The operator introduces the Hormel Foods Corporation Second Quarter Earnings Conference Call and turns it over to David Dahlstrom, Director of Investor Relations. The call will feature Jim Snee, Jacinth Smiley, and Deanna Brady, who will discuss the company's second quarter results and outlook for the rest of fiscal 2024. A webcast replay will be available after the call. The Safe Harbor statement is referenced, reminding listeners that some comments may be forward-looking and subject to change.

The Company uses non-GAAP results to provide investors with a better understanding of its operating performance. These figures adjust for costs associated with the Company's transform and modernize initiative and pork antitrust litigation settlements. The Company had a strong first half of the year, with better-than-expected earnings, improved operating cash flows, and stable volumes. They are making progress on strategic initiatives and remain on track to deliver long-term shareholder returns and growth. The Company is driving savings, minimizing complexity, and reducing costs, resulting in meaningful gross profit improvement. They are also seeing success in their Planters Snack Nuts business due to brand building and innovation efforts.

The company is pleased to report that their first half adjusted diluted net earnings per share are in line with last year, despite uncertain consumer environment and challenges in their Turkey business. This success is attributed to their strong execution of six strategic priorities, including driving growth in each business segment, executing their enterprise entertaining & snacking vision, and modernizing the company. The foodservice segment saw mid-single digit growth in volume, net sales, and segment profit in the first half, and has achieved year-over-year segment profit growth for nine out of the last 10 quarters. The company continues to introduce innovative offerings, such as premium prepared proteins and new products like sous vide chicken and ribbon pepperoni, which have exceeded sales projections. These products were well received at the National Restaurant Association Show and the company believes their foodservice business is well positioned for future growth.

The company's International segment has shown strong performance in the first half of the year, with a 30% increase in segment profit. Growth has been driven by partnerships in Indonesia and the Philippines, as well as operations in China and Brazil. In China, the foodservice business is performing well and the retail business is expected to improve in the second half of the year. In the Retail segment, the company is facing challenges due to an uncertain consumer environment and turkey dynamics, but their focus on winning with consumers and customers is yielding positive results. They have gained share in several flagship brands and increased distribution for both flagship and rising brands. Bacon products, particularly Black Label, are resonating with consumers and further advertising and innovation are expected to drive continued growth.

In the retail sector, the company saw strong growth in emerging brands such as Applegate and Justin's, as well as in the Planters snack nuts category. However, there were mixed results in the convenient meals and proteins category, with some products performing well but others experiencing soft demand. The value added meats vertical was negatively impacted by Turkey dynamics. The company's goal is to achieve consistent profitable growth by balancing volume and net sales gains, and the team is focused on winning with consumers and customers, improving resource allocation, and increasing margins. The company's overall strategy is to unlock the value of their brands in various channels.

The retail sector saw positive growth for the Planters and Corn Nuts brands due to expanded distribution and investments in innovation and advertising. New products were released, including Planters salt and vinegar cashews and Hormel Gatherings summer-themed snacks, with a new advertising campaign expected to drive growth in the future. In the foodservice sector, Planters flavored cashews and corn nuts saw strong growth. The Skippy brand is also returning to the Canadian market with new peanut butter-inspired snacks. Progress was made in supply chain efficiency and data analytics through the transform and modernize initiative.

The company is seeing benefits from new procurement and productivity programs, and is expanding efforts to all procurement areas. They have completed a project to expand capacity for retail canned products and launched a project to increase capacity for bacon. Analytics have been implemented in the refrigerated network to improve service levels, and there are plans to expand the network for added benefits. The company is also using analytics to identify opportunities for margin improvements by eliminating lower margin products. They have opened a new childcare center in Austin, Minnesota, which will help with recruiting and provide a needed service for team members and the community. The company is reaffirming their full-year sales growth outlook and updating their earnings outlook. They expect continued volume growth in foodservice, particularly in bacon, turkey, pizza toppings, and premium prepared proteins.

