HRL Q2 2025: H2 outlook supports $700M operating income target
- Strong Second Half Outlook: Executives highlighted an expectation for robust organic top‐line growth and sequential margin expansion, driven by strong performances across Retail, Foodservice, and International segments—with turkey pricing and Planters recovery cited as key drivers.
- Robust Recovery of Key Brands: Management emphasized that flagship brands such as Planters are regaining lost shelf space and distribution, supported by increased advertising and promotion initiatives that should drive improved consumption and market share.
- Efficient Operational Initiatives: The aggressive execution of the Transform & Modernize (T&M) program—with 66 projects implemented in the quarter including facility closures and supply chain enhancements—is expected to deliver significant cost savings and bolster operating income growth.
- Reliance on sequential improvements and T&M savings: Management’s operating income ramp to hit mid‐year targets depends heavily on achieving expected cost savings from its Transform and Modernize initiative and sequential margin improvements. If these efforts fall short or face execution delays, the operating income target could be missed.
- Strained consumer sentiment and pricing pressures: With consumers experiencing inflation and uncertainty—resulting in some trading down to lower-priced options—the company faces challenges in driving growth and maintaining margins, especially in its Retail segment.
- Turkey supply chain risks amid a tightening competitive landscape: Despite value-added pricing efforts, uncertainties around turkey supply and increased competition (e.g., potential facility shutdowns by competitors) may undermine anticipated gains in the key turkey portfolio.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +0.4% (Q2 2025: $2,898.8M vs. Q2 2024: $2,887.4M) | Steady demand across product segments maintained revenue levels with only marginal growth. This stability indicates that the revenue mix from previous periods was largely preserved, reflecting continuity in market performance vs.. |
International Segment | +7.1% (Q2 2025: $178.5M vs. Q2 2024: $166.8M) | Strong overseas market expansion and successful product launches drove robust growth compared to the previous period. This improvement builds on earlier efforts to penetrate international markets, resulting in higher revenue figures vs.. |
SG&A Expenses | -5.7% (Q2 2025: $251.4M vs. Q2 2024: $266.7M) | Cost efficiencies and targeted expense reductions helped lower SG&A expenses. This reduction, compared to previous expenditures, reflects the company’s continued focus on operational efficiency and margin improvement vs.. |
Net Earnings | -5.0% (Q2 2025: $179.7M vs. Q2 2024: $189.2M) | Margin pressures and shifts in cost structure led to a decline in net earnings despite steady revenue. The drop builds on past performance where even with cost management initiatives, residual expense pressures resulted in lower profit margins vs.. |
Cash and Cash Equivalents | -55% (Q2 2025: $669.7M vs. Q2 2024: $1,486.4M) | A significant liquidity shift was observed, likely due to higher dividend payments, increased capital expenditures, or strategic fund reallocation. This dramatic change contrasts with the previously stronger cash position, indicating adjustments in liquidity management vs.. |
Total Assets | -5% (Q2 2025: $13,421.8M vs. Q2 2024: $14,135.4M) | Asset base contraction reflects divestitures, depreciation, and potential write-downs. This decline builds on prior period trends where consolidation or operational streamlining led to a reduction in total assets, aligning with the company’s broader strategic shifts vs.. |
Short-term Marketable Securities | +27% (Q2 2025: $29.3M vs. Q2 2024: $23.1M) | A rebalancing of the liquidity portfolio is suggested here, with increased allocation to short-term marketable securities. This change likely serves as a countermeasure to the large reduction in cash balances seen in the previous period, indicating a strategic shift in liquidity management vs.. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Net Sales Growth | FY 2025 | 1% to 3% | 2% to 3% | raised |
Adjusted Diluted EPS | FY 2025 | $1.58 to $1.72 | $1.58 to $1.68 | lowered |
Retail Segment Growth Expectations | FY 2025 | no prior guidance | low single-digit net sales growth in the second half of FY 2025 | no prior guidance |
Foodservice Segment Growth Expectations | FY 2025 | no prior guidance | mid-single-digit growth in organic net sales in the second half of FY 2025 | no prior guidance |
