Hormel's Q3 2025: Contradictions Emerge on Turkey Market, Pricing, and Operating Income

The above is the analysis of the conflicting points in this earnings call

Date of Call: August 28, 2025

Financials Results

• Revenue: $3.0B organic net sales, up 6% YOY (organic volume up 4%)
• EPS: $0.35 adjusted EPS; no prior-year comparison provided

Guidance:

• Q4 adjusted EPS expected at $0.38–$0.40.
• Continued net sales growth expected in Q4; profit recovery to lag into FY26.
• Targeted pricing actions implemented; partial benefit in late Q4 and more in Q1 FY26; assessing additional pricing.
• Tariff headwind unchanged at $0.01–$0.02 EPS for FY25.
• FY25 Transform & Modernize benefits reaffirmed at $100–$150M; tracking near high end.
• Commodity markets remain elevated; margin pressure to persist in Q4.
• Holistic FY26 guidance to be provided on the Q4 call; long-term algorithm (2–3% sales, 5–7% op income) used as framework, not guidance.

Business Commentary:

* Strong Top Line Growth and Segment Performance: - Hormel Foods achieved organic net sales growth of 6% in Q3 2025, with all three segments contributing to this growth. - The growth was driven by a robust solutions-based portfolio and a protein-centric focus, which resonated well with consumer preferences.

• Impact of Commodity Inflation:
• The company faced a significant increase in raw material costs, with 400 basis points of inflation in Q3, impacting profitability.

• This surge in commodity prices, particularly in pork and beef, absorbed the margin gains from top-line growth and incremental benefits from the Transform and Modernize initiative.

• Transform and Modernize Initiative:

• The Transform and Modernize initiative delivered in line with expectations, contributing approximately 90 projects in Q3.

• The initiative is focused on enhancing operational efficiency, building new capabilities, and reshaping business processes to support long-term growth.

• Retail and Foodservice Segment Performance:

• The Retail segment grew volume and net sales by 5%, with a strong performance in key brands like SPAM and Hormel pepperoni.
• The Foodservice segment experienced broad-based organic volume and net sales growth, driven by strong performance in categories like Planters snack nuts and Jennie-O turkey.

Sentiment Analysis:

• Management highlighted 6% organic sales growth across all segments but called bottom-line results “disappointing” due to a “steep run-up in commodity markets.” Q4 EPS guided to $0.38–$0.40 with profit recovery lagging into FY26. Pricing actions are underway, but commodity pressure persists. T&M savings remain on track near the high end.

Q&A:

• Question from Benjamin M. Theurer (Barclays): What changed since last quarter’s confident second-half outlook and drove the revision?
  Response: A sharp, broad-based commodity run-up, softer Foodservice traffic, and lagging Planters profitability offset otherwise solid top-line and T&M progress.

• Question from Benjamin M. Theurer (Barclays): With fresh eyes, where are the biggest opportunities for shareholder returns?
  Response: Focus is on consistent top- and bottom-line growth; leverage strong positions in bacon/pepperoni, turkey/Applegate, Foodservice solutions, and global SPAM/Skippy.

• Question from Thomas Hinsdale Palmer (JPMorgan): Does the long-term growth algorithm apply to 2026 specifically?
  Response: No—2–3% sales and 5–7% operating income are long-term goals, not FY26 guidance; formal 2026 outlook comes on the Q4 call.

• Question from Thomas Hinsdale Palmer (JPMorgan): Will seasonal commodity declines help Q4, and why build inventory amid high costs?
  Response: Markets remain elevated; even declines won’t materially help due to existing inventory. Inventory was built intentionally for back-to-school (Skippy) and to restore fill rates.

• Question from Leah Dianne Jordan (Goldman Sachs): How much pricing can you pass in retail, and when do benefits flow?
  Response: Foodservice pricing largely pass-through with lag; retail has longer lags and careful elasticity management. Turkey pricing landed; new targeted pricing benefits late Q4 and mainly FY26.

• Question from Michael Scott Lavery (Piper Sandler): Is the T&M/2026 EBIT target under review?
  Response: Yes—prior assumptions (stable inputs, stronger consumer, 2H FY25 earnings) didn’t materialize; a robust update will be given on the Q4 call.

• Question from Michael Scott Lavery (Piper Sandler): What drove Foodservice margin pressure and how does new pricing affect FY25?
  Response: Margin mix was impacted by the Hormel Health Labs divestiture and soft convenience-store traffic; additional pricing would primarily benefit FY26.

• Question from Peter Thomas Galbo (BofA Securities): When does price-cost parity return?
  Response: Pass-through areas will catch up with a lag; retail list-price changes take longer and will be balanced against consumer elasticity and brand health.

• Question from Pooran Sharma (Stephens): How do you view hog supply prospects?
  Response: Long-term supply contracts support needs; producer profitability should incentivize more supply over time.

• Question from Erica A Eiler (Oppenheimer): Is this still a double-digit margin business over time?
  Response: Management won’t specify a margin target; bottom-line improvement will come from pricing, T&M, footprint optimization, SG&A discipline, and mix toward higher-margin segments/brands.

• Question from Thomas Henry (Heather Jones Research): Timing of benefits from elevated turkey pricing?
  Response: Whole-bird upside is modest in FY25 with most benefit in FY26 around Thanksgiving; no guidance on breast meat.