Operator:

Good morning, ladies and gentlemen, and welcome to the Hormel Foods Corporation Second Quarter Earnings Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to David Dahlstrom, Director of Investor Relations. Please go ahead.

Jim Snee:

Thank you, David. Good morning, everyone. We delivered a strong first half of the year, with consecutive quarters of better-than-expected earnings, a significant improvement in operating cash flows, foodservice strength, recovery in our International business, and stable volumes across our business. Importantly, we made further progress on our strategic initiatives and we remain on track to deliver on our commitments to drive long-term shareholder returns and growth. We entered the year with a realistic and achievable path to improve our business over the next three years, and our first half performance demonstrates meaningful progress. We are driving savings, minimizing complexity, and reducing costs. As a result of this work, we delivered meaningful gross profit improvement in both the second quarter and the first half of the year. We are also capturing incremental value from our investments. The best example of this is the momentum our team has generated for the Planters Snack Nuts business, which is responding positively to our brand building and innovation efforts. Taken together, we are pleased to report first half adjusted diluted net earnings per share in line with last year. This represents improvement compared to our expectations heading into the year given the uncertain consumer environment and significant headwinds in our Turkey business. Core to our success so far this year is strong execution against our six strategic priorities, which include driving growth for each of our business segments; executing our enterprise entertaining & snacking vision and continuing to transform and modernize our company. We delivered an excellent first half within foodservice, growing volume, net sales, and segment profit mid-single digits respectively. The second quarter represented the fourth consecutive quarter our team achieved volume and segment profit growth and the foodservice team has now delivered year-over-year segment profit growth for nine out of the last 10 quarters. We continued to leverage our highly differentiated business model to provide innovative solutions to solve operator challenges. In the second quarter, we once again saw strong contributions from Bacon 1, our premium prepared proteins, pepperoni and Jennie-O Turkey. With the help of our culinary collective and direct salesforce, we continue to introduce innovative new offerings that are positioned to disrupt large foodservice categories. Two of our newest items, Hormel Flash 180 sous vide chicken and Hormel ribbon pepperoni have already exceeded our fiscal 2024 sales projections. And our new CAFE H Pork Al Pastor product also has been well received in the marketplace. We recently featured these products at the National Restaurant Association Show, where the response from customers was overwhelmingly positive. We believe our foodservice business is exceptionally well positioned to drive category growth, brand value, and operator engagement well into the future. Transitioning to our International segment, our performance has been very encouraging given the challenging conditions the team faced last year. From a profitability standpoint, International had a strong first half of the year with segment profit up almost 30%. Our team drove growth in many areas, including our partnerships in Indonesia and the Philippines, our refrigerated export business and in-country operations in China and Brazil. Notably in China, our foodservice business is performing relatively well, and our retail business continues to recover. We expect our retail business in China to improve in the back half of the year led by distribution gains of SPAM singles, the launch of new Skippy spreads and innovation in our shelf-stable meat snacking portfolio. Overall, we remain confident that we have the right strategy and structure in place to drive growth in our International business and develop our global presence over the long-term. In our Retail segment, we continue to navigate an environment characterized by an uncertain consumer backdrop and pressure from whole bird turkey dynamics. That said, there are many proof points showing that our focus on winning with consumers, winning with customers, and driving profitable growth is delivering positive returns. According to Circana, we gain share across several of our flagship brands during the second quarter, including Planters, Black Label, SPAM, and Jennie-O. Additionally, we increased total points of distribution by 6% for our flagship brands and 4% for our rising brands, which includes brands such as Applegate, Herdez, Corn Nuts, and Hormel Square Table. From a vertical perspective, we delivered strong results both in terms of shipments and consumer takeaway with bacon. Black Label raw and convenient bacon products are resonating with consumers and we expect this trend to continue in the back half of the year, supported by further advertising and innovation. Emerging brands, which contains our Applegate and Justin's brands, also delivered a strong quarter with mid single-digit volume and net sales growth compared to last year. Similarly, within snacking and entertaining, we delivered net sales growth for Planters snack nuts. I'll provide more detail on our successes within this important category later in my remarks. Within convenient meals and proteins, we are experiencing mixed results. Our SPAM family of products and Square Table entrees portfolios both delivered a strong first half even in response to pricing actions. But we did experience softer demand for other center store canned and convenient items. We are also seeing similar softness across the global flavors vertical and within the Mexican categories in which we compete. These trends are not entirely new, and our teams are actively working to address this in the back half of the year. Lastly, our value added meats vertical continues to be negatively impacted by Turkey dynamics. While we did drive growth during the first half across the Jennie-O value added retail portfolio, these gains were more than offset by weaker whole Turkey markets. We expect this business to remain challenged for the rest of the fiscal year. Our objective in retail is to balance volume and net sales gains to drive consistent profitable growth. We are managing through challenges such as Turkey pricing and pockets of software consumer demand. Longer term, the team remains focused on winning with our consumers and our customers, better allocating our resources and improving the margin structure of the business. Now moving on to our Enterprise-wide entertaining and snacking strategy where we continue to win by unlocking the value of our brands across the channels where we compete. Within retail, we saw some of the most positive in-market data for the Planters and Corn Nuts brands since our acquisition of the business, including volume, sales and share gains during the quarter for mixed nuts, cashews and Corn Nuts. This momentum is a direct result of expanded distribution and our investments in innovation, higher ROI advertising and brand building. Additionally, we released several new entertaining and snacking items, including Planters salt and vinegar cashews, Planters Nut Duos, loaded taco-flavored corn nuts, and summer-themed hard salami and pepperoni tray under the Hormel Gatherings brand, and we are supporting Hormel pepperoni, America's number one pepperoni brand. Our new national advertising campaign boldly irresistible highlights the versatility and craveability of this popular snack and is expected to help drive growth in the back half of the year. In foodservice, our team delivered excellent growth during the quarter in the convenience channel led by Planters flavored cashews and corn nuts innovation. And internationally, we recently announced that the Skippy brand is returning to the Canadian market in the form of five all new peanut butter inspired snack products. This compliments the work the team is doing to drive entertaining and snacking growth globally. Turning now to our last two strategic priorities, future fitting our one supply chain and advancing our transform and modernize initiative. In the second quarter, our supply chain efforts once again resulted in lower overall logistics expenses, lower distressed sales and higher investment income from responsible capital management. We also made further progress on our transform and modernize initiative in the areas of supply chain efficiency, portfolio optimization and data and analytics. Now within our planned work stream, we continued the implementation of a new end-to-end planning process and are integrating new planning technology. In the buy work stream, we are realizing the benefits from our new procurement and productivity programs. For the balance of the year, we are broadening our efforts outside the supply chain to all procurement areas. Within make, we completed a major improvement project to expand the capacity for our retail canned portfolio, allowing us to limit external production. Additionally, we launched a project to increase capacity for Bacon1. Both projects use existing assets and infrastructure and are expected to generate strong returns. In the move of work stream, we implemented analytics across our refrigerated network to further enhance our service levels. We are also exploring an expansion of our refrigerated network to drive added benefits and we continue to advance our total company portfolio optimization efforts. Leveraging our analytics tools and capabilities, we are finding opportunities to enhance and support margin profile improvements. We are eliminating lower margin SKUs, allowing us to maximize production time for more profitable items. Also, this quarter, we celebrated the opening of our new $5 million childcare center in Austin, Minnesota. Not only does this new facility assist the company's recruiting efforts in today's tight labor market, but more importantly, the center provides a needed service for our team members and our community. As transformational work is a key driver of our growth over the next several years and is essential for building significant and scalable capabilities for our future. Now shifting to our updated 2024 outlook. We are reaffirming our full-year topline outlook and updating our earnings outlook. We continue to expect net sales growth of 1% to 3%, assuming volume growth in key categories, a benefit from higher brand support and innovation, and our current assumptions for raw material input costs. In foodservice, we expect continued volume growth led by bacon, turkey, pizza toppings, and our line of premium prepared proteins. We expect net sales increases in our international business driven by branded exports and further recovery in China. In retail, we expect higher net sales for our bacon and emerging brands verticals. We have assumed net sales will be negatively impacted by volume and pricing headwinds in whole bird turkeys and higher elasticities in our center store business as previously discussed. From a bottom line perspective, we have increased the lower end of our diluted net earnings per share and adjusted diluted net earnings per share ranges to reflect our solid first half performance and our expectations for growth from our foodservice and international segments, ongoing improvements across our supply chain and benefits from our transform and modernize initiative. Consistent with our prior guidance, our full-year outlook assumes higher salaries, normalized employee-related expenses and costs associated with planned investments in the business, including higher advertising investments. An additional factor expected to impact both our net sales and earnings guidance ranges is an unplanned production interruption at our Planters facility in Suffolk, Virginia. We discovered a food safety issue in April, which has since been resolved. Jacinth will provide more detail regarding the financial impact in her comments. Taking all these factors into account for the full-year, we expect net sales growth of 1% to 3%. Diluted net earnings per share of a $1.45 to a $1.55 and adjusted diluted net earnings per share of a $1.55 to a $1.65 and benefits to net earnings from our transform and modernize initiative, which is expected to deliver its strongest level of savings in our fourth quarter. In closing, our first half performance demonstrates our team's ability to execute our clear and achievable plan. We have line of sight to a strong second half of the year as we make further progress on the initiative we laid out last fall. Our team remains focused on growing operating income, driving savings through our transform and modernize initiative, and capturing incremental value from our investments. At this time, I will turn the call over to Jacinth Smiley to discuss detailed financial information related to the second quarter and first half and additional color on our outlook.

Operator:

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question is from Ken Goldman from JPMorgan. Please ask your question.

Jim Snee:

Good morning, Ken.

Jim Snee:

Yes. Good morning, Ken. Thanks for the question. As we sit here today, yes, we're ahead of expectations. We feel good about the business. And as you commented, you saw this morning, we took up the low-end of our adjusted EPS range, increased the midpoint. We also delivered stronger margins for the second quarter and first half, which really demonstrates the progress we're making on, on key initiatives. And if it wasn't for the Suffolk issue that we talked about in our prepared remarks, we would be having a more positive conversation today. A couple of the more specific items to think about, we mentioned Planters and Suffolk. We would also think about – on our first quarter call, we talked about the incremental impact of the full-year Turkey, which was roughly $0.05. And then also, we talked about the tax rate as well that'll have an impact of $0.01 to $0.02. So when you take all those things together, we feel like the raise is – the increase in the raise is appropriate. When we think about what's really positive, we're going to still expect strong performance from foodservice and international. We've got a path to growth in retail. We still expect our strongest transform and modernize delivery in the back half of the year. But clearly, we got some things that we're watching, talking about the Planters business. And then also really keeping a close eye on what's happening with the Turkey market overall. But when you boil it all down to the bottom line, we're really pleased with our half one performance and a clear line of sight to growth in the back half of the year.

Jim Snee:

Yes. Thanks, Ken for the follow-up. I think there's – one of the things I would say is, let's take foodservice and international maybe off the table. Foodservice has got broad-based strength outperforming the industry, really expect that momentum to continue for the balance of the year. The international business, we expect to have strong sales growth in the back half of the year as well. So I think those two businesses are going to provide strong growth and really the story is in retail. And so as we said, it is a bit of a mixed bag. We've got a lot of verticals that are doing just fine. You talk about Turkey, and the impact that that'll have in the back half of the year. And then we also said in our prepared remarks, just watching what happens in the convenient meals and protein vertical. And so we have had bright spots with SPAM, refrigerated entrees, Skippy, but we've got some other brands and categories that we're watching. We do have really strong syndicated data over the last four weeks, which is really, really encouraging. And so there's a lot of good news and we do expect to be able to deliver in that range. What I would say is as we think about it, the most likely scenario would be towards the low end of that net range or the low end of the range for the net sales guide.

Operator:

Thank you. Your next question is from Peter Galbo from Bank of America. Please ask your question.

Jacinth Smiley:

Yes. Hi. Good morning, Peter. Yes, indeed. So the volume impact for the first half is related to – two-thirds of that is related to Turkey. And then Deanna will take the next part of your question.

Peter Galbo:

Got it. That's super helpful. Thanks, Deanna. And then Jim, maybe just to follow-up on Ken's question around kind of the back half sales guidance and understanding the kind of the low-end of the range is helpful. Any thoughts just as we model out the back half kind of volume relative to price mix, how we should think about that I think given what you've said about some of the raw materials and maybe the pass-through nature? Just want to understand some of those components in the back half. Thanks very much.

Peter Galbo:

Got it. Very helpful. Thanks, Jim.

Operator:

Thank you. Your next question is from Rupesh Parikh from Oppenheimer. Please ask your question.

Deanna Brady:

Yes. Thanks, Rupesh. This is Deanna. As we introduced back at Investor Day, we talked about our flagship and our rising brands and resourcing those brands to drive higher growth rates. When you think about the performance of SPAM, Black Label Bacon, Jennie-O and where we're spending our advertising, we're seeing really strong performance in both volume and market share gains. In addition to the advertising, we're also introducing innovation in all of those categories. And so it's really a one-two punch of not only reminding the consumers about the products, but when they get to shelf that they're seeing some innovation there as well. So we're excited about the advertising. We've also introduced a lot of new advertising with new brand positioning, backing it up and happy to as we think about the quarter coming up pepperoni goes – is already in market with new packaging as well as new advertising. And we're really excited about what that's going to continue to do as one of our other flagship brands. So working well for strong returns and continuing to get stronger and stronger as we progress.

Deanna Brady:

So it depends by category. I think in most categories, we're comfortable. And for us we're really thinking about the desired outcome and is our promotional dollars really driving returns for us. And in some cases, under the new structure that we have, we're able to shift dollars from trade into advertising or into other areas to support growth if it's not providing the right return. We're also though then shifting dollars, like I said, on convenient meals and protein into convenient meals and protein to help support the right promoted price points that we need in this particular a lower seasonality for us in convenient meals and proteins. That category in particular seeing more competition, but across the board, we're not seeing anything that's out of the ordinary. Relative to our customers, they get to control price at shelf. We can influence and we can have conversations, we can make sure they understand based on our insights and analytics, what is going to drive growth and profitability and we can inform as a category leader and a category supporter. That's our role.

Operator:

Thank you. Your next question is from Michael Lavery from Piper Sandler. Please ask your question.

Jim Snee:

Yes. Good morning. Thanks for the question, Michael. I think, as you've talked about, really positive trends in our scanner data with five of the six verticals showing growth. And really the decline is in turkeys and in some of the non-tracked areas of the business. We still do have some contract manufacturing business that is showing declines in addition to the Turkey that we discussed. But those are really the drivers for the volume decline.

Deanna Brady:

Yes. Thank you. There's going to be a couple of things. One, there's a lot more competition in those categories. We're also seeing the price elasticities play out based on the price increases we took in Q2, based on beef markets as a strong component in the majority of those items. So the price elasticities was something that we anticipated and expected. The competition obviously, and the heavier promotional activity is something that we're working to counteract as we speak.

Operator:

Thank you. Your next question is from Adam Samuelson from Goldman Sachs. Please ask your question.

Jim Snee:

Good morning, Adam.

Jim Snee:

Yes. I think, Adam, I'll start with kind of the pricing with retailers and clearly there's heightened level of discussions in terms of pricing and that's not anything new. We've talked about that in the past. And the retail team does a really nice job making sure that there's solid rationale and clarification on why the pricing was needed. The other part of this is, the team is working to address those issues now, and there's – it's a combination of short-term and also really the long-term vision of where we see some of these things playing out. And I'll let Deanna add some additional color on that.

Adam Samuelson:

Okay. That's very helpful color. And then just taking a step back on the SG&A side, this quarter, obviously there's a bigger year-on-year increase in employee incentive payments on top of the advertising that you kind of more clearly break out. As we think about the full-year, what's the right range of non-advertising-related SG&A growth that we should be thinking about? And presumably that growth would moderate next year because you're not going to have the year-on-year expansion or the same magnitude of year-on-year expansion and employee compensation as you are this year. But just helps us frame that, that trajectory going into through the end of the second half and next year. Thanks.

Adam Samuelson:

That's helpful color. I'll pass it on. Thanks.

Tom Palmer:

Good morning. Thank you. You noted lower whole Turkey volumes, especially at retail. How does this align with your Turkey production? Are you pulling back that as well? Or is this more reference to kind of what you're selling to customers? Because if you're not cutting supply by as much, I guess, where is the Turkey essentially going and is there a point where maybe volumes inflect a bit more.

Tom Palmer:

Thank you. Just on the foodservice side. At an industry level, we've seen a pullback in traffic, it seems like you're really not seeing the effects of this and at least the guidance you gave would appear that you don't really expect a whole lot of pressure in the second half of the year either. Could you just give any detail on what's really driving this growth in terms of – are you seeing your customers not seeing the traffic pressure just given maybe a different mix than the broader industry? Are there new customer wins to be thinking about? Just any detail there. Thank you.

Tom Palmer:

Thank you.

Benjamin Theurer:

Yes. Good morning. Jim, Jacinth, thanks for taking my question. Obviously, lot's been asked already. Just wanted to follow-up first on some of your expectations on the international business. Clearly, it was good on the profit side, but topline was down. Did I hear this right that you said, like volume down high single-digit, but sales actually up high single-digit, just wanted to clarify that commentary and to understand a little bit if you can share with us a regional nuance as to the performance in international? That would be my first question. Thank you.

Benjamin Theurer:

Okay. Perfect. And then my follow-up, if I may, just real quick around the volume performance in retail. And you gave already a lot of detail, but just wanted to understand like, what is your approach in terms of thinking to recover these – this lost volume? Is there any way of considering certain isolated [indiscernible] pricing more temporary through promotion and trying to stimulate the volume? So what is your kind of playbook to get the volumes going again particularly in retail?

Deanna Brady:

Yes. Beyond what I've already said about our flagship brands, which had a nice volume growth supported by advertising innovation in the first half. We'll continue to see that support as we head into the back half. The other areas that you'll see is continued innovation, and we've got numerous innovation launches. I believe they were in the pre-read deck that were launched in the first half and are launching in the second half. What we're really happy to see with the innovation is that we're bringing in new consumers. So think about the new [indiscernible] entrees and the House of Tsang entrees, bringing in multicultural and younger consumers into the portfolio. Seeing the same thing with the Planters innovation, both the flavored cashews and the duos. So we'll continue to drive new consumers. Obviously those things support not only our baseline business, but incremental business as well. You can see us continue to advertise throughout the back half of the year. And then finally, from a promotional standpoint, we've got a lot of promotional activity already secured through Q3 working on Q4 right now as our teams lock up back-to-school and think about holiday programming. So those are some of the key things the team will be executing both in the short-term as well as continuing to think about the long-term. The one that I don't want to forget to talk about because it's really important work is the price pack architecture work through our revenue growth management team and the data and the insights that we're bringing to the table to really think about overall category growth based on having the right prices on shelf, having the right promotions in place, as well as the right assortment. And that work does take some time to not only do the studies, but also to then get out and execute with customers and then get that new set and new sizing and new pricing and promotions on shelf.

Operator:

Thank you. Your next question is from Heather Jones from Heather Jones Research. Please ask your question.

Jim Snee:

Hi, Heather.

Jim Snee:

Yes. So Heather, I'll start with the Turkey volume. We've been talking about it in the first half. David can get you the specific Q2 number in your follow-up call. And then your estimate in terms of the range for impact in Planter and Suffolk, that's probably pretty close.

Jim Snee:

Yes. Heather, we've seen really strong performance from our foodservice business and our international business has rebounded in a really strong way. The other part that we do want to mention when we bring into this conversation is, is the work that we've been doing and transform and modernize. And so we've talked about that at our Investor Day, we will have the opportunity here at the end of the year to provide some additional clarity. But I think that's a piece of the work that the team is doing. And we again, had that in our prepared remarks. The work that we're doing to plan the business, how we buy for the business, how we make it, how we move it, all of those things have been really, really effective for us. And so that would really be the third driver in our ability to overcome to what you described as our pretty, pretty good headwinds. But the bottom line is that, we're ahead of expectations. We feel good about the business, pleased with half one and a clear line of sight for half two growth.

Jim Snee:

Yes. Thank you.

Jim Snee:

Yes. So I want to thank all of you for joining us this morning. We're really pleased by our overall performance and the strong first half of the year we were able to deliver. This is a result of a total team effort, and I want to take the opportunity to thank all of our teams. We have made a lot of progress on our initiatives, but we still have a lot of work to do. But as I said earlier, we have confidence and our business will keep moving in the right direction for the balance of fiscal 2024. Thank you and have a great day.

Operator:

[Call starts abruptly] Ladies and gentlemen and welcome to the Hormel Foods Corporation First Quarter Earnings Conference Call. [Operator Instructions] This call is being recorded on Thursday, February 29, 2024. I would now like to turn the conference over to David Dahlstrom, Director of Investor Relations. Please go ahead.

Jim Snee:

