Core Insights - Hormel Foods Corporation (HRL) is a significant player in the packaged foods industry, with a market cap of $13.7 billion and a diverse brand portfolio [1][2] - The company has faced stock price declines, with a 26.6% drop from its 52-week high and a 20.9% year-to-date decrease [3][4] Company Overview - HRL develops, processes, and distributes a variety of food products, including meat and nuts, to various customers globally [1] - The company is classified as a large-cap stock, highlighting its size and influence in the market [2] Financial Performance - In Q3, HRL reported an adjusted EPS of $0.35, falling short of the expected $0.41, while revenue reached $3.03 billion, exceeding forecasts of $2.98 billion [5] - The company anticipates a full-year adjusted EPS between $1.43 and $1.45 [5] Stock Performance - HRL shares have underperformed compared to the First Trust Nasdaq Food & Beverage ETF, with a 17.7% decline over the past three months [3][4] - The stock has been trading below its 50-day and 200-day moving averages, indicating a bearish trend [4] Analyst Sentiment - Wall Street analysts maintain a cautious outlook on HRL, with a consensus "Hold" rating and a mean price target of $28.71, suggesting a potential upside of 15.7% [6]

Financial Data and Key Metrics Changes - The company reported a 6% growth in top line revenue, with volume growth across all segments: retail up 5%, foodservice up 7%, and international up 6% [4][6] - Despite the top line growth, the bottom line was negatively impacted by cascading cost pressures that exceeded expectations, leading to a miss in earnings [5][6] Business Line Data and Key Metrics Changes - Retail segment experienced a 5% growth, foodservice segment grew by 7%, and international segment saw a 6% increase, indicating strong performance across all business lines [4] - The company is facing challenges in passing through pricing increases due to delays in implementation, particularly in the retail segment where it takes up to 90 days [12][14] Market Data and Key Metrics Changes - The foodservice industry is experiencing traffic pressure, with consumers not returning to channels like QSRs and convenience stores as expected [39][40] - Retail consumers are trading down to lower-priced alternatives, leading to significant growth in private label products across various categories [40] Company Strategy and Development Direction - The company is focused on modernizing its portfolio and operations through the Transform and Modernize initiative, which aims to yield efficiencies and savings while investing in talent and infrastructure [34][58] - There is an emphasis on strategic pricing actions to manage commodity inflation while maintaining consumer demand and brand strength [14][19] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism for 2026, citing sales momentum and the expectation that pricing actions will begin to positively impact the bottom line [71][75] - The consumer sentiment remains low due to inflationary pressures, which is affecting purchasing behavior and overall market dynamics [37][39] Other Important Information - The company is prioritizing capital allocation towards increasing dividends, strategic M&A opportunities, and expanding its global footprint [66][68] - The Transform and Modernize initiative is on track to deliver significant value beyond initial targets, with a focus on improving manufacturing efficiency and optimizing the company's footprint [58][61] Q&A Session Summary Question: What were the key issues in the third quarter and outlook for the fourth quarter? - Management acknowledged that while top line growth was achieved, bottom line performance was hindered by unexpected cost pressures, with a similar outlook anticipated for Q4 [5][6] Question: How is the company addressing pricing challenges in different segments? - The foodservice segment utilizes pass-through pricing, while the retail segment faces longer lag times for pricing adjustments, requiring strategic decisions based on consumer sentiment and brand strength [11][12][14] Question: What is the focus of the new leadership team moving forward? - The interim CEO and President emphasized the importance of strategic focus, operational efficiency, and leveraging the unique portfolio to drive growth [30][31][34] Question: How is the company planning to modernize its operations? - The Transform and Modernize initiative is aimed at improving efficiencies and capabilities across the organization, with ongoing projects expected to yield benefits beyond 2026 [58][61] Question: What are the capital allocation priorities for the company? - The company is focused on increasing dividends, exploring strategic M&A opportunities, and expanding its snacking and foodservice portfolios [66][68]