The company expects net sales to increase in their international business and certain retail verticals, but will be negatively impacted by volume and pricing issues in certain areas. They have adjusted their earnings per share ranges to reflect their strong first half performance and expect growth from their foodservice and international segments. However, an unplanned production interruption at one of their facilities may also impact their net sales and earnings. Overall, they expect net sales growth of 1-3% and adjusted diluted net earnings per share of $1.55 to $1.65, with benefits from their transform and modernize initiative in the fourth quarter. The company is confident in their ability to execute their plan and have a strong second half of the year.

The company is focused on increasing operating income, cutting costs through their transform and modernize initiative, and gaining value from their investments. Jacinth Smiley will discuss the financial details of the second quarter and first half, which showed strong performance in volume and net sales. Gross profit increased by 3% and gross profit margin improved by 90 basis points in the second quarter. SG&A expenses increased due to various factors including higher investments in the transform and modernize initiative, and advertising expenses also increased.

Hormel is continuing to support their leading brands with new advertising and increased spending. They saw a decrease in earnings from MegaMex but an increase in interest and investment income. Earnings before income taxes were $244 million for the second quarter and $530 million for the first half. The effective tax rate was higher than last year, resulting in diluted net earnings per share of $0.34 and $0.74 for the second quarter and first half, respectively. Operating cash flow increased by 55% during the first half of the year. Hormel remains committed to dividend growth and maintaining an investment grade rating, as well as investing in capital projects.

During the quarter, the company's largest capital projects included packaging projects for Planters and investment in a new order to cash system. They ended the quarter with $1.5 billion in cash and $3.8 billion in debt, and completed a debt offering of $500 million. They plan to use the proceeds to pay off a $950 million note due in June. The company is reaffirming their full-year net sales expectations and updating their earnings expectations. They expect pork input costs to increase in the third quarter and are projecting growth in their Turkey business. However, they also experienced an unplanned production interruption at their Planters facility, which is expected to affect service levels and have a $0.03 impact on earnings. The company expects third quarter earnings to be lower compared to last year and the second quarter, primarily due to whole turkey headwinds and the production interruption.

The speaker expects growth in adjusted diluted net earnings per share in the fourth quarter, thanks to contributions from all business segments and a strong performance from the transform and modernize initiative. They express gratitude to the team for their efforts and confidence in the company's strategy and portfolio. The question-and-answer portion of the call begins, with the first question asking about the EPS guidance range. The speaker explains that while the first half beat expectations, there are some factors, such as the Virginia plant interruption, that may affect earnings in the back half of the year. They have increased the low-end of the adjusted EPS range and raised the midpoint.

The company had a strong second quarter and first half, with improved margins and progress on key initiatives. The only setback was the Suffolk issue. They mentioned specific factors like Planters and Turkey that affected their performance, but overall, they feel that the increase in guidance is appropriate. They expect strong performance from foodservice and international, and have a plan for growth in retail. They also mentioned keeping an eye on the Planters business and the Turkey market. Despite tougher comparisons, they are confident in their ability to accelerate topline growth in the back half of the year due to increased innovation, advertising, and favorable raw material inputs.

The speaker clarifies that Turkey accounted for two-thirds of the volume decline in U.S. retail and discusses the impact of various factors on their business, such as foodservice and international sales. They also mention strong syndicated data in the past four weeks and anticipate delivering in the low end of their net sales guidance range. A question is asked about the specifics of Turkey's impact on the business.

In this paragraph, the speaker is discussing the impact of lower SNAP benefits on the company's convenient meals and protein category. They note that two-thirds of the volume impact in the first half of the year was related to Turkey, and then the conversation shifts to the playbook for improving volume going forward. The speaker mentions that there has been strong growth in SPAM and Skippy, but softer demand for canned products in the center store area. They attribute this to factors such as weather and increased competition in promotions. However, the team is working to address these challenges and drive sales through effective promotions and pricing strategies.

The company is working closely with retailers to improve displays and increase product visibility outside of the center store. They are also reallocating funds to focus on promoting the value of their products to consumers, especially as people prioritize value options while shopping. As they head into the fall, they are preparing for a heavy holiday season and back-to-school promotions. When it comes to the back half sales guidance, the company expects mid-single digit volume growth in foodservice and high-single digit growth in sales. International volume is expected to be down due to lower fresh pork and commodity businesses, but sales will increase due to improved mix. Retail volume and sales are expected to be down low single digits. The company anticipates being at the low end of their guided range for the back half.

