Tom Palmer

Tom Palmer followed up on coffee, asking for quantification of the impact of not taking the third round of pricing on the outlook and clarification on how tariffs flow through the P&L. He also inquired about the segment impact of the SG&A guidance reduction and any changes to marketing plans.

Answer

Tucker Marshall, Chief Financial Officer, explained that the decision not to take early winter pricing in U.S. Retail coffee means absorbing approximately $75 million of tariff-related costs incurred to date, primarily in the third quarter, which impacts this fiscal year but creates a tailwind for next year. He added that marketing absolute dollars will be up year-over-year (around 5.5% of net sales), and SG&A spend has been sharpened across the network and discretionary areas.

Tom Palmer followed up on coffee, asking for quantification of the earnings impact from the decision not to take a third round of pricing and clarification on when tariff impacts would flow through the P&L. He also inquired about the segment most affected by the reduced SG&A guidance and any changes to marketing plans.

Answer

Tucker Marshall, Chief Financial Officer, explained that the company will absorb approximately $75 million of tariff-related costs in the third quarter due to the decision not to take early winter pricing in U.S. Retail coffee, which will be an impact this fiscal year but a tailwind next year. He added that marketing absolute dollars would be up year-over-year, projected at 5.5% of net sales, with sharpened SG&A and discretionary spend across the network.

Tom Palmer of JPMorgan Chase & Co. asked for clarification on what is driving the improved outlook for the second half of the year, given the reiterated annual guidance despite incremental weakness in Q2. He also inquired about the timing of when the Sweet Baked Snacks SKU reduction will begin to impact earnings.

Answer

CFO Tucker Marshall explained that the improved second-half outlook is due to a shift in profit, primarily from the timing of coffee costs which are concentrated in the first half. Regarding the SKU reduction, Marshall stated that of the $30 million in total savings, approximately $10 million will benefit Q4 of fiscal 2026, with the remaining $20 million impacting fiscal 2027. Profitability for the segment is expected to improve sequentially throughout the year.

Tom Palmer inquired about the consistency of Post Holdings' segment-specific normalized growth outlooks for fiscal 2026, particularly which segments are expected to align with or deviate from these outlooks after adjusting for M&A and avian flu. He also asked if the foodservice segment's normalized EBITDA run rate should be higher than the previously stated $115 million, given recent volume strength.

Answer

CFO and Treasurer Matt Mainer indicated that the PCB legacy business is expected to be more flat, not growing at the 2% algorithm, due to cereal and the Nutrich reset. The balance of the portfolio is expected to be in line with algorithms. For foodservice, Mr. Mainer affirmed $115 million as the right benchmark for fiscal 2025, expecting it to grow in line with the algorithm for fiscal 2026, reaching around $120 million by year-end, pending a quarter or two of normalcy to get a better read.

Tom Palmer inquired about the consistency of Post Holdings' segment-specific normalized growth outlooks for fiscal 2026, particularly which segments are expected to align with or deviate from these outlooks after adjusting for M&A and avian flu. He also asked if the foodservice segment's normalized EBITDA run rate should be higher than the previously stated $115 million, given recent volume strength.

Answer

CFO and Treasurer Matt Mainer indicated that the PCB legacy business is expected to be more flat, not growing at the 2% algorithm, due to cereal and the Nutrich reset. The balance of the portfolio is expected to be in line with algorithms. For foodservice, Mr. Mainer affirmed $115 million as the right benchmark for fiscal 2025, expecting it to grow in line with the algorithm for fiscal 2026, reaching around $120 million by year-end, pending a quarter or two of normalcy to get a better read.

Tom Palmer followed up on the chicken commentary, asking to what extent lower industry prices, particularly jumbo cuts in September, flowed through in Q4, and if there were timing considerations for the start of 2026. He also sought an update on the expected seasonality for Prepared Foods in 2026 compared to the less seasonal 2025.

Answer

CEO Donnie King stated that commodity markets were considered in the chicken guidance, reiterating that 2026 is expected to be similar to 2025. He viewed the September pricing as an aberration, emphasizing strong demand, physical limitations on industry supply increases, and Tyson's insulation through value-added products. CFO Kurt Calaway noted that FY25 Prepared Foods seasonality was out of balance due to raw material pressure, but FY26 is expected to revert closer to a normal, more balanced cadence, with slightly better performance historically in the first half.

Tom Palmer asked about the Nutrition business, specifically addressing seasonality as a quarter-over-quarter headwind and inquiring if anything had shifted from previous expectations of sequential improvement, or if there were extra factors contributing to seasonality this year. He also sought clarification on the extent to which the Argentina export window in late Q3 benefited ADM in Q3 and if a boost should be expected in Q4, considering booking dynamics.