International Segment Growth Expectations | FY 2025 | no prior guidance | high single-digit growth in the second half of FY 2025 | no prior guidance |
Advertising Investments | FY 2025 | no prior guidance | Expected to significantly increase in the second half of FY 2025 | no prior guidance |
Transform and Modernize Initiative | FY 2025 | no prior guidance | Reaffirmed expectation for incremental benefits of $100 million to $150 million | no prior guidance |
Turkey Portfolio | FY 2025 | no prior guidance | Constructive outlook on the overall turkey portfolio with impressive results | no prior guidance |
Commodity Markets | FY 2025 | no prior guidance | Expected to be above last year, mainly for pork, beef, and nut input costs | no prior guidance |
Tariffs | FY 2025 | no prior guidance | Assumed impact of $0.01 to $0.02 in the back half of FY 2025 | no prior guidance |
Interest and Investment Income | FY 2025 | no prior guidance | Not anticipated to recoup the drag experienced in the first half of FY 2025 | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Retail Net Sales | Q2 2025 | Comparable to prior year | USD 1,783.8 million | Met |
Foodservice Net Sales | Q2 2025 | Mid single-digit growth | USD 936.4 million | Missed |
International Net Sales | Q2 2025 | High single-digit growth | USD 178.5 million | Met |
Net Earnings | Q2 2025 | Comparable to Q1 2025 and below the prior year | USD 179.7 million | Met |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Transform & Modernize (T&M) Initiative Execution and Cost Savings | In Q4 2024, Hormel emphasized T&M as a transformative effort delivering $75 million in operating income benefits with a focus on its five pillars , and in Q3 2024, progress across the pillars (plan, make, etc.) was highlighted. | In Q2 2025, Hormel detailed execution of 66 T&M projects, emphasized operational excellence through a standardized production system, and expects incremental cost savings of $100–$150 million promoting margin expansion. | Consistent focus with improved execution and clearly defined savings targets. |
Key Brand Recovery and Advertising Investment | Q4 2024 mentioned recovery of the Planters business as a growth opportunity along with increased advertising spend for flagship brands ; Q3 2024 discussed challenges at Planters with plans for recovery and strategic ad investments. | Q2 2025 reported that the Planters brand recovery is on track with sequential improvements, while advertising investments are set to increase in double-digits across multiple key brands. | Enhanced momentum in brand recovery with more aggressive and targeted advertising. |
Supply Chain and Production Disruptions Including Facility Impacts | In Q4 2024, issues such as storm damage at Papillion and production disruption at the Suffolk facility were discussed , and Q3 2024 covered production disruptions at the Planters plant with moves to co-packer partnerships to mitigate impacts. | Q2 2025 highlighted strategic actions including the closure of a dry sausage facility to streamline operations, the opening of a new Memphis distribution center, and progress with the Hormel production system enhancing efficiency. | A shift from reactive disruption management to proactive operational improvements. |
Turkey Supply Chain Risks and Pricing Dynamics | Q4 2024 conveyed challenges in turkey markets with depressed whole-bird prices and supply disruption concerns , while Q3 2024 focused on pressures from lower volumes and commodity pricing impacting margins. | Q2 2025 acknowledged a tightening turkey supply, implemented value-added pricing for lean ground turkey, and noted that pricing adjustments are expected to benefit the latter half of the year. | Ongoing challenges remain, but strategic pricing and value-added focus are generating cautious optimism. |
Segment Performance Across Retail, Foodservice, and International Markets | Q4 2024 showcased strong performance through flagship brands, innovation driven retail growth, and a robust international recovery ; Q3 2024 described mixed retail performance (offset by turkey dynamics) with strong Foodservice and improved International outcomes. | Q2 2025 reported leadership across segments with retail brands like Planters exceeding expectations, Foodservice showing resilience, and International delivering high single-digit growth supported by strategic ad investments. | Consistent positive performance with strategic investments bolstering growth across all segments. |
Consumer Sentiment and Pricing Pressures | Not specifically addressed in Q4 2024 or Q3 2024. | Q2 2025 provided clear commentary: consumer sentiment remains "not great" due to inflation and uncertainty, prompting some trading down, while pricing pressures from elevated commodity costs are managed through targeted pricing actions. | Newly introduced insights with cautious consumer outlook counterbalanced by effective pricing strategies. |
