Tom Palmer

Tom Palmer asked for clarity on the EBITDA cadence for the year, particularly for Q2, Q3, and Q4, considering Q1's strength and inventory timing benefits in Foodservice, and what offsets to expect in other segments. He also inquired about the ramp-up of the RTD shakes plant, the impact of key customers' slower growth, and the overall progress of the ramp.

Answer

CFO and Treasurer Matt Mainer explained that Q1 is the highest quarter for Refrigerated Retail due to holidays, with Q2 seeing a step down from seasonality and negative pressure from typical holiday shutdowns across the portfolio. For RTD shakes, he noted progress on volume output but ongoing challenges with cost and efficiency, with no long-term category concerns.

Tom Palmer asked for clarity on the EBITDA cadence for the year, specifically how Q2, Q3, and Q4 would balance out given Q1 strength and Q2 foodservice inventory timing benefits, and what offsets to expect. He also requested an update on the RTD shakes plant ramp-up, including the impact of key customers' slower growth and the overall progress.

Answer

Matt Mainer, CFO and Treasurer, explained that Q1 is the highest for refrigerated retail due to holidays, with Easter benefits in Q2, but overall seasonality and holiday shutdowns will create a step down. He noted progress on RTD shakes volume output but ongoing challenges with cost and efficiency, emphasizing focus on profitability before expansion, with no long-term category concerns.

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 asked how Hershey considers the possibility of stepped-up promotions later in 2026, balancing promotional optionality versus allocating marketing dollars, given double-digit A&C increases and stable pricing plans. He also requested color on sales growth expectations for the Confection and Salty Snacks segments (beyond the low single-digit for International), and the extent to which International's profit recovery reflects incremental pricing actions.

Answer

Kirk Tanner (President and CEO) explained that advertising investments support big brands and cultural tentpole moments, balancing 'pull' and 'push' for demand creation. He expects the category to remain rational, with promotions used to drive excitement. Steve Voskuil (SVP and CFO) clarified that all pricing has been sold in. He provided organic sales growth outlooks: Confection around 3%, Salty Snacks mid-single digits, and International down low single digits, with all segments expecting double-digit EBIT growth. International's profit recovery is partly due to significant pricing and portfolio optimization. Kirk expressed bullishness on International, citing share gains in key markets.

Tom Palmer asked about the possibility of stepped-up promotions later in the year, and how Hershey balances the optionality of promotions with allocating marketing dollars, given plans for double-digit advertising increases and holding pricing plans. He also sought color on sales growth expectations for the confection and salty snacks segments (beyond international's low single-digit), and the extent to which international profit recovery reflects incremental pricing actions.

Answer

CEO Kirk Tanner stated that Hershey balances pull (advertising, brand building, cultural moments) and push (promotions) to drive excitement, expecting a rational category. SVP and CFO Steve Voskuil clarified that all pricing has been sold in. Steve Voskuil provided segment organic sales growth expectations: confection around 3%, salty snacks mid-single digits, and international down low single digits, with double-digit EBIT growth across all segments. He explained that international profit recovery reflects significant pricing taken due to premium positioning and cocoa-intensive products, alongside portfolio optimization, with share gains in key markets like Canada, Mexico, Brazil, and the UK.

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 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 inquired about the extent to which the RVO (Renewable Volume Obligation) might already be reflected in current forward curves and the impact of recent increases in soybean crush margins on Bunge's operations. He also asked for insights into the expected earnings cadence for the year, particularly the weighting between the first and second halves, and how this might reflect normal seasonality given the changed business composition.

Answer

CEO Greg Heckman stated that the guidance does not assume RVO impact beyond current curves, noting that US curves, especially in the second half, show RVO tailwind expectations but little business is done beyond Q1. CFO John Neppl added that strong global soybean meal demand is helping crush margins despite oil price volatility. For earnings cadence, CFO John Neppl indicated a lighter first half, with a 30/70 split for the full year (first half/second half) and a 35/65 split for Q1/Q2, noting this is based on current forward curves and may not be indicative of future normal seasonality.