Answer

Juan Luciano, Chairman and CEO of ADM, explained that the Nutrition business continues to show sequential operational improvements, with the East plant back online and animal nutrition improving. He noted that flavors, a significant part of the business, is heavily tilted towards beverages, which experience a typical 15% volume reduction in Q4 as the northern hemisphere enters winter. This seasonality is partially offset by the East plant's full operations. Monish Patolawala, EVP and CFO, clarified that some Argentina export shipments occurred in Q3 and some are expected in Q4, with these already reflected in ADM's export numbers and guidance. Mr. Luciano added that ADM is closely monitoring Argentina's commercialization due to slow farmer selling post-tax holiday and election.

Tom Palmer asked about the Nutrition business outlook, specifically the impact of seasonality as a quarter-over-quarter headwind, and whether this seasonality is normal or if there are additional factors at play, given previous expectations for sequential improvement. He also sought clarification on the benefit of the Argentina export window in late Q3 2025 for Ag Services.

Answer

Juan Luciano, Chairman and CEO, ADM, confirmed sequential operational improvements in the Nutrition business, including the East Plant being back online and Animal Nutrition's progress. He explained that flavors, heavily concentrated in beverages, typically experiences a normal 15% volume reduction in Q4 due to winter in the northern hemisphere, partially offset by the East Plant's full operations. Monish Patolawala, EVP and CFO, ADM, confirmed that some Argentina export shipments occurred in Q3 and some will impact Q4, already reflected in the guidance. Juan Luciano added that ADM is closely monitoring farmer selling in Argentina post-election.

Tom Palmer asked for further clarification on Halloween, specifically if a significant portion of sales in the last week would bring it on track with expectations or if a disproportionate catch-up was still needed, and how this relates to guidance. He also sought clarification on cocoa commentary, asking if costs would turn deflationary at some point in 2026 and Hershey's views on pricing as inflation eases, given historical reluctance to give back pricing amidst unusual levels of inflation/deflation.

Answer

President and CEO Kirk Tanner stated that even with a strong last week, Halloween would likely still be somewhat soft, noting interplay between core brands and seasonal products. Senior Vice President and CFO Steve Voskuil expressed hope for cocoa deflation deeper into 2026 but noted cocoa is still 70% higher than at the start of the inflation journey. He emphasized that pricing is not the only lever, with ongoing transformation and savings programs, and a focus on balanced recovery rather than giving back price.

Tom Palmer asked for further clarification on the Halloween season, specifically if a significant last-week catch-up would bring sales on track or if it would still be considered soft, and how this relates to guidance. He also inquired about the cocoa commentary, the potential for deflationary cocoa costs in 2026, and the company's views on pricing as inflation eases, given historical reluctance to give back pricing amidst unusual levels of inflation.

Answer

CEO Kirk Tanner stated that even with a last-week surge, Halloween would likely still be somewhat soft, noting interplay between core brands and seasonal sales. He emphasized learning from insights to improve future seasons. SVP and CFO Steve Voskuil expressed hope for deflation deeper into 2026 but noted cocoa is still 70% higher than when inflation began. He stated that the company is not focused on giving back price, but rather on balanced recovery through productivity, savings, and brand investment.

Tom Palmer asked about changes in customer behavior, specifically clarifying if smaller baskets rather than fewer customer visits were driving the comp slowdown. He also inquired about any notable shifts regionally or in specific store departments, given the perceived flux in customer behavior. He followed up by asking for clarification on the fourth-quarter expectation for stable EBIT margins, specifically if both gross margin and SG&A would be relatively flat.

Answer

Curtis Valentine, Chief Financial Officer, confirmed that the slowdown was primarily due to a traffic slowdown (though still positive), with pressure at the end of the basket leading to units-per-basket pressure, similar to previous inflationary periods. For the fourth quarter, he clarified that stable EBIT margins would likely involve a slightly positive gross margin and a bit of pressure on SG&A, given the 0% to 2% comp sales expectation.

Tom Palmer asked for clarification on customer behavior changes, specifically whether smaller baskets or fewer visits were driving the comp slowdown, and if there were notable regional or departmental shifts. He also sought clarification on the fourth-quarter margin expectation, particularly if both gross margin and SG&A would be flat.

Answer

CFO Curtis Valentine confirmed that the slowdown was primarily due to a traffic slowdown, with traffic still positive, and pressure at the 'end of the basket' leading to units-per-basket pressure. He clarified that Q4 guidance implies stable EBIT margins, with a slight positive on gross margin and some SG&A pressure due to the 0-2% comp.

Tom Palmer asked about the planned reinvestment for 2026 and how much of the SG&A reduction seen in 2025 is due to persistent cost reductions versus temporary items. He also sought clarification on Europe's elasticity, specifically if the 0.7-0.8 figure applies to non-seasonal products and if seasonal products are expected to have less elasticity, leading to better volume trends.

