The Hormel Foods Corporation is hosting a Third Quarter Earnings Conference Call, with David Dahlstrom welcoming participants. Jim Snee, Jacinth Smiley, and Deanna Brady will review the company's third quarter results and give an outlook for the rest of the fiscal year. Participants are asked to limit their questions to one with a follow-up and a webcast replay will be posted to the investor website. A safe harbor statement is also referenced.

David discussed the company's use of non-GAAP results to provide investors with a better understanding of the company's operating performance. Jim Snee then discussed the company's progress in addressing their near-term challenges, including reducing inventory and building momentum in the Planter snack nuts business. He also reported that retail shipments of Planter snack nuts and Corn Nuts varieties were up 5% and 24%, respectively.

Retail data shows dollar consumption and share improving sequentially for the last 52, 26 and 13-week periods, and volume trends remain encouraging. Planters has launched innovative flavored cashews and is supporting the launch with social and digital activities and a national TV ad campaign. Momentum continues to build in the snack nuts business, and margins are slightly ahead of last year due to demand for premium items and growth from retail portfolios. The fourth quarter is expected to have the highest operating margins of the year due to a seasonally strong sales mix and cost-saving projects.

In the third quarter, Hormel experienced broad-based volume growth, driven by a recovery in turkey, elevated demand for Foodservice items, and growth from leading retail brands. Despite this, net sales declined due to lower market-driven pricing. The Foodservice segment was able to leverage its differentiated capabilities to drive double-digit segment profit growth through better volumes and improved mix, as well as actively engaging with operators and innovating to address key operational issues.

Technomic's industry data shows that operator sentiment is steady and industry employment and dollar sales are increasing. The Retail segment saw growth in key categories and volume and net sales increased in 4 of its 6 verticals, including value-added meats, bacon, snacking and entertaining, and emerging brands. Black Label bacon had a 1 point increase in household penetration over the last 52 weeks, and Planters snack nuts, Corn Nuts Corn Kernels, Hormel Pepperoni, and Hormel Gatherings Party Trays all saw volume gains. The team is focused on regaining distribution of their Jennie-O products and managing turkey supply for the upcoming holiday season.

The fourth quarter is expected to be strong for the Planters, Hormel Gatherings and Columbus brands due to holiday demand and promotional support. Applegate posted another quarter of volume and net sales growth, while MegaMex and Herdez brands saw improvements in equity and earnings and dollar and volume sales, respectively. Convenient meals and proteins net sales declined due to last year's high demand for Skippy spreads. To offset elasticities and meet the elevated levels of demand, various programs have been put in place to engage consumers and additional capacity for Skippy peanut butter has been secured.

The Retail segment of Tyson Foods saw a decline in segment profit due to unfavorable mix and increased brand investments. However, the business is benefiting from market share gains, innovation, new distribution, higher fill rates, and effective advertising. The International segment remained challenged due to unfavorable pork and turkey commodity markets, softness in China, and lower branded export demand. This caused segment profit to decline significantly. In China, Foodservice sales improved but retail sales remained soft. This is expected to have a negative impact on China's profitability for the remainder of the year. Tyson Foods' strategy is to grow their global brands, multinational businesses in China and Brazil, and partnerships around the world.

The company is expecting modest volume growth in the fourth quarter, with net sales between $3.1 billion and $3.6 billion. They anticipate a decrease in diluted net earnings per share from last year, with full year diluted net earnings per share expected to be between $1.51 and $1.57 and adjusted diluted net earnings per share expected to be between $1.61 and $1.67. They are expecting a strong finish from their Foodservice segment, as well as incremental savings from cost-reduction projects and further synergies from their Go Forward implementation. However, they anticipate softness in their International segment and increased competition at retail, as well as an impact from resumed student loan payments.

In the third quarter, the company delivered volume growth across all of its segments and net sales of $3 billion. Gross margins for the third quarter increased compared to last year and improved 30 basis points sequentially compared to the second quarter. SG&A expenses increased due to a $70 million accrual resulting from an unexpected unfavorable arbitration ruling, but advertising investments were up 15%. Equity and earnings of affiliates increased due to higher results from MegaMex. Operating income for the third quarter was $217 million, and adjusted operating income was 1% lower than last year, negatively impacted by supply chain disruption caused by a third-party logistics provider shutdown.

The company experienced shortages, increased logistics costs and distressed inventory during the quarter, resulting in diluted net earnings per share of $0.30 and adjusted diluted net earnings per share of $0.40. Operating cash flow during the quarter was up 70%, and the company paid its 380th consecutive quarterly dividend at an annual rate of $1.10 per share. Capital expenditures were $78 million compared to $61 million last year. The company has updated its net sales and diluted net earnings per share outlook for the year, which includes an adverse arbitration ruling of $0.10 per share, and the growth in the back half of the year is dependent on the recovery in the International segment.

The Planters business is key to the company's long-term growth, and the company is investing in and resourcing the business accordingly. The team is working on reducing cost and complexity to improve the margin structure, and they are expecting to see incremental freight and indirect supply savings in the fourth quarter. The company is also committed to advancing the supply chain work stream of Project Orion and a series of multi-year projects to unlock earnings growth. The USDA composite cutout increased significantly during the quarter due to strength in the belly, loin, and ham primal.