Tom Palmer asked about the extent to which the RVO (Renewable Volume Obligation) might be reflected in the current forward curve and the impact of recent increases in soybean crush margins on Bunge's operations. He also inquired about the expected earnings cadence for the year, specifically the first half versus second half weighting, and how it compares to normal seasonality.

Answer

CEO Greg Heckman stated that Bunge's outlook does not include assumptions about RVO's impact beyond current curves, noting that while US curves improved in the second half due to RVO expectations, little business is done beyond Q1. He also mentioned high oil stocks in the U.S. CFO John Neppl added that strong global soybean meal demand is helping crush margins. Regarding earnings cadence, John Neppl indicated a lighter first half, with a 30/70 split for H1/H2 and a 35/65 split for Q1/Q2, which is lighter than typical.

Tom Palmer of JPMorgan Chase & Co. sought clarification on several 2026 guidance items, including specific dollar amounts for corporate costs, the expected tax rate, and the anticipated trends for the RPO and Ag Services subsegments within AS&O.

Answer

EVP and CFO Monish Patolawala provided an expected effective tax rate of 18%-20% for 2026 and explained that corporate costs would be higher due to reinvestment in R&D and digital, and the non-recurrence of lower incentive compensation from 2025. He also discussed Ag Services' higher North American exports to China and Q1 crush margins similar to Q4 2025, including insurance proceeds.

Tom Palmer of JPMorgan Chase & Co. sought clarification on several 2026 guidance items, including specific dollar amounts for corporate costs, the expected tax rate, and the anticipated trends for the RPO and Ag Services segments relative to their 2025 performance.

Answer

Executive Vice President and CFO Monish Patolawala stated the expected effective tax rate for 2026 is 18-20%. He indicated corporate costs would be higher year-over-year due to reinvestment in R&D and digital, lower incentive compensation in 2025 not repeating, and continued cost-out efforts. For Ag Services and Oilseeds, he noted a wide range depending on RVO clarity, with North American exports expected to be higher due to China trade. RPO trends depend on demand and RVO policy.

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 followed up on the newly introduced corporate plus amortization line, asking about the drivers behind the implied year-over-year decrease of at least 4% in the guidance.

Answer

CFO Curt Calaway explained that the decrease was primarily driven by a $13 million reduction in team member costs compared to the prior quarter, with a smaller contribution from a reduction in amortization on a year-over-year basis.

Tom Palmer asked for an update on Tyson Foods' views of the chicken industry, noting the constructive tone on supply growth despite a weaker Q1 environment and a reiterated annual outlook.

Answer

President and CEO Donnie King stated that 2026 is expected to be similar to 2025, with USDA projecting a manageable 1% growth in production. He emphasized strong demand, Tyson's balanced supply, and the industry's overall balance, creating a constructive environment for Tyson. He noted Q1 commodity softness and expected market normalization, but highlighted Tyson's insulation from commodity markets due to strategic customer relationships and its portfolio. He reported Q1 poultry volume as an all-time record, with branded fresh up 9% and branded frozen up 12.2%, and net sales up 3.6% driven by mix, with actual pricing flat. Tom Palmer then followed up on the newly introduced corporate plus amortization line, asking about the drivers behind its implied year-over-year decrease. CFO Curt Calaway explained that the Q1 decrease of $20 million year-over-year was primarily driven by a focus on overhead costs, specifically a $13 million reduction in team member-related costs, with some additional reduction in amortization.

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 inquired about the unexpected inflation noted in the fourth quarter and its implications for 2026, particularly regarding inventory levels and the cadence of the mid-single-digit inflation guidance. He also asked about the consumer segment's expected outsized price elasticity in Q1 and subsequent recovery, and if it relates to 4Q shipment timing.

