Hormel Foods Q4 2025 Earnings Call: Key Contradictions in Commodity Costs, Planters Recovery, and Foodservice Outlooks Exposed

Business Commentary:

Financial Performance and Outlook: - For fiscal 2025, the company reported net sales exceeding $12 billion, representing 2% organic growth year-over-year, with four consecutive quarters of year-over-year organic net sales growth. Adjusted diluted EPS was $1.37. - Profitability faced significant margin pressure due to over 500 basis points of raw material cost inflation in Q4 alone, elevated commodity input costs (pork belly +25%, pork cutout +10%, pork trim +20% for the year; beef remained a high inflationary pressure), avian illness supply chain impacts, and discrete items (chicken product recall, Little Rock facility fire) which together impacted EPS by approximately $0.03. - For fiscal 2026, the company provides guidance for organic net sales growth of 1% to 4% and adjusted operating income growth of 4% to 10%, with adjusted EPS expected in the range of $1.43 to $1.51. The outlook assumes pork input costs declining but remaining above the 5-year average, beef and nut costs as headwinds, and stronger turkey markets.

Portfolio Reshaping and Strategic Initiatives: - The company is actively simplifying its portfolio by exiting nonstrategic businesses and ensuring brands are with the best owners. Examples include moving the Justin's business into a strategic partnership and exiting certain private label product lines and a nonstrategic soup stock operation. - The Transform and Modernize (T&M) initiative delivered benefits within its stated range in 2025, helping offset margin pressures. These benefits will continue in 2026 but will not be reported separately; they will be allocated to support enhanced marketing, offset inflation, and expand margins. - A corporate restructuring reducing approximately 250 corporate and sales positions (~9% of the group) is expected to yield gross savings of 2–3× the implementation cost (~$20–25 million), with payback within the first 12 months. Some savings will be reinvested in people, brands, and technology.

Operational Challenges and Consumer Environment: - Input cost volatility and supply chain disruptions (avian illnesses, turkey supply constraints expected through H1 2026) continued to pressure the company. The consumer environment remains strained, with low sentiment and value-seeking behavior expected to continue in 2026. - Q1 2026 earnings are expected to decline $0.02 to $0.04 year-over-year due to timing of pricing actions, lingering Q4 impacts, and elevated input costs, though acceleration is expected thereafter.

Contradiction Point 1

Commodity Cost Environment and Pricing Strategy

A significant shift in the characterization of the commodity market environment and its immediate impact on pricing and profitability, directly affecting financial forecasts and strategic outlook.

Could you clarify pork input cost assumptions for FY26, considering recent industry recovery and potential supply growth? - Heather Jones (Heather Jones Research)

20251204-2025 Q4: At the start of Q1, pork and beef remain year-over-year headwinds... Some pork benefits are expected in the second half, but beef and nut costs will continue to pressure full-year results. - Paul Kuehneman(CFO)

What changes over the past three months, particularly in the next three months’ outlook, led to the revised guidance? - Benjamin M. Theurer (Barclays Bank PLC)

2025Q3: The revised outlook is due to... (1) a steep and significant run-up in commodity markets (primary driver)... elevated markets remain, leading to the downward revision. - John Ghingo(CEO)

Contradiction Point 2

Planters Profit Recovery Timeline

A clear contradiction in the projected timeline for a key segment's profit recovery, moving from a near-term contributor to a major bottom-line growth driver to a delayed recovery dependent on lapping prior-year pricing actions.

What is the current status of Planters' recovery, including shelf space, profit, and progress toward fiscal 2026? - Benjamin Theurer (Barclays)

20251204-2025 Q4: Profit recovery has been hampered... but this will improve as the pricing from last year’s disruption is lapped in Q2 2026. - John Ghingo(CEO)

What factors support confidence in achieving a significant EPS growth in the back half of the year following the flattening in Q2? - Peter Galbo (Bank of America)

2025Q1: Planters will be a major contributor to second-half bottom-line growth... All segments are expected to deliver growth in the second half. - Jim Snee(CEO), Jacinth Smiley(CFO)

Contradiction Point 3

T&M Program Benefits, Reinvestment, and Financial Impact

A substantive change in how a key operational program's financial benefits are communicated, shifting from providing specific, quantified annual targets to discontinuing separate reporting, creating ambiguity about its ongoing contribution.

How much will you reinvest from the T&M savings, and what is the expected recovery timeline after Q1? - Pooran Sharma (Stephens)

20251204-2025 Q4: T&M benefits will be used to enhance marketing... The company is not providing separate T&M targets going forward. - Jeffrey Ettinger(CFO)

Update on T&M progress and the ramp-up of the new Memphis DC? - Pooran Sharma (Stephens)

2025Q1: T&M is off to a good start in 2025, on track to deliver $100–$150M in benefits for the year, with a ramp into the second half. - Jacinth Smiley(CFO)

Contradiction Point 4

Turkey Business Performance Outlook

A contradiction in the characterization of the Turkey business's drivers and momentum, shifting from a strong near-term outlook tied to specific seasons to a more cautious, elevated-cost environment assumption.

What assumptions are you making for whole bird pricing in Turkey markets, especially considering recent spot price increases and unsettled contracts? - Thomas Palmer (JPMorgan)

20251204-2025 Q4: Guidance assumes some elevated whole bird prices through the year, but little is settled yet. - John Ghingo(CEO)

What is the expected pace of improvement in Q4, particularly in Turkey? How is the competitive landscape changing? - Peter Galbo (Bank of America)

2025Q2: Turkey is well-positioned due to supply chain improvements and focus on the value-added segment... Most upside is expected to be captured in the fresh season (Thanksgiving). - Jim Snee(CEO)

Contradiction Point 5

Foodservice Industry Outlook

A notable shift in the assessment of a critical distribution channel's health from "soft" and under-recovery to "flat to slightly positive," which impacts sales forecasts and market strategy.

How much did the consumer environment influence your FY26 outlook, and what are your foodservice traffic assumptions? - Heather Jones (Heather Jones Research)

20251204-2025 Q4: Foodservice industry growth is expected to be flat to slightly positive. - John Ghingo(CEO)

What changed in the past three months to warrant the revised guidance? - Benjamin M. Theurer (Barclays Bank PLC)

2025Q3: Foodservice industry traffic did not recover as expected and remains soft. - John F. Ghingo(CEO)