Hormel Q3 retail sales decline

Hormel Foods reported a significant hit to its retail segment in the third quarter, driven by volume declines in commodity turkey and private label snack nuts. The Austin, Minn.-based company announced earnings of 37 cents per share on revenue of $2.96 billion, against Wall Street consensus estimates of 36 cents per share on revenue of $3.05 billion, according to Earnings Whispers.

Several of its retail brands, however, performed strongly for the quarter. These included Jennie-O value added and ground turkey, Spam, Applegate meats, and Hormel Chili.

Interim CEO Jeff Ettinger characterized the quarter as solid but not as strong as the second quarter. He stated the focus remained on profitable growth, contributing to a 6% increase in adjusted earnings per share versus the prior year. Ettinger attributed mixed top-line results to deliberate portfolio-shaping actions, reduced commodity markets, and a pressured consumer environment.

The results sent the company’s stock value tumbling, dropping about 9% for the day.

Volume softness in retail

Incoming CEO and President John Ghingo stated the year-over-year 2% organic net sales decline reflected portfolio-shaping actions, softer commodity markets, and a challenged consumer environment. He noted adjusted operating margins improved versus the prior year.

A major portfolio-shaping action was the April sale of its commodity-oriented whole-bird turkey business to Life-Science Innovations (LSI). That sale included LSI taking ownership of Hormel’s turkey production facility in Melrose, Minn., a feed mill in Swanville, Minn., and transportation assets.

Hormel clarified in April that the sale did not include the use of the Jennie-O brand name or the production of various turkey-based products like ground turkey, deli meats, and turkey burgers. The company continues to own and operate other turkey production facilities, feed mills, transportation assets, and live production operations for value-added turkey products.

Hormel’s foodservice business was a bright spot. Ghingo said premium prepared proteins and branded pepperoni were particularly strong contributors, reflecting alignment with operator demand for differentiated value-added solutions.

Private label snack nuts take a hit

Volume declines were driven by a drop in Hormel’s private label snack nuts and other contract manufacturing businesses. Ghingo explained a volume contraction was expected due to elasticity impacts from two rounds of retail pricing announced and implemented late last year and early this year.

That elasticity impact is related to what Ettinger previously described as "targeted pricing actions," noting steep rises in commodity input costs were a major contributor to performance shortfalls.

The volume declines in private label and contract manufacturing were mitigated by consumption growth in other areas. Ghingo highlighted Applegate, Hormel’s center store canned portfolio, Herdez, Hormel Black Label Bacon, and Planters.

He expressed confidence in the company's protein-centric portfolio, stating they are seeing good consumption momentum. While acknowledging the environment is not getting easier, Ghingo said they feel good about offering value to consumers and the pivots being made around positioning and marketing those businesses.