Q1 2024 Earnings Summary
- Volume growth in every business segment during Q1, driven by strong performances in retail and foodservice, with marked improvements in supply chain and highest fill rates since 2020.
- The company expects profit growth in all segments in the back half of the year, supported by continued trajectory of foodservice, ramp-up of international performance, retail benefits, and acceleration of transformation and modernization initiatives.
- Foodservice business operates from an advantaged position, with strong Q1 results and expected continued volume growth throughout the year.
- Hormel Foods faces incremental earnings pressure from its turkey business due to a worse-than-expected outlook for whole bird turkey markets, resulting in an additional $0.05 of earnings headwinds, with most of the impact occurring in Q2.
- The company expects earnings to decline year-over-year in the second quarter, and while it anticipates profit growth in the back half of the year, it did not commit to growth in both Q3 and Q4 individually.
- Management acknowledges potential risks from a challenging consumer environment, with certain weak categories potentially affecting volumes, and they are monitoring these factors closely.
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Profit Growth Expectations
Q: Do you expect profit growth in all segments in the back half?
A: Yes, we expect profit growth in all segments in the back half of the year. -
Key Risks to Targets
Q: What are the key risks to delivering this year's targets?
A: The main risks are from the turkey market, where the whole bird outlook is worse, impacting us by an additional five cents, mostly in Q2. We're also closely watching the consumer environment, as some categories are weak, but we're supporting our brands and driving innovation. -
Offsetting Turkey Headwinds
Q: How will you offset incremental turkey price headwinds?
A: Strong performance in foodservice and international, which exceeded expectations in Q1, will offset additional headwinds from the turkey market. We remain confident in our guidance as it's early in the year. -
Earnings Outlook and Guidance
Q: Can you clarify the expected earnings outlook?
A: We expect profit growth in the back half, considering it as a whole. Confidence comes from foodservice's continued trajectory, international ramp-up, retail benefits, and accelerating transformation initiatives. -
Foodservice Outlook
Q: How do you view the foodservice situation amidst macro factors?
A: We're operating from an advantaged position in foodservice, with strong Q1 performance expected to continue throughout the year. Diversification into non-commercial segments like convenience stores, and our value-added portfolio help us mitigate macro pressures. -
Pricing Strategy
Q: How are you approaching pricing for the rest of the year?
A: We're implementing very targeted pricing in categories where beef costs have increased. We've adjusted pricing in some grocery items and shifted dollars to advertising in high-ROI categories like Stew and Chili. We're also adjusting our promotional strategy to maintain consumer engagement. -
Volume Growth in Retail
Q: What are your expectations for key retail categories and volume?
A: We expect continued volume growth in flagship and rising brands like Bacon, Pepperoni, Applegate, Planters, and Skippy. Investments in capacity, innovation, advertising, and in-store activations will support growth throughout the year. -
Raw Material Cost Impact
Q: Are you recognizing margin benefits from lower input costs?
A: Raw material impacts were largely in line with expectations. Commodity markets didn't have a dramatic impact on our strong Q1 performance; it's more about volatility and how each cut reacts rather than point-in-time prices. -
Bond Repayment Plan
Q: Are you planning to repay the bond due later this year?
A: We'll use a combination of cash on hand and issuing new debt to pay down the full $950 million bond. -
Turkey Volume Impact
Q: How much of the company's volume growth was due to turkey production recovery?
A: While turkey volumes grew as expected, we also saw growth in our value-added businesses. For foodservice, we expect mid-single-digit volume growth for the rest of the year. -
Jennie-O Turkey Impact
Q: Can you provide more details on the Jennie-O $0.15 impact?
A: The impact will affect all remaining quarters, with most of it coming in Q2. We previously expected a $0.10 impact but now estimate an additional $0.05, mostly in the second quarter. There was minimal impact in Q1.