Q1 2023 Hormel Foods Corp Earnings Call
Speaker 1: P.
Speaker 2: Good morning and welcome to the Hormel Foods 1st Quarter 2023 Earnings Conference call. All participants will be in a list and only mode. After today's presentation, there will be an opportunity to ask questions.
Speaker 2: If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, please press the star then the number two. Thank you.
Speaker 2: Please note, this event is being recorded. I would now like to turn the conference over to David Dolstrom, Director of Investor Relations. Please go ahead, sir.
Speaker 3: Good morning. Welcome to the Homeoffood's conference call for the first quarter of fiscal 2023. We released our results this morning before the market opened around 6.30 a.m. Eastern. If you did not receive a copy of the release, you can find it on our website at homeoffood.com under the Investor section.
Speaker 3: On our call today is Jim Sney, chairman of the board, President and Chief Executive Officer, just and smile the Executive Vice President and Chief Financial Officer, and Diana Brady, Executive Vice President of the Retail Segment.
Speaker 3: Jim will review the company's first quarter results and give a perspective on the rest of fiscal 2023.
Speaker 3: Just since we'll provide detailed financial results and further commentary on our outlook, Indiana will join for the Q&A portion of recall.
Speaker 3: The line of the open for questions following just since remarks.
Speaker 3: As a courtesy to the other analysts, please limit yourself to one question with one follow-up. If you have additional questions, you are welcome to get back into the queue.
Speaker 3: At the conclusion of this morning's call, a webcast replay will be posted to our investor website and archive for one year.
Speaker 3: Additionally, earlier this week, we filed a Form 8K with the U.S. Securities and Exchange Commission that included supplemental segment financial information for FISK years 2021 and 2022 related to the Go Forward Initiative. We oppose the copy of the Form 8K to our investor website, investor.hormelfoods.com.
Speaker 3: Before we get started, I need to reference the safe harbor statement. Some of the comments made today will be forward-looking and actual results may differ materially from those expressed in or implied by the statements we will be making.
Speaker 3: Please refer to our most recent annual report on Form 10K and Corley Reports on Form 10Q, which can be accessed at homealfoods.com under the Investor Section.
Speaker 3: I will now turn the call over to Jim Sney.
Speaker 4: Thank you, David. Good morning, everyone.
Speaker 4: With the release of our recast financial information earlier this week, our transition from a structural and reporting perspective is now complete for the Go Forward initiative.
Speaker 4: 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.
Speaker 4: 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.
Speaker 4: over the past six months.
Speaker 4: We stood up three new business segments and consolidated the Genio Turkey Store segment.
Speaker 4: This included organizing the retail segment into six distinct verticals and combining the food service businesses across the enterprise.
Speaker 4: We invested in new centers of excellence, including brand fuel and a dedicated FPNA team.
Speaker 4: And we may change this to the administrative side of the business to recast the financial statements.
Speaker 4: Align and structure our entities and duties.
Speaker 4: maintain controls across the business.
Speaker 4: and, of course, operate our business without interruption.
Speaker 4: We have learned a lot about our people, processes, and technology going through this transition.
Speaker 4: While we have work to do in all of these areas, I am encouraged by the conversations that are taking place across the organization.
Speaker 4: 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.
Speaker 4: From a top-line perspective, demand from consumers and operators generally remained elevated in key categories.
Speaker 4: and we delivered balanced growth between volume and price across many parts of our portfolio.
Speaker 4: We continue to see elevated demand for many of our center store, refrigerated, Mexican and premium items at retail.
Speaker 4: including black label bacon, Columbus, Sharkuterie, Carmel Chili, Carmel Pepperoni.
Speaker 4: Apple gate, breaded chicken, air-dez products, square table on trays, and Mary Kitchen hash.
Speaker 4: Likewise, solutions-based items in our food service segment had another strong quarter.
Speaker 4: With volume growth in sliced meats and from brands such as cafe H, fire braze, bacon one, and Austin Blues.
