Conflicting Signals on Planters Recovery, Commodity Cost Management, and Transformation Initiative Impact Financial Outlook

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; prior-year comparison not provided

Guidance:

• Q4 adjusted EPS expected to be $0.38–$0.40.
• Expect continued net sales growth in Q4, led by Turkey, Planters, and leading brands.
• Targeted pricing to offset commodity inflation; partial benefit in Q4, larger impact in 2026; assessing additional actions.
• Commodity markets remain elevated; profit recovery expected to lag into next year.
• FY25 tariff headwind unchanged at $0.01–$0.02 EPS.
• Holistic FY2026 guidance to be provided on Q4 call; focus remains on long-term growth algorithm.

Business Commentary:

* Top Line Momentum and Growth: - Hormel Foods reported an impressive organic net sales growth of 6% in the third quarter, marking the third consecutive quarter of growth. - This growth was driven by strong performance across all three segments, particularly boosted by the retail segment's 5% top-line growth.

• Impact of Commodity Inflation on Earnings:
• The company experienced a significant impact from commodity input cost inflation, with 400 basis points of cost pressure in the third quarter.

• This inflationary pressure, particularly from pork and beef markets, absorbed the margin delivery from top-line growth and incremental benefits from the Transform and Modernize initiative.

• Retail Segment Performance:

• The retail segment showed a 5% increase in volume and net sales, driven by strong performance in flagship and rising brands which grew 3% in dollar consumption.

• Growth was attributed to modernized products, innovation, and strategic brand investments, such as the successful launch of the Hormel Pepperoni renovation and Spam brand promotions.

• Foodservice Segment Resilience:

• The foodservice segment achieved 7% organic net sales growth, with broad-based top-line gains, despite a challenging industry environment.
• This performance was due to the team's strong solutions-based portfolio and direct selling capabilities, outpacing broader industry results.

Sentiment Analysis:

• Management said, “It is clearly disappointing that our top line results did not translate into the bottom line growth we expected.” Q3 saw “commodity inflationary pressures… significantly greater than anticipated,” with ~400 bps raw material cost inflation and margin pressure. They expect “profit recovery… to lag into next year” and guided Q4 adjusted EPS to $0.38–$0.40. Positives included an “organic net sales increase of 6%” in Q3 and expectation for “continued net sales growth” in Q4.

Q&A:

• Question from Ben Theurer (Barclays): What changed versus your confident 2H outlook from last quarter?
  Response: A sharp, broad commodity surge, softer-than-expected foodservice traffic, and slower Planters profit recovery pressured earnings; Turkey pricing and T&M delivery remained on track.

• Question from Ben Theurer (Barclays): Strategically, where are the biggest opportunities as you return?
  Response: Focus on consistent top- and bottom-line growth; leverage strong protein positions (bacon, pepperoni, turkey, Applegate), SPAM/Skippy/Planters, and China; expand solutions in foodservice.

• Question from Tom Palmer (JPMorgan): Does your long-term growth algorithm apply to 2026?
  Response: Use 2–3% net sales and 5–7% operating income growth as long-term goals, but this is not FY26 guidance; formal FY26 outlook comes on the Q4 call.

• Question from Tom Palmer (JPMorgan): How are seasonal commodity moves and inventory build reflected?
  Response: Markets remain elevated; even if they ease, existing inventory tempers near-term benefit. Inventory was built for back-to-school (Skippy) and to improve center-store fill rates.

• Question from Leah Jordan (Goldman Sachs): Retail pricing power, elasticity, and timing?
  Response: Retail pricing has longer lags and must balance COGS, consumer response, and brand health; Turkey pricing worked. New actions start late Q4, with most impact in 2026; more may follow.

• Question from Michael Lavery (Piper Sandler): Update on T&M savings and 2026 targets set at Investor Day?
  Response: Prior 2026 assumptions (stable inputs, stronger consumer, H2’25 earnings ramp) no longer hold; full update and guidance will be provided on the Q4 call.

• Question from Michael Lavery (Piper Sandler): Foodservice margin pressure specifics and pricing timing?
  Response: Margins reflect the Hormel Health Labs divestiture and channel mix (soft C-store traffic); additional pricing largely affects FY26.

• Question from Peter Galbo (Bank of America): When does price vs cost parity return?
  Response: Pass-through areas will catch up with a lag; retail list pricing/trade must be measured amid consumer strain; additional actions are under evaluation.

• Question from Peter Galbo (Bank of America): Inventory levels and visibility concerns?
  Response: No inventory problem; builds were intentional to meet demand and restore service levels; higher balances also reflect inflated input costs.

• Question from Puran Sharma (Stephens): Hog supply outlook and your positioning?
  Response: Long-term supply contracts support availability; producers are profitable, which should incentivize future supply growth.

• Question from Puran Sharma (Stephens): Turkey industry tightening—are you seeing share or margin gains?
  Response: Jennie-O ground turkey demand is strong; the brand is growing double digits, gaining share, and has recovered margins after pricing.

• Question from Erica Eiler (Oppenheimer): Can Hormel regain double-digit operating margins over time?
  Response: Focus is on improving mix (foodservice, flagship brands), pricing, T&M and footprint benefits, and SG&A discipline to rebuild profitability; no specific margin target given.

• Question from Thomas Henry (Heather Jones Research): Timing of benefits from turkey breast/whole birds?
  Response: Whole-bird upside is slightly better than plan but mostly benefits next year (fresh season); no guidance provided on breast meat.