Dependency on Sequential Improvements for Earnings Targets | Q4 2024 discussed reliance on sequential improvements driven by T&M and recovery in the Planters business to meet a $250 million EBIT improvement target, with 2024 setting the stage for fiscal 2025/2026 acceleration. | Q2 2025 stressed that the recovery and sequential improvement in the Planters brand are on track, reinforcing expectations for future earnings growth as improvements accumulate through the year. | Continued reliance on step‐by‐step operational and sales recoveries, particularly via the Planters turnaround. |
Commodity Market Expectations Impact | Q4 2024 covered expectations of persistent high pork and beef costs, depressed turkey markets, and some moderate benefit from favorable grain prices ; Q3 2024 mentioned lower-than-expected pork cost increases and commodity turkey pricing pressures impacting earnings. | Q2 2025 maintained that commodity markets remain elevated—with pork, beef, and nut costs high—while effective pass-through pricing and inventory management help mitigate these pressures. | Persistently challenging commodity cost environment, with strategic pricing actions offering partial relief. |
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Operating Income
Q: How to hit $700M operating income?
A: Management emphasized robust performance from key brands—especially Planters and value‐added turkey—combined with disciplined cost management and T&M initiatives, aiming for $700M operating income by strengthening margins and driving volume growth. -
Margin Outlook
Q: Will margins improve in H2?
A: They expect sequential margin expansion in the second half driven by improved turkey pricing, better Planters outcomes, and continued execution of the T&M initiative, ensuring profitability despite elevated commodity costs. -
Income Growth Target
Q: Can FY26 exceed $250M operating income growth?
A: Management remains confident that, through consistent execution and strategic investments—even with tariff pressures—they will achieve the targeted $250M+ operating income growth by FY26. -
T&M Savings
Q: How much T&M savings delivered this quarter?
A: They executed 66 projects under the Transform & Modernize program, including facility closures and new distribution centers, supporting savings within a $100M–$150M range for the year. -
Planters Growth
Q: How will Planters drive H2 growth?
A: Planters is on a strong recovery track, benefiting from renewed advertising, increased distribution, and innovative product launches that are steadily boosting consumer demand. -
Foodservice Growth
Q: How will Foodservice volumes improve?
A: Foodservice is set to outperform the broader market through a robust innovation pipeline, favorable year-over-year comparisons, and effective channel strategies that capture stronger volume performance. -
Turkey Cadence
Q: When will turkey results accelerate?
A: Most of the upside from turkey is expected during the fresh season, particularly near Thanksgiving, as value-added turkey continues to perform strongly across segments. -
Retail Volumes
Q: What caused retail volume decline?
A: A decline in retail volumes was primarily due to lower commodity shipments and promotional timing differences, although net sales held flat with improved profitability. -
Consumer Outlook
Q: What is the current consumer sentiment?
A: Consumers are experiencing strain from inflation but remain value conscious, with diversified product offerings meeting varied price points and tastes. -
Inventory Build
Q: What products are targeted in inventory build?
A: The inventory build is focused on meeting summer demand, notably for Planters and SPAM promotions, while also addressing elevated commodity input challenges. -
Ground Turkey
Q: Are you gaining ground turkey market share?
A: With an emphasis on value-added ground turkey offerings, HRL is well positioned to capture share gains in a tightening supply environment and benefit from rising consumer demand. -
Investment Income
Q: Will investment income mirror last year?
A: Investment income is not forecasted, as it is subject to unpredictable market conditions and is treated as an incidental, unplanned element in earnings. -
International Margins
Q: Is export mix affecting margins long-term?
A: The earlier impact from export customer mix was a temporary, timing-related issue that is now resolved, with strong performance in China restoring stable international margins.
Research analysts covering HORMEL FOODS CORP /DE/.