Speaker 4: For the quarter, sales declined 2%.
Speaker 4: 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.
Speaker 4: or HPAI. Deluted net earnings per share for the quarter was 40 cents.
Speaker 4: A four-cent decline compared to last year.
Speaker 4: Our results reflect the persistent impact from inflationary pressures.
Speaker 4: supply chain inefficiencies and lower sales volumes across each of the business segments.
Speaker 4: Now turning to our segments.
Speaker 4: Results in the retail segment declined compared to last year.
Speaker 4: 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 meat and snacking and entertaining verticals.
Speaker 4: Segment profit declined as the benefit from pricing actions across the portfolio, higher equity and earnings from Megamex, and improved results for the vacant business.
Speaker 4: were more than offset by the impact from lower net sales, unfavorable mix, and higher operating costs.
Speaker 4: The Bacon Vertical delivered outstanding results in the quarter due to elevated demand for our Black Label items.
Speaker 4: There was also a benefit from commodity relief and pork belly throughout the quarter as we worked through higher cost inventory.
Speaker 4: This is a category where we have made significant investments and one we expect to show growth for the year.
Speaker 4: Similarly, the global flavors of Irrigal made up of our Megamix business had an excellent start to the year.
Speaker 4: The pricing actions that we have taken across this business to combat inflationary pressures.
Speaker 4: Coupled with commodity relief on avocado inputs led to revenue and equity in earnings gains for the quarter.
Speaker 4: The emerging brands vertical delivered volume and sales growth for the Apple Gap brand, led by frozen, breaded chicken and walled alley items. The convenient meals and prokenes vertical achieved another quarter of net sales growth.
Speaker 4: led by Hormel Chili, square table refrigerated entrees, and Mary Kitchen Hesh.
Speaker 4: 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.
Speaker 4: introduce new flavors such as maple and relaunch our 7-ounce spam item after a three-year hiatus.
Speaker 4: This provides excellent value for consumers seeking a more affordable option in the category.
Speaker 4: Gippy peanut butter sales for the quarter were significantly behind last year.
Speaker 4: 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.
Speaker 4: This was the right decision for all stakeholders.
Speaker 4: 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.
Speaker 4: 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 normalize levels.
Speaker 4: Net sales declined for the snacking and entertaining vertical, as growth for the Columbus and Hormel pepperoni brands was more than offset by a year over year decline in the snack blessings.
Speaker 4: The final vertical value added means was most heavily impacted by lower commodity pork and turkey availability, leading to net sales decline.
Speaker 4: In the food service 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,
Speaker 4: The overall decline in volume was driven primarily by limited turkey and fresh pork availability.
Speaker 4: Segment profit increased for the quarter due to improved mix across the portfolio.
Speaker 4: Results for the segment were below our expectations.
Speaker 4: reflecting industry softness from mid-December into January .
Speaker 4: However, we have seen a sharp rebound in orders to begin the second quarter and our confident in our ability to grow the business this year.
Speaker 4: Finally, the international segment was heavily impacted by external factors during the first quarter.
Speaker 4: From a top line perspective, our branded export business had a strong quarter led by the spam and Skippy brands.
Speaker 4: We also saw another quarter of improved result in Brazil as the team continues to focus on its premium products and food service strategy. Kabatati Turkey volumes declined almost 80 percent compared to last year due to restrictions on Turkey exports.
Speaker 4: and limited supply as we strategically diverted raw material to support the domestic business.
Speaker 4: Our team in China faced incredibly difficult operating conditions throughout the quarter.
Speaker 4: As the impact of COVID-related policy changes.
Speaker 4: had dramatic short-term effects on the business as well as our employees, customers, and operators.
Speaker 4: Taken together, the impact from lower turkey exports and disruption in China represented in more than one cent earnings per share impact on the quarter compared to last year.
Speaker 4: We are seeing improvement in China to begin the second quarter, especially in our food service business.
Speaker 4: As conditions normalize, we expect our China business to resume delivering accelerated growth.
