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    Hormel Foods Corp (HRL)

    Business Description

    Hormel Foods Corporation is a global manufacturer and marketer of branded food products, specializing in the processing, marketing, and sale of meat and other food products . The company operates through three main segments: Retail, Foodservice, and International, focusing on both domestic and international markets . Hormel Foods offers a diverse range of products, including perishable items like fresh meats and guacamole, as well as shelf-stable products such as canned luncheon meats and nut butters .

    1. Retail Segment - Focuses on food products sold in the retail market, including contributions from the MegaMex Foods, LLC joint venture.
    2. Perishable Products - Includes fresh meats, frozen items, refrigerated meal solutions, bacon, sausages, hams, and guacamole.
    3. Foodservice Segment - Provides food and nutritional products for foodservice, convenience store, and commercial customers.
    4. Shelf-Stable Products - Comprises canned luncheon meats, nut butters, snack nuts, chili, and shelf-stable microwaveable meals.
    5. International Segment - Manages the processing, marketing, and sale of products internationally, including results from international joint ventures and royalty arrangements.

    Q4 2024 Summary

    Initial Price$31.93July 27, 2024
    Final Price$31.06October 27, 2024
    Price Change$-0.87
    % Change-2.72%

    What went well

    • Hormel Foods is on track with their Transform and Modernize (T&M) initiative, expecting to deliver $250 million in operating income benefits by 2026. Management is confident in accelerating these benefits in 2025 and creating long-term value beyond 2026.
    • The Foodservice segment is projected to deliver strong, mid-single-digit growth in 2025, driven by innovation, expansion into diversified channels, and a differentiated business model.
    • The company is investing in flagship and rising brands, with plans for double-digit increases in advertising investments in 2025, supporting growth across key brands and product lines.

    What went wrong

    • Underlying EBIT growth is expected to decline excluding benefits from the Transform and Modernize initiative. This suggests that organic earnings growth may be weak without these savings.
    • Cost savings from the Transform and Modernize initiative are being offset by increased investments, such as double-digit advertising increases and spending on capabilities, which may limit profit growth.
    • Achievement of ambitious targets in fiscal 2026 relies heavily on future cost savings and successful execution of initiatives, raising concerns about execution risks and over-reliance on uncertain future benefits.

    Q&A Summary

    1. FY25 Earnings Guidance
      Q: Can you elaborate on variables for FY25 guidance?
      A: Management expects growth in top and bottom lines for FY25, driven by key retail categories like bacon and Applegate, successful innovation, growth in Foodservice and International segments, and a strong value-added turkey business. They plan to make double-digit increases in brand support and invest in people, processes, data, and technology. While facing near-term impacts in Q1, they are confident in their ability to grow earnings.

    2. Conservatism in Guidance
      Q: Is there conservatism in your EBIT guidance given underlying declines?
      A: Management aims to ensure guidance is appropriate, considering recent volatility in the turkey market and the Planters rebound. The Transform and Modernize initiative is seen as interconnected with the business, creating a flywheel to generate growth. They believe the plan is realistic and achievable.

    3. FY26 Operating Income Target
      Q: Are you still planning on $250 million operating income growth from '23 to '26?
      A: Yes, the company reaffirms the $250 million target and is on track to achieve it. They are confident due to the strength of their brands, the business, and the Transform and Modernize initiative, which is creating long-term lasting value.

    4. Bridging FY25 Profit Growth
      Q: What's limiting the flow-through of cost savings and sales growth to operating profit in FY25?
      A: Investments in brand support and capabilities related to the Transform and Modernize initiative are impacting operating profit growth. They are making double-digit investments in brand support and investing in data, technology, and people. Additionally, they expect lower turkey prices and are planning for continued investment in capabilities.

    5. Planters Recovery
      Q: What's causing the slower ramp at Suffolk, and why confidence issues will end in Q1?
      A: Significant progress has been made; production concerns are largely resolved. By end of Q1, they expect to fully meet retailer demand across the Planters portfolio. Baseline trends are improving, and more than half of lost distribution has been recovered. Advertising and promotions will increase in Q2 to recapture momentum.

    6. Turkey Business Strategy
      Q: How are you reducing exposure to commodity volatility in turkey business?
      A: The company is creating a demand-driven business, focusing on value-added products like lean ground turkey, which is the #1 scanned item in the company. They've integrated the business into Foodservice, yielding positive results, and are reducing volatility caused by commodity markets.

