Q4 2024 Earnings Summary
- 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.
- 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.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | -2% | Lower net pricing in key categories (e.g., bacon and turkey) and commodity deflation drove the decline, despite moderate volume growth. Ongoing supply chain cost pressures also played a role. Forward-looking, raw material cost volatility may continue to affect revenue. |
SG&A | +10% | Increased brand-building investments and legal or arbitration-related costs resulted in higher expenses. Additional employee and transformation initiative spending also contributed. Forward-looking, SG&A may moderate if legal costs subside and marketing spend is optimized. |
Operating Income | +9% | Improved margins in certain segments, especially international, offset supply chain challenges. The ongoing transform and modernize initiatives yielded efficiencies. Forward-looking, sustained segment profit growth can further support operating income gains. |
Net Income | +12% | Net income benefited from margin expansion and lower year-over-year one-time costs. Strong segment performance and favorable interest income also contributed. Looking ahead, continued operational improvements may sustain net income growth if commodity volatility stabilizes. |
Depreciation & Amortization | +80% | The significant jump reflects higher capital expenditures and possible reclassification impacts on intangible asset amortization. Forward-looking, recent infrastructure investments may maintain elevated D&A levels but support long-term productivity gains. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Net Sales | FY 2024 | $11.8B–$12.1B | no current guidance | no current guidance |
Diluted Net EPS | FY 2024 | $1.45–$1.51 | no current guidance | no current guidance |
Adjusted Diluted EPS | FY 2024 | $1.57–$1.63 | no current guidance | no current guidance |
Capital Expenditures (CapEx) | FY 2024 | $280M | no current guidance | no current guidance |
Effective Tax Rate | FY 2024 | 22%–23% | no current guidance | no current guidance |
T&M Initiative Savings | FY 2024 | Strongest level of savings in Q4 | no current guidance | no current guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Net Sales | FY 2024 | $11.8B to $12.1B | $11.92B (2,996,911+ 2,887,352+ 2,898,443+ 3,138,091) | Met |
Diluted Net EPS | FY 2024 | $1.45 to $1.51 | $1.47 (0.40+ 0.34+ 0.33+ 0.40) | Met |
Capital Expenditures (CapEx) | FY 2024 | $280M | $256.44M (47,210+ 59,965+ 65,481+ 83,785) | Missed |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
T&M Initiative | Mentioned positively in all quarters (Q1–Q3) as a key driver of cost savings and efficiency, with plans for margin expansion and operational improvements. | Reaffirmed the $250M net operating income improvement by 2026, achieved $75M in benefits so far, with an expected $100–$150M in 2025; analysts raise concerns about reliance on cost savings. | Remains a focal point, but Q4 sentiment shows a subtle shift to concerns about underlying core growth without T&M. |
Depressed Turkey Prices | Recurred in Q1–Q3 as a major headwind, with low whole bird prices and weaker demand dragging on segment profit. | Continues to negatively impact earnings; Q4 2024 call anticipates low turkey prices into 2025, with limited upside until at least mid-year. | No clear resolution; remains a drag on earnings outlook. |
Planters Production Disruptions | First appeared in Q2, continuing through Q3 with an estimated $0.03 EPS negative effect each quarter. | Disruptions at the Suffolk facility mostly resolved, but still $0.04–$0.05 EPS impact expected in Q1 2025; full recovery and promotional push to resume by Q2 2025. | Headwind persists into early 2025 but expected to ease as capacity normalizes. |
Foodservice | Prominent in Q1–Q3 as a top-growth segment with several consecutive quarters of volume and segment profit increases; robust demand for bacon, turkey, and prepared proteins. | Recognized as having 6% net sales growth in Q4, yet overshadowed by retail and T&M discussions; remains a strong performer but received less emphasis this quarter. | Maintains solid performance, though Q4 focus shifted to retail and T&M. |
Key Retail Brands | Consistently noted across Q1–Q3 for growth potential, some quarters referencing price elasticity concerns and competitive pressures. | Black Label bacon, Applegate, SPAM, Skippy all cited for strong household penetration and brand leadership. Emphasis on innovation and marketing rather than margin pressures. | Gains continue, with Q4 highlighting brand support and a double-digit ad spend increase in 2025. |
Supply Chain & Fill Rates | Spotlighted in Q1 as fill rates exceeded 97%, with lower distressed sales and logistics efficiency noted early in the year. | Mentioned in passing under T&M improvements (plan/procure/make/move); no specific fill-rate targets or major supply chain issues beyond Planters disruption. | Likely stabilized or resolved, as explicit mentions dropped in Q2–Q4. |
New Q4 Topics | Not referenced in earlier quarters (Q1–Q3) at this level of detail; earlier mentions focused on immediate-year outlook rather than Q1 2025. | Near-term Q1 2025 challenges, continued depressed turkey prices, and a double-digit jump in advertising spend to drive brand growth. | Emerging concerns specific to Q1 2025, indicating cautious near-term forecast. |
International Segment | Noted strongly in Q2 for recovery in China and international expansions; still active in Q3 but backgrounded compared to T&M and domestic focus. | Briefly highlighted as delivering growth in SPAM/Skippy exports and recovering in Southeast Asia; less detailed than prior quarters, where it was emphasized as a major driver. | Focus has shifted toward T&M and domestic brands, suggesting stable performance internationally. |
Q4 Shift in T&M Sentiment | Prior quarters (Q1–Q3) uniformly framed T&M as a transformational initiative with minimal doubt about reliance on cost savings. | Still bullish overall, but analysts increasingly scrutinize whether T&M cost savings overshadow true core growth. | Subtle bearish view emerges, questioning sustainability if base business doesn’t expand. |
Future Growth Drivers | Acknowledged across Q1–Q3 that success hinged on T&M implementation, turkey normalization, and brand-level stability, though no single quarter combined them as explicitly. | Meeting the $250M T&M target, resolving turkey price issues, and mitigating Planters disruptions collectively key to 2025+ performance; confidence but cautious regarding Q1 2025. | Clear roadmap with T&M, turkey, and Planters as critical levers for top- and bottom-line stabilization. |
-
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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.