Speaker 4: During the quarter, we purchased a minority stake in Geruda food, one of the largest food and beverage companies in Indonesia. This investment supports our international growth ambitions.
Speaker 4: and the global execution of our snacking and entertaining strategy. The root of food is a market leader with strong and reputable brands, local expertise, and a best-in-class distribution network.
Speaker 4: We have been partnering with the Geruda Food Team for several years, and this strategic investment enhances that partnership. Gisemps will provide the financial details of the transactions later in the call.
Speaker 4: 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.
Speaker 4: Our cop line remains healthy, and despite softness in the first quarter, we are on track to deliver growth for the year.
Speaker 4: Demand for our leading center store and refrigerated retail brands remains favorable.
Speaker 4: The food service segment expects strong growth for remainder of the year, and we anticipate the near-term challenges impacting the international segment to a bait over the coming months.
Compared to our expectations heading into the year, earnings are being pressured by any efficiencies across the supply chain, persistent inflationary pressures, and softness in the snack nut category. I want to detail how we plan to address each of these challenges for the balance of the year. Thank you.
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 is 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-package.
These actions are expected to cause short-term margin compression.
But they are necessary as we look to restore profitability to normalize levels and reduce complexity.
Simply said, after almost three years of casing 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 in inflation.
To help mitigate some of this pressure, we have announced additional inflationary justified pricing actions in the certain retail categories effective late in the second quarter.
We are evaluating further pricing actions, but as we've said, our teams remain highly focused on the long-term needs of the business and protecting the equity of our brand.
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 planter's 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 SNFNUTS category.
This business is at the center of our snacking and entertaining 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 1-3% and diluted net earnings per share of $1.70 to $1.82 per share.
While we have worked 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 Go Forward initiative, but with the investments we have continued to make in technology, capacity, and capabilities.
And we have made all of this progress while 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 Jacine Smiley to discuss detailed financial information related to the first quarter and additional color on key drivers to our outlook.
Thank you, Jim. Good morning, everyone. Net sales for the first quarter were $3 billion.
A 2% decline to last year.
planned, Laura-Modet-A-Pork and Turkey volumes were the primary drivers of the decrease in net sales.
We have now lapped our new pork supply agreements as of January and Turkey supplies have improved since the fall.
We anticipate more normalized volume comparisons for the remainder of the year, barring a return of HPAI in the spring.
First quarter goes profit was $496 million compared to $539 million last year.
Growth's profit margin declined 100 basis points as the impact from pricing actions was more than offset by unfavorable mix and persistent inflationary pressures.
For the first quarter, S&JMA expenses as a percent of net sales increase marginally to 7.5%.
The company continued to support its leading brands through advertising investment.
Advertising expenses were $47 million during the quarter comparable to last year.
Of note, we promoted Black Labour Bacon over the holiday season and the planters brand was once again front and center at this year's big game with the roast of Mr. Peanut.
Equateen earnings of affiliates for the first quarter increased significantly compared to last year due to improved results for mega-mex and our joint venture in the Philippines.
Operating income for the first quarter was $289 million compared to $320 million last year.
Operating margins compressed to 9.7% compared to 10.5% last year.
Net-on-allocated expenses in the first quarter increase $7 million.
This increase was driven by higher employee-related expenses and outside consulting fees.
The effective tax rate for the quarter moved modestly higher to 22.6% compared to 22.4% last year.
Last year's rate reflected a higher stock option exercise benefits. The effective tax rate for fiscal 2023 is expected to be 21%.
to 23%. The net results of all these factors was diluted net earnings per share of 40 cents.
Turning to cash flow, operating cash flow was $204 million for the first quarter compared to $384 million last year.
This decline was driven by lower net earnings and an increase in working capital.
As Jim mentioned, we purchased a 29% common stock interest in Garuda Food and leading Food and Barbage Company in Indonesia.
We obtained the minority interest from various shareholders for purchase price of $411 million, including associated transaction costs.
