Release Date: September 04, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Hormel Foods Corp (HRL, Financial) delivered solid third-quarter results with better-than-expected earnings.
- The foodservice segment experienced its fifth consecutive quarter of year-over-year volume growth.
- International segment profit grew impressively by 78% compared to the prior year.
- Key retail brands such as Hormel Black Label bacon, Jennie-O lean ground turkey, SPAM luncheon meats, and Skippy peanut butter showed strong performance.
- The company is seeing growing benefits from its transform and modernize initiatives, particularly in planning and operational improvements.
Negative Points
- The retail segment's topline results were negatively impacted by lower sales of whole bird turkeys, contract manufacturing, and Planters.
- Production disruption at the Planters facility in Suffolk, Virginia, significantly impacted third-quarter results.
- Continued softness in the high-volume, low-margin contract manufacturing business is expected to persist.
- Commodity exports, which historically benefited the international segment's top line, were down significantly year over year.
- The company experienced storm damage to its Papillion, Nebraska facility, adding to operational challenges.
Q & A Highlights
Q: Can you provide more clarity on the updated guidance, particularly the range of potential outcomes for the top line and why the lower top line has no impact on the profit line?
A: The decline in the third quarter was driven by three primary factors: turkey, contract manufacturing, and Planters. We also experienced some impact from pricing in our convenient meals and proteins segment and a comparison in our international group. For the fourth quarter, similar factors will continue to impact us, including market conditions, the Suffolk plant disruption, and contract manufacturing headwinds. Despite these top-line challenges, the bottom line remains stable due to the high volume, low margins, and negative margin pieces of the business. Improvements in our international business, strength in key retail brands, and benefits from our transform and modernize initiative contribute to maintaining the bottom line.
Q: What are you seeing from your foodservice customers in terms of volume momentum for the fourth quarter?
A: We expect solid volume and sales growth from our foodservice business. The top-line growth has been broad-based across product categories and segments within foodservice. Foodservice is on track for a record year and remains strong and well-positioned to drive value.
Q: Does your guidance include any potential financial impact from the storm damage, and what is the range of possibilities for the bottom line?
A: Yes, the guidance includes the impact from the storm damage. Our production is fully back up and running, and we have redundant capacity. The costs are related to repairing the facility and do not impact sales.
Q: Why are you selling products for zero or negative margin, and how do you plan to address this issue?
A: On the pork and turkey side, we sell everything from live harvests, which includes some commodity-driven elements that may have negative margins depending on market conditions. Our transform and modernize initiative includes total portfolio optimization to avoid selling non-strategic items at negative margins. We expect to see the effects of this initiative towards the end of this year and into 2025 and 2026.
Q: Can you confirm if the $0.15 headwind from turkey dynamics is still accurate, and how much of this can be recovered next year if the supply-demand situation remains the same?
A: The $0.15 headwind remains accurate as guided in the first quarter. However, the recovery for next year is nuanced with many moving parts, including egg sets and market uncertainties. It's too early to provide a clear view for 2025.
Q: Given the issues with Planters and whole birds, is there any change in your view on achieving the $250 million EBIT improvement by 2026?
A: We are tracking well towards achieving the $250 million EBIT improvement by 2026. Despite this year being a year of investment, we are seeing meaningful impacts on margins and bottom line from our initiatives.
Q: Can you help dimensionalize the amount of savings realized year-to-date from the transform and modernize initiatives?
A: We will provide a deeper dive into the financial achievements of the transform and modernize initiatives on the Q4 call. We are realizing benefits from procurement savings, logistics efficiencies, and enhanced processes across our network.
Q: What is the expected split between volume and price/mix for the fourth quarter sales guidance?
A: For the fourth quarter, we expect retail to be down mid-single digits, foodservice to be up mid-single digits, and international to see low single-digit growth. The core business remains healthy across retail, foodservice, and international segments.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