Thank you, David. Good morning, everyone. We delivered strong results in the first quarter, led by better-than-expected performance in each of our segments and we have made good initial progress on our work to transform and modernize our company. We also achieved broad-based volume growth across our businesses, reflecting the strength of our leading brands, robust demand for our foodservice products and momentum in our Planters snack nuts business. These results demonstrate our team's meaningful execution against our strategic priorities, the value of our balanced business model and marked improvements in our supply chain. Our first quarter results were very encouraging. We grew volume in each of our segments with overall volume increasing 4%. Net sales grew 1%, led by another excellent quarter from our foodservice team. Adjusted operating margin increased compared to last year reflecting higher gross profit and disciplined cost management. Diluted net earnings per share was in line with last year, while on an adjusted basis, we grew our bottom line and cash from operations nearly doubled compared to the first quarter of last year, a direct result of our actions to better manage working capital and grow earnings. We have a clear and achievable path to deliver earnings growth and improve our business over the next 3 years. And as we outlined at our recent Investor Day, we are focused on 3 enterprise objectives to accelerate profitable growth. First, restoring dependable operating income growth from our current businesses; second, driving savings through transformation and modernization; and third, capturing incremental value through our investments in the business. Our first quarter results demonstrate the strides we are making in each of these key focus areas. First, our results indicate progress towards restoring sustainable and dependable bottom line growth with momentum across the portfolio. Taking a closer look by business, foodservice is off to another fast start. Volume and net sales growth were broad-based across numerous categories, led by Jennie-O Turkey and double-digit gains for products such as Hormel BACON 1 cooked Bacon, Pepperoni, Austin Blues Smoked Meats and Cafe H globally inspired proteins. Segment profit increased 10%, driven by volume, mix and favorable logistics expenses. We continue to operate from a position of strength in foodservice due to our long-standing relationships, differentiated product portfolio, innovative solutions and direct sales team. This was again acknowledged by the industry in January when we received the Distributor's Choice Award for strategic partnership by the International Foodservice Distributor Association. This honor recognized our team as the most strategic partner across the foodservice landscape. We also delivered a solid quarter in the convenience store channel led by our Planters business. Volume was strong for our snacking business and convenience driven by positive takeaway for both the Planters and Corn Nuts brands. We expect our convenience store business will continue to be a growth catalyst in fiscal 2024, led by expanded distribution of our flavored cashews, innovation in corn nuts and better service levels on planters, peanuts and trail mix items. We also plan to further leverage the momentum in our snack nuts business to increase placements of our other items across the convenient store footprint. Our International business is also off to a better-than-anticipated start to the year as volume and segment profit both increased compared to last year. Results this quarter were very encouraging, particularly given the challenging conditions the team faced in fiscal 2023. We remain confident the International business will further accelerate over the course of the year, driven by more normalized shipments of SPAM and easing of headwinds impacting our commodity exports and growth from our partnerships around the world. In our Retail segment, our leading brands, execution in the marketplace and recovery in Turkey supported volume growth for the quarter. Demand was strong for many products, including Skippy peanut butter, Planter Snack Nuts, Wholly dips, Herdez and La Victoria salsas, refrigerated entrees and Hormel pepperoni which all grew volume and net sales during the quarter. Additionally, Sir Can-A data noted several positives for the quarter as we gained or maintained share across many of our products in key categories, including the SPAM family of products, Skippy peanut butter, Hormel Black Label Bacon, Jennie-O Ground Turkey, Hormel pepperoni, Planter snack nuts, Herdez salsas and sauces and Dinty Moore stew. While we expect our retail business to face incremental pressure from whole bird turkey dynamics and like many others in the industry, an uncertain consumer backdrop. Our team remains focused on winning with our consumers and our customers, better allocating our resources to drive profitable growth and improving the margin structure of the business. Underpinning the strong starts from our businesses, was improvement across our supply chain as we reverse the inefficiencies and higher operating costs that we absorbed this time last year. Our supply chain improvements resulted in lower freight and warehousing expenses, lower distressed sales and higher investment income resulting from a 4-day reduction in our cash cycle. Finished goods inventory was down on both a volume and dollar basis at the end of the first quarter and total inventory was down almost 9% compared to last year. In addition to forward progress on inventory management, fill rates benefited from the increased efficiency and overall health of our one supply chain. First quarter retail and foodservice fill rates increased compared to both the prior quarter and prior year. And our fill rates have surpassed 97% to begin the second quarter, marking the first time since March of 2020 that we have achieved this level of service. Turning to our second key strategic area, advancing our transformation and modernization initiative. This includes the areas of supply chain efficiency, portfolio optimization and data and analytics. We're in the early innings with these efforts but we are pleased with the progress our team has made thus far. Notably, within our planned work stream, we are implementing a new end-to-end planning process and are integrating new planning technology. In the buy work stream, we are realizing the benefits from our new procurement and productivity programs with further savings expected across many categories, such as logistics, warehousing and supplies. Under the make work stream, we are standardizing our ways of working across the manufacturing network. We are also continuing to take actions to optimize our refrigerated and ambient distribution networks within our move work stream. We made progress on our total company effort to improve our portfolio. Identifying approximately 10% of the items to be optimized. Throughout the year, we expect to use our enhanced data and analytics capabilities to identify more opportunities to better our portfolio. And to support these specific work streams and the broader goals of the organization, we formed a data and analytics office focused on creating easy access to reliable and consistent technology, data and analytics. Executing our transformation and modernization initiative remains a critical piece to our projected growth over the next 3 years and I'm pleased with the team's early progress. Moving on to the third key focus area, capturing value from our investments, where our progress was highlighted by the strong momentum in our Planter snack nuts business. In the first quarter, Planters volume and dollar share maintained positive momentum, while total points of distribution and household penetration grew. We also continue to support the brand via higher ROI advertising and an always-on strategy. Most recently, with the launch of the Planters Ah Nuts! campaign that went live in January. Innovation remains a point of focus for this business. One example is our flavored cashews line which is delivering against our key performance indicators and remains on track to achieve its plan for the year. Importantly, this product line continues to over-index with younger consumers which is driving new consumers and excitement to the Snack Nuts category. Over the next few weeks, we will be launching additional innovation including a salt and vinegar line extension to our flavored cashews and a new-to-market offering, Planters Nut Duos which has the potential to be a significant contributor to the Snack Nuts category. We also continue to innovate with new varieties of Corn Nuts, including Loaded Taco Flavored corn nuts and Kickin' Dill Pickle which is expected to launch in time for summer. From a profitability perspective, we continue to put a heavy emphasis on redistributing our trade dollars to higher ROI promotions and channels, while simultaneously shifting mix toward innovation and premium nut varieties. These are just some of the high priority plans we have in place to keep the momentum going for our Planters Snack Nuts business in fiscal 2024 and beyond. We continue to take actions as the category leader to support the Planters and Corn Nuts brands and drive growth for our business, the category and for our customers. In addition to the Planters business, we have many opportunities to capture incremental value from other investments and initiatives this year and into the future. This includes driving further benefits from the Jennie-O Turkey Store transformation, our go-forward initiative and the recent investments made in capacity and automation. While we realize that 1 quarter does not make a year and there remains significant work ahead, we are confident that we are on the right track to deliver on our commitment to improve our business and increase long-term shareholder returns. Now shifting to our outlook. We are reaffirming our full year net sales and earnings expectations. From a top line perspective, we expect net sales growth of 1% to 3%. This continues to assume volume growth in key categories, higher brand support and innovation and our current assumptions for raw material input costs. In retail, we expect higher net sales across many of our verticals. Targeted retail pricing actions will be effective by the end of the second quarter and are expected to impact our results in the back half of the year. In foodservice, we expect broad volume growth similar to the first quarter, led by turkey, pepperoni and bacon. This volume growth, coupled with higher raw material input markets year-over-year should support net sales gains. We expect net sales increases in our international business to be driven by the branded export business led by refrigerated items, Skippy and SPAM and the retail and foodservice channels in China. From a bottom line perspective, we are also reaffirming our diluted net earnings per share and adjusted diluted net earnings per share outlooks. Consistent with our initial outlook, we expect continued growth in foodservice. Improvement in our international business and benefits from innovation in retail. Our full year outlook also assumes higher salaries, normalized employee-related expenses and costs associated with planned investments in the business. Diluted net earnings per share and adjusted diluted net earnings per share are expected to decline year-over-year in the second quarter and grow in the back half of the year. At a high level, we are assuming our stronger-than-expected start to be partially offset by incremental earnings pressure coming from our whole bird turkey business. Jacinth will provide further details on these assumptions in her remarks. Taking all these factors into account for the full year, we expect net sales growth of 1% to 3%. Diluted net earnings per share to be $1.43 to $1.57 and adjusted diluted net earnings per share to be $1.51 to $1.65. And we expect a benefit to net earnings from our transformation and modernization initiative. In closing, our strong start to the year reflects our team's ability to execute our clear and achievable plan. We remain focused on our strategic priorities and delivering on our commitment to improve our business and drive long-term shareholder returns. At this time, I will turn the call over to Jacinth Smiley to discuss detailed financial information related to the first quarter and additional color on key assumptions and our outlook.

Operator:

[Operator Instructions] First question comes from Rupesh Parikh from Oppenheimer.

Jim Snee:

Yes. Q1 was a very strong performance for the company. And it really is -- what's so exciting for us is it was so broad-based. When we think about all the different areas, I mean, clearly, volume is a very positive story. We saw volume growth in each segment. When we think about retail and what's happening in the retail environment, we knew Turkey volumes were going to be positive. But even when we take that, that out and some of our other non-track businesses, retail volumes were up year-over-year. Foodservice had a very strong quarter. They continue to really perform in the marketplace. And so across all of the businesses, really, really great to see them have a successful and strong Q1. And the other thing that we've spent a lot of time talking about is our supply chain. And we've did see marked improvement in our supply chain in Q1. A year ago, we were talking about inventory and we've really been able to get that under our control. We've seen lower inventory volume and dollars which obviously has a positive impact when we think about distressed sales. The other piece that's really, really exciting for us is seeing what we're getting done on fill rates. And we talked about it in the prepared remarks that we've got the highest fill rate since 2020. And then obviously, there were some below-the-line favorability as well. But when we wrap it all up, I think the key takeaway here is, we're executing our strategy and we have confidence that the business will keep moving in the right direction throughout 2024.

Jim Snee:

Yes. I think we tried to be pretty specific in regards to the risk that Turkey presents to us. We know that the whole bird outlook is worse and we've built in another nickle with -- most of that occurring in Q2. But the other part really is the consumer environment which we're watching very closely. As we think about our business, our shares are solid. We're making advertising investments to support the brands, driving some great innovation but we know that there are categories that are weak and we are watching those volumes. But we're doing all the right things to make sure that we're driving our shares and supporting the brands.

Ken Goldman:

I just wanted to clarify something. Last quarter, your slide presentation said to expect back half profit growth in all 3 segments. Today, I think you're saying you'll just see profit improvement. Maybe it's just semantics but I'm just trying to get a sense, do you still expect each segment's profits to increase year-on-year in the back half where now the messaging just will improve sequentially and maybe not all be up year-on-year. Again, maybe just semantics.

Ken Goldman:

Perfect. And then just on foodservice. Obviously, your tone is pretty strong here. There are some more macro indications that on the edge, some slowdown in restaurant demand is out there. Last quarter, you were seeing higher checks despite traffic softness. You still saw restaurants staffed for all hours. I'm just curious, are there any amendments at all, I guess and how you view the away-from-home situation from a macro perspective or any of those KPIs that you look at?

Operator:

The next question comes from Michael Lavery of Piper Sandler.

Jim Snee:

Yes. Great question, Michael. And actually, the conversation does go back to what we said in Q4 and in our outlook for the year we had, specially mentioned some targeted pricing. But I think to go along with that which is really, really important is that we are investing in our brands and where we've invested higher advertising dollars to drive volume, to improve mix, we've got some great innovation that continues to be generated across many of the brands. And so it is -- it's broad-based pricing. Some of it's wrap around pricing. And just wanted to make sure that, that was clear that it wasn't new that we are going back to Q4 and I think what I'll do is maybe turn it over to Deanna to give you maybe some more specifics on what she's seeing in the retail environment.

Michael Lavery:

Okay, that's great color. And you mentioned the incremental headwinds on turkey from extended price pressure or worse than expected. Sorry, if I might have missed it and I know you touched on pretty much broad strength in at least the first quarter but what's the offset for that? Is it just sort of everything else? Or is there anything in particular that really is kind of keeping you to hold guidance that covers the extra pressure in turkey?

Operator:

The next question comes from Tom Palmer at Citi.

Jim Snee:

Yes. I mean the way we're thinking about it right now, Tom, is it's -- we're looking at half 2 in totality. And so that's why we think we're going to -- we want to talk about it that way that we'll have profit growth in the back half. And really, what gives us that confidence is, foodservice continues its trajectory. Our international team continues to ramp up their performance. The retail team will continue to benefit. We've got, in addition to what Deanna talked about innovation, distribution, supply chain continues their strong performance. And then we haven't talked about it yet but we do expect to see our transformation and modernization initiative really accelerate as we go throughout the year.

Jim Snee:

Yeah. I think, it's we're in the midst of that process right now, Tom. So it's hard to say at this point. When we think about Turkey, there's a couple of components that we really should spend a little bit more time on; there's this the value-added business. And when we think about retail lean ground turkey, that value-added business is doing really well and gaining share. Our foodservice team, because we've got volumes back and supply back, they're doing a great job regaining lost business due to that lack of supply in the foodservice channel. And so really, what we're talking about is the decline in the market which obviously we are applying to what our estimates are in the whole bird turkey business for the rest of the year. And so that's how we're thinking about it to actually know how it's going to shake out from now through the end of the year is still TBD.

Ben Theurer:

Congrats on this very strong results for first quarter. Jim, I wanted to kind of dig a little deeper into some of the volume dynamics and particularly in retail as it relates to the non-Turkey piece of it. And Deanna, maybe that actually a question also for you. As you look through the performance of the fourth -- the first quarter, sorry and you kind of progress further into 2Q and the back half of the year. What are your expectations for some of your other key categories in retail, in particular, as it relates to volume and the cadence of that, if you think about it on a sequential basis? Any color here would be much appreciated.

Ben Theurer:

Okay, perfect. And then, just one quick follow-up for Jacinth. On the bond that's due later in the year. Did you say you're going to plan on completely repaying it or partially repaying it? I didn't catch that in the prepared remarks. Sorry for that. I just wanted to clarify.

Operator:

The next question comes from Ben Bienvenu from Stephens Inc.

Jim Snee:

Yes, Ben, as we think about the impact of raw materials in the quarter, I mean, it was largely in line with what we expected. And the thing that we've talked about often is it's not necessarily a point in time for a market. It's the volatility and how each of those cuts are reacting. So I think the biggest thing to know is that the commodity markets really didn't have a dramatic impact in our ability to have such a strong quarter this year or this first quarter.

Jim Snee:

Yes. I'll go ahead and start on just the broader organization. I think we spend a lot of time on retail but I do think it's important to think about the total company volume growth. And international, again, had a really strong first quarter earlier than we expected but we expect them to show volume growth. Our foodservice business continues to be healthy that will be a strong contributor to the total company volume performance. But I'll let maybe Deanna address the retail question specifically.

Operator:

The next question comes from Peter Galbo of Bank of America.

Jacinth Smiley:

So the way we are thinking about it for the rest of the year, certainly, it's going to impact all the rest of the quarters going through the year. But we're thinking about the most of that impact coming in the second quarter and then the rest spread out. So if we think about the additional $0.05 that we talked about, so coming into the year -- last year, we talked about $0.10 impact as we updated and looked at the impact this year, we think there's going to be an additional $0.05 and the additional $0.05 is going to be spread out with the most of that $0.05 coming in the second.

Jacinth Smiley:

Yes. There is certainly some of it that happened in the first quarter, for sure, Peter. But it's a little bit minimal.

Peter Galbo:

Got it. And then, Jim, just foodservice, 1 question and maybe 1 comment. Obviously, quarter came in a lot better than a lot of the indicators would have said kind of back to Ken's question. Even to speaking about some of the headwinds from January. So just maybe wanted to unpack that more. And then I think in your prepared remarks, you said foodservice volume you'd expect kind of at similar level through the rest of the year. So I just wanted to make sure I understood that comment if it was just more of a positive volume trend on food service.

Operator:

The next question comes from Adam Samuelson at Goldman Sachs.

Jim Snee:

Yes. Okay. So Adam, I guess on the Turkey question with volume, what we were saying is that we had expected Turkey volumes to grow which they did. But then, we also saw growth in underlying volumes in our broad-based value-added businesses. So that's how we're thinking about that. And then really for foodservice volume growth, we expect that to be in the mid-single-digit range.

Jim Snee:

Well, there's a lot there, Adam. I think from our perspective, I think, there's 2 things. I want to go back to the reason we reaffirmed our guidance is it's early. But I think the second part in terms of -- as you think about trying to parse all of that apart, I know you'll have a follow-up call with David and that's probably a really good time to walk through all those different parts.

Jim Snee:

Well, I want to thank all of you for joining us this morning. We're really pleased by our overall performance in the strong first quarter that we were able to deliver. This is a result of a total team effort and I want to take the opportunity to thank all of our teams. It's early. We know we have a lot of work to do to deliver the numbers we want to deliver for the balance of the year. But as I said earlier, we are executing our strategy and we have confidence that the business will keep moving in the right direction throughout 2024. Thank you, everyone.

Operator:

Good morning, ladies and gentlemen, and welcome to the Hormel Foods Corporation Fourth Quarter Earnings Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded on Wednesday, November 29, 2023. I would now like to turn the conference over to David Dahlstrom, Director of Investor Relations. Please go ahead, sir.

Jim Snee:

Thank you, David. Good morning, everyone. Fiscal 2023 was a challenging year for the organization as we navigated an environment that remained volatile, complex and high cost; regardless, our results did not meet our expectations. We still achieved our second consecutive year of net sales in excess of $12 billion, continued to reinvest in the growth of our leading brands, drove strong operating cash flows of $1 billion, returned a record amount of cash to our shareholders in the form of dividends, and achieved the safest year in our company's history. We also made further progress on our evolution as a global branded food company, including the implementation of our Go Forward operating model and the integration of Jennie-O Turkey Store. As we turn the page to fiscal 2024, there is urgency across the organization to improve our business. And as we outlined at our recent Investor Day, we have identified a clear, realistic and achievable path to return the business to its historical earnings trajectory. Our focus going forward is clear

Operator:

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] We have our first question coming from the line of Adam Samuelson from Goldman Sachs. Please go ahead.

Jim Snee:

Good morning, Adam.

Jim Snee:

Great. Yeah, thanks, Adam. I think, the best place to start is to remember that, I mean, our underlying portfolio here is showing growth. And as we called out in the remarks, there is a significant downturn in the turkey business, especially in Retail, with the biggest impact we expect in Q1 and Q4. More specifically to your question about how we think about the range, the range is consistent with what we've had in the past. And we take into account all of our traditional assumptions. But as we think about what could move us higher, better-than-expected volume mix, depending on what does happen with the turkey market, we've got this fall outbreak that just continues to escalate, that can certainly have an impact going forward. The other part is, as we think about the work that's underway already for some of our savings initiatives, our ability to over deliver there. On the flip side, the same holds true on turkey markets, right? If we continue to see some of those declines, that would take us to the other side. And then, I think the part that we're all watching very closely is what's happening with some of the macro issues. In our business specifically, what's going to happen in our International business, the China recovery. When we think about price elasticities in Retail, how do those impact the business for 2024. And so, those are the things that we're thinking about and watching. But, again, when we roll this business up, we feel like we're in a good place that we've built in the right amount of risk when we think about the turkey business, the right amount of growth in the underlying portfolio which, from a retail perspective, absent turkey, we're seeing growth across almost all of the retail verticals. Foodservice will continue its strong performance. And we do expect International to start to recover after Q1. So hopefully, that gives you a little bit more clarity on that range.

Deanna Brady:

Thanks. Good morning. As we think about pricing, we've had a lot of pricing over the last two years. A lot of that pricing has been reactive. And as we sit here today, we are in a position to be thinking about it proactively. First of all, we'll be leveraging our modernized revenue growth management practices and really taking a robust look at our flagship and our rising brands, which are designed to drive higher growth. We're investing in those brands for growth. And as we think about those brands and their position in the category, we'll be thinking about the COGS and whether the commodity inputs to those areas are suggesting an increase. We'll also be thinking about what is our long-term ambition and what are the needs for us to be able to invest into these brands to continue to grow. And so, some of that will require some consideration in regards to pricing so that we can have additional dollars for trade as well as advertising and innovation. As we think about elasticities, elasticities in our mind and what we're seeing are back to the pre-COVID levels. And so, it's important that we take those elasticities very seriously because they are moving, and moving pretty quickly. The other factors that we're thinking about is our position in the category. And definitely at this point, we'll be more targeted and surgical about our reaction. And then my final thing is, it doesn't have to be price as well. There's obviously trade. And trade, prior to COVID again, was pretty -- there's a lot of categories that are pretty inelastic. And so, there are dollars to be considered from a trade perspective that we can redirect those dollars into other tactics that will enable us to grow the business. Thanks.

Operator:

[Technical Difficulty] We're not receiving any response from Mr. Galbo's line. We're moving over to the next question. Our next question comes from the line of Rupesh Parikh from Oppenheimer.

Jim Snee:

Yeah, I mean, Rupesh, I think the elasticities that Deanna is talking about, we know that we're back to pre-2019 level. So, we have to be thoughtful about how we're -- what levers and how we're pulling them, when we think about pricing, when we think about promotion, when we think about advertising, making sure that we are connecting with that consumer to drive the demand. But -- I mean, we also understand the amount of pricing that's gone into all these categories over the last couple of years, and it's been very, very significant. And I don't believe that consumers have fully digested all of the pricing that has still come through. So, I think it's a work in process. To Deanna's point about our positions in the category, that's really, really important as we think about those number one and number two positions that we hold. But through all of it, I think, again, the key takeaway here is this underlying portfolio, ex-turkey, in Retail especially, is planned to show volume growth in 2024.

Jim Snee:

Yeah, Rupesh, I am going to let Deanna maybe elaborate on that a little more consistent with what she said the first time. So, why don't you go ahead, Deanna?

Rupesh Parikh:

Great. Thank you. I'll pass it along.

Peter Galbo:

Hey, guys. Good morning. Can you hear me okay?

Peter Galbo:

Great. Thanks. Maybe just one quick one clarification. Jacinth, did you give a net interest expense guide at all on the quarter -- I'm sorry, for the year? I think you have a bond that's going to come due in June that will need to maybe be [refied] (ph). So, maybe if you could just elaborate on that?

Peter Galbo:

Okay, got it. That's helpful. And then just maybe, Jim, in the conversation around elasticity, I guess what's been more notable is just the impact from kind of the reduced SNAP payments maybe took a bit more time to start impacting volumes than others expected. Can you just talk about what you're seeing in real time? [indiscernible] I would think at least some exposure there, but what kind of the SNAP impact has been? And then maybe when you think it starts to get better or even modestly flip to a tailwind? Thanks very much.

Deanna Brady:

The only thing I would add is, it's very fluid. We're watching it all very closely. I was talking to Jim and Jacinth yesterday, and I commented that I didn't used to keep such a close eye on the four-week turns, but in this environment, four weeks actually are signaling things. An example is, the last four weeks in our convenient meals and protein category showed an improvement over what we saw in the fourth quarter in some of those areas where we felt that there was pullback from the consumer. And so, we're keeping a close watch really on all our categories, our consumer, and working closely with our customers to navigate the macro environment that the consumer is facing. Thanks.

Operator:

Thank you. We have our next question coming from the line of Michael Lavery from Piper Sandler. Please go ahead.

Jim Snee:

Yeah, I think, Michael, the question you're asking about what's it going to take. I think the turkey supply situation is in a unique situation right now because we had supply coming back. And obviously, as supply was coming back, there was a lot of work being done to restore the demand side of the business. And I don't think those were yet perfectly aligned. So, I do believe from a supply side, as we sit here today, the supply is adequate to support the business. Now, how long does it support the business? How long do some of these outbreaks last? I think that -- those are the uncertainties and the volatility that we talk about in this outlook. And so, as we do think about what we've built in to our outlook, we expect the turkey headwind across the enterprise to be about $0.10. And big part of that is it's a high volume business when we think about the whole turkey business. Again, you go from all-time high to dropping below a five-year average, and then, where does it go from here. And so, as we sit and -- as we sat and worked through it, that was our estimate in terms of the impact of the business. Now, I think the other part of this to remember is, our job is to continue to set this business up for success. And so, we continue to talk about right-sizing and optimizing this business' portfolio so that it does become more demand-driven, more value-added. Think about lean ground turkey, the work that we're doing on the Foodservice side of the business, work in the K-12 channel. So, I mean, all of that factors into our outlook as we're thinking about that in 2024.

Jim Snee:

Yeah, so the last question, Michael, we'll probably have David follow up on the split for you. He can have those conversations. I do want to just take a step back here and just review the work that we've been doing and the path that we've been on and why this is so important to us. We go back to the One Supply Chain initiative back in 2018. That was more structural to provide consistency and one look across the entire enterprise. Now, we followed that up with Project Orion, which was to update, modernize our foundational ERP system across our support areas, HR, finance, and accounting. And we wanted to get to supply chain, which clearly we never got to because of COVID. And so, as now we're talking about this transformation and modernization, in a lot of ways, it's a continuation of really finishing the work that we've started. And so, the order-to-cash, end-to-end planning, those things were always in scope. But as we've progressed, what we've really been able to do is enhance the work that we want to do. And so, think, portfolio optimization is something that initially wasn't in scope for us. So that is an enhancement. And so, it is a continuation in some ways. It's an enhancement, and it's an acceleration. So, we've been doing a lot of this work and our goal now is to finish the job. And Jacinth, I guess, so any of the financial numbers that you want to add?

Operator:

We have our next question coming from the line of Ben Bienvenu from Stephens Inc. Please go ahead.

Jim Snee:

Yeah, thanks, Ben. There's a couple of things at play there that have us confident beyond Q1. The first thing is when we talk about some of the impact of the price elasticities on our branded business, we've done a lot of work to, again, pull the right levers to drive demand, and we've been able to have a positive impact. And so, we do believe that we'll see the branded export business pick up beyond Q1, and that'll carry us through the balance of the year. The second part is this improvement in our business in China. And so, it's early in 2024, but we are seeing some moderate improvement across Foodservice and Retail. But we're expecting that to accelerate as we move throughout the year. And then, the third thing really is there was a commodity impact to International this year. And so, as we continue to build demand on turkey and other pork items elsewhere, that's less that International will be exporting at lower margins. So, we will expect to see that improvement also as we progress throughout the year. So, really those three factors are what are leading to us to have that optimistic outlook beyond Q1.

Jacinth Smiley:

Good morning. So, the short answer to that is no. So, over this period, we're executing the transformation and modernization, which we have, at the moment, [bookend] (ph) until 2026. We will be in a non-GAAP reporting methodology during that period of time, primarily to just really give good visibility to the underlying core performance of our business and so that there is no confusion there, and then to be able to bucketize the savings that's being driven by the transformation and modernization.

Ben Theurer:

Yeah. Good morning, Jim, Jacinth and Deanna. Thanks for taking my question. The first one is on Foodservice, actually, and just to understand how you can potentially further accelerate this business, given the strength you had throughout the year and again in the quarter. It's becoming a really important piece of the equation representing almost 50% of this year's profits. So, just wanted to understand what are like the opportunities you're seeing within Foodservice to really keep that growth momentum into 2024 as it helps offsetting some of the pressure on the Retail channels? That would be my first question.

Ben Theurer:

Okay, perfect. Thank you very much, Jim. And then, a quick follow-up for Jacinth on the guidance. Can you give us or share us your expectations as it relates to, one, CapEx, and two, just corporate expense in fiscal '24? How we should think about these two items?

Jim Snee:

I would just interrupt there, Ben, I think we did talk about this in our Investor Day is that, we've got, as I just mentioned for Foodservice, available capacity. So, some of the CapEx investments that we've been making over the last several years, we won't have to make this year. And so, while the dollar amount remains the same, the mix of projects in there will be different.