The transaction was funded using cash on hand. We do not expect the transaction to have a material impact on our fiscal 2023 results.
We are targeting $350 million in capital expenditures for 2023.
In addition to the newly commissioned spam product line, we recently approved a $40 million expansion for our Columbus line of premium Sharkudra products and additional capacity for higher demand planters items at the Ford Smith Arkin Self- Facility. We also continue to invest heavily in automation projects.
as evidenced by a recently completed project supporting turkey processing at the Fairbolt Minnesota facility. The project automates more than 30 difficult, highly repetitive jobs at the plant, further aiding our efforts to improve employee retention and satisfaction.
We paid our 378th consecutive quarterly dividend effective February 15th at an annual rate of $1.10 per share as 6% increase over last year.
We ended the first quarter with $3.3 billion in debt unchanged from the prior year.
We remain committed to maintaining an investment greater rating.
As Jim detailed, we have lowered our diluted net earnings per share outlook for the year and have action plans in place for the balance of fiscal 2023.
In terms of cadence for the year, we expect diluted net earnings per share in the second quarter to be significantly lower than last year.
We expect unfavorable mix in the retail segment, short-term margin compression due to our immediate actions across the supply chain.
and for continued COVID-related disruption in China to negatively affect the second quarter. We are also not expecting a repeat of last year's lower effective tax rate. We are not expecting a repeat of last year's lower effective tax rate.
As we look to the second half of the year, we expect earnings growth compared to last year, led by the Food Service and International Sedments, gradual improvement in the cost environment, and higher Turkey volumes.
We are beginning to see signs of market stabilization and even cost relief in certain areas such as raw materials and freight. As anticipated, prices on key protein inputs generally declined during the court to compare to last year and the fourth quarter.
The USD Accomposite cutout declined 19% compared to the fourth quarter.
and was 2% lower than last year. This decrease was driven primarily by bellies, which declined 26% compared to last year. Hierocost Inventor was generally a headwind in the first quarter and will continue to affect results as we work to reduce inventories.
We have assumed a benefit from lower raw materials cost in the back half of the year. Similarly, we saw a more balanced freight environment during the first quarter as demand for trucks moderated.
We expect freight rates for the remainder of the year to be lower compared to last year. In addition to the options we are taking to address inventory levels and inflation, our teams remain focused on identifying and capturing cost savings opportunities as supply chain conditions normalize.
HPAI remains a significant risk facing the business.
While the last reported case in our supply chain was early December , the virus continues to impact domestic poultry supplies.
There is increased risk to our supply chain into the spring as migration begins along the Mississippi flyway.
Assuming current conditions hold reduced production volume in our turkey facilities is expected through the end of the second quarter before steadily improving in the back half of the year.
This should be supportive of our Turkey business as demand for genuine Turkey products remains strong.
Turkey markets have become less favorable as breast meat prices have steadily declined over the last month.
Additionally, historically high-feed costs remain a headwind for our business. Considering these factors, we expect to improve meat availability in the back half of the year to drive higher sales volume for our turkey business.
offsetting the impact of market declines and higher fee costs. Additionally, we made significant progress towards fully integrating Gen. Turkestore into the company's once-apply chain and new operating segments during the first quarter. We remain on track to achieve
$20 to $30 million of savings on a run rate basis by the end of the fiscal 2023.
As noted, last quarter, there were incremental investments planned against one supply chain and go forward.
As noted, last quarter, there were incremental investments planned against one supply chain and go forward. Our new business model demands this.
and our strong financial position allows us to continue investing for the long term.
In closing, I want to acknowledge the demanding work of all the teams across the organization to make the GoFord Initiative possible.
I remain confident that once fully implemented, our new strategic operating model will better align the businesses to the needs of our customers, consumers, operators, and shareholders to deliver sustainable long-term growth.
At this time, I'll turn the call over to the operator for the question and support of the call.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the one on your touch tone phone.
