HRL Q3 2025: 6% Organic Growth, Margins Squeezed by Commodity Surge
- Robust Organic Sales and Pricing Execution: Hormel delivered 6% organic net sales growth in Q3 and successfully implemented strategic pricing—evident from the 13% volume increase in the Jennie O Turkey business—demonstrating resilient top‐line performance and effective price pass-through in key categories.
- Transform & Modernize Initiative Benefits: The company’s ongoing T&M initiative is already generating incremental cost savings through multiple projects, which management expects to further enhance margins in upcoming quarters despite current commodity pressures.
- Diversified and Leading Brand Portfolio: With market leadership in segments such as ground turkey and a sustained focus on flagship and rising brands, Hormel is well positioned to capture market share, drive resilient consumption growth, and support long‐term profitability.
- Rising commodity costs are squeezing margins: Management highlighted an unexpectedly steep run up in commodity markets, which has significantly pressured earnings and eroded profitability, despite top‐line growth.
- Delayed and limited pricing pass-through: The inherent lag in retail pricing actions, combined with cautious consumer elasticity management, means that pricing measures may not promptly offset elevated input costs, potentially keeping margins under pressure in the near term.
- Weak recovery in foodservice demand: The anticipated rebound in foodservice traffic did not materialize as expected, which could further impair profitable growth, especially in an environment already challenged by high costs.
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Margins Revision
Q: What drove the outlook change?
A: Management explained that a steep surge in commodity costs, weaker foodservice recovery, and lagging profit improvement in planters led to a revised near-term outlook, although strong pricing on turkey and steady T&M project delivery remain in place. -
Pricing Pass-Through
Q: When will pricing restore margins?
A: They noted that there is a lag in pass-through pricing, and while adjustments are in progress, margin parity is expected once commodity markets ease and pricing actions fully take effect. -
T&M Savings
Q: Are T&M savings guiding 2026 margins?
A: Management acknowledged that while T&M targets were set, unexpected commodity spikes mean these benefits are now largely expected to impact 2026, with further pricing actions planned as needed. -
Retail Pricing
Q: How is retail pricing managed?
A: They stressed a measured approach for retail pricing, balancing rising costs with consumer response, and highlighted that Turkey pricing actions have helped recover margins without impairing brand health. -
Margin Sustainability
Q: Can double-digit margins be sustained?
A: Although no specific numbers were provided, management is confident that continued pricing adjustments, SG&A improvements, and operational enhancements will eventually restore stronger, sustainable margins. -
Turkey Pricing Timing
Q: When do turkey pricing benefits occur?
A: For whole birds, most upside is expected next year during the fresh season, while guidance on breast meat pricing remains forthcoming. -
Supply Security
Q: Are hog and turkey supplies affecting margins?
A: They confirmed that long-term supply agreements protect hog supply and the strong performance of ground turkey is yielding market share gains and margin recovery.
Research analysts covering HORMEL FOODS CORP /DE/.