    7. Clarifying $250 Million Target
      Q: How will you achieve the $250 million EBIT growth in FY26 given the needed step up?
      A: Management reaffirms the target, highlighting the Transform and Modernize initiative, recovery of Planters, and strength of the underlying business, including flagship and rising brands, Foodservice, and International segments. They expect continued acceleration in 2025 and 2026 with benefits beyond 2026.

    8. Turkey Outlook
      Q: Is turkey expected to be neutral in FY25 despite first-quarter weakness and grain benefits?
      A: Turkey pricing is expected to remain at lower levels for 2025, with moderate grain benefits. The value-added turkey business is expected to grow, while the commodity side is planned to be flat to slightly down.

    9. Further SKU Rationalization
      Q: Does sales guidance anticipate further SKU rationalization?
      A: Yes, SKU rationalization is included in the guidance. The focus is on removing unprofitable SKUs or those adding complexity to create room for innovative new items and drive profitability.

    10. Foodservice Growth Drivers
      Q: What are key drivers of growth within Foodservice?
      A: Foodservice is expected to grow mid-single digits in 2025. Growth will be driven by a strong direct sales team, innovative product solutions that address operator pain points, diversified channels including restaurants, lodging, and convenience stores, and a focus on operators.

    Key Metrics

    View all financials →
    Revenue by Segment - in Millions of USDQ1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024Q4 2024FY 2024
    Retail1,891.71,983.37,749.01,911.31,788.61,767.31,906.97,374.1
    Foodservice890.91,032.43,639.5913.1932.0954.01,0463,845.1
    International180.6182.5721.5172.6166.8177.2184.9701.5
    - Perishable Products2,068.82,289.38,511.82,106.62,029.42,115.12,297.78,548.8
    - Shelf-stable Products894.5908.83,598.2890.3857.9783.4840.43,372.0
    - Poultry--------
    - Miscellaneous--------
    Grocery Products--------
    Refrigerated Foods--------
    Jennie-O Turkey Store--------
    Specialty Foods--------
    International & Other--------
    Total Revenue2,963.33,198.112,110.02,996.92,887.42,898.43,138.111,920.8
    Revenue by Geography - in Millions of USDQ1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024Q4 2024FY 2024
    U.S.--11,515.094----11,283.978
    - U.S. Retail--------
    - U.S. Foodservice--------
    - U.S. Deli--------
    Foreign--594.915----636.819
    Total Net Sales--12,110.010----11,920.797
    - International--------
    Total Revenue--12,110.010-----

    Executive Team

    NamePositionStart DateShort Bio
    James P. SneeChairman of the Board, President, and CEONovember 2017James P. Snee has been serving as the Chairman of the Board, President, and CEO of Hormel Foods since November 2017. He has a 34-year career with Hormel Foods, bringing extensive expertise in sales, marketing, supply chain, and international business .
    Jacinth C. SmileyExecutive Vice President and Chief Financial OfficerJanuary 1, 2022Jacinth C. Smiley has been the Executive Vice President and CFO since January 1, 2022. She previously served as Group Vice President of Corporate Strategy and was the Vice President and Chief Accounting Officer at LyondellBasell Industries Holdings B.V. .
    John F. GhingoExecutive Vice President, RetailOctober 28, 2024John F. Ghingo rejoined Hormel Foods as Executive Vice President, Retail on October 28, 2024. He has extensive experience in the consumer packaged goods industry, having held leadership roles at Whisps Acquisition Corporation and Applegate Farms, LLC .
    Mark J. OuradaGroup Vice President, FoodserviceMarch 2018Mark J. Ourada has been the Group Vice President, Foodservice since March 2018 .
    Swen NeufeldtGroup Vice President, Hormel Foods International CorporationJune 2020Swen Neufeldt has been serving as Group Vice President of Hormel Foods International Corporation since June 2020. He was previously the Vice President of Meat Products .
    Steve J. LykkenGroup Vice President, Supply ChainFebruary 2024Steve J. Lykken began his role as Group Vice President, Supply Chain in February 2024. He was previously the Group Vice President of Jennie-O Turkey Store .
    Colleen R. BatchelerSenior Vice President, External Affairs, and General CounselJune 2024Colleen R. Batcheler started as Senior Vice President, External Affairs, and General Counsel in June 2024. She previously held executive roles at Hertz Global Holdings, Inc. and Conagra Brands, Inc. .
    Mary Katherine ClarkSenior Vice President and Chief Communications OfficerMarch 2024Mary Katherine Clark has been the Senior Vice President and Chief Communications Officer since March 2024. She was previously Vice President of Communications at Mattress Firm Holding Corp. .
    Katherine M. Losness-LarsonSenior Vice President, Human ResourcesOctober 31, 2022Katherine M. Losness-Larson has been serving as Senior Vice President of Human Resources since October 31, 2022. She was previously the Director of Human Resources .
    Pierre M. LillySenior Vice President and Chief Compliance OfficerOctober 26, 2020Pierre M. Lilly has been the Senior Vice President and Chief Compliance Officer since October 26, 2020. He was previously the Director of Internal Audit .
    Kevin L. Myers, Ph.D.Senior Vice President, Research and Development and Quality ControlMarch 30, 2015Kevin L. Myers, Ph.D., has been the Senior Vice President, Research and Development and Quality Control since March 30, 2015 .
    Paul R. KuehnemanVice President and ControllerFebruary 18, 2022Paul R. Kuehneman has been serving as Vice President and Controller since February 18, 2022. He was previously the Assistant Controller and Vice President and CFO at Jennie-O Turkey Store, Inc. .