Answer

Marcos Gabriel, Executive Vice President and CFO, stated that Q4 experienced the highest inflation of the year, driven by tariffs, broad commodity costs, and packaging, leading to a high cost base entering 2026. He expects mid-single-digit inflation to continue at the Q4 run rate into 2026, with potential improvement later in the year. Brendan Foley, Chairman, President, and CEO, explained that Q1 consumer volumes would be impacted by price elasticities due to targeted pricing in 2025 and additional pricing in February, potentially leading to flat to slightly negative volumes, followed by improvement. He confirmed that Q4 inventory in the channel was in line with expectations.

Tom Palmer asked about the unexpected inflation noted in the fourth quarter, its implications for 2026, and how inventory levels might factor in. He also sought details on the cadence of the mid-single-digit inflation expected in the coming year. Additionally, he inquired about the consumer segment's expected volume impact from price elasticity, particularly the outsized effect in Q1, and any relation to Q4 shipment timing.

Answer

Marcos Gabriel, EVP and CFO, stated that Q4 2025 saw the highest inflation, driven by tariffs, broad commodity costs, and packaging. He expects mid-single-digit inflation to continue into 2026 at the Q4 run rate, with potential improvement later in the year. Brendan Foley, President and CEO, explained that Q1 is expected to see an impact from elasticities due to pricing implemented in 2025 and additional pricing in February 2026, potentially leading to flat to slightly negative volumes in Q1, with improvement expected thereafter as tariff reductions and other programs take effect.

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 about the price investment side, specifically the more intense promotional environment observed in November, especially with SNAP benefit deferrals. He inquired if higher promotions are expected to persist across the industry and whether funding for these promotions is coming more from food producers or grocers.

Answer

CEO Susan Morris confirmed a more aggressive promotional environment, accelerated during the holiday season, noting that customers are price-sensitive and value-focused competition is growing. She highlighted Albertsons' market density, loyalty, and AI-driven personalization as creating a durable edge. Susan Morris stated that promotional investments will continue, as Albertsons is inherently a promotional merchant, and the 'buying better together' initiative leverages scale to secure lower cost of goods and more promotional funding, which is timely given the current environment.

Tom Palmer asked about the pricing environment, specifically noting a more intense promotional period in November due to SNAP benefit deferrals, and whether higher promotions are expected to persist. He also inquired about industry trends and whether promotional funding is primarily from food producers or grocers.

Answer

CEO Susan Morris acknowledged a more aggressive promotional environment, especially during the holiday season, driven by price-sensitive customers and growing value-focused competition. She stated that Albertsons' market density, strong locations, loyalty programs, and AI-driven personalization help create a durable edge. Susan Morris confirmed that promotional investments will continue, leveraging the 'Buying Better Together' initiative to secure lower costs of goods and more promotional funding. President and CFO Sharon McCollam noted that the timing of the 'Buying Better Together' initiative aligns opportunistically with the current competitive environment.

Tom Palmer inquired about Lamb Weston's strategy for rebalancing supply and demand in Europe, specifically asking if actions similar to North America's plant closures or curtailments are anticipated, and also asked about North America's volume drivers and pricing trends for the second half of the fiscal year.

Answer

President and CEO Michael Smith confirmed the curtailment of a single line in Europe to balance global supply and demand, noting that previously curtailed lines in North America were restarted due to strong volume. CFO Bernadette Madarieta explained that North America's gross margins in the second half would be affected by mix shifts towards multinational chain customers and private label retail, leading to relatively flat gross margins compared to the first half.

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 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 annual outlook, specifically how the reduction in Ardent's contribution (approximately $30 million, or $0.05 to EPS) is bridged to the reiterated sales and operating margin guidance. He also asked about Project Catalyst's potential impact and implementation, inquiring about clear cost savings targets and any stepped-up spending, such as CapEx.