Jim Snee:

And the work that we're going to do to support our brands, Ben, when we think about advertising and continuing to support the brands in the marketplace, that remains high, high priority for us.

Jim Snee:

Yes, thank you. And I want to thank all of you for joining us today. While 2023 didn't play out quite like we had planned, there were a lot of great accomplishments that will set this company up for future success. I remain confident we have the right strategy, brands, people, and culture to deliver growth well into the future. Again, thank you for joining us today, and I hope you all have a happy holiday season.

Operator:

Good morning, and welcome to the Hormel Foods Corporation Third Quarter Earnings Conference Call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to David Dahlstrom. Please go ahead.

Jim Snee :

Thank you, David. Good morning, everyone. In an increasingly dynamic and competitive environment, we grew volume across all our segments, delivered adjusted diluted net earnings per share in line with last year and made further progress addressing the near-term challenges impacting the business during the quarter. This progress included reducing inventory, continuing to build momentum in the Planter snack nuts business and driving adjusted operating margin improvement compared to last year. Reducing inventory to more historical levels remains a top priority for the company. Our actions to rectify the inefficiencies caused by elevated inventory are working, demonstrated by a sequential reduction in dollars of both finished goods and total inventory. The value of finished goods inventory ended the quarter at its lowest level since the same time last year, representing meaningful improvement. We expect further declines in the fourth quarter and also plan to achieve our day sales and inventory target by the end of the year. We also drove improvement in our Planters business, supported by another quarter of higher shipments and positive results in consumption data. For the quarter, 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. Volume trends remain encouraging as well with above category performance over the last 6 months. And more recent data shows Planters volume and dollar shares have inflected into positive territory. The launch of our innovative flavored cashews is meeting expectations, and we are seeing strong acceptance from our customers. While early, our flavored cashews are overindexing with younger consumers as we see the benefits of leveraging our brand equity to drive excitement for the category. We are supporting the launch with social and digital activities as well as a national TV ad campaign. And we recently launched an LTO for the fall season, Apple Cider Donut flavored cashews which we expect to drive incremental volume and attention for the category. Momentum continues to build in our snack nuts business as we benefit from regained distribution, investments in innovation and effective promotional support. We continue to do our part as the category leader to support the Planters and Corn Nuts brands to drive growth for our business, the snack nuts category and for our customers. Lastly, we continue to make progress in improving our margin structure with adjusted operating margin slightly ahead of last year. Margins benefited from demand for our premium items in Foodservice and growth from the retail SPAM and Black Label bacon portfolios, areas we have invested in heavily over the past 3 years. We also more than overcame the positive mix impact from strong Skippy sales in turkey markets last year, as well as a 15% increase in advertising investments to support our brands during the third quarter. We expect our highest operating margins of the year in the fourth quarter aided by a seasonally strong sales mix and savings from a series of projects aimed at reducing costs and complexity throughout our system. Our third quarter results reflect the strength of our leading brands and the value of our balanced business model. Investments into our brands and continued improvement across our supply chain have generated positive performance in the marketplace. Volume growth for the quarter was broad-based, driven by a recovery in turkey, elevated demand for many of our Foodservice items, and growth from leading retail brands, including SPAM, Black Label, Planters and Hormel Pepperoni. On an adjusted basis, diluted net earnings per share for the quarter was $0.40, even to last year. Compared to our outlook heading into the quarter, we absorbed unexpected earnings headwinds of $0.02 to $0.03, resulting from much weaker results in our International segment and supply chain disruption caused by a third-party logistics provider shutdown. Looking to our segments, our Foodservice segment delivered balanced volume gains and another quarter of segment profit growth. Volume for the quarter increased, driven by growth in our affiliated businesses and strong demand in many branded categories, including pizza toppings, premium bacon and breakfast sausage and premium prepared proteins, brands such as Cafe H, Fire Braised, Fontanini, Old Smokehouse and Bacon 1 delivered volume gains compared to the prior year. Net sales declined 3% due to lower market-driven pricing. For context, the average selling price per pound decreased 5% compared to last year, resulting from input cost deflation. As anticipated, our Foodservice business leveraged its differentiated capabilities to drive double-digit segment profit growth, led by better volumes and improved mix. Our team continues to successfully manage pricing and cost dynamics. They continue to actively engage with operators through our direct selling model and they continue to innovate to address key operational issues such as labor, prep time and complexity. Industry data from Technomic is also supportive of growth for our business, with operator sentiment steady, industry employment improving and dollar sales increasing. Inflation in the channel has also slowed for the fourth consecutive month. We expect a strong finish to the year from this team, driven by growth from premium items, further recovery in turkey, and as the team leverages its capabilities in the K-12 and college and university channels this fall. In our Retail segment, we grew volume in key categories and saw a recovery across the turkey portfolio. For the quarter, we delivered volume growth in 4 of our 6 retail verticals. And those verticals were value-added meats, bacon, snacking and entertaining and emerging brands. Volume and net sales improved for the value-added meats vertical, primarily due to higher turkey volumes. The team is heavily focused on regaining distribution of our value-added Jennie-O products and managing turkey supply through the current recovery period and upcoming holiday season. The bacon vertical again delivered excellent results due to elevated demand for Black Label items and favorable input costs for most of the quarter. Over the last 52 weeks, Black Label bacon has grown share in household penetration by 1 point each. Our strategy to offer a wide variety of both raw and pre-cooked items in the marketplace has been successful, as we grow our business in the large and highly relevant bacon category. Our team is executing our brand strategy while maneuvering through the market volatility we are currently experiencing. Volume gains for the snacking and entertainment vertical were led by Planters snack nuts, Corn Nuts Corn Kernels, Hormel Pepperoni and Hormel Gatherings Party Trays. In addition to improvement for the Planters snack nuts business, our Pepperoni and Hormel Gatherings businesses are healthy, demonstrated by household penetration gains for these brands during the quarter. We expect holiday demand and promotional support to drive a strong end of the year for the Planters, Hormel Gatherings and Columbus brands. Our Applegate business posted another quarter of volume and net sales growth, led by our frozen line of breaded chicken and breakfast sausage. Many products also outpaced category dollar sales growth during the quarter, including breaded chicken, breakfast sausage, bacon and hotdogs. The team also introduced Applegate naturals for Frittata Bites, the industry's first and only certified humane frozen egg bites. In the fourth quarter, we expect to benefit from expanded distribution for the Applegate brand and from new capacity to support our popular line of frozen breakfast sausage. Net sales of global flavors items were comparable to last year, while pricing actions, operational gains and favorable input costs on avocados drove equity and earnings improvement for our MegaMex business. The Herdez brand remains relevant with consumers, outpacing category growth for dollar and volume sales in La Salsa, taco sauce, hot sauce, refrigerated guacamole and refrigerated salsa categories. Convenient meals and proteins net sales declined as higher sales to SPAM varieties and Hormel Chilli were more than offset by the difficult comparison from high levels of demand for Skippy spreads last year. We continue to gain distribution on both innovative and core items during the quarter, which helped alleviate some of this pressure. In the fourth quarter, we have numerous programs in place to engage consumers at the store level and online with reminders of the value offered by our products. These efforts are expected to help offset the impact of elasticities and as consumers utilize their pantry supplies. We also secured additional capacity for Skippy peanut butter which should help meet the elevated levels of demand we continue to see. Segment profit for the Retail segment declined due to unfavorable mix and increased brand investments partially offset by the impact from pricing actions across the portfolio, improved bacon volume and higher equity and earnings from MegaMex. Our Retail business is benefiting from market share gains innovation, new distribution, higher fill rates in key categories and effective advertising and brand support. However, there remains volume pressure in many categories across the store. Strong execution this fall and holiday season will be key to delivering our outlook. Our International segment remained challenged during the third quarter and the inflection we expected in this business did not materialize. Segment profit declined significantly due to unfavorable pork and turkey commodity markets, softness in China and lower branded export demand. Commodity fresh pork and turkey volumes were strong during the quarter, though depressed pricing led to weaker mix, especially on turkey items. The commodity environment is expected to remain unfavorable for the balance of the year due to high inventories of freezer stocks in key export markets. In China, Foodservice sales improved sequentially throughout the quarter, growing 14% compared to last year. However, retail sales remained soft as we lapped difficult comparisons to last year and as consumer demand in the retail channel slowed considerably. Near term, we expect our Foodservice business in China to grow, which should help to offset continued softness in the retail channel. Lower retail sales are anticipated to have a negative impact on China's profitability for the remainder of the year. As we've reiterated over the past few quarters, our strategy is to grow our global brands, multinational businesses in China and Brazil and partnerships around the world are sound. Our international team is confident that these situational dynamics will abate, allowing for our teams to resume delivering accelerated growth. Turning to our outlook. We remain focused on driving volume and earnings growth as well as delivering on our commitments to improve our business. The operating environment domestically and abroad continues to be dynamic and we anticipate consumers and operators to remain highly intentional in their spending. Our broad portfolio of products and diversified channel exposure position us well in this regard. As we close the year, we expect a strong finish from our Foodservice segment, incremental savings from a series of projects aimed at reducing cost and complexity throughout our system and further synergies from our implementation of Go Forward. Additionally, we expect continued softness in our International segment and earnings pressure from heightened competition at retail. We are assuming increased promotional activity this fall in the retail channel as consumer demand moderates to more historical levels and as industry-wide supply chains continue to improve. We also expect an impact from resumed student loan payments, which could pressure overall consumer spending in the U.S. Taking these factors and our performance to date into account, we are providing fourth quarter guidance and an updated outlook for fiscal 2023. For the fourth quarter, we expect modest volume growth, which assumes growth from the Foodservice segment, continued recovery in turkey and improved fill rates in key categories. Fourth quarter net sales are expected to be between $3.1 billion and $3.6 billion, reflecting our current assumptions for raw material input costs in the fourth quarter. Full year net sales are expected to be down 4% to flat. We expect fourth quarter diluted net earnings per share to be down from last year, which accounts for continued weakness in the International segment and lower retail segment results. Full year diluted net earnings per share are expected to be $1.51 to $1.57 and adjusted diluted net earnings per share are expected to be $1.61 to $1.67. We believe our continued investments into our brands, disciplined financial strategy and balanced approach across our businesses position us well for future growth as we close a challenging 2023. At our upcoming Investor Day, we plan to provide an update on our fourth quarter assumptions and outlook and further detail on how our investments and transformational efforts as a global branded food company are expected to drive earnings growth in the future. We look forward to hosting many of you in person at our mid-October event. At this time, I will turn the call over to Jacinth Smiley to discuss detailed financial information related to the third quarter and additional color on key drivers to our outlook.

Operator:

[Operator Instructions] Your first question comes from Ben Theurer from Barclays.

Jim Snee:

Yes. Ben, it's a really, really good question. So we've done, obviously, a lot of thinking about that and there are some things that are uniquely different and the conversation that we had at the end of Q1 and the conversation we're having today. If we take a step back, to the Q1 call, really what we were talking about were more internal dynamics, when we talked about and identified those near-term challenges in Q1. And as a reminder, as you said, it was our inventory situation, the performance of Planters and then the cost margin implications and work that we had to do there. And you fast forward 6 months from that time frame and really, really good progress against all of those near-term challenges. And we feel really good about the work that the team has done. But as we sit here today, the conversation is different, and the conversation is driven more by what's happening in markets, some of the competitive activity and really overall consumer dynamics. And so those are very uniquely different conversations. More specifically, as we've thought about the fourth quarter, and I think it's important to get that out there, what has changed for us. Well, our Foodservice business hasn't changed. We expect that business to remain well positioned, continue to deliver growth, continued segment profit growth in Q4 on higher volumes. Our International business, I think what's changed there is that it is weaker than we anticipated the last time that we talked. We had talked about an inflection point in China. And we haven't seen that, especially on our retail business. We've talked about some elasticities in our international SPAM business, primarily in the Philippines. That's a sizable legacy market, and we've seen significant pricing activity over the last several years. But with that came some higher-than-expected elasticities. The team has already done some work to really drive consumer demand. We're seeing a rebound in offtake and so there is a really good plan in place for recovery there. We've also talked about some of the commodity headwinds at International -- and so what we anticipated there is weaker than we thought. And just in total, how do you overcome that? I mentioned the work that we're doing on SPAM. The China piece, the macroeconomic issues, there's a lot of moving pieces there. And so we're continuing to work on retail with innovation, new distribution, but we need to see that accelerate. Our Foodservice business continues to do well. We're aligned with some multinational business there that continues to perform. And then when you get to the Retail segment, I mean, that's the part of the business, Ben, that's a bit more nuanced. And it's good to have this conversation because as a reminder, in Q4 of 2022, we had a really strong turkey performance in the fourth quarter of 2022. And a lot of that benefit was allocated to retail in our restated financials. That expected to be able to overcome that. And that's how we looked at the business for the balance of the year. However, we're seeing some heightened challenges across the channel. I think we can see what categories have done in general, promotions are higher as volumes remain soft across a lot of the categories, a lot of the aisles. Our team continues to do work. We're holding our shares in the marketplace. The execution at the sales level is actually really, really good. But we know that, that's going to continue to be an area that's challenged. The area where we've seen the most change really is our expectations for turkey. And as we said last quarter, we didn't expect this to be a flip to switch event and that it was going to take some time. We did expect it to happen faster. It's been a little slower than we expected. And so that's really where probably the biggest change has occurred for us. And I do want to say, though, if we take the turkey out of our volume figures, there's still really good underlying volume growth on a consolidated basis. But what changed is our lean ground turkey business. We've talked about really just getting back into business. We knew that we had to sacrifice a lot of distribution during AI, and it didn't come back as quickly as we thought. Now what I will tell you is some of our recent results are really showing the benefits of investments that we've made to drive consumer engagement. So we are seeing improvement. Lots of work to do, but lots of opportunity for growth. And then the other part for us is we did expect a really strong finish to the year on our whole turkey business. And started out strong, but most recently, we've seen some unique market dynamics and customer behavior that's really impacting both volume and pricing. Now that's a work in progress. We're still working through this as we speak. And then the last part that's newer news is we've had some really, really hot weather here in the Midwest, at the end -- middle to end of August and expected again this weekend. So we have unfortunately lost some birds that will have an impact on our business in the fourth quarter. And so I know it's a long-winded answer, but I think it's necessary to really put into context what's changed for us. But as we look past all of that, when you say what can you do to overcome that or change that? I mentioned the work that we're doing and the performance of our brands to hold shares in the marketplace. Our Planters business is definitely going in the right direction, regaining distribution, some fantastic innovation that's in the marketplace, really capitalizing on investments that we've made, being able to secure some additional Skippy capacity because that demand remains really strong. Continued benefit from our supply chain as our fill rates continue to improve. So there's a lot to be encouraged about. But your question is a good one. And hopefully, that gives you some better context as to the differences in our business but also the differences in the conversations that we've had.

Peter Galbo :

Jim, thanks for all the thoughts. I guess just maybe a follow-up to Ben's question or to put a finer point on it, one of the big questions we are getting this morning is just within the range of outcomes in 4Q in your guidance, it still seems like there is a fairly wide range, a $500 million range on revenues at least. So just, I guess, within the context of that, you talked about all of the headwinds, but I guess what could go right that would push you maybe towards the higher end of that versus the lower end of that I think might be helpful.

Peter Galbo :

Got it. Okay. That's helpful. And you touched on this a little bit, Jim, but I think in the context of bellies and this may have been in the prepared remarks as well, give us a sense, something maybe in real time there. The July move was outsized even relative to seasonality. You played a role in that. But just -- you saw that run up a decent amount. It's come back a bit. Just what are you seeing in real time given that it does impact a meaningful part of the business?

Operator:

Your next question comes from Ben Bienvenu from Stephens.

Jim Snee:

Yes. Ben, that's a good question. And that's really what we're focused on is we know we've got some of these near-term challenges in Q4. A couple of things that we talked about that are really, we think, immediate or more closer in improvement, so when we talk about the SPAM business in International, we're seeing that improved offtake. And so we expect that business to be better in Q1. We talked about the lean ground turkey business. And so that really is just that continued acceleration. And we've seen recent improvement in that business. So that's only going to continue to get better. We're in the middle of the whole bird thing and that will shake out here between the end of Q4 and early Q1 given the timing of the holidays. The competitive dynamics in the domestic retail business outside of what we've talked about, I think our team is doing a really good job in terms of marketplace execution. We are now seeing some cost favorability trends. I think our innovation pipeline that we're seeing is really robust. So there is a lot to like outside of some of the things that we've talked about. The part that is still a wildcard is the macro issues in China. Obviously, we've said earlier, we thought there'd be an inflection point, and we were wrong. So we're going to continue to do our work there in terms of driving distribution, the focus on innovation, getting our Foodservice business to continue to grow. And so we are optimistic about what the future holds. But clearly, we've got some of the short-term challenges that we're addressing.

Jim Snee:

Yes. I think your -- the things that you're talking about are the things that are going to drive that business into 2024. And again, when we talk about the nuances of the turkey business. And this is going to get it a little bit in the weeds here, Ben. But when we think about how maybe our lean ground business didn't accelerate as quickly as we thought, while there was some turkey that international had to sell, and those market conditions were depressed. And so as our lean ground business regains distribution and accelerates, there'll be less of that commodity type sale that they'll have to endure. And so that's a positive for us. You're right on the feed costs. I mean, we expect that to be favorable as we head into 2024 and breast meat prices should be more in line with more historical levels. So we haven't done the math yet to say how is that going to shake out in total but I think the bottom line, and we said this a couple of times throughout the year, is that turkey is an important part of this portfolio. When we think about it from a Foodservice perspective and we have it in our Retail portfolio. It's good to have turkey back. And for us to be able to operate in a more normalized environment over time, I mean, that's really where we're at our best, and that's what we want to get to.

Rupesh Parikh :

I know it's a little early, but just curious if you can give any puts and takes as you guys look to FY '24. And would you expect at this point to return to growth next year?

Jacinth Smiley:

Yes, certainly. Rupesh, Jim has talked about a lot of the headwinds and some of the tailwinds here and things that we're working through from a market and customer consumer standpoint, there are a lot of other things we're also doing in parallel here as we think about getting back to the margin structure that we have talked about before. And so we're heavily focused from a project standpoint, working through how do we get our portfolio more healthy. And so there are a couple of projects I'll just throw out here that we'll talk more about in Investor Day as we think about portfolio segmentation and optimization, continuing on with Project Orion as we think about our supply chain and the effectiveness there and building out the right infrastructure to support this business as we continue to evolve and modernize and just also thinking through advancing on different areas from an end-to-end planning standpoint and continuing the transformation and getting the cost out of our system internally from an effectiveness and efficiency standpoint. So there is a lot of work going on in parallel as we deal with the tactical to operate the business. We're also thinking about long-term growth and setting this business up as I said, to continue to return to a margin structure and expanding margins from where we are today.

Operator:

Your next question comes from Tom Palmer from JP Morgan.

Jim Snee:

No, that's correct, Tom. I mean I think at this point in the year, you'd see some higher bookings but as the market has declined, I think there is a bit more of a wait-and-see mentality and so that's really what we're talking about when we're saying that there's some unique market dynamics.

Deanna Brady:

Tom, this is Deanna. Thanks for the question. This isn’t new for us, although it’s new probably over the last couple of years as companies have pulled back on promotions just because of supply and high demand. So this isn’t new for us. And having promotional activity as well as a balance with our baseline business is really normal, but it hasn’t been normal in the last few years. So as we re-enter promotional activity, we have the opportunity to really think about it strategically and to leverage our revenue growth management team and price pack architecture work to really inform and sit down with the retailers to say, how do we do this, that’s really positive for both of us. And how do we ensure that we’re meeting the consumer and that we’re reminding the consumer about our products the value that they provide as well as keep them coming in the store, either in-store or online. And so we’re thinking about both our digital activation, our in-store activation. And it really goes beyond just a promotion or price point. We need to make sure that we have advertising in place as well. We need to make sure that we have innovation. So I point again to the Planters example where we have innovation, coupled with advertising and promotion in place and it’s working. From other categories, we’re really, again, as we re-enter promotional, trying to do it as smart as we can, I point to bacon. We’ve had a lot of good activity and growth in bacon this past year. We’ve had a cadence of promotional activity at bacon, advertising, as well as we’ve got innovation coming in the bacon category that we’re really excited about in 2024.

Operator:

[Operator Instructions] Your next question comes from Adam Samuelson from Goldman Sachs.

Jim Snee:

Yes. I think that's fair to say, Adam, is to be slightly down year-over-year. That's really due to some of these Q4 issues that we've talked about.

Jacinth Smiley:

So Adam, I'd say for all the reasons that Jim talked about in terms of just the dynamic that we're seeing here and just the volatility, that is exactly why we have the ranges that we have as we sit here at the moment.

Jacinth Smiley:

All mix, right, all mix driven. You think about the mix between even from a commodity standpoint and where markets are priced, it really depends on what that mix looks like? I mean you could have it a drag on the top line where you have really strong volume hitting your top line and just depending on where markets are, doesn't necessarily fall through on your margin line.

Jim Snee :

Yes. Thank you. 2023 has certainly been a challenging year, but we continue to make great progress to addressing the near-term challenges. Our continued investment into our brands, our disciplined financial strategy, our continued balanced approach across our business all position us very well for future growth. My sincere thanks to all the hard work being done by the Hormel team to set us up for future success. And I want to thank all of you for joining us this morning and hope that you all have a safe Labor Day weekend.

Operator:

Good morning, and welcome to the Hormel Foods Second Quarter 2023 Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to David Dahlstrom, Director of Investor Relations. Please go ahead, sir.