Financial Data and Key Metrics Changes - The company achieved organic net sales growth of 6% in the third quarter, marking three consecutive quarters of growth [9][34] - Adjusted EPS for the third quarter was $0.35, with cash flow from operations at $157 million, showing a sequential improvement but down compared to the prior year [38][39] - Gross profit remained relatively flat year over year due to higher than expected input costs, with inflationary pressures impacting margins [35][36] Business Line Data and Key Metrics Changes - The Retail segment grew volume and net sales by 5% over last year, driven significantly by the Turkey portfolio [34][35] - The Foodservice segment outperformed the broader industry with 2% organic volume growth and 7% organic net sales growth [35][25] - The International segment saw 8% volume growth and 6% net sales growth, primarily led by the China market [34][28] Market Data and Key Metrics Changes - The company faced significant commodity inflation, with pork bellies up approximately 30% and beef prices remaining near all-time highs [36][30] - The foodservice industry traffic remained soft, impacting overall visits slightly down year over year [24][25] Company Strategy and Development Direction - The company is focused on delivering profitable growth through its Transform and Modernize initiative, which is expected to provide incremental benefits [9][41] - The strategy includes building a consumer-led growth engine powered by protein-centric solutions and modernizing product offerings [16][24] - The company plans to share holistic 2026 guidance in the fourth quarter earnings call, aligning expectations with market dynamics [11][45] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's future despite disappointing bottom-line results, emphasizing the strength of its protein-centric portfolio [31][46] - The company anticipates continued net sales growth in the fourth quarter, although profitability recovery is expected to lag into next year due to ongoing commodity pressures [10][42] - Management acknowledged the need to adjust 2026 targets based on current market conditions and consumer sentiment [44][59] Other Important Information - The company declared and paid its 388th consecutive quarterly dividend, totaling $474 million for the first nine months of fiscal 2025 [39] - Capital expenditures for the quarter were $72 million, with a commitment to invest approximately $300 million for fiscal 2025 [39][40] Q&A Session Summary Question: What has changed in the outlook since the last call? - Management noted that while some expectations were met, the steep rise in commodity markets significantly pressured earnings, alongside disappointing foodservice traffic recovery [54][56] Question: What are the opportunities for shareholder returns? - Management highlighted the company's strong position in innovation and growth across various segments, emphasizing the importance of driving both top and bottom line growth [63][66] Question: How does the long-term growth algorithm apply to 2026? - Management stated that while the long-term growth goals remain, they will provide specific guidance for fiscal 2026 in the upcoming call, considering current market dynamics [71][72] Question: What is the impact of seasonality on commodity costs? - Management acknowledged typical seasonal declines but noted that current markets remain elevated, which may not provide material benefits due to existing inventory levels [74][75] Question: How is pricing being managed in retail? - Management explained that pricing actions are being carefully considered based on commodity costs, consumer response, and brand health, with recent pricing actions expected to benefit in Q4 and 2026 [78][84]

Financial Data and Key Metrics Changes - Organic net sales increased by 6% in the third quarter, reaching $3 billion, with organic volume up 4% [32][34] - Adjusted EPS for the third quarter was $0.35, with cash flow from operations at $157 million [36][38] - Gross profit remained relatively flat year over year due to higher than expected input costs, with inflationary pressures impacting margins [33][34] Business Line Data and Key Metrics Changes - Retail segment saw a 5% increase in volume and net sales, driven by the Turkey portfolio [32][33] - Foodservice segment outperformed the broader industry with 2% organic volume growth and 7% organic net sales growth [32][33] - International business achieved 8% volume growth and 6% net sales growth, primarily from the China market [25][33] Market Data and Key Metrics Changes - Commodity input costs surged unexpectedly, with pork bellies up approximately 30% and beef prices remaining high [34][35] - The foodservice industry faced challenges with traffic remaining soft year over year, impacting overall performance [22][23] Company Strategy and Development Direction - The company is focused on delivering profitable growth through its Transform and Modernize initiative, which is expected to yield incremental benefits [7][39] - A consumer-led growth engine powered by protein-centric solutions is being developed to enhance brand value and market position [14][22] - The company plans to provide holistic guidance for 2026 in the fourth quarter earnings call, aligning with its long-term growth algorithm [9][42] Management's Comments on Operating Environment and Future Outlook - Management acknowledged that the unexpected rise in commodity costs significantly impacted profitability, with expectations for continued pressure into the fourth quarter [8][28] - Confidence remains in the company's future, driven by a strong protein-centric portfolio and ongoing modernization efforts [29][30] - The company is committed to enhancing long-term profitability while navigating current market challenges [45][59] Other Important Information - The Transform and Modernize initiative is not just a cost-saving project but aims to reshape operations and build new capabilities [39][40] - The company declared and paid its 388th consecutive quarterly dividend, totaling $474 million for the first nine months of fiscal 2025 [38] Q&A Session Summary Question: What has changed in the outlook since the last call? - Management noted that while some expectations were met, the significant rise in commodity markets and soft foodservice traffic were unexpected challenges [49][54] Question: What are the growth opportunities for Hormel? - Hormel is positioned well in traditional processed meat categories and healthy protein segments, with a focus on driving top and bottom line growth [62][65] Question: How does the long-term growth algorithm apply to 2026? - The long-term growth algorithm remains a focus, with specific guidance for 2026 to be provided in the next earnings call [70][88] Question: What is the impact of pricing actions on profitability? - Pricing actions are being evaluated, with a focus on balancing consumer response and brand health while navigating commodity pressures [78][82] Question: How is the foodservice segment performing? - The foodservice segment is resilient, with top line growth despite challenges in traffic, and the company is leveraging its direct sales team to drive growth [90][92]

