Good morning, ladies and gentlemen. And welcome to the Hormel Foods Corporation First Quarter Earnings Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require assistance, please press star zero for the operator. This call is being recorded on Thursday, February 27, 2025. I would now like to turn the conference over to Jess Blomberg, Director of Investor Relations. Please go ahead.

Good morning. Welcome to the Hormel Foods Corporation conference call for the first quarter of fiscal 2025. We released results this morning before the market opened. If you did not receive a copy of the release, you can find it on our website, hormelfoods.com, under the investor section, along with our supplemental slide materials. On our call today is Jim Snee, President and Chief Executive Officer, Jacinth Smiley, Executive Vice President and Chief Financial Officer, and John Ghingo, Executive Vice President of the Retail segment. Jim and Jacinth will review the company's fiscal 2025 first quarter results and provide a perspective on the remainder of the year. Then John will join Jim and Jacinth for the Q&A portion of the call. The line will be open for questions following the prepared remarks. 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. At the conclusion of this morning's call, a webcast replay will be posted to our investors' website and archived for one year. Before we get started this morning, I'd like to reference our safe harbor statement. Some of the comments we make today will be forward-looking, and actual results may differ materially from those expressed in or implied by statements we will be making. Please refer to our most recent annual report on Form 10-K and quarterly reports on Form 10-Q, which can be accessed at hormelfoods.com under the Investors section. Additionally, please note we will be discussing certain non-GAAP financial measures this morning. Management believes that doing so provides investors with a better understanding of the company's underlying operating performance. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Further information about our non-GAAP financial measures, including our comparability items and reconciliations, are detailed in our press release, which can be accessed from our corporate or investor website. I will now turn the call over to Jim Snee.

Thank you, Jess. Good morning, everyone. We achieved solid top-line results in the first quarter and made great progress against our key priorities. We are on track to drive growth in the back half of the year and deliver on our 2025 expectations. Our value-added portfolio is strong and performing well, evidenced by our top-line performance and our leadership positions in the marketplace. We grew organic net sales 1% in the first quarter, which is encouraging given the dynamic consumer environment. Demand for key brands, including Spam, Applegate, Jennie-O, Hormel, Black Label, Hormel Fire Braised Meats, and Café H globally inspired proteins, was strong. Our value-added portfolio continues to be highly relevant to customers, consumers, and operators. Our teams executed well in the first quarter to deliver these results, and I'd like to highlight a few of the initiatives that contributed to our organic top-line growth. In retail, focusing our resources on our flagship and rising brand has proven to be highly effective. We grew overall volume and net sales for these brands, led by Spam, Applegate Natural and Organic Meats, Hormel Black Label Bacon, and Jennie-O Lean Ground Turkey. One of our most iconic brands, Spam, has increased households and attracted younger consumers due to our focused investment. In the first quarter, this included the successful sizzle marketing campaign, on-trend flavors like Korean barbecue, and new avenues of product usage, such as the launch of Spam Musubi in a national retail chain sushi department. Our investment and focus behind this brand is spotlighting its versatility and potential for continued growth. The success of the Applegate brand in the quarter reflects our continued focus on leaning into our loyal consumers' values. We understand that the Applegate consumer expects high-quality, great-tasting products with simple ingredient statements. This is just one reason…

Thank you, Jim. And good morning, everyone. As Jim noted, we achieved solid top-line results in the first quarter and made great progress on our strategic priorities. Net sales for the quarter were $3 billion, a 1% organic increase over last year. Foodservice led our top-line growth, primarily driven by strong performance across many of our premium categories. The retail segment benefited from growth in our value-added portfolio, and the international segment saw growth from their China business and exports. Our gross profit margin was 15.9%. Value-added growth was more than offset by year-over-year margin pressures related to the Planters recovery, higher commodity input costs, namely pork, beef, and nuts, and the supply chain impacts of bird illnesses. For the first quarter, adjusted SG&A expenses increased 2.5%, mainly due to employee-related expenses. We continue to invest in our leading brands. We spent $43 million in advertising expenses during the first quarter, and as Jim noted, we plan to increase brand support to drive growth for fiscal 2025. Interest and investment income for the first quarter decreased, primarily due to lower performance from the Rabbi Trust. The effective tax rate was 21.8%, which is favorable compared to the prior year due to the purchase of federal transferable energy credits. We reported diluted earnings per share of $0.31 for the first quarter of fiscal 2025 and adjusted diluted earnings per share of $0.35. Turning now to cash flow. Operating cash flow was $309 million for the first quarter. We invested $72 million of capital expenditures, and our largest spend was for value-added capacity unlocks. We continue to estimate capital expenditures for fiscal 2025 to be $275 to $300 million, with a focus on capacity, infrastructure investments, and new technology. We are committed to dividend growth and remain a proud dividend aristocrat. We…

Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you have a question, please press star followed by the one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Peter Galbo with Bank of America. Your line is now open.