James Snee:

Thank you, David. Good morning, everyone. We had clear priorities heading into the second quarter, and our results demonstrate our team's ability to execute on those commitments, deliver results in line with our expectations for the quarter and most importantly, keep us on track to drive growth in the back half of the year. Before I dive deeper into our quarterly results and reaffirmed outlook for the year, I want to start this morning by providing an update on the progress we have made addressing inventory levels, improving our margin structure, stabilizing the Planters business and continuing the implementation of our Go Forward operating model. First, I'd like to discuss the progress we made rectifying the inefficiencies caused by elevated inventory levels. This was a top priority in the company during the second quarter, and we took immediate actions to sell excess nonproductive inventories to slow manufacturing in areas where supply was exceeding demand to bring back outside production into our facilities, allowing us to better utilize new and available internal capacity, and we implemented several changes to our demand and supply planning processes. As anticipated, these actions had a margin impact during the quarter, but were necessary to bring inventory levels into greater balance. For the back half of the year, we have further plans in place to responsibly manage and lower inventory levels and all costs associated with these actions are accounted for in the outlook. As a result, we expect to begin fiscal 2024 with benefits from better process control, lower freight and warehousing expenses, lower distressed sales and higher investment income resulting from an improvement in our cash cycle. Second, we continue to make progress improving our margin structure as evidenced by a sequential increase in operating margins during the quarter, even with our actions to reduce elevated inventory levels. In addition to managing costs and driving supply chain savings through continuous improvement programs, our inflation-justified pricing actions are leading to gradual margin improvement. We have announced targeted pricing actions effective at the end of the third quarter on additional retail items and are evaluating further pricing actions accordingly. Another way we are actively improving our margin structure is by optimizing promotional and advertising spend. We demonstrated that discipline this quarter by responsibly shifting some advertising spend to promotions, working with our retail partners to drive the best returns for our leading brands and growing the categories in which they compete. We are still expecting a year-over-year increase in advertising spend to support our leading brands. Specific to the second half of the year, our teams are focused on several projects aimed at reducing cost and complexity to further improve our margin structure, and we expect to see a return from some of these projects by the fourth quarter. Third, we took action to improve the Planters business. During the second quarter, we regained significant distribution and placements for the Planters brand, which started shipping at the end of the second quarter. We introduced much-needed innovation to the category with flavored cashews and new corn nuts varieties. And we shifted promotional resources to drive consumption for the Planters brand. The brand saw shipments increase 8% for the quarter, aided in part by the strong promotional execution. While early, data for the latest 13-week period on a volume basis indicates that the Planters brand is outpacing the packaged nuts and seeds category and is showing positive takeaway growth for peanuts and cashews. This summer, we are also running a national campaign for our new flavored cashews to maintain momentum for this business. Our progress during the second quarter represents a positive proof point in the turnaround for Planters. Planters remains at the center of our snacking and entertaining strategy and we are fully committed to the Planters brand, Corn Nuts brand and the Snack Nuts category. We know what we need to do to change the trajectory of the business and our teams are focused on accelerating the pace of change. Finally, we made further progress implementing the Go Forward operating model and standing up our brand fuel center of excellence. With the structure now mostly in place, we can better resource other long-term projects including advancing the supply chain work stream of Project Orion. We temporarily scaled back some work streams as we prioritize the integration of the Planter Snack Nuts business, our transformational actions at Jennie-O Turkey Store and the implementation of Go Forward. The supply chain work stream represents some of the most important and highest-return deliverables on the entire Project Orion roadmap. We have also kicked off a series of multiyear projects such as a modernization of our order-to-cash system, improvements to the end-to-end planning processes and a pilot project to implement new ways of working across the manufacturing network. We plan to provide more detail on these large-scale and strategic projects as well as our continued evolution as a global branded food company at our Investor Day in October. Results for the second quarter were in line with our expectations. From a topline perspective, sales declined 4% on a volume reduction of 6%. Volume declines were largely attributed to impacts across the turkey supply chain due to highly pathogenic avian influenza or HPAI in our supply chain last fall. In addition to the large headwind from turkey, net sales were negatively affected by significant pork deflation during the quarter. This had the most profound effect on the retail bacon and foodservice value-added portfolios. Diluted net earnings per share for the quarter was $0.40. Earnings' headwinds were understood heading into the quarter and included strategic investments to stabilize the Planters business, margin impact related to our actions to address inventory levels, challenging operating conditions in China, lower turkey sales, higher feed and pension costs and a higher tax rate. Turning to the segments. Strong bottom-line growth from the foodservice segment during the quarter and the benefit from cost relief in certain areas was offset by lower results from the Retail and International segments. Again, this quarter, we leveraged our long-standing relationships, differentiated product portfolio and direct sales team to drive growth for our foodservice business. Volume and net sales growth in the sliced meats, pizza toppings and premium breakfast sausage categories was more than offset by the impact of lower turkey volumes and lower net pricing, reflecting raw material commodity deflation. Our foodservice business remains extremely well positioned. We have available capacity to regain business lost over the last 3 years due to constrained supply, especially in key categories such as bacon and pizza toppings. We will also continue to lean into our world-class culinary team, innovative items and Food Forward mentality, all which further differentiate our business from the competition. At retail, we benefited from pricing actions and the strength of our leading brands, helping to partially offset the impact of unfavorable mix and higher operating costs. During the quarter, net sales growth from the global flavors vertical was more than offset by lower net sales across the other retail verticals. Like the foodservice segment, the impact of lower turkey volumes and lower bacon pricing were the primary drivers of lower topline results as elasticities played out better than expected in most categories. The MegaMex business housed in our global flavors vertical had another strong quarter. Net sales growth was led by the Wholly, La Victoria and Herdez brands. The pricing actions we have taken across this business to combat inflationary pressures, coupled with commodity relief on avocado inputs are leading to significant year-over-year gains in equity and earnings. Elasticities on this portfolio remain favorable and we expect to benefit from continued distribution gains from our innovation pipeline, including Herdez brand and Guacamole and refrigerated sauces. The bacon vertical also delivered another quarter of outstanding results due to strong demand for Black Label items and lower belly prices. Black Label raw bacon takeaway for the quarter exceeded 20% in volume sales. We are executing extremely well in the bacon category and anticipate continued growth in market share and household penetration, while benefiting from cost favorability. The convenient meals and protein verticals saw sales growth from many of its branded products, including chili, SKIPPY Peanut Butter, Square Table, refrigerated entrees, Dinty Moore Stew and Mary Kitchen hash. Overall net sales for the vertical declined due to lower contract manufacturing results as we prioritize higher-margin branded businesses. The convenient meals and proteins business has secured additional customer distribution for the back half of the year. And our categories, brands and household penetration growth trends remain favorable. Net sales declined for the snacking and entertaining vertical, primarily due to strong promotional activity for the Columbus brand last year. Planters branded volume increased 8% for the quarter while the Hormel pepperoni and Hormel Gatherings brands grew net sales double digits compared to the previous year. As noted earlier, we expect to continue to benefit from favorable customer resets for the Planters business and from distribution gains on our pepperoni items in the back half of the year. In the emerging brands vertical, Applegate drove growth for its frozen breaded chicken and breakfast sausage items. And the Applegate business continued to diversify its channel exposure, which is key to its long-term growth. Distribution gains in the mass channel and the strength of its e-commerce business are helping offset some weaknesses in the natural and organic channel. The final vertical, value-added meats was most heavily affected by lower turkey availability, leading to volume and net sales declines. We expect a strong finish to the year from this vertical due to higher Jennie-O Turkey volumes and positive trends in the deli. The retail environment remains extremely competitive and the benefits we've seen from Go Forward to better focus and resource our teams position us well to deliver our plans in the second half of the year. While the International segment remained challenged, the team drove excellent growth for the SKIPPY and Planters brands as well as another quarter of growth from the team in Brazil. Segment profit declined significantly due to lower sales in China and lower turkey export sales. In China, foodservice sales improved sequentially throughout the quarter, helping offset the difficult comparison to retail pantry loading and sales to food security programs last year. Though we have seen an acceleration in our foodservice business, a recovery in our retail business following the COVID-related policy changes earlier in the year has been slower than anticipated. The team in China has aggressive plans in place to drive improved results in the back half of the year. Limited commodity turkey supplies and restrictions on turkey exports continued to affect results as export turkey volumes declined 50% compared to last year. With the rebound in turkey supplies, we expect this headwind to lessen in magnitude in the back half of the year. The second quarter also marked the first full quarter of minority ownership in Garudafood, one of the largest food and beverage companies in Indonesia. Garudafood delivered returns in line with expectations during the quarter, and we look forward to further leveraging the strengths and capabilities of both companies to expand the business in Indonesia and Southeast Asia. International business is structurally sound and increasingly balanced. We are confident that the near-term dynamics will gradually abate, allowing our teams to resume delivering accelerated growth. We expect sequential improvement in the back half of the year on contributions from our branded exports, multinational businesses and partnerships around the world. Finally, it's important to note that we are experiencing a direct benefit from our multi-year efforts to align resources to value-added platforms and reduce exposure to commodity businesses. Since 2017, we have made many decisions to align our pork supply chain to the long-term trends of the industry, guarantee supply for our value-added businesses and reduce the earnings' volatility from commodity exposure. In this difficult commodity environment, we have benefited as a net buyer of trim and bellies. So we have absorbed significant losses on our harvest operations like others in the industry. We will continue to monitor long-term industry trends and where necessary, make adjustments that are supportive of our value-added growth strategies and our long-standing partnerships throughout the supply chain. Shifting to our outlook. We expect sales and earnings' growth in the back half of the year. Growth from the foodservice segment and an inflection in the International segment are expected to be the primary drivers of year-over-year gains. All the businesses are expected to benefit from a rebound in turkey volumes and improved fill rates in key categories such as bacon, pepperoni, snack nuts, and for our SPAM family of products. Coupled with the progress we have made on Go Forward, including standing up brand fuel, restructuring our sales teams and resourcing the marketing teams to better support our leading brands, we remain confident in our growth outlook as we continue to meet the needs of our customers, consumers and operators. On a related front, we have made significant commitments and investments to ready the business to serve our customers in California. As of January 2022, we have been Prop 12 compliant on a portion of our pork supply, absorbing the cost of compliance in our operations since that time. As we begin serving the important California market under new regulations later this month, we expect to begin recovering the cost from these investments. Considering these factors, we are reaffirming our full year net sales and diluted net earnings per share guidance ranges. We expect net sales growth of 1% to 3% and diluted net earnings per share of $1.70 to $1.82. We are encouraged by the progress we have made and our team's sense of urgency to address the near-term challenges impacting the business. At this time, I will turn the call over to Jacinth Smiley to discuss detailed financial information related to the second quarter and additional color on key drivers to our outlook.

Operator:

[Operator Instructions]. Your first question comes from Michael Lavery of Piper Sandler.

James Snee:

Yes, Michael, thanks for the question. I mean there's a combination of things as we think about the back half of the year. foodservice will continue to be a driver in our business as it has been this year and previous years. But as we think about the availability of turkey, when we think about some of the capacity that we now have with projects that have come online, our most recent SPAM line or expansion of pepperoni, the continued growth and performance of the Planters business, and then the other variable to consider is as we think about the back half of the year, although they're not there today, we've built in some higher markets for the back half of the year. So especially for those items where the pricing is more pass-through, you're going to have a topline impact but then all those other things contribute to both top line and bottom line. So those are the things that we really can control and that's what we're focused on as we head into the back half of the year.

Deanna Brady:

Michael, thanks for the question. This is Deanna. Relative to retail, we've taken pricing in Q2 in a few categories. We have a few categories we're looking at as we head into Q3. But we're being extremely mindful to protect both our margins, but also to protect our relationship with our customers and our consumers. I think when we approach the retailers with the right information that support the price increase, we've been able to come to terms and move forward. We've always -- obviously, it's their job to protect their margin. It's their job to protect the consumer. Those aren't new conversations to us in regards to approaching pricing. So it's really about having all the data and the facts to support what you're doing and why.

Operator:

The next question comes from Ben Theurer of Barclays.

James Snee:

Similar to the previous question, the turkey volume is volume that's coming back. And so as we -- as Jacinth mentioned, the impact of HPAI this spring has been minimal. We're now producing a full slate of items. We've got our sales teams focused and reengaged on selling turkey. You don't just flip a switch after a year of not having turkey, but they are focused and reengaged. And so that is, call it, new replacement volume, whatever the right term is, that's, that returning volume on the turkey side of the business. We have been capacity-constrained on a couple of the categories I mentioned earlier. So having those freed up, allow the sales team to go out and sell. And then the really good work that our team has done on Planters really has the opportunity to drive additional top line and bottom line in the back half of the year. And maybe Deanna can add some color on some of the -- maybe some of the categories.

Benjamin Theurer:

Okay. And then just one quick housekeeping as it relates to CapEx and the reduction here in the new target. Can you explain the reason why you're lowering the CapEx? Is it the delay? Is it not execution? Is it just being more cautious on capital allocation in general? Just a few comments around that would be appreciated.

Operator:

The next question comes from Ben Bienvenu of Stephens.

James Snee:

Sure. Thanks, Ben. On the retail side, when we think about the mix, again, it's always a mixed bag. We've had our bacon business, which has had a positive impact. Planters has had a dilutive effect on mix. When we think about what's happened in China, and so -- there's a lot of moving parts across the entire portfolio even when we think about the commodity side of the business and what's happened. But I think the retail team is focused on the right opportunities to drive and improve mix. And when we think about the sales and volume opportunities in the back half of the year, a lot of those are improved mixed items. The foodservice team does a great job historically of really laddering up and increasing the value-added proposition of their portfolio. And so we expect that to continue. And then in the International business, just as China moderates and we see that inflection point and improvement as markets open up for them to be able to move more product. We see that mix improving as well.

James Snee:

Ben, I think probably the most important piece here is when we think back to the back half of last year, and where our volume was down of 30%. That was very, very significant. And so as we're looking at the back half of this year, we do expect Q3 to be relatively flat, maybe a slight increase. And then in Q4, would expect an increase. Specifically on the International business, there are some nuances with the Jennie-O Turkey business as we've restructured the business and moved into our Go Forward model. A lot of that responsibility was in Jennie-O this year. It's in the International business, and they've been negatively impacted by market closures tied to AI. And so we've already started to see some markets reopen, which will allow them to move additional volume and then also, obviously, additional margin with that.

Thomas Palmer:

I wanted to maybe just touch on the expected cadence of earnings in the second half of the year. If we go back many years, your third quarter earnings have typically been the lowest quarter of the year. I know the first couple of quarters of this year had some unusual headwinds, but it does sound like pricing actions, some operational improvements and some of the volume recovery, right, is a bit more weighted to the fourth quarter. It also sounded like maybe there's a bit more work to do on working down inventory in the third quarter. So I guess with respect to that third quarter, should we expect 3Q to follow this historical cadence, meaning something below the $0.40 in the past 2 quarters? Or just given some of the improvements is more of a rebound expected this year?

Thomas Palmer:

Okay. Thanks for the detail. And then maybe just on the pricing side, you mentioned it's inflation-justified pricing. Maybe just some color on what commodities are the general focus for this pricing? And is this related to inflation that's cropped up in recent months? Or is this more catch-up for something that happened in past quarters?

Operator:

The next question comes from Peter Galbo of Bank of America.

James Snee:

That's a lot to unpack, Peter. I'll do my best here. I think, again, starting at the end, demand is always important. But this idea that we need some unbelievable demand acceleration, that's not necessary for us to be able to deliver growth in the back half of the year. And I know it's going to sound repetitive, but a big part of this is getting turkey back, getting that full assortment back, being able to now sell in some categories that were capacity-constrained, stabilizing and growing that Planters business. I mean those are all the things, in addition to the other parts of the business that are growing already. And as we think about the segments that you asked about, Retail has got a lot of dynamics and a lot of puts and takes. So even if we said retail volume will be relatively flat, we do expect volume growth in foodservice and International. And when we roll all of that up, your number or your estimate is appropriate, and we've got the ability to get there with all the dynamics I mentioned.

Deanna Brady:

Yes. So as we think about the back half, if you recognized last year, we didn't have trade promotions in place. So a lot of the work we're doing with our retailers is jointly talking about category growth as well as where are the consumers at and really trying to pull strategies that leverage trade. We've shifted some dollars from below the line to above the line to continue to support promotions as well as a lot of in-store activation, coupled with advertising. And so while we may start with a price request, we can come to the table and talk about price is only one factor and what else do we need to do together to really think about category growth as well as ensuring that the consumer is remembering what value our brands play in their life. And price doesn't do that alone. And so we really tend to come to the conversation with them, really focusing on -- that's one thing. Let's talk about that. But let's talk about how we can bring in pricing promotion as well as displays into the store, and that's what you'll see from us in the back half.

Rupesh Parikh:

So I just want to get your thoughts on a consumer backdrop. I know there's snap reduction in the market that could be impacting retail. So curious just what you guys are seeing in retail. And then just in foodservice, I think late last year, you guys may have seen a slowdown, but just curious what you're just seeing right now on the demand side in foodservice.

Rupesh Parikh:

Great. And maybe just one follow-up question just on the available...

Rupesh Parikh:

Okay. Perfect.

Operator:

The next question comes from Adam Samuelson of Goldman Sachs.

James Snee:

Got it. Thanks for the question, Adam. And I do think it's the offset in terms of the return of the volumes and that tonnage increase in the back half. And you're right, we've seen markets come down, but there is that corresponding offset because we just haven't had that volume to sell. And so our ability to be able to now have the value-added products on a regular basis, whether it's the lean ground turkey and retail or having a full product offering on the foodservice side of the business, that's really a differentiator. And the bottom line to all of this is that it is great to have turkey back. Right? So fundamentally, in our portfolio, turkey is a very, very important part of what we want to get done. And so we're glad to have this volume back, the ability to regain focus on the value-added portion of the business is what our team is focused on right now. And like I said, you don't just flip a switch when you haven't had something that's held for a year, but the teams, retail, foodservice are very aligned and focused on moving turkey again in the back half of the year.

Adam Samuelson:

Okay. And then I had a follow-up on cash flow. And just I think there was another question about the CapEx reduction. But in some discussion also about kind of inventory dollars improving over the balance of the year. Has the cash flow kind of performance through the quarter and year-to-date actually hit your own expectations? And can you dimensionalize kind of by the end of the year, kind of what the anticipated release of working capital dollars should be?

Adam Samuelson:

Okay. But did the cash flow performance in the period kind of actually that is what you were expecting? And how much kind of -- what is the anticipated kind of working capital release as we think about the balance of the year?

Operator:

There are no further questions. I will turn the call back to Jim Snee for closing remarks.

Operator:

Ladies and gentlemen, this does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.

Operator:

Good morning and welcome to the Hormel Foods First Quarter 2023 Earnings Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to David Dahlstrom, Director of Investor Relations. Please go ahead, sir.

Jim Snee:

Thank you, David. Good morning, everyone. With the release of our recast financial information earlier this week, our transition from a structural and reporting perspective is now complete for the GoFWD initiative. I want to take time to acknowledge the immense amount of work the entire team has put in to transition the business to our new strategic operating model. We have spent time discussing the strategic rationale and how our actions over the past decade have positioned us for go forward. But there has been a lot of blocking and tackling that had to take place first to get us to where we are today. Over the past six months, we stood up three new business segments, and consolidated the Jennie-O Turkey Store segment. This included organizing the Retail segment into six distinct verticals, and combining the foodservice businesses across the enterprise. We invested in new centers of excellence, including brand fuel, and a dedicated FP&A team. And we made changes to the administrative side of the business to recast the financial statements, align and structure our entities and duties, maintain controls across the business, and of course, operate our business without interruption. We have learned a lot about our people, processes and technology going through this transition. While we have work to do in all of these areas, I am encouraged by the conversations that are taking place across the organization. The operating environment remains challenging. And while many areas of the business performed ahead of last year during the first quarter, our results were disappointing and below our expectations. From a top-line perspective, demand from consumers and operators generally remained elevated in key categories. And we delivered balanced growth between volume and price across many parts of our portfolio. We continue to see elevated demand for many of our center store refrigerated Mexican and premium items at retail, including Black Label bacon, Columbus charcuterie, Hormel chili, Hormel pepperoni, Applegate breaded chicken, Herdez products, Square Table entrees and Mary Kitchen hash. Likewise, solutions based items in our Foodservice segment had another strong quarter, with volume growth in sliced meats and from brands such as Cafe H, Fire Braised, Bacon 1 and Austin Blues. For the quarter, sales declined 2%. As a reminder, there continues to be volatility in our overall volume and net sales results, given the planned volume declines in commodity pork, and the volume impacts across the turkey supply chain due to highly pathogenic avian influenza, or HPAI. Diluted net earnings per share for the quarter was $0.40, a $0.04 decline compared to last year. Our results reflect the persistent impact from inflationary pressures, supply chain inefficiencies and lower sales volumes across each of the business segments. Now, turning to our segments. Results in the Retail segment declined compared to last year. Net sales growth from the bacon, global flavors, convenient meals and proteins, and emerging brands verticals was offset by lower sales in the value-added meats, and snacking and entertaining verticals. Segment profit declined as the benefit from pricing actions across the portfolio, higher equity in earnings from MegaMex and improved results for the bacon business were more than offset by the impact from lower net sales, unfavorable mix and higher operating costs. The bacon verticals delivered outstanding results in the quarter due to elevated demand for our Black Label items. There was also a benefit from commodity relief in pork bellies throughout the quarter as we work through higher cost inventory. This is a category where we have made significant investments, and one we expect to show growth for the year. Similarly, the global flavors vertical made up of our MegaMex business had an excellent start to the year. The pricing actions that we've taken across this business to combat inflationary pressures, coupled with commodity relief on avocado inputs, led to revenue and equity and earnings gains for the quarter. The emerging brands vertical delivered volume and sales growth for the Applegate brand led by frozen breaded chicken and whole deli items. The convenient meals and proteins vertical achieved another quarter of net sales growth, led by Hormel chili, Square Table refrigerated entrees and Mary Kitchen hash, in addition to a benefit from pricing actions we implemented last year. We will have new capacity for SPAM items beginning in the second quarter. In addition to supporting our highest selling products in the category, this new capacity allows us to restore assortments, introduce new flavors such as Maple and relaunch our 7-ounce SPAM item after a 3-year hiatus. This provides excellent value for consumers seeking a more affordable option in the category. SKIPPY peanut butter sales for the quarter were significantly behind last year. Last May, when we made the decision to relentlessly support our customers and the peanut butter category, we knew it would pressure inventory levels and have lingering impacts into fiscal 2023. This was the right decision for all stakeholders, and our team deserves credit for growing the peanut butter category and making the product readily available for our customers and consumers when they needed it. Demand remains robust for the SKIPPY brand and the category, and we are working diligently to maximize capacity and return inventories and fill rates to normalized levels. Net sales declined for the snacking and entertainment vertical as growth for the Columbus and Hormel pepperoni brands was more than offset by a year-over-year decline in the snack nuts business. The final vertical, value-added meats was most heavily impacted by lower commodity pork and turkey availability, leading to net sales declines. In the Foodservice segment, products in the sliced meats, pepperoni, premium prepared proteins and premium bacon and breakfast sausage categories grew volume and net sales for the quarter. Like retail, the overall decline in volume was driven primarily by limited turkey and fresh pork availability. Segment profit increased for the quarter due to improved mix across the portfolio. Results for this segment were below our expectations, reflecting industry softness from mid-December into January. However, we have seen a sharp rebound in orders to begin the second quarter and are confident in our ability to grow the business this year. Finally, the International segment was heavily impacted by external factors during the first quarter. From a top line perspective, our branded export business had a strong quarter led by the SPAM and SKIPPY brands. We also saw another quarter of improved results in Brazil as the team continues to focus on its premium products and foodservice strategy. Commodity turkey volumes declined almost 80% compared to last year due to restrictions on turkey exports and limited supply as we strategically diverted raw material to support the domestic business. Our team in China faced incredibly difficult operating conditions throughout the quarter as the impact of COVID-related policy changes had dramatic short-term effects on the business as well as our employees, customers and operators. Taken together, the impact from lower turkey exports and disruptions in China represented a more than $0.01 earnings per share impact on the quarter compared to last year. We are seeing improvement in China to begin the second quarter especially in our foodservice business. As conditions normalize, we expect our China business to resume delivering accelerated growth. During the quarter, we purchased a minority stake in Garudafood, one of the largest food and beverage companies in Indonesia. This investment supports our international growth ambitions and the global execution of our snacking and entertaining strategy. Garudafood is a market leader with strong and reputable brands, local expertise and a best-in-class distribution network. We have been partnering with the Garudafood team for several years, and this strategic investment enhances that partnership. Jacinth will provide the financial details of the transaction later in the call. As we disclosed earlier this morning, we are reaffirming our top line expectations and reducing our diluted net earnings per share outlook for fiscal 2023. Our top line remains healthy. And despite softness in the first quarter, we are on track to deliver growth for the year. Demand for our leading center store and refrigerated retail brands remains favorable. The Foodservice segment expects strong growth for the remainder of the year, and we anticipate the near-term challenges impacting the international segment to abate over the coming months. Compared to our expectations heading into the year, earnings are being pressured by inefficiencies across the supply chain, persistent inflationary pressures and softness in the snack nuts category. I want to detail how we plan to address each of these challenges for the balance of the year. First, I would like to discuss the state of our supply chain. It is important to note that we have made progress over the last year, staffing our facilities, expanding production capacity and improving fill rates for each of our businesses. This has allowed us to catch up to demand in most categories and further supports the confidence we have in our revenue outlook for this year and longer term. Since the fall, we have been operating with elevated inventories due to our efforts to increase production, optimize plant performance and return fill rates to historical levels. We expected this inventory to clear during the normal course of business. This has not happened. And in fact, we have seen inventories continue to grow in a number of areas. This has resulted in inefficiencies across the supply chain and higher operating costs. We are taking immediate action to combat these inefficiencies by focusing on selling excess inventories and reducing the reliance on third-party warehouses and co-packers. These actions are expected to cause short-term margin compression, but they are necessary as we look to restore profitability to normalized levels and reduce complexity. Simply said, after almost three years of chasing unprecedented demand, our ability to supply our customers, consumers and operators caught up to and in some cases began to exceed demand and we needed to react sooner. Rectifying the inefficiencies caused by elevated inventory levels is the top priority in the company. Second, we continue to operate in a volatile, complex and high-cost environment and cost pressures remain high. Our retail businesses, especially in the center store, continue to be disproportionately impacted by high inflationary pressures and the pricing actions we have taken over the last 18 months still lag inflation. To help mitigate some of this pressure, we have announced additional inflationary justified pricing actions in certain retail categories effective late in the second quarter. We are evaluating further pricing actions but as we have said, our teams remain highly focused on the long-term needs of the business and protecting the equity of our brands. For the remainder of the year, we believe we can stabilize these margin pressures through a combination of pricing actions, operational cost management and supply chain cost savings initiatives. Third, after meeting expectations last year, our Planters business is off to a slower-than-expected start in 2023. There are numerous factors at play including general category softness, a consumer shift away from certain higher-priced items, production challenges and timing issues. We are taking immediate action to address the current challenges, stabilize the top line and grow the consumer base. Beginning in the second quarter, we are shifting resources to drive consumption. This includes increasing promotional support and prioritizing peanut items and pack sizes aimed at value-seeking consumers. We are bringing much needed innovation to the category with flavored cashews and several new corn nuts flavors. We're expanding assortments as we continue to gain distribution for the brand. And we are investing in capital for higher growth items that are relevant for today's consumer. Long term, we remain fully committed to the Planters brand and the snack nuts category. This business is at the center of our snacking and entertainment strategy, our ambitions to grow in the convenience store channel and as we look to become even more balanced as a company. We know what we need to do to change the trajectory of this business and our teams are focused on accelerating the pace of that change. Considering these factors, we expect full year net sales growth of 1% to 3% and diluted net earnings per share of $1.70 to $1.82 per share. While we have work to do the rest of this fiscal year, we cannot lose sight of the progress we have made over the last two years. We are a significantly larger company today, 30% bigger, in fact. We are a more balanced company through the products we sell and in the ways we reach our customers, consumers and operators. We have transformed our company, not only through the GoFWD initiative but with the investments we have continued to make in technology, capacity and capabilities. And we have made all of this simultaneously navigating a dynamic and volatile environment and managing through the impacts of HPAI. Our brands remain vibrant and relevant. Our strategies remain effective and our business is positioned for long-term growth. At this time, I will turn the call over to Jacinth Smiley to discuss detailed financial information related to the first quarter and additional color on key drivers to our outlook.