Third Quarter Key Messages - The company delivered strong top-line growth, supported by each segment[7] - Bottom-line results were pressured by a steep rise in commodity input costs[7] - Leadership is aligned on a clear mission of profitable growth[7] Retail Segment Performance (FY25 Q3 YoY) - Retail volume increased by 5%[18] - Retail net sales increased by 5%[18] - Retail segment profit decreased by 4%[18] Foodservice Segment Performance (FY25 Q3 YoY) - Foodservice organic volume increased by 2%[22] - Foodservice organic net sales increased by 7%[22] - Foodservice segment profit decreased by 1%[22] International Segment Performance (FY25 Q3 YoY) - International volume increased by 8%[24] - International net sales increased by 6%[24] - International segment profit decreased by 13%[24] Fiscal Year 2025 Outlook (Revised) - Net sales are expected to be in the range of $12.1 billion to $12.2 billion[29] - Operating income is expected to be in the range of $0.98 billion to $1.00 billion[29] - Adjusted operating income is expected to be in the range of $1.05 billion to $1.07 billion[29] - Adjusted diluted earnings per share are expected to be in the range of $1.43 to $1.45[29] - Capital expenditures are targeted at approximately $300 million[30] - The Transform & Modernize initiative is expected to contribute incremental benefits in the range of $100 million to $150 million[30]

Financial Data and Key Metrics Changes - The company reported net sales of $2.9 billion for the second quarter, reflecting a 1% organic increase compared to the previous year [26] - Gross profit margin was 16.7%, impacted by higher commodity input costs, partially offset by savings from the Transform and Modernize initiative [27] - Diluted earnings per share were $0.33, with adjusted diluted earnings per share at $0.35, aligning with expectations [28] Business Line Data and Key Metrics Changes - The retail segment maintained leadership positions, with notable growth from the Applegate brand and Jennie O lean ground turkey, which continues to perform strongly [9][10] - The food service business outperformed the broader industry, with strong volume and net sales growth from branded products [12] - The international segment saw double-digit volume and net sales growth, particularly in exports and China [14] Market Data and Key Metrics Changes - The company anticipates strong second-half growth, particularly from the Turkey portfolio and the Planters brand, with overall net sales growth expected to be between 2% to 3% for the full year [20][34] - The competitive landscape for turkey has tightened, with expectations for share gains as competitors shutter facilities [94] Company Strategy and Development Direction - The company remains committed to delivering profitable and predictable growth, focusing on a diversified portfolio and the Transform and Modernize initiative [21][31] - Increased advertising investments are planned for the second half, particularly for the Planters brand and other key products [46] - The company is strategically positioned to navigate changing consumer preferences and market dynamics [20][21] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to deliver strong second-half results, supported by positive momentum in key brands and segments [41][42] - The consumer sentiment is described as strained due to inflation and uncertainty in the macro environment, impacting overall demand [107] - The company is focused on managing input cost pressures and leveraging its diversified portfolio to sustain growth [33][34] Other Important Information - The company announced leadership changes, including the appointment of Kevin Myers to lead supply chain efforts and the retirement of Scott Okri [22][23] - Capital expenditures for fiscal 2025 are expected to be between $275 million to $300 million, focusing on capacity and technology investments [28] Q&A Session Summary Question: Can you help bridge the operating income outlook for the year? - Management highlighted strong positioning for the second half, with positive momentum in the Planters brand and value-added turkey [40][41] Question: What are the expectations for Turkey in the back half? - Management noted a tightening supply in the turkey market and emphasized the focus on value-added products [52][55] Question: Can you elaborate on the expected margin expansion in the second half? - Management expects margin expansion driven by turkey pricing and strong performance from the Planters brand [60][61] Question: How does the company plan to grow in the food service segment? - Management indicated a strong pipeline of innovation and favorable year-over-year comparisons as key drivers for growth [64][65] Question: What are the savings from the Transform and Modernize initiative? - Management reported executing 66 projects under the initiative, with a focus on improving logistics and inventory management [69][71] Question: What products are related to the inventory build for summer demand? - Management indicated that inventory was built for Planters and promotional products like Spam, while managing commodity input costs [74][76] Question: Is the company still confident in achieving the $250 million operating income growth target by FY 2026? - Management affirmed confidence in the target, emphasizing ongoing initiatives and the benefits of the Transform and Modernize program [105][106] Question: What is the current consumer sentiment? - Management described consumer sentiment as strained due to inflation and uncertainty, impacting overall demand [107]