You will hear a three-tone prompt acknowledging a request. Should you wish to decline from the polling process, please press the star followed by the two. If you are on a speaker phone, please let me hands up before pressing any keys.
One moment please for your first question.
The first question comes from Ropech Parach of Oppenheimer. Please go ahead.
Good morning and thanks for taking my question. So to start off for us, you know, the report today is not really consistent with what we typically see for more mail. So what happened and what are the key efforts from here to improve performance?
Good morning, Rupesh. You know, we agree with you. You know, the word that we used is, we're disappointed.
And these are not results that we expected. You know, but I do think it's important that even with that disappointment to remember, you know, just how far we've come with our supply chain and everything they've been through over the last three years, you know, we go back to obviously the COVID impact when plants were shut down.
that 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. So, you know, fill rates continue to improve. Labor is better, and the production capacity across key categories for S is good. And so we are in a more stable operating environment for sure. So, you know, the production capacity across key categories for S is good.
But as we think about quarter one, that, in the context of our dynamic and volatile environment is a bit more explainable. We talked about China. That's easy to understand. Food service had a period of softness. But...
You know, 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 you know, even influenza still still battling that. So, you know, we've said since the fall we've been operating with elevated inventories. We want to-
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. You know, mix is huge in our portfolio when we think about pounds versus dollars, impacts of markets, you know, a potential rebound in Turkey.
you know, 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, you know, we'll be talking to all of you just like we're doing today in a very transparent manner to say is our domain or is our inventory
aligned with our demand. And that's really gonna be the key indicator going forward. So we're disappointed where we are, but we know what we need to do. And probably said that 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. Yeah, and another important point to just mention here, a Pesh, is that, you know, as we have this elevated inventory, what it does is also just delay us from recognizing.
and benefiting from some of the cost coming down you know when we think about you know fray rates market coming down we haven't really been able to realize those and that's been delayed we talked about it in the fourth quarter that we should see that relief here and those benefit showing up in our margins is quarter and that's been delayed as well and affecting where we're
Yeah, I'll go ahead and start on that, Rupesh. I mean, I think there's a couple of things there that we need to talk about just to, you know, to level set, you know, those comments. I mean, the first thing is, you know, we're a much larger company today, you know, than we were two years ago.
And it's not just the planter's acquisition, that's part of it. You know, but we've seen significant growth in our business. You know, we haven't stopped acting on our strategic priorities. You know, everything that we've talked about in terms of becoming more balanced, transforming our company. We've continued to move that forward, you know, all while navigating this.
crazy current environment and managing through avian influenza. So when we say that we've learned a lot about our people, we've have the right people. As we've gone through our Go Forward initiative, we just need to make sure that we have them doing the right work. Go Forward will help with that.
When we talk about processes, as we've integrated businesses, there are processes that will need a refresh. When we think about inventory, pricing decisions, brand resourcing, and go forward, we'll help with that as well.
And then on the technology side, I'll maybe let just synth add some color there. Yeah, so from a short term perspective, we are probably just the 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 SNOE 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 technologist down point with project Orion and we pause 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 SNOP and our end to end planning and be able to leverage our technology and our people to get us to the next level. Great, thank you for all the color and best of luck.
Thank you. The next question comes from Robert Moscow of Credit Suisse. Please go ahead.
Hi, thank you. 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 prepare 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 fall short? Yeah, good morning Rob. You know, we did we did also say that we had across all segments some volume softness So we certainly had a lot of brands and categories that that did really well
We talked about planters being off to a slower start, so that's a part of it. We did also talk about that period of time with our food service business where we had softness. So, that too is part of it. The food service piece will experience growth for the balance of the year.
level of overproduction as well. And so, you know, as we've, as we've, you know, gotten better in our supply chain and wanted to run it more productively, more efficiently, you know, they've been running hard and we've built that inventory in some cases.
that inventory is not aligned with the demand and so that's really our issue is is it's a little bit across the board on the product side. Or I'll say the sales side and then you know across on the supply chain side this over production which which built the inventory.