Operator:

[Operator Instructions] The first question comes from Rupesh Parikh of Oppenheimer.

Jim Snee :

Good morning, Rupesh. We agree with you. The word that we used is we're disappointed, and these are not results that we expected. But I do think it's important that even with that disappointment, to remember just how far we've come with our supply chain and everything they've been through over the last three years. We go back to, obviously, the COVID impact when plants were shut down, and we didn't have labor. And then when we did have labor, it was turning over. And so we are in a more stable operating environment for sure. And so fill rates continue to improve, labor is better and production capacity across key categories for us is good. But as we think about Quarter 1 that -- in the context of our -- this dynamic and volatile environment is a bit more explainable. We talked about China. That's easy to understand. Foodservice had a period of softness, but their business continues to be strong and will stay strong for the balance of the year. We mentioned Planters, which we met our expectations last year, but are seeing a slower start this year, and we know what we need to get done there, and then avian influenza still battling that. So we've said since the fall, we've been operating with elevated inventories. We wanted to get fill rates up. We needed more inventory to support our expanded network. The big thing here is probably a misalignment of our inventory and our demand because we expected the inventory to clear, it didn't and it hasn't. And it's resulted in inefficiencies across the supply chain and higher operating costs when we think about product and warehouses and probably moving it more than we had expected. And so those are real dollars that impacted us in the quarter. And then the other thing is we want to be careful when we talk about inventory because as we progress throughout the year, it's not going to be as simple as just looking at a dollar amount to gauge how we're doing. Mix is huge in our portfolio. When we think about pounds versus dollars impacts of markets, a potential rebound in turkey, times when we may be building inventory to support customer promotional activity. All those things are part of our inventory mix. And really, for us, we'll be talking to all of you, just like we're doing today in a very transparent manner to say is our demand -- or is our inventory aligned with our demand. And that's really going to be the key indicator going forward. So we're disappointed where we are, but we know what we need to do and probably said the most simple way possible is that after almost three years of chasing this unprecedented demand, supply caught demand and we needed to react sooner and we didn't.

Rupesh Parikh :

Great. I'm going to slip in another question. So I think in your prepared comments, you mentioned something about learning about people, I think you said technology and processes. What are the key learnings there? And then how quickly can they be implemented?

Jacinth Smiley :

Yes. So from a short-term perspective, we are probably just a level set, I mean, this team knows how to manage inventory. And so what we're doing in the immediate term here is just returning to that pre-pandemic discipline when we think about S&OE and the process that is aligned with ensuring that we're listening to demand signal, connecting our commercial team with our supply chain team and getting all our supply planning aligned. And so that's what we're doing in the immediate term. And then from a long-term perspective, we have made significant investment from a systems and technology standpoint with Project Orion. And we paused that intentionally as we were integrating Planters, integrating JOTS and that was purposeful to get those done correctly. And now we're now continuing that work to enhance our S&OP and our end-to-end planning and be able to leverage our technology and our people to get us to the next level.

Robert Moskow :

I guess I'm a little confused as to where the inventory is building up in terms of your portfolio? And what categories did you underestimate the volume weakness. Is it bellies? Is it protein? Is it in the freezers? Because you mentioned in your prepared remarks, a lot of products that did really, really well and you talked about strong demand. So what kind of demand were you expecting? And where did it fall short?

Robert Moskow :

Okay. Because if I can dig in a little, Jim, like I think six to nine months ago, the issue was labor shortages, turnover, couldn't run the plants effectively enough to meet demand. And now they're overproducing?

Robert Moskow :

Okay. Last question on Planters. When I look at the Nielsen tracking data, the unit sales are certainly down. The volumes are down over the last 12 weeks, like 6% or 7%, but that's been consistent for the past 52 weeks. Unit sales have been down by that amount. Were you expecting a big pickup in unit sales and total sales in the quarter on stronger marketing and Super Bowl marketing and it just didn't play out?

Deanna Brady :

Yes, sure. Thanks, Rob. Just as we think about it, we knew this business was where it was when we acquired it. And again, we were interested in this business from the snacking perspective and really is a long-term ambition for us. So when we think about plant-based protein, entertaining, snacking and our ambitions for C-store, those still remain front and center. In the short term, we do have execution challenges, in particular, our base business, which is a top priority for the team. When I also look to Q1, that was when we cut over the inventory from the prior owner. So there is some noise there and some things that happened in the quarter as well as we inherited some distribution losses right out of the gate that the team has been working against. And as we head into Q2, we'll recover some of those important distribution points that will really help stabilize the base business. We're really energized by the innovation. I was with our Planters R&D and marketing team earlier this week, and the pipeline of innovation that this team has in front of us for both the rest of '23, '24 and beyond is exceptional and really energizing in regards to where they see this business going. When we talk about innovation, you'll also see innovation launch in this quarter, both in the core business as well as in our C-store business. You mentioned Super Bowl. We did have a really fun Super Bowl ad that was really centered on peanut because we do know that the consumers are thinking about the mix of nuts and snacking right now, and peanuts are really valuable item for them. So reminding them of how much fun Planters peanuts can be as well as the protein they deliver and a great snacking option. We'll see that. It wasn't just a 30-second commercial. You'll see activation both before the event, after the event and really leads us into the quarter as we activate some of the other seasonal launches later in the year. The other thing to think about is not only that this business was starved and we've been investing both from an advertising perspective, from an innovation standpoint, as I mentioned, and then also from a capacity standpoint. So for us to grow this business, we need to add capacity, which we've invested in, in regards to tube nuts for the C-store channel as well as the club channel, and we'll see that come online here later this year and into next. We also have work to do with the portfolio. Frankly, the assortment and price pack architecture. It's a big portfolio, and we know there's optimization that will allow us to unlock growth in really, again, just thinking about where we're at with this business. We acquired the business. Last year, we integrated the business. And right now, we're executing the business, and we know we've got work to do, but really confident in what I saw this week with the teams and where we're headed into Q2 and the rest of the year.

Eric Larson :

So just a couple of questions. Can you provide a little bit more detail again or just remind us kind of the cadence of turkey volumes. I think turkey volumes on a year-over-year basis still have a difficult comp in Q2. And then I believe you were expecting those to start rebounding in the second half. And then also do the same thing for us with your commodity pork volumes. You should be starting to anniversary; I think when you offloaded with the new contracts, some of that commodity volume. When do we sort of anniversary sort of the adverse comp that you would have on your commodity pork?

Eric Larson :

Okay. And then just a quick follow-up, and this is maybe for Deanna. Can you give us a little -- you mentioned elasticities and where you were seeing some of the maybe more elasticity in some of your retail products. Can you give us a little bit more color on where those are and whether you may have to have some promotional adjustments on that that was mentioned, I believe, in some of the prepared comments.

Operator:

The next question comes from Ben Theurer of Barclays.

Jim Snee :

Yes, Ben, I think the way you described it there at the end of your question is correct. I mean there are inventory issues in both, but retail is currently more. As you talked about the foodservice pricing and sales, the element of that is, and we've talked about this frequently is we have seen some commodity relief and on the foodservice side of the business, they're able to price closer to the market. The pricing is a lot more fluid.

Jim Snee :

Yes. Again, Ben, that's a very fair assessment. And we said that, that we have seen early in the second quarter. The China foodservice business has seen a nice uptick or a nice rebound as consumer or Chinese population seems to be making their way through COVID and are now heading back out. So we've seen foodservice up on the retail side of the business. We're really excited about the continued innovation that we've been able to deliver. The other thing, when we built that plant several years ago, we put in a SPAM line and our SPAM business has done really well, especially our SPAM Singles business. And so we've seen that continue to grow on the retail side to the point where we'll be making some additional investments to support that growth. But your take on China is exactly what we're seeing and how we're thinking about it.

Tom Palmer :

I'm sorry to belabor the inventory discussion. I just want to clarify something a bit. So it sounded like in the prepared remarks, there were some constraints in terms of sourcing pork and turkey right now, and that you're unable to produce enough peanut butter. So maybe I heard this wrong, but I don't think Planters can account for a lot of the inventory issue. So I just hope to better understand what types of products you've built up too much inventory of? And is it certain pork products that fall into that equation?

Tom Palmer :

Okay. And maybe just on the price increases you mentioned retail. Just any detail on how much of the portfolio is being addressed with pricing? Any help on the magnitude, the timing, and then just are there certain commodity types that need to be addressed in particular?

Operator:

The next question comes from Peter Galbo of Bank of America.

Jacinth Smiley :

So in terms of the retail component, it will be somewhere around 80%. And then on the foodservice side, I mean, there wouldn't be anything that you would actually see…

Jim Snee :

No, that's okay. Peter, we're not going to have the same kind of vertical structure within foodservice just because it doesn't -- I mean the industry doesn't even really think about it that way. What we will try to do over time is provide you more color. So for example, in this quarter as we integrated the JOTS business, and we've talked about how that is going to be a benefit to both the JOTS business and the Hormel business, a channel like K-12, our school business, had a really good quarter. So we'll continue to try to provide that type of color but from, I'll say, a typical reporting, it will all roll up just into foodservice.

Jim Snee :

Yes. No, it's a really good question. And so no, we have not moved off of our top line guidance. We know that there's a turkey uncertainty and expect that to come back in the back half of the year. The other part of this is our foodservice business. And so even though we had some softness for a period of time in the first quarter, we expect growth for the balance of the year. So those really are two drivers. And then as we expect our international business to come back with some of those challenges abating, we do believe that we'll be able to deliver that top line. And then the second part of that question, we're not getting that pressure from retailers in terms of keep more inventory. As Jacinth said earlier, we know how to run this business. And historically, we've had very, very strong fill rates. It's obviously some of the supply chain challenges that we've had over the last two, three years that have prevented us from getting to those fill rates. But slowly but surely, we are getting those fill rates back to where they were. And so we were able to operate the way that we did pre-pandemic. That's really the expectation.

Michael Lavery :

I just want to come back to Planters specifically, when you detail some of these challenges, it's one of the three things you call out as a focus area in terms of optimizing promotional support and everything else. But then you also called out the capacity expansion, even though those volumes have been down kind of mid or more single digits for some time. Can you just maybe elaborate on what pain point the capacity expansion solves given the current situation?

Jim Snee :

And I think it's important to know, Michael, these are things that we knew when we bought the business. We knew that there was going to have to be some packaging innovation, which we did last year with the new bottle and then also some capacity investments. So it was existing packaging, but we saw that as an opportunity. It was just a matter of what the timing was that we were going to need it. And then as Deanna mentioned, we've seen really, really strong growth since Day 1 for the corn nuts business, and we don't expect that to slow down.

Jim Snee :

Yes. I think for now, it was -- we took out the previous private equity owner. That was the big stake that was for sale. So for us, it was the right size at the right time. And again, I mean, we've been a partner with them, but it's early days, and we still need to learn about the business, about the market. We know it supports our two strategic initiatives for adding scale and snacking, entertaining and developing that global presence. And so as we go along, we certainly think there will be opportunities for us to -- if the business delivers for us to take a bigger position.

Adam Samuelson :

So I guess first question just on Jennie-O, or turkey, I should say, you're talking about volumes improving and starting to normalize in the back half, assuming no further HPAI, but I think and you already started to see this commodity breast in pricing coming down and that would continue if there is no further supply disruptions in the turkey market. Commodity resin pricing was actually a big margin uplift to that business last year. I know it's now getting -- it's now split between retail and foodservice international, so it's not as visible. But did your full year outlook for your turkey business profitability actually come down with this update? I just it's not clear because it would seem like turkey breast meat pricing is a pretty big -- could be a pretty big headwind over the balance of the year?

Adam Samuelson :

Okay. And then if I could just ask one last follow-up, and this inventory question has come up in a lot of different ways. But I guess I'm struck with the new reporting structure and the new segment structure kind of there's a little bit less kind of connectivity between some of the plants and the end sales channels than there might have been before. There's always some disparity, but you now have like bacon going through two different channels versus one previously or two reporting units? And how are you thinking about kind of the ownership on working capital and kind of tying performance of business leaders to not just segment profit or sales but also whether it's a cash flow return on net asset kind of metric that I don't think has been a big part of the incentive compensation structure previously.

Jacinth Smiley :

Yes. And just for -- just to clarify or just to emphasize, the GoFWD structure hasn't in any way mudded up the waters in terms of how we look at the business and how incentives are aligned to drive the results. It actually does a complete opposite. And now there is very clear delineation and transparency in terms of objectives in driving the results and the outcome for the business.

Operator:

Good day, and welcome to the Hormel Foods Fourth Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to David Dahlstrom, Director of Investor Relations. Please go ahead, sir.

Jim Snee:

Thank you, David. Good morning, everyone. Fiscal 2022 was a return to growth for our business as we delivered record sales and double-digit earnings growth compared to last year. Fiscal 2022 marked the third consecutive year of record sales and the second most profitable year in our company's 131-year history. In addition to achieving strong year-over-year growth, our team made considerable progress on our six strategic priorities. First, we continued our efforts to protect and grow our core brands. Sales in our retail channel increased 7% in fiscal 2022, led by brands such as SPAM, SKIPPY, Hormel Natural Choice, Dinty Moore, Hormel Square Table entree, and Mary Kitchen. Of note, the SPAM family of products achieved its eighth consecutive year of record growth. Second, we made progress amplifying our presence in snacking and entertaining. We delivered excellent growth on the Columbus and Hormel Gatherings brand, and we have successfully integrated the Planters business. We have a powerhouse of brands with the goal of becoming the leading solutions provider in the snacking and entertainment space. Third, we saw growth from our ethnic and food forward portfolios. Both our MegaMex joint venture and Applegate business achieved sales milestones this fiscal year, driving growth behind the WHOLLY, Herdez and Applegate brands, respectively. These businesses are well positioned in the marketplace due to their strong and reputable brands, on-trend innovation and loyal consumer bases. Fourth, we continue to expand our leadership position in food service. Sales in the foodservice channel grew 20% compared to last year, as operators again turn to our items to help solve for labor pressures and to diversify menu offerings. We drove excellent growth in this critically important channel, highlighted by brands such as Bacon 1, Austin Blues, Hormel Fire Braised and Café H. Our foodservice portfolio and direct selling organization remain key differentiators and growth catalysts for the company. Fifth, we invested into our international business, as we look to aggressively develop our global presence. In fiscal 2022, we commissioned a state-of-the-art innovation center, supporting the Asia Pacific region and approved another capacity investment to support our growth in China. Our international business is expected to be a significant growth driver for the company. And finally, we continue to transform our company. We made noteworthy progress on our transformational efforts at Jennie-O Turkey Store and lay the groundwork for the next step in our evolution as a global branded food company, our go-forward initiative. We also made considerable progress on our 20 By 30 Challenge. Some of the year's highlights included

Operator:

Thank you. [Operator Instructions] Today's first question comes from Peter Galbo with Bank of America. Please go ahead.

A – Jim Snee:

Yeah. Thanks, Peter. Good morning. Pork is still a very important part of our complex, as you described. And for us, we think that pork still represents a great value to consumers. As we're looking into 2023 end markets, although we expect some moderate relief are still going to run well above five-year averages. And we've also seen a lot of volatility throughout the last several years, and that's what we really have talked about is it's not so much the point to point, but some of the volatility that occurs. The other thing that we're watching very, very closely is the export element in terms of what's happening with pork. So one of the things to consider is as turkey prices are higher, we're seeing bone-in hams be exported at an accelerated rate. And then the other thing is just thinking about the continued labor challenges that are out there. And so one of our key inputs across a lot of our business is pork trim. And if the labor is not there to do the necessary boning to get the trim, then we're not going to see that relief. So there are a lot of variables at play, but we know that there are things that we can control. We know that our brands are going to remain strong. The work that we're doing to drive that demand is very successful. And now we just need some of these other variables that are outside of our control to play out more favorably for us.

Jacinth Smiley :

Yes. Good morning. So yes, so the pension and feed costs definitely headwinds as we go into 2023. The split between the two is about $0.10 related to feed and $0.05 related to pension costs. And as it relates to our MegaMex business, we expect avocado prices to continue to go down. So that will translate into positive impact for us on our MegaMex business.

Ben Theurer:

Yes. Hi, good morning everyone, and thanks for taking my question. Jim, could you elaborate maybe a little more on the dynamics and what you're seeing amongst consumers around the elasticity. So you've talked a little bit about it in the prepared remarks, but it would be nice to understand what's like kind of embedded within your guidance on top line, how much of a decline in volume, you kind of anticipate based on the pricing you've done more recently, which obviously still remains a tailwind, particularly in the first fiscal half, because of the prices that you've just implemented more recently. So that would be my first question. Thank you.

Ben Theurer:

Perfect. And then just on the CapEx number, can you elaborate a little bit on like what part of that is how much of that is maintenance? How much is maybe what you didn't execute or initially may plan to execute in 2022 and then couldn't how much a rollover, how much is maintenance and how much is really dedicated new CapEx for 2023?

Jim Snee:

Yeah. And just on that note, Ben, as we've said in our comments, SPAM capacity will come online the early part of 2023. And then really the China capacity that Jacinth references will really come online until 2024.

Operator:

Thank you. And our next question today comes from Ken Zaslow with Bank of Montreal. Please go ahead.

Jim Snee:

Hi, Ken.

Jim Snee:

Yeah. I think as you think about our portfolio, again, going back to our legacy Grocery Products portfolio. We've taken significant pricing but haven't quite covered down all of the inflation that we're seeing. But as part of that, and you know this, Ken, is we're being very sensitive to some of the price gaps that are out there in the category. So we've had to watch that closely. We're seeing some of those gaps start to narrow as others are moving. So that's a good thing. And then we are continuing to look at certain categories. But as always, we're going to have to be very, very strategic. But I would say, as we think about our overall portfolio, that's probably the biggest gap that we have.

Jim Snee:

Yeah. I think in our prepared remarks, Ken, we talked about growth really being driven by foodservice and international. As I said, we expect our foodservice business to remain strong. Our current demand is very positive. Portfolio is well positioned. Our international business, we expect to bounce back and some of those headwinds moderate. The retail business, which is experiencing the biggest change in this new operating model is certainly going to have the impact of some of the feed costs that Jacinth has talked about. So consistent with what we said in the prepared remarks, we really expect the drivers of the growth to be foodservice and international.

Jim Snee:

Yeah. Think about both of them that way, Ken.

Jim Snee:

Yep.

Operator:

Thank you. And our next question today comes from Robert Moskow with Credit Suisse. Please go ahead.

Operator:

Hello. Pardon, everyone. This is the conference operator. It looks like we've lost the speaker connection. I want to put music back on, and we'll be right back with you. We ask you please hold the line. Thank you. [Technical Difficulty] And everyone, we thank you for your patience. We've reconnected the speaker location. Mr. Moskow, if you can please repeat your question sir. Thank you.

Jim Snee:

Yeah. I think the way you're just -- Rob, first of all, our apologies. Secondly, the way you're describing it is correct and that the feed costs as you think about the value-added business, the whole bird business, a lot of the commodity business that will be flowing now into retail will be impacted by those higher feed cost as just described. So I mean absent that the rest of the business as we think about the pillars are very positive.

Jim Snee:

Yeah. You're opening statement is correct. Again, Rob, is that there's a lot of uncertainty as we think about the jobs business going forward. On our last quarterly call, we had talked about us being back to more normalized levels after the first quarter. Now, we're talking about the back half of the year. And then everything that you just described really all depends on the meat availability in our system and then what's available elsewhere. So there is just a lot of uncertainty in the jobs business throughout 2023.

Jim Snee:

Yeah. I mean, I think that's a good starting point. We've got feed costs. You've got breast meat markets, you've got supply. There's just so many variables there as we progress throughout the year. We'll certainly be keeping you well-advised.

Operator:

And our next question today comes from Tom Palmer at JPMorgan. Please go ahead.

Jim Snee:

Good morning, Tom. As we're thinking about the earnings growth that we described, I mean we expect it to be fairly evenly distributed throughout the year, half one and half two. Clearly, we've identified the major impacts that are out there in terms of feed and the pension costs that we've already talked about several times. And as we go throughout the year, we we've talked about the need to really now find some supply chain savings. We've talked about the fact that we expect fill rates to improve -- continue to improve as we progress. We've got some pricing that will continue to roll forward. International, we expect to moderate and improve throughout the year. And so there are some things that will happen sequentially, but as we're looking at the business, we do expect it to be pretty evenly distributed between half one and half two.

Jacinth Smiley:

Good morning, Tom. So our capital allocation policy and approach will remain -- it still remains the same. And so, yes, I mean, we're happy that we continue to generate very strong cash flow, and we will continue to deploy it strategically as it relates to paying down the debt. We still believe that is not the best use of our cash today. Our first payment doesn't come due until 2024. And so again, we'll continue to be strategic. We're continuing to look at opportunities from an M&A perspective and aligning those with our six strategic priorities. And so that is really how we'll think about deploying our funds, paying our dividends, continuing to remain a dividend aristocrat. That's very important to us. And in terms of the cadence of how we deploy the funds, as I talked about, that still remains consistent with our strategic approach for deploying our cash.

Tom Palmer:

Right. Thank you.

Operator:

Thank you. And our next question comes from Rupesh Parikh with Oppenheimer. Please go ahead.

Jim Snee:

Good morning, Rupesh. I think there are -- just like you described, lots of puts and takes. We do know that we're going to have some positive impact from pricing. We expect strong growth, foodservice and international. We are bringing more capacity online in 2023. But then we also know that we've got elasticities that will be somewhat of an offset. But as we've already talked about, really the biggest wildcard in terms of the top-line for next year is jobs. And so knowing that we're dealing with this unprecedented fall event and it's already pushed back what we expect to be a more normalized level by a quarter. We have to wait and see what happens in the spring time. And so, really, that's the biggest unknown as we think about our sales outlook in 2023.

Jim Snee:

As we're thinking about 2023, it's continued strength. The brands are doing well. All of the scan data for the most recent 13 weeks are showing really positive dollar sales growth. As you said, the foodservice business just continues to do really, really well, not only finding new opportunities, but they're also doing a really nice job of taking share.

Operator:

And our next question today comes from Michael Lavery with Piper Sandler. Please, go ahead.

Jim Snee:

Good morning.

Jim Snee:

Yes. Good morning, Michael. What we've not factored in there right now are the pricing actions that we've taken. And so, again, if you think about the grocery products pricing that went into place in the fourth quarter, our Jennie-O Turkey Store pricing that we put in place really also in the fourth quarter. On the refrigerated side of the business, we've taken pricing on pepperoni. And so, we've got some pretty significant wraparound pricing there. And as we're thinking about 2023, just what I said earlier is, we're really watching the price gaps in the categories. We have to be very responsible. We are seeing some gaps close. And we're also looking at those areas where we can be a bit more precise and strategic. So what we have in there today is already what we've taken, but we are assessing where there are those opportunities and where it's necessary going forward.

Jim Snee:

Yes. As we're thinking about it, the headwinds that we've covered down or had to cover down over the last several years are pretty significant. And the team has done a great job, when we think about some of the commodity costs that we've had, we've talked a lot about freight and warehousing costs. So as we think about relief from some markets, we've got in still incredibly high markets, some of the packaging costs. We've got to do a better job of taking costs out of our supply chain and our operations. And so it's all of those things that we need to focus on, but also get some moderation on, which to say is going to happen in any specific point in time. If we've learned anything over the last three years is that's really hard to do. But thinking about the things that we can control and focusing on those things is really what's going to allow us to continue on this journey of margin expansion.