Financial Data and Key Metrics Changes - The company reported net sales of $2.9 billion for the second quarter, reflecting a 1% organic increase compared to the previous year [25] - Gross profit margin was 16.7%, impacted by higher commodity input costs, partially offset by savings from the Transform and Modernize initiative [26] - Diluted earnings per share were $0.33, with adjusted diluted earnings per share at $0.35, aligning with expectations [28] - The company anticipates full-year net sales growth of 2% to 3% and adjusted diluted earnings per share in the range of $1.58 to $1.68 [19][34] Business Line Data and Key Metrics Changes - The retail segment maintained leadership positions, with notable growth from the Applegate brand and Jennie O lean ground turkey [6][8] - The food service business outperformed the broader industry, with strong volume and net sales growth from branded products [11] - The international business saw double-digit volume and net sales growth, particularly in exports and China [13] Market Data and Key Metrics Changes - The company experienced strong top-line growth in China, driven by customer and distribution expansions [13] - The food service segment is expected to achieve mid-single-digit growth in organic net sales, outperforming industry trends [60] Company Strategy and Development Direction - The company is focused on delivering profitable and predictable growth while navigating a dynamic operating environment [6] - The Transform and Modernize initiative is critical for restoring historical earnings growth and is on track to deliver expected benefits [29] - The company plans to increase advertising investments significantly in the second half of the year to support brand growth [46] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to deliver strong second-half results, supported by a diversified portfolio and strategic initiatives [14][19] - The consumer sentiment is described as strained due to inflation and uncertainty in the macro environment [104] - The company remains committed to long-term growth despite challenges in the operating environment [20][103] Other Important Information - The company announced leadership changes, including the appointment of Kevin Myers to lead supply chain efforts and the retirement of Scott Okri [20][22] - Capital expenditures for fiscal 2025 are expected to be between $275 million and $300 million, focusing on capacity and technology investments [28] Q&A Session Summary Question: Can you help bridge the operating income outlook for the year? - Management highlighted strong positioning for the second half, with positive momentum in the Planters brand and value-added turkey [42][44] Question: What are the expectations for Turkey cadence in the back half? - Management noted a tightening supply in the turkey market but expressed confidence in their position and ability to capture upside during the fresh season [52][55] Question: Can you provide details on T and M savings? - Management confirmed that 66 projects were executed under the Transform and Modernize initiative, focusing on efficiency and logistics [67][70] Question: What products are related to the inventory build for summer demand? - The inventory build is strategically aligned with upcoming summer demands, particularly for Planters and promotional products [73][75] Question: How is the Planters brand expected to perform in the second half? - Management expressed optimism about the Planters brand, expecting continued sequential improvement and positive year-over-year consumption [82][84]

Financial Performance & Outlook - The company reaffirmed its fiscal year 2025 net sales expectations to be between $119 billion and $122 billion [5, 32] - The company reaffirmed its adjusted diluted earnings per share expectations for fiscal year 2025 to be between $158 and $172 [5, 32] - The company anticipates organic net sales growth of 1% to 3% in fiscal year 2025 [33] - The company expects incremental benefits from the Transform and Modernize (T&M) initiative in the range of $100 million to $150 million [33] - The company's capital expenditures are projected to be in the range of $275 million to $300 million [33] Segment Performance (Q1 FY25 YoY) - The Retail segment experienced a volume decrease of 4%, a net sales decrease of 1%, and a segment profit decrease of 20% [19] - The Foodservice segment saw organic volume increase by 2% and organic net sales increase by 5%, but segment profit decreased by 8% [28] - The International segment experienced a volume decrease of 7% and a net sales decrease of 2%, but segment profit increased by 4% [29] Strategic Initiatives & Capital Allocation - The company divested a non-core sow operation to reduce commodity exposure and simplify the portfolio [9] - The company announced its 59th consecutive increase to the annual dividend [13, 16] - The company's operating cash flow was $866 million [11]