    Questions to Ask Management

    1. You delivered $75 million in operating income benefits through your transform and modernize initiative in fiscal 2024, but to reach your target of $250 million by 2026, you'll need a significant acceleration in the next two years; what specific factors give you confidence in achieving this steep increase, especially without providing 2026 guidance?

    2. You've planned to invest approximately $250 million through 2026 in your transform and modernize initiative; can you elaborate on the expected return on this investment and what risks you foresee if the anticipated benefits do not fully materialize?

    3. You've taken steps to reduce complexity by divesting nonstrategic businesses like Hormel Health Labs and eliminating low volume or unprofitable SKUs; how might these actions impact your top-line revenue growth in the near term, and are you concerned about potential risks to market share?

    4. You mentioned expecting near-term impacts in Q1 due to commercial impacts for Planters and wraparound impacts on the whole bird turkey business; can you provide more details on these challenges and how you plan to mitigate their effects on your earnings?

    5. With plans to significantly increase brand support and investments in your transformation initiative in fiscal 2025, how do you expect to balance these higher expenses with your goal of growing top and bottom lines, and what contingencies are in place if sales volumes or margins don't improve as projected?

    Share Repurchase Program

    Program DetailsProgram 1
    Approval DateJanuary 29, 2013
    End Date/DurationNo expiration date
    Total additional amount10,000,000 shares
    Remaining authorization amount3,677,494 shares as of October 27, 2024
    DetailsPart of capital allocation strategy; repurchases depend on market conditions

    Past Guidance

    Q4 2024 Earnings Call

    • Issued Period: Q4 2024
    • Guided Period: FY 2025
    • Guidance:
      1. Net Sales: $11.9 billion to $12.2 billion, with organic net sales growth of 1% to 3% .
      2. Adjusted Diluted EPS: $1.58 to $1.72 .
      3. Operating Income Benefit from Transform and Modernize Initiative: $100 million to $150 million .
      4. Segment Growth:
        • Retail: Comparable volume and low single-digit increases in net sales .
        • Foodservice: Mid-single-digit increases in volume and net sales .
        • International: Low single-digit increases in volume and high single-digit increases in net sales .
      5. Tax Rate: 22% to 23% .
      6. Capital Projects: $275 million to $300 million .
      7. Advertising Investments: Double-digit percentage increases .
      8. Interest and Investment Income: Expected to be lower compared to fiscal 2024, with comparable interest expense .
      9. Key Input Costs:
        • Pork input costs comparable to fiscal 2024 .
        • Beef costs to continue as a headwind .
        • Turkey markets expected to be depressed .
        • Moderate benefit from favorable grain prices .
      10. Unfavorable EPS Impact: $0.04 to $0.05 in the first quarter from lower whole bird prices and Suffolk production disruption .

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Net Sales: $11.8 billion to $12.1 billion .
      2. Diluted Net EPS: $1.45 to $1.51 .
      3. Adjusted Diluted Net EPS: $1.57 to $1.63 .
      4. Pork Input Costs: Higher than the previous year .
      5. Turkey Markets: Expected to continue to move lower .
      6. Foodservice Segment: Continued volume and net sales growth .
      7. International Segment: Significant segment profit growth .
      8. Transform and Modernize Initiative: Strongest level of savings in the fourth quarter .
      9. SG&A Expenses: Expected to increase in fiscal 2025 .
      10. Advertising Investments: Double-digit percentage increases in fiscal 2025 .
      11. Interest and Investment Income: Expected to be lower in fiscal 2025 .
      12. Effective Tax Rate: 22% to 23% for fiscal 2025 .