Answer

CFO Dave Marberger explained that strong operating profit and margin performance in the first half, along with favorability in tariff timing (Q1) and chicken inflation (partially offset by beef and pork), and core productivity programs being on track, allow them to cover the Ardent shortfall. CEO Sean Connolly added that the wider EPS range for the year was set to navigate such volatility. For Project Catalyst, Sean Connolly described it as a re-engineering of core business processes using technology, especially AI, for more effectiveness and efficiency, confirming there will be time, costs, and a return, with more details to be shared in calendar 2026.

Tom Palmer sought clarification on the annual outlook, specifically how Conagra plans to bridge the $30 million reduction in Ardent's contribution to maintain the reiterated sales and operating margin guidance, and inquired about potential cost savings targets and stepped-up investments for Project Catalyst.

Answer

CFO Dave Marberger explained that strong operating profit and margin performance in the first half, favorability from tariff timing and chicken inflation (offset by beef/pork), and core productivity programs on track, provide confidence to cover the Ardent shortfall within the EPS range. CEO Sean Connolly added that the wider guidance range for the year was set to navigate unpredictable volatility. Sean Connolly described Project Catalyst as a re-engineering of core business processes using technology, especially AI, for effectiveness and efficiency, with expected costs and returns to be detailed in calendar 2026.

Tom Palmer requested an update on the inflation and tariff outlook, including any potential favorability in the back half, and sought clarification on whether a 3% International timing benefit from Q1 unwound in Q2 or became a factor in the back half.

Answer

Kofi Bruce, CFO, reiterated a 3% base inflation forecast with 1-2% additional tariff headwind, expecting tariffs to step up further in the second half. Jeff Harmening, Chairman and CEO, added that input coverage delays the impact of lower wheat prices. Kofi Bruce confirmed the International timing benefit mostly did not unwind in Q2.

Tom Palmer asked for additional details on The Campbell's Company's La Regina acquisition, including the strategic rationale, timing, and specifics regarding the option to acquire the remaining 51% interest and its purchase price determination.

Answer

CEO Mick Beekhuizen explained the acquisition supports conviction in Rao's, secures high-quality supply, and strengthens partnership for innovation. CFO Todd Cunfer detailed the $286 million payment for 49% (split into two payments), the call option for the remaining 51% (with a potential premium up to 20% on the second half, valuing the total at around $600 million), and a put option for the Romano family four years after closing. The deal is expected to be EPS neutral in fiscal 2026 but accretive over time, improving Rao's brand margins.

Tom Palmer inquired about Hormel's assumption of stronger turkey markets in its guidance, specifically regarding whole bird pricing and the finalization of contracts, and later asked about the expected savings from the restructuring work.

Answer

President John Ghingo explained turkey's importance, volatility, and successful pricing actions on ground turkey in H2 2025, noting guidance includes somewhat elevated whole bird prices but market specifics are still early. Interim CEO Jeff Ettinger detailed the 250-position reduction, expecting gross savings of 2-3 times the implementation cost, with quick payback. Interim CFO Paul Kuehneman added that adjusted SG&A as a percent of net sales would be comparable to prior year, including increased marketing.

Tom Palmer from JPMorgan Chase & Co. asked for clarification on Hormel Foods' assumption of "stronger turkey markets" in its fiscal 2026 guidance, specifically inquiring about the outlook for whole bird pricing given current spot prices and pending contract finalizations. He also sought quantification of the expected savings from the company's recent restructuring work.

Answer

President John Ghingo explained that turkey remains a very important business, particularly value-added ground turkey, which is a winning formula for consumers seeking versatile, lean protein options. He noted that while markets have fluctuated and whole bird prices are expected to be somewhat elevated, it's still early in the contracting process for the year. Interim CEO Jeff Ettinger detailed that the restructuring, involving 250 corporate and sales position reductions (9% of the group) and organizational layer reductions, is designed to deliver gross savings of two to three times the implementation cost, with a quick payback within 12 months. Interim CFO and Controller Paul Kuehneman added that adjusted SG&A as a percentage of net sales is anticipated to be comparable to the prior year, inclusive of increased marketing and advertising investments.

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.

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 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 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 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.