Hey. Good morning, guys. Thanks for the questions. Jim, Jacinth, just wanted to unpack the EPS cadence a bit more. You know, obviously, the first quarter, I think you said was in line, but maybe came in a couple of pennies below, you know, where we had talked about last quarter. I think you were looking for a four to five cent headwind from planters in Turkey in the first quarter. Maybe it seems like that came in a bit more than the flattening out kind of of the 2Q EPS at a similar rate to 1Q, you know, would imply that you're pushing, I don't know, five-ish cents of EPS into the back half of the year, and it's a pretty steep ramp as you get there. So just curious what gives you, you know, confidence that you can actually effectively ramp the EPS, you know, to the level it needs to be in the back half of the year and the building blocks to help us get there.

Sure. Good morning, Peter. Thanks for the question. You know, as we deconstruct really what we've been saying over the last year, I think it's important for us to have that conversation again and really demonstrate why we're well-positioned for a strong second half. And probably the best way to think about it is what hasn't changed from what we've been talking about and then what has changed. And so what hasn't changed is the fact that our value-added business in retail continues to perform well. The Planters recovery, the Planters performance is on track. You know, and again, just as a reminder, we'll have a strong second half with favorable year-over-year comps, broad-based growth in food service, and again, after a strong recovery in 2024, steady strong growth in international. Right? Those are the things that haven't changed and have remained consistent. The part that has changed from what we talked about in Q4 is the fact that we've experienced some pressures, especially in the near term, on our turkey supply chain. And so as we're thinking about that for the balance of the year, we've had to take some strategic pricing actions that are in place. And although we won't recognize the benefit of that in Q2, so we'll have the pressure but not the benefit in Q2, which is why we've guided you so prescriptively in that quarter. But we will get the benefit in Q3 and Q4. And so when we think about that back half of the year, it's a very achievable second half. We understand that it's strong, but there's not a lot that's changed from what we told you, and we've taken the right actions on the turkey complex.

And, Peter, to provide just a little bit more color in terms of order of magnitude for the second half, obviously, as you mentioned, we expect Planters to be a big contributor to the bottom-line growth. And next is Transform and Modernize. That initiative continues to deliver strongly, we're off to a strong start. We expect the second half to be even stronger, and the rest of the value-added portfolio continues to grow. So that will deliver growth in the second half as well. So the bottom line is overall, our value-added business is strong, as we have said, and we expect growth from every segment of the business in the second half, which is what gives us our confidence in our guide.

Got it. Thanks for all of that. Very, very clear. And, Jim, I just was hoping maybe you could elaborate a bit more on the CEO search process, the succession planning. I think, historically, you know, Hormel we've thought of as kind of growing people internally and promoting from within has, I think, been the history. But just curious if there's any different in the thinking this time around with the board on being more aggressive in an external search. Thanks very much.

Yeah. Thanks for that question, Peter. You know, I think it's important, you hear all the time, right? The most important responsibility of the board is to make sure they select the right CEO for the job. And, you know, as I think about my time and tenure in the role, you know, I've had the chance to really build the next wave of company leaders. We think about everything that we've got done and that we've had to navigate, I mean, it's pretty impressive, and I'm really proud of the work that we've done. And then building this next wave of company leaders and having many of them in place is what really sets our company up for the future. And I believe that the next leader can help finish some of the work that we've started, thinking about the Transform and Modernize initiatives, and also be formative in the years that follow. And so, you know, the search committee is hard at work, just like you said, giving good consideration to both internal and external candidates, which is absolutely the right thing to do. Right? You want to have that rigor and make sure that you properly survey the landscape. And it's more important for them to get it right than it is for them to go fast. And so I am very confident that whether it's internal or external, we're gonna find the right person to lead the company into the future. And then also, until that transition takes place, I'm not going anywhere. I'm focused on the business. I'm engaged with the team. Right? And we're driving to deliver our 2025 goals. And even beyond that, you know, as needed, I'm available and will be a strategic adviser to the organization. So we're in a really good place with everything that we've done and have yet to come. But really appreciate the question.

