Hormel Foods outlines targeted pricing actions and anticipates $100M–$150M in incremental benefits through transform and modernize initiative amid ongoing margin pressures

Earnings Call Insights: Hormel Foods Corporation (HRL) Q3 2025

MANAGEMENT VIEW

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Jeffrey M. Ettinger, Interim CEO, emphasized his commitment to building on Hormel’s foundation, highlighting the company's "robust solutions-based portfolio and the protein-centric nature of our offerings." Ettinger noted, "we achieved an impressive organic net sales increase of 6% in the third quarter," with growth across all three segments. However, he expressed disappointment that top-line growth did not convert to bottom-line gains due to "unanticipated surges in commodity input costs." Ettinger announced a focus on targeted pricing actions to address inflation and confirmed that profit recovery is expected to lag into next year. He also stated, "we plan to share holistic 2026 guidance on our fourth quarter earnings call, including the specifics around our expectations for the T&M initiative."

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John F. Ghingo, President, discussed strong volume-led momentum in retail, with flagship and rising brands delivering 3% dollar consumption growth. Ghingo highlighted the success of the SPAM and Hormel pepperoni brands and referenced the Planters business, noting, "scanner data was now reflecting year-over-year growth in distribution, household penetration and dollar sales." He cautioned, "profitability on the other hand, is being impacted by mix and inflation."

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Jacinth C. Smiley, CFO, reported, "Organic net sales in the third quarter were $3 billion, a 6% increase over last year with organic volume up 4%." She confirmed that the Transform and Modernize initiative delivered expected benefits and announced, "we are reaffirming our expected range of $100 million to $150 million of incremental benefits in fiscal year 2025 and believe we will finish the year near the high end of our T&M range."

OUTLOOK

* Smiley stated that fourth quarter adjusted EPS is expected to be in the range of $0.38 to $0.40. She explained the company "continues to expect the top line growth in the fourth quarter" and highlighted that "inflation-based pricing actions... will partially benefit the fourth quarter and carry into the first quarter of fiscal 2026." Further pricing actions are under review due to persistently elevated commodity markets. The company plans to provide holistic 2026 guidance on the next earnings call.

FINANCIAL RESULTS

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Smiley reported third quarter adjusted EPS of $0.35 and cash flow from operations of $157 million, noting a sequential improvement from the second quarter. Capital expenditures were $72 million, and dividends paid in the third quarter totaled $159 million. The company ended the quarter with net debt leverage ratio within the 1.5 to 2x target range.

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Gross profit was flat year-over-year, with inflationary headwinds offsetting top-line gains. Smiley detailed, "Collectively, we experienced approximately 400 basis points of raw material cost inflation in the third quarter alone."

Q&A

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Benjamin M. Theurer, Barclays: Asked about changes in outlook versus previous quarter. Ghingo responded that the most significant change was "the steep run-up in commodity markets," which pressured earnings. He also cited ongoing softness in Foodservice traffic and a lag in Planters profit recovery as additional factors.

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Theurer followed up on strategic opportunities. Ettinger replied, "Hormel is still an enviable position to grow from," noting leadership in core categories and a focus on driving both top and bottom-line growth.

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Thomas Hinsdale Palmer, JPMorgan: Inquired about the applicability of the long-term growth algorithm for 2026. Ettinger clarified, "these are not intended as our fiscal 2026 guidance. That will come on the Q4 call."

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Leah Dianne Jordan, Goldman Sachs: Questioned pricing dynamics and elasticity. Ghingo explained that additional pricing actions would be "thoughtful and measured" to balance consumer response and brand health, and the benefits would be realized mainly in fiscal 2026.

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Michael Scott Lavery, Piper Sandler: Asked about T&M savings and margin expectations for 2026. Smiley confirmed that further updates would be provided in Q4, acknowledging changed assumptions since Investor Day.

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Peter Thomas Galbo, Bank of America: Asked about timing of price-cost parity. Ghingo and Smiley explained that price recovery would lag due to inventory and market dynamics.

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Pooran Sharma, Stephens: Inquired about hog and turkey supply. Smiley noted long-term supply agreements, and Ghingo cited strong demand and market share gains in ground turkey.

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Erica A Eiler, Oppenheimer: Asked about the company’s long-term margin profile. Ettinger stated the team would focus on mix and cost reductions, while Ghingo emphasized the importance of driving growth in Foodservice and flagship brands.

SENTIMENT ANALYSIS

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Analysts’ tone was slightly negative, with repeated questions on margin pressure, inventory strategy, and pricing, reflecting skepticism and concern over profit recovery timelines and cost visibility.

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Management’s tone was confident in the prepared remarks but became more defensive and cautious during the Q&A, using clarifying statements such as "To be clear..." and stressing the "urgency for driving profitable growth."

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Compared to the previous quarter, management's confidence was more tempered, with increased focus on persistent commodity pressures and delayed profit recovery.

QUARTER-OVER-QUARTER COMPARISON

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Guidance language shifted from expectations of strong second-half growth and margin expansion to a more cautious tone, emphasizing top-line gains but warning about ongoing margin pressures and delayed profitability.

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Strategic focus moved towards immediate pricing actions and cost discipline, with continued emphasis on the T&M initiative.

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Analysts’ questions became more probing on cost controls, pricing elasticity, and inventory, reflecting increased concern versus last quarter’s focus on growth drivers and market share.

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Management’s confidence in achieving prior targets has moderated, with more hedged language around fiscal 2026 expectations and repeated references to guidance being updated next quarter.

RISKS AND CONCERNS

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Management cited "the steep run-up in commodity markets" as a key challenge, resulting in 400 basis points of raw material cost inflation in the quarter.

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Profit recovery is expected to lag, with ongoing pressure from input costs through the fourth quarter and into 2026.

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Persistent softness in Foodservice traffic and profit lag in the Planters business were also highlighted as risks.

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Additional pricing actions are under assessment, and management is closely monitoring consumer sentiment and elasticity impacts.

FINAL TAKEAWAY

Hormel Foods delivered strong top-line growth in Q3 2025, but persistent inflationary pressures have delayed expected profit recovery. Management reaffirmed its commitment to targeted pricing actions, cost discipline, and the Transform and Modernize initiative, aiming for incremental benefits in the upper end of the $100 million to $150 million range for fiscal 2025. While the company expects continued sales growth in the fourth quarter, profit recovery is projected to extend into 2026, with further guidance to be provided on the next earnings call.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/hrl/earnings/transcripts]

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