Deanna Brady, responding to Rupesh Parikh's question, discusses the increase in advertising this quarter and its impact on the company's flagship and rising brands. She mentions strong performance in volume and market share gains, as well as the introduction of innovation in those categories. She also talks about the success of new advertising and packaging for pepperoni, and the overall positive returns from advertising. In terms of the current promotional competitive backdrop in the Retail segment, Brady says it varies by category, but overall they are comfortable and focused on driving returns with their promotional dollars.

The speaker discusses how the company is able to shift funds from trade to advertising and other areas to support growth. They also mention focusing on convenient meals and protein to maintain competitive prices. The company can influence customer pricing through insights and analytics. The gap between retail scanner data and reported figures is attributed to SKU rationalizations and declines in the turkey and non-tracked areas of the business.

In a recent earnings call, Michael Lavery asked Deanna Brady about the decline in volume in certain categories in the center store. Brady responded by explaining that competition and price elasticities were the main drivers for this decline. She also mentioned that they were working to counteract this through heavier promotional activity. In a separate question, Adam Samuelson asked about targeted price increases in the retail segment and whether they were seeing higher than expected elasticities or pushback from retailers.

Jim Snee and Deanna Brady discuss the pricing strategy at the company, mentioning that the retail team is working to address issues and there is a combination of short-term and long-term vision. They use the example of Planters from a year ago to highlight their approach. They also mention the revenue growth management team's focus on price points, promotions, and innovation, which has contributed to the success of their flagship brands in the first half.

The company has seen progress in the first half due to the efforts of their retail selling organization, which has increased distribution points by 5%. This is a result of working with category managers and executing short-term promotions and long-term strategies. SG&A expenses have increased due to employee incentives and the company's transformation efforts, which will continue to drive double-digit growth in the second half and into next year.

Tom Palmer asked about the lower whole Turkey volumes and how it aligns with the Turkey production. Jim Snee stated that there is no change in their outlook and they have strong internal supply and capacity. They are gaining share with their lean ground turkey and have de-risked the Turkey outlook for the rest of the year. On the foodservice side, they are not seeing the effects of the industry's pullback in traffic and are well positioned for the rest of the year. They compete in both commercial and non-commercial elements of the business.

The company is targeting the convenience channel for sales and focusing on channel diversification. They believe their direct salesforce gives them a competitive advantage and are continuously innovating with new products like Bacon 1 and Flash 180 sous vide chicken. The international business saw a decrease in volume but an increase in sales. Regional performance was not specified.

The speaker explains that the volume of sales is down, but the sales themselves are up due to a change in product mix. They mention improvements in the retail and foodservice businesses in China, investments in Indonesia, and strong performance in the Philippines. They also mention that the business is expected to continue improving in the second half of the year. The speaker also addresses the decline in volume in retail and mentions that some brands, such as SPAM and Skippy, are performing well. They mention using promotions to stimulate volume and recover lost sales.

Deanna and the team are focusing on two main areas: short-term work and long-term opportunities. They will continue to support their flagship brands with advertising and innovation, as well as launch new products to attract new consumers. Promotional activity has already been secured for Q3 and they are currently working on Q4 plans. The team is dedicated to both short-term and long-term success.

In a recent earnings call, the speaker highlighted the importance of the company's price pack architecture work and the impact it has on overall category growth. They also mentioned the impact of the Turkey and Suffolk operations on volume and sales in the second and third quarters. The speaker clarified that the Turkey volume impact would be provided in a follow-up call and confirmed the estimated impact of Suffolk on retail sales. In comparison to their initial guidance, the negative impact from Turkey increased by a nickel in Q2, and there is now an additional $0.01 to $0.02 impact from taxes and a $0.03 impact from Suffolk. This has resulted in a significant difference from their initial guidance.

In this paragraph, Jim Snee, CEO of the company, discusses the primary drivers of their strong earnings performance, including the success of their foodservice and international businesses, as well as the work they are doing to transform and modernize their operations. He thanks the team for their efforts and expresses confidence in the company's future growth. The conference call has now ended.

The speaker thanks everyone for participating and announces that they may now leave the meeting.

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