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01/10 19:42
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call reveals mixed signals: strong financial metrics and optimistic guidance, but also challenges like commodity inflation and a competitive retail environment. The Q&A section highlights concerns about Brazil's performance and tariff impacts, while management's lack of specificity on key issues raises uncertainty. The Transform and Modernize initiative and Planters brand recovery are positives, but the strained consumer environment and raw material cost pressures temper enthusiasm. Overall, the sentiment is neutral.
Net Sales Net sales exceeded $12 billion for the full year of fiscal 2025, representing 2% organic growth over the prior year. This growth was supported by gains across all three segments and demonstrates the strength of the protein-forward portfolio.
Retail Segment Margins Profitability was pressured across the retail segment due to input cost pressures driven primarily by heightened commodity costs, which had a challenging impact across the broad retail portfolio in 2025.
Foodservice Segment Results The Foodservice segment experienced tempered results due to higher input costs and traffic declines in the broader industry, despite top-line strength across many brands and categories.
International Segment Results The International segment's top-line performance was driven by the China business, which achieved strong bottom-line performance. However, commodity input costs and trade disruptions weighed on profits, and the Brazil market negatively impacted growth objectives.
Raw Material Cost Inflation Persistent inflation in key commodity inputs exceeded expectations, with over 500 basis points of raw material cost inflation during the fourth quarter alone. For the fiscal year, pork bellies increased approximately 25%, the pork cutout rose about 10%, and pork trim increased approximately 20%. Beef also remained a significant inflationary pressure.
Turkey Supply Chain The turkey supply chain was impacted by avian illnesses, leading to decreased supply and higher commodity prices. This was compounded by the return of HPAI cases in the fourth quarter, especially across the Midwest.
Operating Income Operating income for fiscal 2025 was $719 million, and adjusted operating income was just over $1 billion. Operating margin was 5.9%, and adjusted operating margin was 8.4%.
Diluted EPS For the full year, diluted EPS was $0.87, and adjusted diluted EPS was $1.37. For the fourth quarter, a diluted loss per share of $0.10 was recognized, and adjusted diluted EPS was $0.32. These results were impacted by noncash impairment charges and other discrete items.
Cash Flow from Operations Cash flow from operations was $845 million in fiscal 2025, with inventories at fiscal year-end increasing by $171 million to $1.7 billion.
Capital Expenditures Capital expenditures were $311 million in fiscal 2025, with investments in capacity expansions, data and technology, people safety, animal welfare, and the Jiaxing, China, facility.
Shareholder Returns A record $633 million was returned to shareholders in the form of dividends, marking the 389th consecutive quarterly dividend and a 60th consecutive year of dividend increases.
Protein-centric portfolio: Demonstrated strength with consumers, with brands like Jennie-O, Applegate, Wholly Guacamole, and SPAM contributing to growth. New innovations include oven-ready bacon and expanded turkey meal solutions.
SPAM brand innovation: Expanded into new formats like sushi-style SPAM musubi, achieving significant sales milestones in Japan and the U.S.
Applegate chicken products: Introduced better-for-you options like frozen chicken breakfast sausage and lightly breaded chicken tenders.
International segment: China business was the largest contributor to top-line performance, while Brazil faced challenges. Branded export business showed strong top-line performance despite trade disruptions.
Foodservice segment: Outperformed the broader industry with products like Jennie-O turkey, Fire Braised meats, and branded bacon. However, industry traffic declines tempered results.
Transform and Modernize initiative: Expanded distribution network, closed or reallocated facilities, and advanced data and process maturity. Reduced 250 corporate positions to streamline operations.
AI and technology integration: Leveraged AI for marketing and operational improvements, including generative AI for content creation and tools like o9 for planning and decision-making.
Portfolio reshaping: Exited nonstrategic operations like private label product lines and soup stock operations. Transitioned Justin's business into a strategic partnership.
Focus on protein-centric growth: Positioned brands to meet consumer demand for protein solutions across various occasions, including breakfast, lunch, and dinner.
Earnings Performance: The company fell significantly short of its earnings goal for fiscal 2025 due to a dynamic consumer environment, elevated input costs, and unexpected setbacks.