Okay, because if I can dig in a little gem, like I think six to nine months ago, the issue was labor shortages, turnover, you know, couldn't run the plants effectively enough to meet demand.
And now they're overproducing? Exactly. Yep, Rob, I mean, that's exactly, and I said that a little while ago, you know, if we go back over the last.
three years, everything that we've been through and that those different scenarios of, you're right, not having people. And then when we were getting people, they were turning over. And now that we're getting people, we're keeping people, you know, the plants are running more productively and more efficiently.
you know, that and our goal is to make sure that we're getting up to fill rates and that, you know, we do have some production capacity. So our our plants have have gotten better. And like I said, in some cases they've they've outproduced demand.
And that is definitely part of the problem. Okay, last question on planters. You know, 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?
Yeah, I think a couple of things there Rob and I'll turn it over to Deanna. You know, as we think about about planters, you know, in the short term, you know, it is about execution, driving demand and also also the mix. You know, we've said this multiple times and it just bears restating is that we did deliver on our our year one commitments.
We've maintained some stable distribution. We've seen some channel shifting with the business as well, but the demand is certainly lower versus our expectations in Q1. As we're thinking about this business now, it's really what are we going to do in the short term from an execution perspective?
and the Anna let you add some color there. Yeah, sure. Thanks Rob. You know, just as we think about it, we knew this business was where it was when we acquired in 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 looked at Q1, that was when we cut over the inventory from the prior owner, so there is some noise there and some things that happen in the quarter.
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 she-store business. You mentioned Super Bowl. We did have a really fun Super Bowl ad that was really centered on peanuts, because we do know that the consumers are thinking about the mix of...
of nuts and snacking right now. And peanuts are a really valuable item for them, so reminding them of how much fun pointers 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 lead us into the quarter as we activate some of the other seasonal launches later in the year.
for the Sheastdoor Channel as well as the Club Channel. And we'll see that come online here later this year and into next.
We also have worked 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 a month growth. And 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 and expanding the business policy guts started. And we've helped
Larson Seaport
and support research partners, please go ahead.
Thank you everyone. So just a couple 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 a new contract, some of that commodity volume, when did we sort of anniversary sort of the, you know, the adverse conflict you would have on your commodity pork?
Yep, good morning Eric. So on the Turkey side, the numbers that we've been talking about have come through that Turkey has been down high 20s, 30% in terms of volume. And we expect that through the first half or now the second quarter of this year and expect volumes to rebound in the back half of the year.
And that's all with the assumption that we don't have another significant AI outbreak like we did last year. And then of course, you know, some events into the winter months on the pork side. You know, we are now just lapping that supply agreement. And so as we go throughout the balance of the year.
The comps will be will be more normalizedokay at Thank and then and then just just a quick follow-up and this is maybe for diana can you give us a little bit you've mentioned elasticities and where you were seeing some of the.
Yeah, so it's very interesting because it's a bit bipolar in that you've got some categories where the elasticity is are playing out exactly as expected. We've got other categories where the consumer has acknowledged the change in price on shelf and continues to purchase in their regular cycles. I would say where we're seeing more elasticity would be in areas that could be.
and consumer need of putting dinner on the table. So making sure that, as you mentioned, that we're promoting our products and pulsing in some of those areas, and that we're advertising and making sure our consumers understand the value of our products and how they can utilize them. Speaking to the breadth of our portfolio, we've always talked about why it's valuable to have a look at the market.
of Berkeley, please go ahead.