Operator:

And our next question today comes from Eric Larson at Seaport Research Partners. Please go ahead.

Jim Snee:

You should have called us sooner.

Jim Snee:

Yes. Great question, Eric. So, a couple of things. I mean as we head into this new operating model, I mean, clearly, we're going to continue to provide clarity and education. The key takeaway in all of this is really about how we are able to align our strategy with our structure. And although we've had all of our different reporting segments historically, we haven't had it as well aligned as it could be. So that's really where we're heading. David and the team will obviously be spending a lot of time on the education front to make sure everybody understands what is, where and why. From a Jennie-O perspective, as we think about how that commodity business in particular falls, it will fall between our retail and international business. And so there will be elements that will fall in both. When the other part of it, as you mentioned, is the foodservice piece, is there's still a significant Jennie-O business in our Foodservice segment. And then the other part you mentioned was just in regards to traditional pork commodity sales. And that business, I mean, our team has done just a great job over the last number of years, finding ways to really derisk the business, derisk the commodity side. And right now, we're less than 10%. And so that's a journey that we've been on for a very long time. We continue to stay focused on that. And the team has just done a great job. So hopefully, that gives you a little more clarity. But just so you know, as we get into 2023, we'll have those opportunities for education and further discussion.

Jim Snee:

Yep.

Unidentified Analyst:

Good morning, everyone. This is Arthur on for Adam. If you could just talk to us about how Jennie-O performed relative to your expectations. It looks like volume declines weren't nearly as much as we had anticipated and you had noted in the last quarter's call. And if you could also give us some color on -- to whatever extent you can, margin headwinds from fixed cost under absorption and how pricing, specifically commodity pricing affected that or offset that? Thank you.

Unidentified Analyst:

Just to what extent fixed cost under absorption was a headwind on margins? And what offset you had on pricing?

Unidentified Analyst:

Okay. Thank you.

Operator:

And ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to the management continue for any closing remarks.

Operator:

Thank you. And ladies and gentlemen, this concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.

Operator:

Good morning, everyone, and welcome to the Hormel Foods Third Quarter 2022 Earnings Webcast and Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please also note today's event is being recorded. At this time, I'd like to turn the floor over to David Dahlstrom, Director of Investor Relations. Sir, please go ahead.

Jim Snee:

Thank you, David. Good morning, everyone. With the results we announced this morning, we have successfully achieved seven straight quarters of record sales and four consecutive quarters of earnings growth. In the current environment, this is an especially notable achievement. Over the last 12 months, we have delivered four consecutive quarters of record sales in excess of $3 billion. We've grown diluted earnings per share 15% compared to the trailing 12-month period. We've made considerable progress across our supply chain, including investments in capacity to support high-growth categories and improvement in the staffing levels, production volumes, inventories and fill rates. We've integrated our largest acquisition to-date with the Planters snack nuts business. We began transformational work on the Jennie-O Turkey Store segment while simultaneously managing through the impacts of HPAI. We further de-risked commodity profitability with a new pork supply agreement, we have generated over $1 billion in operating cash flow, and we've increased the dividend for the 56th consecutive year. Our experienced management team has again proven their ability to navigate and grow the business in volatile market conditions. And these results demonstrate that our business is built for growth, our brands remain vibrant and relevant, our strategies remain effective and our inspired team members around the world truly embody our results matter mentality. In the third quarter, we delivered another quarter of record sales and double-digit operating income growth. Our team's execution again played a pivotal role in growth this quarter. As together, we overcame significant challenges, including continued broad-based inflationary pressures, persistent upstream and downstream supply chain disruptions, limited turkey supply and impacts in China from COVID-related restrictions and temporary plant shutdowns. Double-digit operating income growth this quarter was led by outstanding contributions from Jennie-O Turkey Store and Refrigerated Foods. The Jennie-O Turkey Store team significantly outperformed our profit expectations for the quarter as the team effectively managed limited turkey supply and maximized operational performance, all while working to restore the impacted turkey farms across the supply chain. Refrigerated Foods delivered double-digit value-added earnings growth on retail and foodservice items, more than offsetting lower commodity profitability. Similar to prior quarters, our balanced business model was able to offset inflationary pressures and supply chain disruptions, which were both significant headwinds during the quarter. Most importantly, our performance indicates our brands remain healthy and are generating growth. Consumers and operators have continued to engage with our brands due to their value, convenience and versatility. The team drove volume, sales and share gains at retail for brands such as SKIPPY, Hormel Gatherings, Hormel chili, Dinty Moore and Mary Kitchen. I would like to acknowledge the tremendous work and coordinated efforts of the SKIPPY team who supported our customers and the category this past quarter. We continue to drive growth across our premium retail brands for products such as Applegate natural and organic meats and Columbus charcuterie. We also experienced an acceleration across our center store portfolio, which is firmly aligned with the value shopper. The Grocery Products segment delivered strong organic volume and sales growth during the quarter and is well positioned to grow as consumers seek flexibility, versatility and yield at lower price points. Demand for foodservice products remained elevated as well as operators again turn to our items to help mitigate labor pressures and diversify menu offerings. Value-added products such as our premium bacon and sausage, sliced meats and line of premium prepared proteins performed exceptionally well this quarter. We saw great demand for brands, including Austin Blues, Natural Choice, Bacon 1, Cafe H and Old Smokehouse. Regardless of channel, our brands have responded well to the pricing actions we have taken over the past 18 months even as current macroeconomic conditions pressure some of our customers, consumers and operators. The demand environment has remained favorable, especially for food and convenient meal solutions. We have seen this in the positive syndicated data for many of our Grocery and Refrigerated Products and in the momentum behind our branded foodservice items. In some cases, demand is still outpacing our ability to fully supply. Our broad portfolio of products spanning value tiers, eating occasions and channels positions us well. We anticipate some additional impact from elasticities as new pricing actions are reflected in the marketplace and we have accounted for this in our outlook. To date, the impact of price elasticities have been muted by other factors such as distribution and assortment gains, and as we have increased production to drive improved fill rates. Our teams remain keenly focused on the long-term needs of the business, our strategic priorities, and protecting the equity of our brands. Hormel Foods has a history of continuously evolving to become a better, more agile and more balanced global branded food company. In early August, we announced the next step in our strategic evolution, our Go Forward initiative. Effective October 31 of this year, the beginning of fiscal 2023, we will be organizing the business into three empowered segments

Operator:

[Operator Instructions] Our first question today comes from Rupesh Parikh from Oppenheimer. Please go ahead with your question.

Jim Snee:

Yes, I mean so obviously, the biggest impact is going to happen in our Retail segment. And that's really the segment that we're excited about all of them. But as we think about the opportunities for us to really accelerate progress on our six strategic priorities, that's the one that's going to have the biggest impact. So really being able to align the operating model with the strategic initiatives in a bigger way than we ever have before is really going to be exciting. Foodservice will have some impact as we move our -- some of our affiliated business in there and then also move the Jennie-O foodservice business in there. It will strengthen us in certain channels or segments like K-12. International will be the least impacted of all the three. So, really retail, then foodservice and then international.

Jim Snee:

Yes. I mean it's early to look into 2023. I mean as we're thinking about it, so far, we expect that our brands will continue to perform well in face of pricing. We talked about some of the innovation that we'll be able to bring to the marketplace as supply chain improves. We do expect to see some supply chain improvements. We talked about some of the operational challenges that we've had with new labor turnover, some variances that we hadn't planned for. We know that we've got to get better on that side. So, there's certainly going to be opportunities for us in 2023, also a recovery in our International segment as we think about maybe lockdowns of not being as frequent in China, exports being able to pick up. And then we do expect a benefit from our Go Forward initiative as we think about how we can really accelerate the progress on our six priorities.

Ben Theurer:

I actually wanted to elaborate a little bit, and you alluded to it on the sensitivities. So I want to understand if you could share a few more details and between the volume performance versus the pricing performance because it really feels pricing was a big driver during the quarter. Volume down, I get it in Refrigerated just because of like the change in the business model. But then, obviously, if we put it all together, it feels like volume was a little more under pressure. Would you assign this to certain elasticities because of the pricing actions? And how do you think you're going to be able to recover some of the volume over time if we look into fiscal '23?

Ben Theurer:

Perfect. And then just a quick follow-up, if I may, on the new operating model, and obviously, we can explore this more in detail next week. But if we kind of -- and you said it about the importance of it, and we've seen, obviously, retail performing year-to-date relatively strong, up 12%, but foodservice even more. Can you give us a little bit of preview in terms of like the distribution of these segments in terms of relevance? It clearly feels like retail is like most likely more than 50% of it. And that's why this is the most focus where you're most excited about, correct?

Jacinth Smiley:

Yes. And just a quick add there, Ben. Jim described all of that from a strategic standpoint, if you think about how we go to market as well, what this model actually does, it really just bolster how we go to market as a company and just bringing that one Hormel to bear, and that's truly going to be a strategic advantage for us.

Ken Zaslow:

My first question is on SKIPPY, with all the volume that was created there, where does the profit go to? It seemed like there would be a greater association with the increased opportunity created there. Did you guys have co-packers? Was there a shortfall of supply? It just seems like there was a lot of top line but didn't really translate to the bottom line.

Ken Zaslow:

Okay. And then my second question is when you think about your long-term guidance, look, the last couple of years, you really haven't been within that. Is it -- what is it that changes? And is 2023, 2024 back into that long-term guidance range? Or is it going to still take time to reestablish your growth algorithm on a more consistent basis? How do you think about that?

Jacinth Smiley:

Yes. And just to add to that, we also are currently underway executing the automation and really getting optimizing in different fronts from an operation standpoint. So that should certainly add to us being successful at executing on our long-term goals as well.

Tom Palmer:

I wanted to ask on the Grocery Product side. Is the pricing that you've taken enough to offset the inflation that you're facing? Do you need additional rounds of pricing to address this still mounting inflation or maybe given your view that costs eased are added rounds of pricing maybe not planned at this point? Just trying to understand that dynamic and what kind of causes the inflection in grocery.

Tom Palmer:

Understood. And then maybe ask another question on the 4Q outlook. So, it sounds like the third quarter overall was pretty consistent with what you had talked about a quarter ago. So it would seem that essentially, the guidance cut was mainly for reduced expectations around the fourth quarter. From the comments today, it sounds like the kind of greatest incremental pressure was on refrigerated food -- is that accurate? And then to what extent do these easing costs that you mentioned in the last week, are they factored into the guidance range?

Operator:

Our next question comes from Robert Moskow from Credit Suisse. Please go ahead with your question.

Jim Snee:

Yes. Rob. So a couple of things. Your assessment of the GP division is correct. That will be down for the full year. When we think about Planters, although we probably weren't as intentional, the sales we're on track for the sales guidance that we've provided in line with our $1 billion guide, our earnings continue to be at the high end of that accretion model. And really for us, the long-term strategy is intact, right? So as we think about this being an important part of our entertaining and stacking platform, the work that we're doing in C-stores, the business is still performing the way we want it. There's always opportunities within categories. But overall, the business is well in line with our expectations. And really, what it is, it's the inflation that we've experienced in Grocery Products. And so, we've had significant packaging inflation. We've taken incremental pricing along the way. This most recent round of pricing should be very positive and favorable as we head into 2023.

Jim Snee:

Yes. Great question, Rob. I mean -- and as I sit here, I can't imagine us having gone through what we've gone through over the last several years without having our One Supply Chain in place. Everything you described to have one purview of the supply chain has really helped us throughout COVID and some of these labor challenges. We're not alone in what's happening. You can go across industry and the conversation about turnover and these manufacturing variances, I mean, they're everywhere. We have work to do. And so we do -- we're getting people through the door. We're getting people hired -- there's work to do in terms of training and retaining those people so that we do, over time, develop that experience. That is a problem today. That's not a one supply chain issue. That's a broad-based issue. And I think when we think about other challenges, we continue to see countless upstream challenges from our suppliers. So industry-wide issues persist, and as I -- I'll finish where I started and that I just can't imagine us having gone through what we went through the last several years without having our one supply chain in place.

Michael Lavery:

I just wanted to come back to looking ahead a bit into fiscal '23. And maybe specifically, can you give a sense of how much of your commodity exposure is already locked in or hedged and how that might compare to what's typical?

Michael Lavery:

So for this time of the year relative to the following fiscal year, are you less or more hedged than normal?

Michael Lavery:

Okay. And just back to Jennie-O, you touched on the volume impact that will run at least through 1Q '23. Can you give a sense of the magnitude there? Obviously, third and fourth quarter this year, at least what you reported and expect is pretty different in terms of the magnitude of the impact on volume. What would it look like going forward?

Michael Lavery:

So I think you had mentioned though, just a recent case or something that would add some pressure on 1Q. Would the volume pressure there be more like more similar to 4Q? Or do you expect it to be improving?

Jim Snee:

Yes. So Michael, if we stay where we are today, we don't expect a material impact in Q1. As this always is, it's a developing situation. And so, we'll be watching it closely. But at this point, it's really too early to tell what the impact for Q1 would be.

Jim Salera:

Jim Salera on for Ben. I wanted to drill down a little bit more on some of the labor challenges. Is it that you're seeing more acute labor markets in the areas that you operate your facilities? And maybe as the economy weakens, that loosens up a little bit and gives you an opportunity to hire more people? Or is it just pure wage issue or flexibility? Or what are some of the specific challenges that are preventing getting those under control?

Jim Salera:

Okay. And as you expand automation through your plants, what's the time frame of how long it will take to get those equipment -- get that equipment in the plant and up and running to supplement maybe some of the necessity for those higher turn labor positions?

Jim Salera:

Okay. And then if I could sneak in one quick question on HPAI. Yes, I know there's been a couple of cases pop up here more recently despite the weather getting warmer. Do you guys have anything in maybe your contingency plan? Or if anything you could do to prepare for the possibility of this popping back up as the year progresses?

Operator:

Our next question comes from Peter Galbo from Bank of America. Please go ahead with your question.

Jim Snee:

Yes, nothing really significant or material, Peter. We're moving some people around in chairs focusing their expertise in areas that we need some extra emphasis. So as we think about brand fuel, which is that center of excellence to really support all of our strategic pillars and brand in a bigger way. That will consist of our digital experience group, which has been a huge benefit to our organization. We'll continue to strengthen that area, making sure that our insights group is being fully utilized across the entire organization. So making a few investments there continued our good work on innovation and having that even more ingrained with the brand and the strategic pillars. So nothing really material as much as it is moving some people in chairs and then making sure, of course, that we've got all the right financial planning and analysis to support the business in a bigger way, but really nothing from a cost perspective that we're thinking about.

Peter Galbo:

Got it. Okay. No, that's helpful. And then, Jim, I just want to go back to your comments around what I'm assuming mostly pertain to the hog markets. Obviously, you've seen a little bit of relief here. Your commentary suggested over time, you're expecting some relief. But just as we think out 12 to 18 months, just what are you tracking? What are you seeing that's suggesting you maybe that you'll get some relief on the protein side? Just given some of the USDA forecasts or maybe for less protein availability next year as opposed to more, and I would think that would keep prices higher, but just curious if there's anything that you're seeing that we should be aware of?

Operator:

And our next question comes from Adam Samuelson from Goldman Sachs. Please go ahead with your question.

Jim Snee:

Yes. I think, Adam, as supply continues to improve and we talked about still having a number of categories where demand is outstripping supply, but as supply continues to improve, we do expect that to be a lever that we've -- historically, we've always used it. We'll continue to use that in conjunction with the advertising dollars that we need to build the brand equity and build that connection with consumer. So yes, we do expect to see that to continue to be an integral part of our business going forward. And as we think about our updated operating model and we start to bring these retail businesses together, that's also going to be a benefit for us as we'll have, again, a bigger purview of all the retail businesses in terms of how we're interacting with customers and consumers.

Jim Snee:

Yes. Not at this point, Adam. I mean we're seeing continued strength across all of the different channels where we compete. And I would say that a big driver of that, we've talked about some of our labor issues. So many foodservice operators are facing those same labor issues. So they're forced to think differently about how they're going to be able to provide products. And we talked a lot about the value-added offerings that we have in our foodservice portfolio really being able to help those operators move the labor that they do have from back of the house to front of the house, and we are -- we continue to see that play out. We have seen a strong back-to-school season, not only with our Jennie-O K-12 business, but with the work that the Hormel side does on the colleges and universities. So again, really, really strong broad-based foodservice business.

Jim Snee:

Yes. Thank you. I want to thank all of you for joining us today. As we've talked about this morning, our business remains incredibly healthy even as we continue to navigate some of the most difficult operating conditions in our company's 130-year history. Our team is focused on a strong finish to 2022, but we're also incredibly excited about our future with the implementation of our Go Forward initiative to update and better align our operating model against our strategic initiatives. This is a positive and exciting time for Hormel Foods. Have a safe and enjoyable Labor Day weekend.

Operator:

Good morning, and welcome to the Hormel Foods Second Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to David Dahlstrom, Director of Investor Relations. Please go ahead.

Jim Snee :

Thank you, David. Good morning, everyone. Our team continues to successfully navigate some of the most difficult operating conditions in the company's 130-year history as we again delivered strong top and bottom line growth this quarter. I want to express my gratitude to the entire team for their commitment and ability to drive results. There are many examples across our company of our results matter focus. And I would like to specifically acknowledge 2 teams who showed incredible dedication and determination during the last quarter. First, I want to recognize our Jennie-O Turkey Store team. In March, highly pathogenic avian influenza, or HPAI, was confirmed in our supply chain. And our team quickly and effectively mobilized into crisis mode. This involved working long hours over the course of many weeks to protect the safety of the turkey flux, provide transparent communication to customers and operators and plan for future business interruptions, all while operating the day-to-day business. This was compounded by severe weather in early May, which also impacted several facilities within the supply chain. Our Jennie-O team went through a lot this quarter, showing unwavering commitment and resolve in the face of some exceedingly demanding situations. I thank them for the work they've accomplished and for the work yet to come. Second, I would like to applaud our team in China for their incredible execution during truly unprecedented times. Strict lockdowns forced the partial closure of 2 of our manufacturing facilities. Some of our team members volunteered to sleep and live inside the facilities for 10 days to ensure the plants remained operational until normal production could resume. Simultaneously, our sales and marketing teams drove outstanding retail sales gains in anticipation of widespread lockdowns. The ingenuity, resourcefulness and grit displayed by our entire team in China was truly commendable and another example of what makes our company uncommon. In the second quarter, our team delivered its sixth consecutive quarter of record sales and third consecutive quarter of earnings growth. Operating margin also improved compared to the first quarter, an indication that our balanced business model are working. Cluster and operator demand for our leading brands remained robust as we continue to realize the benefits of investments in our direct sales force, diversified product portfolios, increased advertising, brand building and innovation. Across all channels, our brands have responded well to managing pricing and promotional levers to ensure the long-term health of our brands and the categories in which they compete. We also made meaningful progress across our supply chain during the quarter, where our investments in capacity and recovery in staffing levels contributed to improved fill rates, inventories and production volumes. One of our most important strategies has been to create a balanced, flexible and diversified business model, able to withstand market volatility and business fluctuations and other unforeseen events. As our second quarter and first half results clearly demonstrate, our strategy to bring balance into our business continues to differentiate Hormel Foods from others in the industry. One of the ways we do this is through our channel diversification. In the initial stages of the pandemic, we leaned heavily on our retail businesses, both domestically and internationally, to drive growth. In the current environment, we are growing with the foodservice industry through its recovery and continuing to meet elevated demand at retail. From a top line perspective, we drove 15% growth from our retail businesses in the second quarter and continued to see elevated demand for our leading brands, including WHOLLY, SKIPPY, Hormel, Square Table refrigerated entrees, SPAM, Hormel Gatherings, Jennie-O, Columbus and Applegate. We are also seeing our investments in the e-commerce channel pay dividends, with solid above category sales growth and share gains. As measured by IRI, sales increased 5% for the quarter, ending with a strong April. E-commerce constitutes around 12% of our tracked retail sales and is an important part of our future growth. We demonstrated our leadership position in the foodservice channel again during the second quarter, driving sales growth of 32% compared to last year. Growth was extremely balanced, with strength in both Refrigerated Foods and Jennie-O Turkey Store. We have made substantial gains in the fast-growing convenience store channel, in large part due to the scale the Planters brand brings to our company. Growth from the Planters and core nuts businesses in this channel is enabling expanded placements of other products. Recent wins in the retail and snacking space include SPAM, Chili, SKIPPY peanut butter, Compleats, Black Label bacon and egg bite, Columbus snack trays, Justin's items and Hormel Gatherings party trays. Additionally, we've placed premium foodservice items such as AUSTIN BLUES barbecue, FIRE BRAISED Meats and Bacon 1 pre-cooked bacon to be used in prepared items in this channel. Like e-commerce and the retail channel, convenience stores provide an important part of our future growth in foodservice. Internationally, we are continuing to make progress to bring even more balance to the company. Our business in China is a great example of this. This quarter, we again experienced demand softness in foodservice due to the country's COVID-related restrictions. Our team quickly pivoted its resources from foodservice to the retail channel. Sales of SPAM and SKIPPY surged. And our team was also able to effectively redirect foodservice items to food security programs to help supply those experiencing lockdowns. Mainstream to premium, both domestically and internationally is a strategy that has served us well and will continue to serve us well into the future. From an earnings perspective, our Jennie-O Turkey Store segment had an outstanding quarter, as its ability to adjust to current market conditions and meet strong results. Likewise, our foodservice businesses in Refrigerated Foods were able to price for inflation and deliver excellent volume growth. These businesses more than offset higher freight expenses for all segments and the earnings decline in grocery products, which absorbed significantly higher costs for certain inputs, such as avocados, protein and packaging. We have announced another round of pricing actions across our grocery portfolio to help mitigate these inflationary pressures, but will, in the meantime, lean into our balanced model as we did this past quarter. The balanced business model has been a key driver behind our recent success and our long-term growth. We remain confident in our ability to withstand volatile economic conditions and market cycles through our continued focus on balance. We successfully completed the integration of all aspects of the Planters snack nuts business during the second quarter, and the business continues to perform at the high end of our expectations. During the cutover period in February, we experienced lower fill rates as we fully transitioned inventory into our logistics network and assumed control of the entire supply chain. While this did have a short-term impact on sales and consumption, we have seen improvements in customer service levels and expect consumption data to show continued improvement in the coming months. As we celebrate one year of owning the Planters business, I am proud of the excellent progress we have made on our commitments from last June. We have invested heavily behind the Planters and core nuts brands. We are on track to capture the synergies identified during diligence. And we have leveraged this business to amplify our scale in snacking and entertaining. After an excellent first quarter and significant profit growth in the second quarter, our Jennie-O Turkey Store team is facing an uncertain period ahead due to the impacts and risks to its supply chain from HPAI. Similar to what we experienced in 2015, HPAI is expected to have a meaningful impact on industry poultry supplies over the coming months, including large supply gaps in the Jennie-O Turkey Store vertically integrated supply chain beginning in the third quarter. On a positive note, it appears that the biosecurity measures the company has implemented since 2015 have provided additional protection against the virus, as the number of company-managed turkeys impacted to date is 25% lower than during the Breast meat prices have already risen to levels higher than any point in 2015, currently trading above $6 compared to the previous all-time high of $5.85. We have seen increases in other turkey markets as well. From a cost perspective, feed prices are significantly higher, with corn and soybean meal up more than 125% and 40%, respectively, as of early May. Additionally, there is further upside risk to feed prices with later plantings due to cold and wet weather across the Midwest this spring. The cost of production labor at company manufacturing facilities has also increased more than 50% on average compared to 2015. Our team is taking the appropriate actions to protect the health of the turkeys across our supply chain, managing through operational challenges caused by the outbreaks and adapting to changing business conditions. While simultaneously managing through the impacts of HPAI, our team made progress on the Jennie-O Turkey Store business transformation. During the second quarter, we closed the Benson Avenue facility and successfully transferred approximately 200 employees to the newer and larger manufacturing facility in Willmar. We remain on track to integrate business functions, consolidate the Jennie-O Turkey Store supply chain into the broader Hormel Foods One supply chain and drive SG&A cost synergies of approximately $20 million to $30 million annually by fiscal 2023. Above all, the team is focused on creating a business model that is better aligned to the changing needs of our customers, consumers and operators to drive long-term sustainable growth. I also want to provide an update on the great work our team is doing to fulfill our ESG commitments and achieve our 20 by '30 goals. During the second quarter, we announced we are on track to match 100% of domestic energy use with renewable sourcing by the end of 2022. We announced that our Justin's brand is transitioning to jars that use 30% less plastic. We were ranked #57 on the U.S. Environmental Protection Agency's Fortune 500 list of the largest green power users. We were named One of America's Most Trustworthy Companies by Newsweek. And in May, for the 13th time, we were named one of the 100 Best Corporate Citizens by 3BL Media. This ranking recognizes outstanding environmental, social and governance transparency and performance. We are proud and honored to continue to be named a top corporate citizen. Lastly, I want to share a recent success story from our Inspired Pathways Free Community College Program. This week, we hired the first individuals from the program to participate in paid summer internships. This marks yet another example of why we believe this program can be generational for our employees, their dependents and for the future of the company. We are reaffirming our sales guidance range of net sales between $11.7 billion and $12.5 billion and narrowing the earnings range of $1.87 to $1.97 per share. We are confident in our ability to deliver our sales guidance given robust demand for our brands across the retail, foodservice and international channels, improvements in our supply chain, investments in capacity and from strategic pricing actions. From an earnings perspective, we expect a strong finish to the year from our Refrigerated Foods business. We anticipate a fourth quarter improvement from pricing actions taken across our Grocery Products portfolio. We are navigating the impact of HPAI on the Jennie-O Turkey Store supply chain and external factors affecting the International and Other segment, including current export logistics challenges and COVID-related lockdowns in China. Our teams have actions in place to manage through these challenges and drive results for the company. At this time, I will turn the call over to Jacinth Smiley to discuss financial information relating to the quarter and provide more color on key drivers to our outlook.