Answer

Luca Zaramella (CFO) detailed SG&A components: working media was slightly down in 2025 but will see a big step-up in 2026, leveraging cocoa cost favorability. Non-working media was managed in decline in 2025 and will continue, with specific investments controlled. Overhead had a positive impact in 2025 due to a lower incentive plan, and further savings are expected, with the line leveled to 2025 in 2026 (excluding 100% planned incentives). Dirk Van de Put (Chairman and CEO) confirmed that the 0.7-0.8 elasticity roughly applies to the normal range, with adjustments only in specific cases. He noted that seasonal ranges historically have less elasticity, as consumers are less clear on price points and more inclined to pay, which will lead to better volume trends.

Tom Palmer asked about the nature of SG&A reductions in 2025, specifically how much represents persistent cost savings versus temporary items that might return in 2026. He also sought clarification on Europe's price elasticity, distinguishing between non-seasonal and seasonal products and their respective volume trends.

Answer

CFO Luca Zaramella outlined three SG&A components: working media (declining in 2025 but expected to step up in 2026), non-working media (managed in decline for 2025 and 2026), and overhead (positively impacted by incentive plan in 2025, expected to level in 2026 with 100% incentive planning). Chairman and CEO Dirk Van de Put confirmed that the 0.7-0.8 elasticity would largely be maintained on the normal range in Europe, with specific adjustments in certain areas. He noted that seasonal ranges historically exhibit less elasticity, leading to better volume trends.

Tom Palmer asked for clarification on McCormick's tariff offset strategy, specifically whether the initial $50 million tariff expectation for 2025 is still expected to be fully offset, and if the ability to mitigate the incremental tariff step-up is still being determined. He also questioned the timing of the 3Q gross margin impact, given that many new tariffs were introduced in August, expecting more of a lag.

Answer

Executive Vice President and CFO Marcos Gabriel clarified that the $50 million tariff impact for 2025 was expected to be offset, but the annualized net impact for 2026 (now $140 million) is still being worked through. He explained that while new tariffs in August contributed to Q3's impact, the main driver was higher commodity costs that accelerated in Q3, impacting profitability more than anticipated. Chairman, President, and CEO Brendan Foley added that broad market uncertainty and suppliers passing on tariff impacts indirectly contributed to the observed incremental commodity costs.

Tom Palmer asked for clarification on whether the initial expectation to fully offset the first round of tariffs (for this year and next) still holds, or if the ability to fully mitigate the incremental step-up is still being decided. He also inquired about the timing of the tariff impact on Q3 gross margin, given that tariffs were mostly implemented in August, expecting a lag, and sought to understand the incremental step-up in Q3 versus Q4.

Answer

Marcos Gabriel, Executive Vice President and CFO, clarified that they had discussed offsetting the $50M in-year impact for 2025, but had not provided a net impact for 2026 as mitigation plans are still being developed. He confirmed that new tariffs were a component of the Q3 impact, but the primary driver was higher commodity costs that accelerated more than expected in Q3. Brendan Foley, Chairman, President, and CEO, further explained that broad uncertainty was causing suppliers to pause and indirectly pass on tariff impacts as overall inflation.

Tom Palmer asked for clarification on the gross margin commentary, specifically regarding the North America segment's seasonal increase from 1Q to 2Q, given that international segment items were primarily noted. He also sought an update on Lamb Weston's tariff exposure, which is now included in guidance.

Answer

CFO Bernadette Madarieta confirmed that North America is expected to see a more seasonal gross margin increase, with input cost inflation in 2Q partially offset by lower potato prices, while much of the overall change relates to the international segment. She stated that most tariff exposure, primarily from palm oil and other ingredients imported from Indonesia and Malaysia, is estimated at $25 million annually and has been included in the guidance.

Tom Palmer sought clarification on the gross margin commentary, specifically the expectation of a flat quarter-over-quarter performance, noting that the mentioned factors (rising potato costs, plant startup) seemed more related to the international segment. He asked for an update on North America's gross margin, inquiring if a normal seasonal increase is expected from Q1 to Q2. He also asked for an update on the company's tariff exposure, which is now included in guidance, and its previously stated non-meaningful impact.

Answer

CFO Bernadette Madarieta confirmed that North America's gross margin would see a more seasonal increase, with input cost inflation in Q2 partially offset by benefits from lower potato prices. She reiterated that much of the change in gross margin is related to the international segment. Regarding tariffs, Ms. Madarieta stated that most exposure relates to palm oil and other ingredient imports, primarily from Indonesia and Malaysia, with an expected annualized impact of about $25 million, which has now been fully included in the guidance.

Tom Palmer from JPMorgan Chase & Co. questioned if referencing the long-term growth algorithm implies that 2026 will not be an above-average year. He also asked about the Q4 outlook for pork costs and the rationale for building inventory amid elevated commodity prices.

Answer

Interim CEO Jeffrey Ettinger clarified that the long-term algorithm represents appropriate future goals but is not official 2026 guidance, which will come in Q4. CFO Jacinth Smiley stated that the Q4 outlook assumes markets remain elevated and that inventory was intentionally built for back-to-school demand and to improve customer service fill rates, with the balance also inflated by higher costs.