Pork costs have begun to moderate seasonally and are expected to be lower than the prior year in the fourth quarter. Turkey volumes have started to recover and the company has invested in advertising to drive consumer awareness and engagement. Pricing for turkey is down in the Foodservice and Deli channels due to increased supply. The company is producing a full assortment of turkey items and selling with confidence. Safety remains a top priority for the company, and they are on track for one of their safest years ever.

Jim Snee explains that the company had encountered some internal issues in the first quarter of the year, such as inventory problems and cost margin implications, but the team has made good progress in tackling them. He then goes on to discuss the differences between the conversation at the end of the first quarter and now, and how the management team can get back on track.

The conversation around the fourth quarter has changed due to market activity, competitive dynamics, and consumer behavior. Foodservice business is expected to remain strong and deliver growth, while International business is weaker than anticipated due to commodity headwinds and pricing activity. To overcome this, the team is working on retail with innovation, new distribution, and accelerating consumer demand. Foodservice is aligned with multinationals that are performing well, while Retail is more nuanced.

The company had a strong fourth quarter in 2022, but is now facing challenges across the channel with higher promotions and softer volumes. The biggest change is in the turkey business where the company is seeing slower recovery than expected, but recent investments in consumer engagement are showing benefits. There is still good underlying volume growth and the company is expecting a strong finish to the year on the whole turkey business.

Jim has provided an explanation for the unique market dynamics and customer behavior that have been impacting volume and pricing, as well as the hot weather that has caused the loss of some birds that will have an impact on the business in the fourth quarter. Jim then outlines the work that is being done to overcome these issues, such as regaining distribution, investing in innovation, and increasing supply chain efficiency, and provides a wide range of outcomes in the fourth quarter guidance of $500 million in revenues.

Jim Snee and Peter Galbo discuss the potential impact of market volatility on Hormel's business. Snee explains that the biggest factors are the fluctuation in the belly market and turkey market, as well as the strength in 72 lean trim, and the market conditions and volume. He also notes that the July move was outsized compared to seasonality and that it had an impact on Hormel's pricing.

Jim Snee discusses the immediate challenges that the company is facing in the fourth quarter such as challenged exports, increased promotional activity at retail, and weaker China results. He believes that the SPAM business in International and the lean ground turkey business will improve in the first quarter. Other positive factors include the team's good marketplace execution, cost favorability trends, and a robust innovation pipeline. The wildcard is the macro issues in China, which have not yet improved as expected.

Jim Snee explains that the Jennie-O business will benefit from declining turkey prices, higher volumes, and lower feed costs in the next 6-12 months. He also states that the lean ground business will regain distribution and accelerate, leading to less of a need for commodity type sales. Finally, he states that breast meat prices will be more in line with historical levels, creating a positive outlook for the business in 2024.

Jim Snee and Ben discussed the internal dynamics of Planters business, such as the work done on inventory and margin improvement. They also mentioned the Go Forward benefits in year 2, the tailwind of feed costs, and the recovery of turkey volume. They feel good about the core business, but there are still potential headwinds from the China economy, inflation, and labor. They expect continued strength in Food service.

Jacinth Smiley and Deanna Brady both spoke about the various projects and initiatives being taken to remain competitive in the retail industry. These include portfolio segmentation and optimization, Project Orion to improve the supply chain, end-to-end planning, cost-cutting measures, and Go Forward initiatives to benefit the business.

The Planters team has made significant progress in modernizing the business, including launching 3 new flavors of cashews, modernizing the plant, and doing a price pack architecture study. This study has allowed them to have analytical conversations with retailers about providing relevant products that will provide category growth. Additionally, the team is observing unique market dynamics and customer behavior for whole birds due to falling commodity prices.

The speaker discusses the competitive environment at retail and the promotional activity that is taking place. They note that this is not a new occurrence for them, but it has been abnormal in recent years. The speaker states that they have the opportunity to strategically approach promotional activity and leverage their revenue growth management team to work with retailers to ensure that the consumer is being reminded of the value of their products and that they are coming into stores, both physically and digitally.

Deanna and Jim discussed the need to have advertising and innovation in place for promotional activities. They also discussed the normalization of demand, supply chains, capacity, and fill rates in the industry. Lastly, they mentioned Jennie-O's turkey profitability in fiscal '23 being roughly flat year-on-year.

Jim Snee and Jacinth Smiley discuss how the outlook for the year has changed due to Q4 issues and the volatility of the markets. They explain that the revenue range has widened while the EPS range has narrowed, and that this is due to the mix of commodities and market prices. They conclude that this could cause a drag on the top line, but not necessarily the margin line.

Jim Snee, CEO of Hormel, gave closing remarks for the conference call, thanking the Hormel team for their hard work and progress made in 2023, despite the challenges the year has brought. He also thanked the attendees for joining the call and wished them a safe Labor Day weekend. The conference call then concluded.

This summary was generated with AI and may contain some inaccuracies.