Q3 2024 Earnings Summary
- The company’s key retail brands—including bacon, Jennie-O, Skippy, Applegate, and SPAM—performed really well, demonstrating strength in the underlying core business.
- The transform and modernize initiative is delivering cost savings and margin expansion, with the strongest contributions expected in the fourth quarter, benefiting the bottom line.
- The international business continues to rebound and improve, contributing positively to earnings, with significant segment profit growth expected in the International segment.
- Hormel Foods lowered its full-year net sales guidance by $300 million, due to lower commodity market expectations, the ongoing production disruption at its Suffolk, Virginia facility, and continued softness in its contract manufacturing business, indicating persistent top-line challenges.
- The production disruption at the Suffolk facility resulted in a $0.03 EPS drag in the third quarter, with an additional $0.03 EPS impact expected in the fourth quarter, exceeding initial estimates and reflecting operational challenges.
- The company experienced storm damage to its Papillion, Nebraska facility early in the fourth quarter and is assessing the financial impact, introducing further uncertainty to its earnings outlook.
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Guidance Update
Q: Why was sales guidance lowered but EPS guidance maintained?
A: Management reduced sales guidance by $300 million but maintained EPS guidance because the declines were in high-volume, low-margin, or negative-margin businesses. Factors impacting sales included reduced turkey contract manufacturing, pricing impacts on convenient meals and proteins, and lapping high-volume, low-margin commodity business internationally. EPS guidance remained stable due to improved profitability from focusing on core higher-margin products. -
Planters' Performance
Q: How are issues with Planters affecting outlook?
A: The Planters business faced production disruptions due to storm damage, resulting in a $0.03 expected headwind in Q4. Production is ramping back up, and management anticipates demand to rebound. They remain confident in the original acquisition thesis and expect Planters to contribute positively to growth. -
Storm Damage Impact
Q: Does guidance include financial impact from storm damage?
A: Yes, the guidance includes the impact from storm damage. The affected production facility is fully operational again, with costs related to repairs rather than sales. There is no expected impact on the top line due to the storm. -
Turkey Segment Outlook
Q: What is the current outlook for the turkey segment?
A: The previously stated $0.15 EPS headwind for fiscal '24 from the turkey segment remains unchanged. It's too early to predict recovery in fiscal '25 due to dynamic market conditions, including reduced egg sets and supply uncertainties. -
EBIT Improvement Target
Q: Are you on track for the $250 million EBIT improvement by 2026?
A: Management affirms they are tracking well toward achieving the $250 million EBIT improvement target by 2026. Fiscal 2024 is viewed as a year of investment, with significant ramp-up expected in 2025 and 2026, and meaningful margin expansion already seen in 2024. -
Transform and Modernize Initiatives
Q: What progress has been made on the transformation initiatives?
A: Progress has been made in procurement savings, enhanced logistics, and process improvements, contributing to margin expansion. Specific financial details will be provided in the Q4 call, but benefits are already visible in improved margins and bottom-line growth. -
Volume Performance
Q: How did volumes perform versus expectations?
A: Volumes were lower than expected due to reduced sales in Planters and contract manufacturing. Turkey volumes declined but were in line with expectations. The core business in retail, foodservice, and international remains healthy. -
CapEx Guidance
Q: Why is there a big spike in Q4 capital expenditures?
A: Higher capital expenditures are anticipated in Q4, consistent with typical spending patterns. The company reaffirmed the full-year CapEx guidance of $280 million, noting that increased spending is usual for this time of year.