Operator:

[Operator Instructions] The first question is from Ben Bienvenu of Stephens.

Jim Snee :

Yes. Jack, thanks for the question. We've spent a lot of time over the last several years working on our jobs business. We know we've got a a fantastic brand. We've been doing a lot of work to continue to build a stronger business model that leverages our entire enterprise. And we had a strong finish to 2021, a great first half. We've got uncertainty in the back half of 2022. And we are going to begin to repopulate those farms. And we're going to return the supply in a very safe and timely manner. And so we know that the demand is there for the product. And as supply comes back in line, we expect strong demand across retail and foodservice. What we've tried to highlight were a couple of the differences in terms of what's changed since 2015 when we think about feed costs, when we think about labor costs. But I think the most important thing for us is that as we get supply ramped back up, we know that the demand is going to be there, both in the retail channel and the foodservice channel, because of the work that we've done. And as markets stay strong and if markets are better, that opportunity certainly exists.

Antonio Hernández :

Congrats on the results. The question is regarding mostly the situation in China. Has it started to recover, if it’s slowly opening and if it’s still too early to tell?

Operator:

The next question is from Ken Zaslow of Bank of Montreal.

Jim Snee :

Yes, Ken. So this round of pricing in GP will cover down our costs, our expenses. And as you know, I mean, we are very, very thoughtful about the managing of our pricing and promotions to ensure the long-term health of our business. And we always take a long-term view, because as we said in our comments, in our press release, we know that we have a responsibility to our customers, to our consumers and to the categories. In regards to pushback, what I would say is that really the pricing dynamics haven't changed. We've always had case and have strong justification for why a price increase is necessary. I would say that what has changed is probably that we're all -- retailers and manufacturers, we're all experiencing the same broad-based inflation. And even though that's the case, I mean, it still doesn't make conversations any easier because we're all going for the same thing. And that's that responsibility to protect the equity of the brand and the business. And then I would say, in terms of pricing, the brands or the categories that we've seen the most impact on, and this is the price increase impact, would be SPAM because of our protein inputs and some of our packaging costs and then WHOLLY Guacamole because of avocados and then really least impacted would be SKIPPY. SPAM and WHOLLY have both -- as you look at the data, they both held up incredibly well in the face of some pretty strong pricing actions. So hopefully, that gives you some clarity.

Operator:

The next question is from Michael Lavery of Piper Sandler.

Jim Snee :

Yes. It's a great question. I know a conversation we'll be having as we continue to head into the -- or face some of these economic challenges. But I think the key takeaway for us is this balance that we've continued to build across all of our business. And as we think about our portfolio, we've got such an incredibly wide range of offerings when we think about the value consumer. And that's where Jacinth talks about our GP portfolio that historically has done well during slowdowns. And this quarter, we've been able to demonstrate great top line growth, great volume growth. Now we just have to get caught up on some of the inflationary factors. But as you think about that balance across consumer type, across channel, across products, across brands, we're able to navigate these environments really, really well. And while we're talking about the value consumer, I mean, the thing to remember is that we still have premium consumers and premium offerings that are doing incredibly well. The strength of our Columbus business, when we think about entertaining and snacking, when we see the continued strength of our Applegate business, which is more of a food forward type brand and product line. And then it all goes back to really the balance that we've built across the portfolio that sets us up incredibly well for so many different economic conditions.

Jim Snee :

Yes. I would say there's not really a dramatic change. It really is just a call out in terms of what we do. We've talked a lot about the strength of our brands and the investments that we make in our brands every year. And that is our responsibility. It's something that we believe is a differentiated capability for us as we think about brand stewardship. And so -- and it's also about the recognition that we have a responsibility to our brands. We understand that there are others in the channel that we have an obligation to as well to make sure that we're taking care of our customers, that we're taking care of our consumers. And even in our foodservice business, we've got to take care of our operators to make sure that we're servicing their needs and providing great value. But again, all of it goes back to this long-term view that we always take is to make sure that, yes, we have to run the business for today. But we want to make sure that we have long-term healthy businesses, long-term healthy categories.

Operator:

The next question is from Bryan Spillane of Bank of America.

Jim Snee :

Yes. It's a great question. Bryan, you didn't mess that up. Nice job. So for us, as we've talked about this year at the first quarter, we were expecting some sequential margin improvement throughout the year. So the impact this year is really what's going to happen with Jennie-O in the third quarter. So that is a big factor. The other thing is our mix, right? Our mix does change in our third quarter. And then like I said, the jobs impact will be a significant impact. And then as we get into the fourth quarter, we'll continue to have strong business in Refrigerated Foods. We've got still some uncertainty in jobs, but we expect that to perform better. And then the big driver is the Grocery Products pricing that we talked about, which will take hold in the fourth quarter.

Jacinth Smiley :

Yes.

Bryan Spillane :

Okay. And then just on -- a follow-up is, I know we've talked a little bit about elasticity on this call and trade up, trade down. Can you give us a sense of just how you're looking at maybe the -- just planning maybe cross elasticity between channels? And I guess what I'm after is, with inflation being as pronounced as it is for the consumer, you're beginning to see some choices that they're making about discretionary versus nondiscretionary spending. So running -- spending on food but not buying discretionary items or general merchandise, let's say, in Walmart. So I guess as you're planning your business forward for what we would expect to be a more inflationary period in general, would your expectation be that there's going to be a little bit of a shift away from foodservice and into grocery or within foodservice within channels? Just generally, how you're kind of thinking about that in the context of inflation going to be with us for a while and consumers will have to start making some discretionary choices?

Operator:

We are going to reconnect the speakers. Please continue to hold. Hello, everyone. The speakers have been reconnected. Please go ahead.

Bryan Spillane :

I promised, Pete, I wouldn't screw this up, and I apparently broke the line, so.

Operator:

The next question is from Tom Palmer of JPMorgan.

Jacinth Smiley :

Last -- we're referring to the GAAP numbers, which is $0.39, right, which is the adjusted [39th] week.

Jim Snee :

No. We would expect the effect or the benefit will take -- will have an impact. It will be right at the end of the third quarter, beginning of the fourth quarter. And so naturally, of course, that will flow into the first quarter of '23. But the full fourth quarter will be impacted in a positive way.

Jim Snee :

That's correct.

Eric Larson:

So Jim, I'm kind of curious. I'm going back to 2015, the last AI breakout. You've said that your impact -- your bird impact was 25% less than net impact in 2015. But I think one of the things in 2015 that hurt you pretty badly was that you were a net buyer of supply, so that you could meet your demand and those high spot prices really hurt your numbers. And then it took quite a while to kind of repopulate those grown houses, those birds take longer to grow out. So -- and maybe I'm missing it. It sounds like maybe that's not going to be as big a deal this time? Or when should we expect to see the volumes actually start recovering as you kind of repopulate to grow all houses?

Eric Larson :

Okay. So then the second follow-up to this whole thing is, so did you decide -- in 2015, one of your actions, given what happened with AI, to actually increase your increase your internal production so you don't have to buy outside supplies? Or did you -- are you converting more of the commodity stuff to -- so what is the change between being a net buyer of supply outside of your company to being right now you're not buying product? So I'm just trying to figure out what the dynamic is there.

Operator:

The next question is from Robert Moskow of Credit Suisse.

Jim Snee :

Yes. Rob, we talked a little bit, but happy to revisit that. Yes. The pricing that we're talking about has been negotiated recently. And as you know, we do have in our GP portfolio, that's really 60- to 90-day lag to have our pricing take effect. And so we're in that window, and that's why we're talking about the end of July or the end of Q3. What we talked about earlier in terms of the pricing and the environment that we're in is that really the pricing dynamics haven't changed in regards to the justification that we've had to provide. What we think has changed and what we know everybody is experiencing that same broad-based inflation. So the data is being felt by everyone. And it doesn't make the conversations any easier. So we've had a lot of the same conversations. It's just that everyone is feeling the -- or seeing the same information. And then the other thing that we did talk about was understanding that we've always taken a very thoughtful approach to the management of our pricing and promotions. Because while we have this inflationary environment that we're in, we need to ensure the long-term health of our brands. And so that's how this has played out in terms of the pricing for GP. And then that's how we're thinking about the actual pricing environment that we're in.

Operator:

The next question is from Adam Samuelson of Goldman Sachs.

Jim Snee :

Yes. Sure. So Arthur, I mean the placement of our products remains very, very strong and continues to get better as our supply chain improves. We're able to improve the assortment of our products, the mix. And as our supply chain and our capacity continues to get better, we are able to engage in select promotional activity as well. So from a distribution perspective, it continues to be strong and getting better as our supply chain continues to recover. As we think about elasticity, there is still a lot of noise in terms of fill rates, assortment, promo, really getting some of the second and third tier items back on the shelf from the impact of the pandemic. And so I mean, we're watching that very closely. But we still see lots of noise in the system for the balance of the year. And our brands have responded well to that pricing. So we're going to continue to support them with advertising and promotion. And we've got any potential impact factored into the guidance that we've provided for the back half of the year.

Carson Barnes :

Can you touch on the labor issues a bit and discuss what you're doing to mitigate those impacts from a product mix perspective? And then how are you thinking about correcting those issues longer term?

Operator:

The next question is from Rebecca Scheuneman of Morningstar.

Jim Snee :

Yes. Rebecca, the biggest issue in terms of total volume was the reduction in pork supply as we renegotiated our pork supply agreement at the end of last year. Labor was a factor, but I wouldn't say it really was a significant driver. It was really less -- far less than pork in terms of the total impact on the volume.

Jim Snee :

Yes. That is something that we've broken out before. And actually, what I probably would do is just so we get you the exact information is we'll have David follow up with you so you've got the exact number of pounds that we've talked about in the past.

Jim Snee :

No. The work that we've done on the transformation of the business has not slowed down.

Operator:

This concludes our question-and-answer session. I would like to turn the conference back over to Jim Snee for closing remarks.

Operator:

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator:

Good morning, and welcome to the Hormel Foods First Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Nathan Annis, Director of Investor Relations. Please go ahead.

Jim Snee :

Thank you, Nathan. Good morning, everyone. I want to start off by thanking our dedicated team members around the world for once again achieving strong results in a complex and dynamic environment. The combination of our execution and balanced business model allowed us to deliver strong first quarter results, keeping us on track to achieve our sales and earnings guidance for the year. These results further demonstrate the importance of our strategy, the positive impact of our actions and our team's ability to perform in challenging operating conditions. Our entire team can be proud of our accomplishments this quarter. In the first quarter, our team delivered its fifth consecutive quarter of record sales and achieved high-quality earnings growth. Net sales surpassed $3 billion for the second consecutive quarter, a 24% increase. Operating income also increased significantly, up 19%. Most importantly, demand for our products remained elevated across all our business segments and go-to-market channels. We increased advertising investments during the quarter to sustain our momentum. Our One Supply Chain team once again demonstrated their resiliency and allowed us to deliver organic growth in our domestic value-added businesses for the quarter. From late December through January, our team experienced some of the heaviest operational impacts that we have seen since the start of the pandemic. These impacts stemmed from significant labor shortages due to the Omicron variant, severe upstream and downstream disruptions and industry-wide operational challenges. I want to again thank our One Supply Chain team for their tireless work and their unwavering commitment to employee safety in these challenging times. Fiscal 2022 is an important year as we return to top and bottom line growth. Our path forward, which we detailed at our Virtual Investor Day in October, represents the 6 strategic imperatives that will guide our actions over the next few years. These include expanding our leadership in foodservice, protecting and growing our core brands, aggressively developing our global presence, amplifying our scale in snacking and entertaining, enhancing growth of our ethnic and Food Forward portfolios and continuing to transform our company. To provide added color on the quarter as well as our long-term views on the business, I'd like to give an update on the progress we have made since October. In the first quarter, we again demonstrated our leadership position in the foodservice channel. Sales were 51% ahead of last year. We continue to benefit from our direct sales force and differentiated portfolio, which is perfectly positioned to meet the needs of today's foodservice operators with labor and time-saving products. We saw improvement in almost every category across our portfolio of foodservice businesses. Consumer demand for food away from home has been very strong. And according to recently published government and technomic data, conditions are improving across the food service industry to help meet this demand. Foodservice sales have risen at an average rate of approximately 25% over the trailing 12-month period, accelerating through the close of calendar year 2021. Operator sentiment also continues to improve from pandemic lows, and foodservice industry employment has made steady gains. These factors, coupled with the demand we are seeing for our products across all geographies in the U.S., support our positive views on the near-term and long-term health of the industry. As we look forward, we plan to further expand our leadership position in areas like restaurants, hotels, colleges and universities and use the scale of the Planters brand to grow our company's presence in emerging growth spaces, such as convenience stores. We also expect to protect and grow our core brands in fiscal 2022 and into the future. Our retail businesses grew sales 17% during the first quarter. We have leading positions in over 40 categories, with brands such as Hormel Black Label, SPAM, SKIPPY, WHOLLY and Jennie-O. Elevated demand for many of these core brands over the last 2 years has surpassed our ability to fully supply. And in these highly inflationary times, having leading brands that connect to consumers in meaningful ways is vital to success. We understand the importance of brand stewardship. And in the first quarter, we increased advertising investments in each business segment to ensure our brands remain well supported, collectively increasing advertising investments by 38%. The strong brand equity we have built over a decade has allowed us to simultaneously increase our household penetration, grow the size and our share in many of the categories in which we compete and implement strategic pricing actions to help offset inflationary pressures. We have made excellent strides connecting with consumers in the e-commerce channel as well. During the quarter, we exceeded overall category growth, with more than 12% of our IRI track retail sales now coming from this particularly important and fast-growing channel. Transitioning to our third priority, we need to aggressively develop and expand our global presence. Our international business is healthy and positioned for long-term growth despite issues affecting the first quarter. Similar to the broader industry in China, we experienced some demand softness, predominantly in foodservice, due to the country's COVID-related restrictions. Additionally, limited railcar availability and U.S. port congestion negatively affected our export business. As we look ahead, our export business is expected to benefit from demand for our global brands such as SPAM and SKIPPY. Our China business is expected to see growth from its scalable foodservice business as well as from retail, with momentum behind the SPAM brand and innovative snacking items such as beef, turkey and SKIPPY funkiness. And we have made considerable progress growing our global presence through our partnerships in the Philippines, South Korea, Europe and Indonesia. We have great partners in these geographies who share our growth mindset. To further support growth, we plan to continue to make many investments into our international business this year. During the first quarter, we increased brand investments in advertising. Later this year, we will open a new Asia Pacific research and development facility, which will support our operations in China and throughout Southeast Asia. And we have plans to further build out our infrastructure in the important Chinese market. We expect to bring meaningful scale to other select global markets as well. And we are making the necessary investments to succeed long term. Our fourth priority focuses on our next growth platform, snacking and entertaining. Snacking and entertainment cuts across all segments and channels, and we are ideally positioned to leverage our powerful and complementary portfolio of brands across salsa, guacamole, nut butters, nuts and premium deli meats. Planters is a cornerstone to our snacking platform, and that business continues to perform at the high end of our expectations. We completed the supply chain integration of the Planters and Corn Nuts businesses in February. As a result, we expect continued synergies and improved customer service levels going forward. As we discussed, when we announced the acquisition of the Planters business, we are on track to launch many new innovative items, including Planters Sweet & Spicy Dry Roasted peanuts and introduce a refresh to the branding and packaging. We're also investing in the brand, including our newest campaign, All or One. Seeing the great work of our teams has made me even more confident about where we can take this brand in the future and further strengthens our belief in the potential for Planters. Our fifth initiative is to enhance the growth of our ethnic and Food Forward portfolios. Our MegaMex and Applegate businesses have been growing, and we are evolving our portfolio at a rapid pace to meet the changing needs of today's consumers. Our MegaMex business grew volume and sales during the first quarter, led by strong demand for WHOLLY products at retail. Applegate delivered another outstanding quarter, with growth across the portfolio from products such as breaded chicken, breakfast sausage and sliced meats. Applegate has given us a clear competitive advantage in the natural and organic meat space and has provided a platform for some of our most important environmental work, such as regenerative agriculture. Finally, we need to continue to transform our company to enable future growth by modernizing our organization. Initiatives like Project Orion, One Supply Chain and our automation efforts are all focus areas, as is the work we are doing to transform the Jennie-O Turkey Store business. As promised from our fourth quarter call, we want to give you an update on our Jennie-O Turkey Store transformation. Our priority has been to build a more demand-oriented and optimized turkey portfolio that is better aligned to the changing needs of our customers, consumers and operators that will result in long-term growth, improved profitability and lower earnings volatility. To that end, we have taken numerous actions and will take many more actions to optimize our business model. During the first quarter, we started to see the benefits of our actions of shifting from commodity to branded value-added products. For an example, as an industry leader in turkey, we are investing behind the Jennie-O brand to drive greater growth in our most profitable, high-growth product lines in retail and foodservice. In conjunction with driving improvement in our value-added products, we are also taking aggressive actions to optimize our portfolio. Combined with increased pricing, our brand investments and SKU rationalization are leading to a healthier business. From a supply chain perspective, we remain on track to close the Benson Avenue facility in Willmar, Minnesota, in the second quarter. Our Benson Avenue team members are currently transitioning to our newer and larger facility in Willmar, which will supplement our staffing levels. To date, the Jennie-O supply chain has largely been run separately from the rest of our supply chain, here to it being vertically integrated. By the start of fiscal 2023, we will leverage our One Supply Chain capabilities to integrate all facilities into the broader Hormel Foods network. As we integrate these plants into the Hormel Foods network and rationalize commodity SKUs, we will free up plant space for additional production capacity of many product lines that will service any brand in the Hormel Foods portfolio. This is a monumental step and one that will make our entire company more efficient. Similar to the integration of the supply chain, we will integrate key business functions more deeply into the Hormel Foods organization. In addition to integrating IT services, finance and accounting and HR, we integrated the R&D organization into Hormel Foods R&D during the first quarter. Looking to the remainder of the fiscal year, we will start the process to integrate other business functions, such as our selling organization and marketing teams, into the broader organization. This integration will leverage the strengths of the parent company and the knowledge of Turkey to create a better business model. Over time, we expect the Jennie-O Turkey Store business to achieve higher or stable growth and improved profitability. We also expect other financial gains, including increased asset efficiency, higher manufacturing throughputs, better labor utilization and CapEx avoidance. We expect these changes will drive selling, general and administrative cost synergies of approximately $20 million to $30 million annually by fiscal 2023. In addition to the progress we have made on our 2022 Path Forward, we continue to invest in our people, our partners and our communities to deliver on our ESG commitments. During the first quarter, we distributed our annual profit sharing for the 83rd consecutive year. We continued our environmental stewardship work, with investments in additional wind energy projects, which strengthens our position in renewable energy. We supplied donations to many causes, responded to crises where we could help and supported many local communities. Additionally, our Inspired Pathways Community College program continued to receive accolades and was awarded an Anthem Award for the most impactful corporate initiative in education, arts and culture. And because of our good work, we continue to be recognized. We were recently named one of America's Most Responsible Companies by Newsweek, one of the world's top female-friendly companies by Forbes and as a Best of the Best Employer for the ninth consecutive year by the Military Times. With our strong start to the year in the face of challenging operating conditions, we are reaffirming our sales and earnings guidance for fiscal 2022. We expect net sales to be between $11.7 billion and $12.5 billion and for diluted earnings per share to be between $1.87 and $2.03 per share. Our outlook for the remainder of the year assumes, among other things, elevated levels of demand across our go-to-market channels; margin improvement from our efforts to combat inflation, including pricing actions and a positive shift in mix; strength from our high-growth brands and businesses, including Columbus, Applegate and foodservice; continued Planters’ performance at the high end of our expectations; improved supply chain performance as labor pressures ease; and the benefit of new capacity for dry sausage, pizza toppings, bacon and other value-added products. I believe our team has always had a keen competency to evolve and adapt as conditions change. We have certainly improved upon this competency over the last 2 years and we were able to leverage it again to drive growth in the first quarter. I expect our team will continue to navigate and overcome the challenging operating environment to deliver our growth goals this year. Our results-focused mentality is just another factor that makes our company and our Inspire team members uncommon. At this time, I will turn the call over to Jacinth Smiley to discuss financial information relating to the quarter and provide more color on key drivers to our outlook.

Operator:

[Operator Instructions] The first question is from Ken Zaslow of the Bank of Montreal.

Jim Snee:

Yes. I mean really, Ken, we haven't seen any elasticity across any of the portfolio. As we've said, really strong demand across all channels and all categories. And for us right now, I mean, there's just so much noise in distribution and fill rates, demand being strong. And we just haven't seen that elasticity yet. As you would expect, we're continuing to monitor all the various dynamics but just haven't seen it yet, and it's really, really hard, with all that noise, to draw a line and stand to say when we're going to start to see it. You know it's going to come, but it's just really hard to project when that's going to happen given all the other issues I described.

Jim Snee:

Sure. Thanks, Ken. Actually, I'm going to start with the last part. Obviously, a year from now, we expect to be in a much better position. And when we think about not only the continued improvement with labor that we're seeing across the entire supply chain, the added capacity that we've recently completed, projects that we have in the queue that we've talked about and then a lot of other small projects as well as continuing to build out our co-manufacturing network, a year from now, we will be in a much better position. As we progress throughout the balance of this year, we expect to be incrementally better as we go along. And so the biggest driver right now is our ability to continue to add labor to our facilities. I'd say right now, we've got about 1/3 of our plants that are fully staffed and have made progress across all of our plants. If you remember, in our last conversation, I talked about how we have made progress in some select plants, now we've made progress in all of our facilities. And all of that's going to lead us to be in an incrementally better position throughout the year.

Thomas Palmer:

Maybe to kick off, I just want to clarify the EBIT margin outlook. I think you said expect it to improve sequentially throughout the year. If I look, though, on EBIT margin, it looks like the second quarter on just kind of a seasonal basis is typically one of the stronger ones of the year and then you see the second half a bit weaker. So is it even, looking past seasonality, you expect to kind of have a linear progression of increases as the year progresses?

Thomas Palmer :

Okay. And I guess the follow-up would be on kind of the gross margin side. I think a quarter ago, the talk was gross margin expansion for the year. I assume that's still in place, just given the guidance. But maybe for the second quarter, should we look for gross margin to expand year-over-year? Or is that more a second half event?

Operator:

The next question is from Peter Galbo of Bank of America.

Jim Snee:

Yes, it's a great question, Peter, and you've hit it right on the head. I mean we are optimistic about the Planters business, and there's a couple of things to consider. The IRI data only covers a portion of the business, albeit a large portion. There's still a significant portion in our foodservice or convenience channel that's really off to a good start as well. But your comment is exactly right is that we have had service level issues in Q1. It's fair to say that we've had a disproportionately amount of lower fill rates across the board. We talked about how we now have this business under our full control as of Q2. And in the first period of Q2, I mean we've already seen improvements in fill rates. And so the team has done a really nice job with Planters and doing what we said we were going to do in terms of how we invest in the advertising. Of course, we had our Super Bowl ad that we ran, the work that we're doing in innovation, introducing a new sweet and spicy flavor, with packaging innovation yet to come. Our sales team, now that they've got their arms around the business, are doing a nice job expanding distribution. And then I mentioned the foodservice channel with convenience stores really have an impact there as well. So that's why we're so optimistic. But your read through in terms of service levels and fill rates in Q1 is exactly the issue in the short term.