Yeah, that was interesting on the last name. Thanks for taking my question. Just one I had on the different demand drivers, retailers, and food servers in particular, because if we look into it, they're both somewhat equally down in sales, but then at the same time and food servers, they were actually able to...
alignment which caused the margins to be under pressure. Or is that also something you saw in food service just not at the same magnitude maybe because of mixed what falls into food service? Thank you. Yeah, man. 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. You know, as you talked about, you know, the food service pricing and sales, you know, the element of that is, and we've talked about this frequently, is we have seen some commodity relief and on the food service side of the business.
they're able to price closer to the market. The pricing is a lot more fluid. Okay. And then my follow is just quickly on China. I mean, we all know Fourth Corridor, particularly December was a very tough one with the whole reopening and cases, et cetera. But as of today, early March, have you seen like particularly in February and like signs of consumers being in a more normal...
quarter, the China Food Service business has seen a nice uptick or 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 food service up, you know, 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. 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 cake on China is exactly what we're seeing and how we're thinking about it.
Thank you....
The next question comes from Tom Palmer of JP Morgan. Good morning and thank you for the question. 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 planners can account for a lot of the inventory issue. So I just hope to better understand what types of products you've built up to much inventory of, and is it certain pork products that fall into that equation? Alright, alright, shortly after the recovery was worked. Alright, alright, alright.
Yeah, so Tom, I'll start with that first question. So we didn't have any difficulty sourcing pork products for production. What we've said is it's just the decline is what we would have normally had coming at us that we don't today. So we used to have to sell it today. We don't that's
That's what we're talking about for the pork decline. The turkey is absolutely not enough turkey coming through to support the business. But as we think about the inventory across the entire portfolio, you're right. I mean, it's not all planters. That's part of it.
You know, when we think about, you know, as I described earlier, some of it is inventory that has been built for promotion. So, think spam as we get into bigger promotions throughout the year. We do have elevated inventories of ribs. We have some elevated inventories of completes, vacant bits. So it is a mixed bag, other perishable refrigerated items.
So it's a mixed bag across the inventory that we have and the portfolio. And so, yeah, we're not trying to pin this on any one item or one category. I mean, it is broad based. Okay. Thank you. And thanks for all the details. Um.
And maybe just follow up on the pricing 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, you know, are there certain commodity types that need to be addressed in particular?
Tom, thanks. This is Deanna. I'll jump in there. So we still have wrap around pricing that's flowing through. We took several price increases last year and some of those are still flowing through. We have chunk of the portfolio that is currently in price increases roughly about 5%.
We've taken a very mindful approach to our pricing and thinking about elasticity, volumes, where we've added capacity. Obviously, we want to make sure that we were able to leverage that capacity. So, we've tried to be very mindful. So, we've taken multiple price increases, probably in smaller increases. So, we've taken a very mindful approach to our pricing and thinking about elasticity, volumes, where we've added capacity.
other categories that we're evaluating as we sit today.
Thank you. The next question comes from Peter Golbo of Bank of America. Please go ahead.
Hey guys, good morning. Thank you for taking the questions. Maybe just the first question, more of a technical question, around the re-signamentation. Just in just a level set everybody on the call, have you disclosed it all just what percentage of the new retail business will be captured in scanner data so in Nielsen and IRI? And I think you had a helpful breakout for retail particular.
to reside. I mean, there wouldn't be anything that you would you would actually see.
Yeah, where you know, but sorry, go ahead.
No, that's okay, Peter. You know, we're not going to have the same kind of vertical structure, you know, within food service just because it doesn't, I mean industry doesn't really think about it that way. What we will try to do over time is provide you, you know, more color. So, so for example,
You know, in this quarter, as we integrated the JOTS business, and we've talked about how that is going to be a benefit to both, you know, the JOTS business and the Hormel business, you know, 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 a, I'll say a typical reporting, it will all roll up just into food service.
Okay, thanks for that, Jim. And then again, just to go back to the inventory side and maybe just to think about it in a little bit of a different manner, if you are going to be selling through more of your inventory or trying to get it more right-sized, I guess why wasn't there an adjustment to the sales line as well, just thinking about if you're going to sell in...
carrying more inventory for them because they want to have less in terms of their working capital needs. And just the implications is how you're thinking about it on cash flow. So I know that's a lot. It kind of is a two-par question, but appreciate the thought. Yeah, no, it's really, 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.
