Military Times; and listed as one of the 50 Best Companies to Sell For by Selling Power magazine.

Finally, I want to extend a heartfelt thank you to our shareholders for continuing to support our uncommon company and to our 18,800 inspired people who work tirelessly and brilliantly each day to make inspired food.

![](images/4_0.jpg)

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