Peter Galbo:

Okay. That's helpful. And maybe just on Jennie-O, helpful detail around the SG&A savings for '23. I was just curious though, I think last quarter you had mentioned maybe we'd get a more detailed breakout this quarter on upfront costs related to shutting down the plant and some of the other transitional costs. And then as well on Jennie-O, the comment on feed costs, up 35%, is that inclusive of your hedging? Or is that just what cost to be up if you weren't hedged, I guess?

Jacinth Smiley:

Yes. As it relates to the green prices, certainly, the costs that you're seeing and the prices that we're seeing is included in what we have hedged. And so we are more hedged than normal. So we feel good about being able to just cover down some of that headwind from a grain price perspective.

Rupesh Parikh:

So just given your exposure to both foodservice and retail, I was just curious how you guys think about maybe normalization of food-at-home demand in the coming quarters, especially with COVID cases going down now.

Rupesh Parikh:

Okay. Great. And then maybe just one follow-up question. So on MegaMex, I know there's a smaller contribution this quarter due to some of the cost pressures. Do you expect that contribution to improve in the future quarters?

Operator:

The next question is from Ben Theurer of Barclays.

Jim Snee:

Yes. No, Ben, we don't have any supply issues. Product is -- a lot of the product is actually produced in Mexico. What we are -- I mean what we have is obviously the runoff in the cost of the avocados that's impacted the performance of the business in the short term.

Jim Snee:

Yes, Ben, it's a great question. From our point of view, the work that we're doing is being done to eliminate the volatility in the earnings. And so by doing this, we know that we're going to be able to improve the quality of earnings over time and reduce the volatility. And so really, that's how you should think about it. As we're sitting here today, you've got obviously, breast meat prices at significantly higher prices. You've got corn and soy at very high prices. So there's just a lot of moving parts and a lot of volatility. But the big driver, again, the most important thing to take away is that this is going to be a demand-oriented businesses -- demand-oriented business that will have less volatile earnings over time.

Michael Lavery:

You mentioned the elasticities and how they're holding up. I just want to come back to that and see if you can elaborate on what your assumptions are going forward in your guidance. Do you expect that to continue? Or do you, at least for modeling purposes and guidance, assume it reverts back to more normal levels or something in between?

Michael Lavery:

Okay. That's helpful. And just also following up on Planters, I certainly appreciate there's some supply disruptions or service levels, you called that out pretty broadly. But I want to make sure I understand, that would seem to impact your shipments and make those worse than the sales growth we see in the scanner data, but our numbers are showing this kind of high single-digit declines or even slightly more in January. Do you see selectively where some regions or retailers are performing better than that on a sell-through basis that you would point to the supply disruptions as how the business is doing better than you think? Or what are your expectations for this level on the high side and it's coming through where you would have expected?

Operator:

The next question is from Robert Moskow of Credit Suisse.

Jim Snee:

Yes. Thanks, Rob. You're right on the Super Bowl ad, obviously, we had a -- there was a commitment to that work. But I would say that it didn't build any ill will with retailers. Supply disruptions are so broad-based in today's environment. That wasn't an issue. It did accomplish exactly what we wanted it to do in terms of brand building, making sure that we were getting the impressions in the marketplace that we wanted to get. To your point, we were able to get still a lot of display activity. But we would consider the Super Bowl ad a success. And then in regards to margins, we have built in continued inflation throughout the year. We've also built in some continued pricing. As I said, we've got pricing that's built-in process and pricing that's yet to come. That's going to contribute to that margin improvement.

Jim Snee:

Yes. For sure, Rob. Absolutely. We've seen some improvement, but we expect that to continue throughout the year.

Benjamin Bienvenu:

I want to ask about the International business, and specific to the M&A strategy that you expect to deploy there. That business has, I know, become a prominent piece of your long-term strategy. Do you expect the opportunity for growth to be driven disproportionately by M&A versus organic growth? And given kind of the debt profile of the business right now and the leverage profile, which is very manageable given the cash flow of the business, how aggressive are you in terms of pursuing M&A in that business at the moment?

Benjamin Bienvenu:

Okay. Great. Revisiting the repositioning of the JOTS business, you characterized the savings, the $20 million to $30 million of savings, I think, is G&A. But it sounds like the breadth of some of the actions you're taking there might extend beyond just G&A savings. Should we think of that $20 million to $30 million as a baseline and incremental rationalization and supply chain savings stacked on top of that? Or would those broader actions be contained within that $20 million to $30 million that you referenced?

Operator:

The next question is from Adam Samuelson of Goldman Sachs.

Jim Snee:

Yes. There's a couple of things there, Adam. I mean the first thing is that the demand across the portfolio remains exceptionally strong. And as we've said several times, we cannot fully supply all of that demand. GP had a significant impact in terms of inflation, freight, steel, aluminum, trim, avocado. So it really was across the board and broad-based. The thing that we have done, obviously, is we've taken pricing to offset that. And we've got, again, pricing that's in process and some pricing that we're evaluating that can be yet to come. And so they have had that significant inflationary impact, but the demand across the business remains extremely, extremely strong.

Jim Snee:

Yes. So you're exactly right, Adam. The decline was due to the effect of the new pork agreement. But the biggest driver for us right now is this added capacity. And so we've got our pepperoni capacity that's up and running in Omaha. We've started additional bacon capacity in a number of different locations. We've talked about other projects and building out our co-manufacturing network. And all of those are having a very, very positive impact on Refrigerated Foods because, again, both the retail and foodservice demand remain incredibly, incredibly strong.

Eric Larson:

Yes. So the question -- let me just step back and maybe ask the question on pricing a little differently, Jim. So you were not highlighting specific products that you may or may not have priced. What percentage of maybe grocery revenue still requires further pricing that you may not have taken already? Maybe that's a better way to kind of clarify it.

Eric Larson:

Okay. Okay. So my follow-up question is, can you give us -- it's a pretty dynamic environment in the meat protein sector with pork. We -- it looks like the USDA is looking for lower hog production this year, maybe 1% to 2%. It looks like maybe you've got really high soy meal costs. So it's farmers -- incentive for farmers to maybe increase production is not as great, at least right now. And maybe some of the Chinese demand might be backing off after a couple of years of really strong demand. So can you kind of give us a feel for how your pork and your hog costs might look for the remainder of the year?

Operator:

This concludes our question-and-answer session. I would like to turn the conference back over to Jim Snee for closing remarks.

Operator:

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator:

Good morning everyone and welcome to the Hormel Foods fourth quarter 2021 earnings webcast. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today’s presentation, there will be an opportunity to ask questions. Please also note today’s event is being recorded. At this time, I’d like to turn the conference call over to Nathan Annis, Director of Investor Relations. Sir, please go ahead.

Jim Snee:

Thank you Nathan. Good morning everyone. I want to start this morning by congratulating Jim Sheehan on his upcoming retirement. Jim will be retiring as CFO at the end of the calendar year, so this will be his last earnings call. Jim has over four decades with our company and under his tenure has built a world-class finance, accounting and technology organization. Jim was the guiding force behind Project Orion, an initiative that will benefit our company for decades to come. For over 43 years, with the last five years as CFO, Jim has been a trusted partner to me and many of my predecessors. Jim helped complete over $5 billion in strategic acquisitions, including Justin’s, Fontanini, Seracci [ph], Columbus, Sadler’s, and our largest acquisition ever, Planters. Equally impressive was Jim’s contribution to reshaping our portfolio as he was also a guiding force behind many of the divestitures we made to transform our company. Jim’s oversight to our evolution puts us on a solid foundation for the future growth of our company. Additionally, Jim has overseen the distribution of over $2 billion in dividends to our shareholders. In addition to his business accolades, Jim was the key voice behind our game-changing Inspired Pathways program which provides free college education for children of our team members. Jim will be missed, and we wish him well in retirement along with his wife, Jean. Jacinth Smiley succeeds Jim and brings a wealth of experience from outside Hormel Foods. She has deep and broad domestic and international experience in areas such as corporate finance, public accounting and compliance. Most recently, she served as the Group Vice President of Corporate Strategy. Hormel Foods is fortunate to have Jacinth as CFO and I’m looking forward to her leadership in her new role. My sincere congratulations to both Jim and Jacinth. In an incredibly difficult and rapidly changing operating environment, our team delivered outstanding top line results. We achieved record sales in fiscal 2021, exceeding both $10 billion and $11 billion in sales for the first time. For the full year, sales were $11.4 billion, representing 19% sales growth. On an organic basis, sales increased 14%. Our top line growth was incredibly balanced as each of our go-to-market sales channels and business segments posted strong double-digit sales gains underpinned by value-added volume growth, pricing, and a better mix. Adjusted diluted earnings per share for the full year increased 4% to $1.73 in spite of inflationary pressure and supply chain challenges. Diluted earnings per share was $1.66. We had an excellent fourth quarter and posted numerous records, including a fourth consecutive quarter of record sales, record diluted earnings per share, and record cash flow from operations. I want to commend our entire team for delivering this impressive performance and the numerous fourth quarter records. Sales increased 43% and organic sales increased 32%. Volume increased 14% and organic volume increased 8%. We grew sales in every segment and every channel for the quarter. Compared to pre-pandemic levels in 2019, all channels grew by over 25%, driven by strong demand and pricing actions in almost every category. This all-time record performance was led by further acceleration in our food service businesses. Our food service teams across the organization posted 72% sales growth for the quarter, 33% higher than pre-pandemic levels. This followed second quarter growth of 28% and third quarter of 45%. Strength was broad-based with significant contributions from refrigerated foods, Jennie-O Turkey Store, and MegaMex. We also saw a strong recovery in our non-commercial segments, including college and university and K-12 institutions. Our food service portfolio remains perfectly positioned to meet the needs of today’s food service operators with labor and time-saving products. I believe our growth in food service is a function of our differentiated value proposition in the industry as well as our dedication during the pandemic. We have grown with our distributor and operator partners during the recovery, strengthening many of our partnerships and decades-long relationships. The top line performances from our other channels were equally impressive. Retail, deli and international each delivered a second consecutive year of growth. Retail and international sales both increased 34% and deli sales increased 24%. On an organic basis, each channel posted strong double-digit growth. Growth came from numerous brands across all areas of our portfolio, including Spam, Applegate, Columbus, Hormel Black Label, Wholly, Hormel Compleats, Gatherings, and many more. We continue to see very positive trends for consumer takeaway at retail. According to IRI, key metrics for our brands such as buy rate and trips per buyer remained favorable, which indicates elevated consumer spending on our products has remained. We also continued to grow share in many important categories, including Hormel Gatherings party trays, Hormel Pepperoni, Spam luncheon meat, and Hormel chili. Our one supply chain team has done an excellent job operating in and navigating constant supply chain disruptions. We have also seen the positive impact of their strategic actions, namely we’re starting to see an increasing number of our open positions being filled, more automation being implemented in our facilities, and a more simplified product portfolio. In total, these actions are allowing us to maximize our throughput to meet the continued strong demand of our customers. From a bottom line perspective, fourth quarter earnings were a record $0.51 per share, a 19% increase compared to 2020. An acceleration in our top line results and the addition of the Planters business led to the earnings growth. As we said in the third quarter, we expected margins to improve as pricing actions took effect. Indeed, margins improved sequentially in all four segments. Pricing actions, improved promotional effectiveness, and a more profitable mix all contributed to the improvement. We started to see relief in key raw materials in the fourth quarter compared to prior quarters; however, labor rates, freight, supplies and raw material costs remain above year-ago levels, and in the case of freight increased further. Looking at the segments, grocery products, refrigerated foods and international segments each posted double-digit segment profit growth. Jennie-O Turkey Store profits declined due to higher feed costs. A few highlights from the quarter include the following. Refrigerated foods delivered strong volume, sales and profit growth. The team was able to leverage the numerous capacity expansion projects since the start of the pandemic for categories such a pizza toppings, bacon, and dry sausage. Within grocery products, our Simple Meals and Mexican portfolios generated excellent growth in addition to contributions from the Planters snack nuts business. Notably, the Spam brand delivered its seventh consecutive year of record growth, and we recently announced plans for additional capacity to support future growth. Our international team achieved a seventh consecutive quarter of record earnings growth with strong results from all of their businesses. The momentum this business has generated over the last two years supports our plans to aggressively expand internationally. Lastly, Planters made a positive impact especially in the fast growing snacking and entertaining space and within the convenience store channel. This quarter’s results were outstanding and we intend to build on this momentum going into 2022. Over the past decade, Hormel Foods has deliberately evolved from a meat-centric, commodity-driven company with a heavy focus on retail pork and turkey to a global branded food company with leading brands across numerous channels. Our company today is more food-forward than ever with a sharp focus on the needs of our customers, consumers and operators. As we begin fiscal 2022, we plan to continue our evolution. First, we will complete the full integration of the Planters business across all functions. The first of three production facilities was successfully integrated in the fourth quarter and the remaining two facilities are scheduled to be fully integrated in our first quarter. Since acquiring Planters six months ago, our sales, marketing, innovation, and R&D teams have been hard at work developing new and innovative products and flavors, many of which will be rolled out this coming year. They have also been working on refreshing the branding and packaging, which will also be launched in 2022. Seeing the great work of our teams has me even more confident about where we are able to take this brand in the future and further strengthens our conviction of the potential for Planters. From a financial standpoint, the Planters business is performing at the top end of our expectations, and we expect that trend to continue in fiscal ’22. Second, we are also taking a series of actions at Jennie-O Turkey Store. Over time, we expect these actions to result in a more demand-oriented and optimized turkey portfolio that is better aligned the changing needs of our customers, consumers and operators that will result in long term growth, improved profitability, and lower earnings volatility. The transformation starts with accelerating our efforts to shift from commodity to branded value-added products. This is similar to the successful strategy we have executed in refrigerated foods over the past 15 years. As a result, we will close the Benson Avenue plant located in Wilmer, Minnesota in the first half of fiscal 2022. This plant is an older, inefficient facility which produces numerous commodity items. Value-added products will be consolidated into multiple other facilities. Team members will transition to our newer and larger facility, also located in Wilmer, which will supplement staffing levels. Finally, we will continue to integrate business functions into the Hormel Foods parent organization. Over the past two years, we have successfully integrated IT services, finance and accounting, and HR into the Hormel organization through Project Orion, and we will continue these efforts for other functions. By doing so, we will bring the deep turkey expertise and competitive advantages of the Jennie-O team to the broader organization. I want to be very clear that turkey will continue to play an important role in our company for many brands, including Columbus, Applegate, Hormel Natural Choice, in addition to Jennie-O. Turkey is vital to our balanced business model, serves to diversify our portfolio, and is important to consumers who are looking for high protein, lean and versatile offerings. We will provide a further update and details on the financial components and timing on our first quarter call. Finally, we made additional progress on optimizing our pork supply chain by signing a new five-year raw material supply agreement with our supplier in Fremont, Nebraska. This new agreement more closely matches our pork supply with the needs of our value-added businesses while simultaneously reducing the amount of commodity pork we sell. Similar to the rationale for selling the Fremont plant in 2018, this new agreement further diversifies us away from commodity sales, increases our flexibility within our supply chain, and decreases our earnings volatility. This agreement should result in a reduction of approximately $350 million of commodity fresh pork sales at very low margins. The impact is split between the refrigerated foods and international segments. The contract will be effective at the start of calendar year 2022. The success we are having with Planters, the actions we are taking at Jennie-O Turkey Store, and the continued progress we are making in our pork supply chain all provide great insights into how we are continuing to evolve Hormel Foods for next year and beyond, and not only have we evolved our portfolio but we will continue to evolve how we operate as a company with initiatives such as one supply chain, Project Orion, and our digital experience group. Looking at fiscal 2022, we expect net sales to be between $11.7 billion and $12.5 billion and for diluted earnings per share to be between $1.87 and $2.03 per share. We expect growth in excess of our long term goals due to organic growth across each of our segments and strength in our Planters business. I have confidence in our ability to achieve our guidance with all four segments delivering growth. Jacinth Smiley will provide more color regarding key drivers for our fiscal 2022 outlook. At this time, I will turn the call over to Jim Sheehan to discuss financial information relating to the quarter.

Jacinth Smiley:

Thank you Jim for your kind words. Good morning everyone. For analysts and the investment community on the call, I look forward to meeting you in the coming weeks and months. I am excited to be stepping into the Chief Financial Officer role at Hormel Foods, a company known for its financial strength, its powerhouse brands, and its commitment to employees and communities. In the time I have been at the company, I have found that Hormel Foods is innovative and has a results-driven focus for all stakeholders. As Jim mentioned, allow me to share a bit more commentary regarding key drivers to our fiscal 2022 outlook. Building on the momentum we established during the second half of the year and the strategic investments we have made throughout the pandemic, we expect to generate sales and earnings growth in fiscal 2022 above the long term goals we announced at our investor update in October. We anticipate growth from all four segments, driven by continued elevated demand for our products, the impact from our pricing actions, improved production throughput, new capacity for key categories such as pizza toppings and dry sausage, and the full year contribution of the Planters business. We also expect operating margins to show improvement throughout the year, similar to the dynamic we experienced in the fourth quarter. It is important to note that rapid changes in raw material input costs can shift profitability between quarters. In addition to generating strong sales and earnings growth, we will continue to invest in our leading brands through increases in strategic marketing and advertising, capacity expansions for high growth platforms, and capabilities to drive industry-leading innovation. The company’s target for capital expenditures in 2022 is $310 million. We are scheduled to open a pepperoni expansion to our newest facility in Omaha during the second quarter, which will provide the needed capacity to meet growing demand in our retail and food service businesses. We are also beginning work on another expansion for the Spam family of products scheduled to be operational in 2023. In addition to these larger projects, we are continuing to invest in cost savings, technology and automation projects to drive long term savings and efficiencies. Pivoting to innovation, we achieved our 15% goal in 2021. We have strong innovation platforms for brands such as Planters, Skippy, Justin’s, Herdez, and Hormel Black Label at retail, as well as the Jennie-O and Happy Little Plants brands in the food service channel. These platforms in addition to our continuous process and product improvement initiatives give us the confidence going forward to consistently achieve our stated innovation goals. I want to speak for a moment about the complexities of our operating environment. The operating environment is expected to remain complex in fiscal 2022 and our guidance accounts for the near term impacts from labor shortages, higher costs, and supply chain disruptions. Our entire team has done an excellent job executing our business strategies in this dynamic environment. In many ways, we have enhanced our competency for solving the day-to-day challenges inherent to our industry. We have increased our efforts to hire and maintain team members and have developed many strategies to mitigate the effect of labor shortages to meet elevated demand. This includes maximizing our flexibility to produce the items that are most in demand and leveraging our manufacturing partnerships to increase throughput wherever possible. Our one supply chain team allows us to continue to actively manage our raw material procurement, logistics network and supply partnerships to minimize the impact of further inflation and supply chain disruptions. We will also benefit from our expanded logistics network, which has added capacity for both the refrigerated and grocery product business. As a result of these actions, we expect improved fill rate and load factors in fiscal 2022. The announcement of the Jennie-O Turkey Store transformation is another step in our evolution to become a stronger global branded food company. Consistent with our long term strategy, we are continuing our efforts to actively shift away from commodity businesses towards branded, value-added businesses. We expect our strategic and intentional actions to create a better, more profitable and sustainable business model. Taking all of these factors into account, as Jim has mentioned, we are setting our full year sales guidance at $11.7 billion to 12.5 billion and our diluted earnings per share guidance at $1.87 to $2.03. Additionally, this guidance reflects the Benson Avenue facility closure, our new pork raw material supply agreement, and an effective tax rate between 20.5% and 22.5%. Fiscal 2022 will be 52 weeks. As we move forward to execute against our strategic imperatives in 2022 and beyond, I am pleased to be with a company that continues to evolve as a global branded food company. Jim often says we are uncommon. I have seen that firsthand in my time with the company thus far. This starts with our unwavering commitment to employee safety and remaining an employer of choice in the communities we live and work. We’re taking purposeful actions to transform our company as we embark on our most ambitious corporate responsibility journey yet, our 20 by 30 challenge, which is certainly important from an ESG standpoint. Our experienced management team, the tireless work of our team members around the world, and the progress made to implement the Project Orion and one supply chain initiative gives us added confidence in our ability to deliver growth in fiscal 2022 and beyond. I am excited to be with Hormel Foods and be part of its continued success. At this time, I will turn the call over to the Operator for the question and answer portion of the call.

Rupesh Parikh:

Good morning, thanks for taking my questions, and Jim Sheehan, congrats on your retirement as well.

Rupesh Parikh:

I guess to start, maybe just on the pricing front, if you can just remind us where you guys are with the pricing point, and at this point have you guys seen anything, I guess different versus expectations on the elasticity front? Just curious how your pricing actions have played out so far versus your expectations.

Rupesh Parikh:

Okay, great, and then maybe just a follow-up question just on guidance. I was curious about the latest in terms of what you guys are incorporating for Planters accretion. Is that still in that $0.17 to $0.22 range for this year, and is there anything you could share on the cadence of operating or EPS growth, maybe first half versus second half for this year?

Rupesh Parikh:

Okay, great. Thank you.

Tom Palmer:

Good morning, thanks for the questions, and Jim, thank you for your help over the years and congratulations on your retirement.

Tom Palmer:

From what we can see, pork costs have eased a bit in the past couple months, at least on a spot basis. Feed costs are lower than they were earlier this year. At what point do these costs begin the flow through the P&L?

Tom Palmer:

On just on the feed side also?

Tom Palmer:

Okay, thank you. If I could follow up just on what that translates to, so you’ve talked about earnings growth in all four segments in the coming year. Should we expect to see that starting in the first quarter, so essentially in the first quarter should we look for growth in all segments?

Jim Sheehan:

And Tom, as you look at 2022, remember you have Planters - we didn’t pick up Planters until the third quarter of last year, so you’ll see the significant improvement in the first half of the year.

Operator:

Our next question comes from Adam Samuelson from Goldman Sachs. Please go ahead with your question.

Jim Snee:

Sure, so the first thing, Adam, is we’re going to come back to you in Q1 and give you a more detailed report on some of the things that you just described, so we will be getting that information to you. I think the big thing in all of this, these strategic actions that we’re thinking about, is turkey is not going away in our portfolio, right? It’s going to continue to be an important part of our company across many different segments, many different brands. We’ve seen the evolution of our company, whether it was Project Orion, our one supply chain effort, really this opportunity to move away from duplication of resources - that’s the first thing. The second thing is when we’re honest with ourselves, the business has underperformed in recent years, and that’s not through a lack of effort on our team’s part. That’s dealing with a significant oversupply situation that’s created a lot of volatility for us, so as you think about how we’ve managed other parts of the business, it kind of flew in the face of really what we’ve been trying to achieve. Really, this announcement today is a bigger step in that evolution to make sure that we’re moving from a commodity-driven or a supply-driven business to a more demand, consumer-driven business. It also allows us to move towards a more fully integrated supply chain. There is still a lot of work to be done. We’ll be coming back to this group with more information in Q1, but feel like it’s the right and proper first step on the journey to make Jennie-O really a more long term sustainable growth engine for the company.

Jim Snee:

Sure. We’re not new to this story. We’ve taken wage rates across our entire hourly plant structure, and we’ve had to become and maintain our very competitive wage rates, so that has added costs. I think the other thing to really understand is just the labor pool in general. The idea that you’re going to rely on the traditional labor pool that you’ve always had, it’s not going to get you where you need to be, so our team has done a really nice job of sourcing non-traditional labor pools, being creative in how we’re staffing our facilities to make sure that we are becoming more employee-friendly, and we’ve seen an improvement. I’m not going to spike the football here and say that we’re over the hump, but we have seen some improvement in our labor rates, and even more importantly is we’ve seen some improvement in key plants for us, so key plants meaning two of our larger refrigerated foods plants have seen dramatic improvement in labor rates. Two of our grocery product plants have seen improvements in labor rates, so that’s been really helpful as we’ve progressed throughout the fourth quarter and then head into 2022. The staffing levels that we’re talking about are really helpful. We still have work to do, but it is setting us up for a better 2022.

Operator:

Our next question comes from Eric Larson from Seaport Research Partners. Please go ahead with your question.