You know, the other part of this is our food service 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, you know, as we expect our international business to come back with some of those challenges abating, you know, we do believe that we'll be able to deliver that top line.
And then, you know, the second part of that question, you know, we're not getting that pressure from retailers in terms of keep more inventory, you know, as just said earlier, we know how to run this business. And, you know, 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're able to operate the way that we did pre-pandemic. That's really the expectation. Thank you. The next question comes from Michael Leverie of Piper Sandler. Please go ahead. Thank you. Good morning. Good morning. I want to come back to planter specifically. When you detail tell 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 maybe elaborate on what pain points the capacity expansion solves given the current situation?
Sure. Thanks, Michael. The capacity expansion specifically address the continued evolution of snacking as well as Seastore and Club Channel. So the capacity we're adding is specific packaging that really is on trend with how consumers want to snack today. And you think about the tube nut in particular.
both in a singular purchase as well as in a club variety. The additional capacity is really designed to help us continue to meet the demand, which is exceptional there. And then the other area of growth that we haven't talked about that is really a hidden gem in the portfolio is the corn nut business.
and some really great flavors that are coming to market. And as we think of the convenience store business, really the hundred days of summer is where that business really comes to light. So adding capacity both 4C store and club store is where we're leaning into right now.
And I think it's important to know Michael these are things that we knew when we when we bought the business
Right, 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, you know, some capacity investment. 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 Diana mentioned, we've seen really, really strong growth since day one for the Cornnuts business and we don't expect that to slow down.
Okay, that's helpful. And just coming back to Garuda, did you have an option for a bigger stake there or could you at some point, how do we think about whether or not that ever becomes part of above the line in operations?
Yeah, I think, you know, for now it was, you know, we took out the previous private equity owner. That was the big stake that was for sale. You know, so for us it was the right size at the right time.
You know, 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 and entertaining and developing that global presence.
And so as we go along, we certainly think there will be opportunities for us to, you know, if the business delivers for us to take a bigger position.
Thank you. Our last question comes from Adam Samuelson of Goldman Sachs. Please go ahead. Yes, thanks for squeezing me in. So, first question just on Genio or Turkey, I should say, you're talking about volumes improving and starting to normalize in the back half.
last year. I know it's not getting, it's now split between retail and then food service international so it's not 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 become could be a pretty big headwind over the balance of the year.
Yeah, Adam, good morning. We have not changed the outlook for the turkey business at all. You're right that we've seen lower breast meat markets, but the turkey business is still in a very favorable position. Turkey demand is strong.
You know, the value added portion of the business continues to do well. And, you know, as we get more meat, we'll be able to fill more of that. You know, we know that whole birds cleared really well this holiday season. And that bodes well as we head into the next holiday season.
And then I do think it, you know, for us, this is all about what happens with AI. And we'll know a lot more here in the next couple of months as to, you know, what if any impact it'll have in the business. But yeah, we've not changed our outlook and feel like there's still plenty of opportunities to drive a strong performance, even as the breast meat market has gone lower.
Okay, and then if I can 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 set 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-to-end sales channels and there might have been before there's always some disparity But you now have like bake in 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 or turn on an asset kind of metric that I don't think it's been a big, big part of the incentive compensation structure previously. So Adam, I mean the...
You know, the flow of the product through the sales side really hasn't changed, you know, and we've had it, you know, the bacon example you mentioned, you know, we've had it going into retail and we've had it going into food service the same way that we always have. You know, if anything, this structure actually centralizes.
and creates less confusion in terms of who has responsibility with, you know, Deanna now overseeing retail and it's really, really helpful. You know, we do have elements of our incentive that are, you know, that do take into account return on invested capital. You know, we use that more as a modifier to make sure that the team continues to keep an eye on that.
the emphasize, the go forward 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 the complete opposite. And now there is.
very clear delineation and transparency in terms of objectives and driving the results and the outcome for the business. Thank you. Ladies and gentlemen, this does conclude your conference call for today. We thank you for your participation and ask that you please disconnect your lines.