Hormel Foods Corporation Q4 FY2025 earnings call

• Fiscal 2025 was a challenging year with earnings falling short of goals but net sales growing 2% organically. The transform and modernize initiative helped offset some margin pressures. - In 2026, strategic focus areas include: consumer obsession (e.g., bacon innovation based on consumer insights), taking brands beyond bounds (e.g., SPAM entering new formats), and becoming future-ready (portfolio reshaping, using AI for marketing and processes).

Retail segment had net sales exceeding $12 billion with 2% organic growth, but faced margin pressure from input costs. Leading brands like Jennie-O, Applegate, etc., contributed, but profitability was hit. Food service segment outperformed the industry but was impacted by traffic declines and input costs. International segment had varying performance; China contributed strongly, while Brazil was challenging. Overall, net sales exceeded $12 billion with 2% organic growth across all segments.

Fiscal 2026 guidance: organic net sales growth expected to be 1%-4%, adjusted operating income growth 4%-10%, and adjusted EPS in the range of $1.43 to $1.51 per share. Expect pork costs to decline but beef and nut costs to remain high. Turkey markets are expected to be stronger. T&M savings will support growth but won't be reported separately. Q1 earnings are expected to be pressured compared to the prior year.

• Commodity cost inflation, particularly for pork, beef, and nuts. - Turkey supply constraints due to avian illnesses. - Recalls and a facility fire in the fourth quarter impacting earnings. - A challenging consumer environment affecting food service traffic. - Competitive pressures in the market.

Q: Could you unpack the guidance further?

A: Jeff Ettinger stated that organic net sales growth of 1%-4% is expected, driven by top-line momentum, pricing flow-through, mix improvement, T&M benefits, and expected relief from pork costs.

Q: What's the status on portfolio reshaping?

A: John Ghingo said portfolio reshaping is an ongoing effort, involving exiting nonstrategic businesses and simplifying operations to position the company for sustainable growth.

Q: What are the expected savings from the restructuring work?

A: Jeff Ettinger mentioned that the restructuring has resulted in gross savings in the range of two to three times the implementation cost, with a quick payback but some reinvestment in people, brands, and technology.

Q: Thoughts on the Brazil segment in the international business?

A: John Ghingo said Brazil is a challenge, and the company is continuing to review its portfolio.

Q: How does the consumer environment impact the outlook?

A: Jeff Ettinger said Q1 earnings are pressured, but there's an expected acceleration of benefits later in the year. John Ghingo noted a strained consumer with value-seeking behavior.

Q: What's the cadence of recovery in FY 2026?

A: Jeff Ettinger said Q1 is pressured, but there will be an acceleration of benefits with Q4 expected to be more substantial.

Q: What are the drivers of segment revenue growth?

A: Paul Keenan said retail expects modest volume decline with low single-digit net sales growth, foodservice expects low single-digit volume increase with mid-single-digit net sales growth, and international expects low single-digit volume increase with high single-digit net sales growth.

Q: What's the impact of tariffs?

A: Paul Keenan said tariffs are expected to range from $25 to $35 million in 2026.

Q: How do discrete items affect profit?

A: Jeff Ettinger said there are reinvestments of savings and complexities in pricing that impact margins.

Q: What were the Turkey headwinds in 2025?

A: John Ghingo said Turkey had cost pressures but saw recovery in the back half of 2025.

Q: What was the raw materials inflation in Q4?

A: Paul Keenan said Q4 had 500 basis points of raw material cost inflation.