Input Costs: Heightened commodity costs, including pork, beef, and turkey, significantly pressured profitability. Pork bellies increased by 25%, pork cutout by 10%, and pork trim by 20%. Beef costs remained a significant inflationary pressure, and turkey supply constraints due to avian illnesses further compounded challenges.
Foodservice Segment: The broader industry experienced traffic declines and did not grow as expected, which, combined with higher input costs, tempered the segment's results.
International Segment: The Brazil market underperformed, negatively impacting the segment's ability to meet growth objectives. Trade disruptions and commodity input costs also weighed on profits.
Operational Disruptions: A chicken product recall and a fire at the Little Rock facility caused approximately $0.03 of negative EPS impacts in fiscal 2025.
Impairment Charges: Noncash impairment charges of $164 million in the International segment and $71 million in the Retail segment were recorded, impacting financial performance.
Turkey Supply Constraints: Avian illnesses caused supply chain impacts and higher commodity prices for turkey, with continued constraints expected through the first half of 2026.
Corporate Restructuring: The company reduced approximately 250 corporate and sales positions, representing 9% of this group, to address administrative expenses and benefit costs.
Marketing and Advertising: Marketing and advertising spend was reduced to prioritize efficiency in a challenging cost environment, potentially impacting brand visibility.
Economic Environment: Persistent inflation and elevated commodity costs exceeded expectations, creating a challenging financial environment for the company.
Organic Net Sales Growth: Expected to grow by 1% to 4% in fiscal 2026, driven by the protein-centric portfolio and enhanced marketing support.
Adjusted Operating Income Growth: Projected to grow by 4% to 10% in fiscal 2026, supported by pricing actions, mix improvements, and productivity initiatives.
Adjusted Earnings Per Share (EPS): Guided to be in the range of $1.43 to $1.51 per share for fiscal 2026.
Input Costs: Pork input costs are expected to decline but remain above the 5-year average. Beef costs will remain high, and nut costs are anticipated to be elevated. Turkey markets are expected to strengthen.
Gross Margin Expansion: Anticipated to improve due to pricing benefits, mix improvements, and productivity from the Transform and Modernize initiative.
SG&A Savings: Corporate restructuring is expected to result in savings in non-advertising spending in fiscal 2026.
Segment Performance: Each segment is expected to deliver both top-line and segment profit growth in fiscal 2026.
Q1 Earnings: Expected to decline compared to the prior year due to timing of pricing impacts, commodity input costs, and lingering impacts from Q4 fiscal 2025.
Record Dividends: In fiscal 2025, Hormel Foods returned a record $633 million to shareholders in the form of dividends, including their 389th consecutive quarterly dividend.
Dividend Increase: Hormel Foods recently announced an increase to their quarterly dividend of 1%, raising the implied annualized rate to $1.17 per share for fiscal 2026.
Dividend Aristocrats: Hormel Foods has achieved 60 consecutive years of dividend increases, making it one of the distinguished dividend aristocrats.
The earnings call reveals mixed signals: strong financial metrics and optimistic guidance, but also challenges like commodity inflation and a competitive retail environment. The Q&A section highlights concerns about Brazil's performance and tariff impacts, while management's lack of specificity on key issues raises uncertainty. The Transform and Modernize initiative and Planters brand recovery are positives, but the strained consumer environment and raw material cost pressures temper enthusiasm. Overall, the sentiment is neutral.
The earnings call indicates several challenges: higher input costs, inflationary pressures, and a downward revision of financial outlook due to unexpected market conditions. While there are positives like strategic initiatives and strong demand in certain segments, the Q&A revealed concerns over commodity costs, lagging profit recovery, and management's reluctance to provide guidance. The combination of these factors, especially the negative financial adjustments, suggests a negative stock price reaction.
The earnings call presents a mixed picture: while there are positive signs such as EPS growth, Planters brand recovery, and strong segment growth expectations, there are notable concerns including higher commodity costs, supply chain challenges, and unclear guidance on T&M savings. The Q&A reveals optimism but lacks specificity in certain areas. The absence of a share repurchase program and the macroeconomic uncertainties further suggest a neutral sentiment. Given these mixed factors, the stock price is likely to remain stable within a -2% to 2% range over the next two weeks.
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