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Net Sales Growth: 1% to 3% .
      2. Diluted Net EPS: $1.45 to $1.55 .
      3. Adjusted Diluted Net EPS: $1.55 to $1.65 .
      4. Foodservice Segment: Continued volume growth .
      5. International Business: Net sales increases .
      6. Retail Segment: Higher net sales for Bacon and emerging brands .
      7. Transform and Modernize Initiative: Strongest level of savings in the fourth quarter .
      8. Impact of Unplanned Production Interruption: Affects net sales and earnings guidance .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Net Sales Growth: 1% to 3% .
      2. Diluted Net EPS: $1.43 to $1.57 .
      3. Adjusted Diluted Net EPS: $1.51 to $1.65 .
      4. Effective Tax Rate: 21% to 23% .
      5. Capital Expenditures: $280 million .
      6. Net Debt-to-EBITDA: 1.5x to 2x .
      7. Earnings Headwinds from Turkey Business: Approximately $0.15 .
      8. Advertising Investments: Significant increase .

    Latest news

    Recent developments and announcements about HRL.

    Financial Reporting

      Earnings Call

      ·
      Dec 4, 2024, 6:00 PM

      Hormel Foods recently released its earnings call transcript for the fourth quarter of fiscal 2024. Key highlights from the call include:

      • Financial Performance: Hormel Foods reported net sales of $11.9 billion for the full year, with a gross margin increase to 17% . The company achieved a record operating cash flow of $1.3 billion, enabling a record return of $615 million to shareholders in dividends .

      • Forward Guidance: For fiscal 2025, Hormel expects net sales between $11.9 billion and $12.2 billion, with organic net sales growth of 1% to 3%. Adjusted diluted earnings per share are projected to be in the range of $1.58 to $1.72 .

      • Strategic Initiatives: The company is continuing its Transform and Modernize (T&M) initiative, which delivered $75 million in operating income benefits in 2024. For 2025, Hormel anticipates $100 million to $150 million in incremental benefits from this initiative .

      • Market Conditions and Strategic Initiatives: Hormel is focusing on its value-added portfolio, with strong growth in brands like Hormel Black Label, Jennie-O, SPAM, and Applegate. The company is also investing in innovation and advertising to drive growth .

      • Analyst Questions: Analysts inquired about the fiscal 2025 guidance, with discussions on potential growth in retail categories and the impact of the T&M initiative. Management expressed confidence in achieving growth through strategic investments and brand support .

      • Management's Responses: Hormel's management highlighted the importance of their transformation initiatives and the strategic focus on value-added products to drive sustainable growth .

      Overall, Hormel Foods is optimistic about its growth prospects for 2025, supported by strategic initiatives and a strong brand portfolio.

      Earnings Report

      ·
      Dec 4, 2024, 11:21 AM

      Hormel Foods Corporation (NYSE: HRL) has released its earnings results for the fourth quarter and full fiscal year 2024, reporting net sales of $11.9 billion for the year and $3.1 billion for the fourth quarter. The company achieved an operating income of $1.1 billion for the year and $294 million for the fourth quarter, with adjusted operating income slightly higher at $1.1 billion and $308 million, respectively. The operating margin was reported at 9.0% for the year and 9.4% for the quarter, with adjusted margins at 9.6% and 9.8%. Earnings before income taxes were $1.0 billion for the year and $280 million for the quarter, with adjusted figures at $1.1 billion and $293 million. The effective tax rate was 22.3% for the year and 21.5% for the quarter. Diluted earnings per share were $1.47 for the year and $0.40 for the quarter, with adjusted figures at $1.58 and $0.42. Hormel Foods also reported a record cash flow from operations of $1.3 billion for the year .

      The company highlighted the strength of its value-added portfolio and the benefits from its Transform and Modernize (T&M) initiative, which contributed $75 million in operating income benefits. This initiative is part of Hormel's strategy to drive growth and enhance shareholder value. The company also noted strong performance in its Retail and Foodservice segments, with significant growth in international markets, particularly in China and through branded exports .

      Looking ahead to fiscal 2025, Hormel Foods expects net sales to range between $11.9 billion and $12.2 billion, with organic net sales growth of 1% to 3%. The company anticipates operating income between $1.13 billion and $1.23 billion, with adjusted operating income between $1.18 billion and $1.28 billion. Diluted earnings per share are projected to be between $1.51 and $1.65, with adjusted earnings per share between $1.58 and $1.72. The company plans to continue benefiting from the T&M initiative, expecting incremental benefits of $100 million to $150 million in fiscal 2025 .

      Hormel Foods has also announced a 3% increase in its dividend, marking the 59th consecutive year of annual dividend growth, with the annual rate now at $1.16 per share .