Hormel Foods (HRL) Q1 FY26 earnings call: guidance and Q&A

Seeking more detail on Q2 EPS expectations, segment-level contributions, and the nature/duration of logistics cost increases.

Management reiterated expectations for sequential profit improvement in Q2, with adjusted EPS flat to slightly up year-over-year, benefiting from retail pricing and SG&A actions. They acknowledged the challenging freight environment, noting it's too early to determine if it's seasonal or longer-term.

“Heading into Q2, our expectation is continued sequential improvement. We should reap the benefits of the completion of the second wave of retail pricing, which was aimed at offsetting some of the cost pressures we've talked about for the last several quarters. And on top of that, we will now start having full quarters of benefit from our SG&A actions.”

asked by Thomas Palmer · answered by Jeffrey Ettinger

Asked for more details on the strategic rationale for the divestiture, the expected margin benefit, and whether FY26 would have been a favorable year for the whole turkey business.

Management explained the divestiture supports focusing on value-added turkey products, which are more strategic and less volatile. They noted the divested business typically generated $200M-$275M in annual sales and was significantly dilutive to retail margins, with isolated profitable years being outliers. The move allows increased focus on growing areas like ground turkey and foodservice solutions.

“What we can tell you is that in a typical year, it is significantly dilutive to retail margins. There have been isolated years of more meaningful profitability, but those are outliers.”

asked by Thomas Palmer · answered by Jeffrey Ettinger

Sought more detail on the drivers of the Retail segment's underperformance in Q1, including logistics headwinds and the impact of pricing actions, and the outlook for the rest of the year.

The Retail segment's top-line decline was due to a strategic exit from private label snack nuts. Branded portfolio consumption was strong (+3% dollar sales for priority brands). Profitability was hit by high commodity costs and unexpected freight increases. The second wave of retail pricing, effective Q2, is expected to provide further benefits. Management is focused on pricing, productivity (Transform & Modernize), and mix improvement to restore margins.

“The branded portfolio, on the other hand, continues to see fairly strong consumer takeaway. I mentioned in my remarks that Hormel's total dollar consumption was plus 2% on the quarter in the latest 13 weeks of Circana data. In fact, our priority brands drove that. They were up 3% on the quarter in terms of dollar consumption growth.”

asked by Leah Jordan · answered by John Ghingo

Asked about the flat volume in Foodservice, whether pricing tools are fully implemented, and customer response to price increases.

Foodservice achieved strong 7% organic net sales growth with flat volume, which is considered good given rising protein markets and prices. Pricing in Foodservice typically lags market movements, but in Q1, pricing caught up, helping margin recovery. The segment benefits from a direct sales team, innovative solutions, and diversified channels.

“First quarter, definitely, we did see our pricing coming back in line with the market movements, which did help us on the margin side, recover what we had basically lost in Q4.”

asked by Ryan Edward Lavin · answered by John Ghingo

Sought quantification of the volume decline in Retail related to the snack nuts exit and other factors, and the expected trajectory for the rest of the year.

Retail volume decline was attributed to three factors: the exit of private label snack nuts, softness in certain businesses like SKIPPY, and expected volume elasticity from pricing actions. While some priority brands are seeing volume growth, overall volume will be throttled by pricing. The segment expects modest declines in volume and low single-digit to flat net sales for the full year.

“The first bucket is what you're alluding to, which is the exit of that private label snack nuts business, which was, let_s say, a less strategic business for us. That was one of the drivers of the volume decline. But there are two other aspects I would touch on. The second one is we did have a couple of declines, I'll say, on [ acute ] businesses with some soft consumption, SKIPPY being one of the areas where we have some volume softness right now.”

asked by Heather Jones · answered by John Ghingo

Asked about the current percentage of profits derived from commodity businesses, referencing the 2023 Investor Day figure of 10% and recent divestitures.

Management stated they don't specifically track that percentage but confirmed it's definitely down from 2023 due to the sale of Mountain Prairie and the whole-bird turkey operation, which limits commodity growth and reduces harvest levels. They offered to follow up with more specific details.

“Obviously, as you know, we have had declines here with the sale of Mountain Prairie and then the definitive agreement here with the whole-bird turkey operation, which will limit some of our commodity growth as well as what we went through with the reorganization, and what we call Project Tower internally with looking at our turkey operation in full and reducing some of the harvest levels a couple of years ago.”

asked by Pooran Sharma · answered by Paul Kuehneman