Great. Thanks very much.

Your next question comes from Ken Goldman with JPMorgan. Your line is now open.

Hi. Thank you. On the pressures in the near term on the turkey supply chain that you referenced, could you maybe elaborate a little bit on what those pressures are, what exactly you're feeling, and given that, you know, whole bird turkey prices, as far as we can tell, haven't really moved, how comfortable are you in taking pricing and having your customers accept this pricing willingly, you know, in light of the underlying commodity maybe not having moved so much, if that's the right way to think it.

Ken, thanks for that question. You know, and the way we described it is strategic pricing actions across the entire turkey complex. And so we want to make sure that we make the distinction that this is a fundamentally different conversation than we had last year. You know, last year, we were talking about pure commodity markets, commodity items like whole birds, and we are positioned very differently. And so we are thinking about the complex, but a big part of that complex is the value-added business that we have in turkey, both in retail and in food service. And so when we think about really the two factors that are driving these actions, there's some turkey illness in the supply chain that's providing some pressure and having supply chain impact. But then the other side is just there are a number of underlying turkey categories or commodities that are at all-time highs. And so, you know, when we think about those markets relative to value-added pricing, that's what we know how to do, and that's how we know how to manage a business. And obviously, John will have a big impact in terms of that value-added complex. So maybe, John, you can add a little more color.

Yeah. Thank you. And thanks, Ken, for the question. So just to expand on that comment a little bit, this year is different from a turkey perspective. I mean, last year, we were talking about commodity whole birds. Now we are talking about value-added turkey and a significant consumer opportunity with that value-added complex. And if you look at poultry, and in particular, ground turkey, it's very aligned with consumer needs. So consumers continue to seek lean sources of protein, poultry's a great choice. As just one example of where we see the appeal of poultry is among the GLP-1 community. So it's very early days on GLP-1. Still a lot to learn about the impacts of GLP-1, but some of the early research we are seeing shows that in addition to fresh fruit or weight management products, poultry and fish are among the highest growth categories experiencing increased consumption for those on GLP-1. So, you know, and then you look at it from a lifestyle and usage perspective, ground turkey is a very versatile option for consumers. It plugs in very well for everyday life and different food experiences. So with the number one brand nationally, in Jennie-O and ground turkey, we're in a great position to capitalize on that growing consumer market. And in fact, if you look at the first quarter of the year, Jennie-O is up 6% in volume, and that was, you know, that's scanner data, consumption data, but that's within a growing category. So demand has been very strong for some time, and the trends underneath that rising demand we believe are longer-term in nature. So we really like that platform from a consumer perspective as well.

Great. That's helpful. Thank you. And as a follow-up, and to build on Peter's question, Jim, I think, you know, first of all, congrats on your coming retirement. I would be curious for a little more color and some of the questions we're getting from investors, I'd like to pass on. You know, first of all, you know, was there any consideration to waiting on the announcement until a successor was found, just given that it, I think, some interpreted the move as a little more sudden and unexpected to the board. If that's wrong, I'd love to hear your thoughts on that. And then is now really the ideal time is the other question I get. Just given the transformation and modernization program, you know, especially how much of that growth really needs to come next year, you know, to have someone new in the seat, is that the ideal, you know, situation for the company? So, you know, I know there's never a perfect time, but just wanted to get some of your added thoughts on that if I could.

Yeah. Thanks, Ken. And first, thanks for the congratulations. I appreciate that. You know, and absolutely, the questions you're asking are the questions I've been getting for, what, six weeks now. And I think there's a couple of things at play here. And I'll go back to what I said. Right? The most important job of the board is to make sure that they pick the right CEO. And so the way we're going at it this time, which I think is very responsible in terms of serving the internal and external landscape. If you're gonna go and look at the external landscape, it's hard to tell somebody you're gonna recruit them to be CEO when there's a CEO in the chair who hasn't announced a retirement. So I think that in and of itself is a really important consideration in the process. And so, yep, could you have waited? I suppose, but it would've put more pressure on the process, and I just don't think that's fair to the organization. I think the way that we announced it and said, hey, you know, Jim's gonna be here through the end of the year. Jim's gonna be a strategic adviser as needed. And I think that's really important to the second part of your question. To say, these are big initiatives that are started under my watch with, I mean, the entire team committed to these Transform and Modernize initiatives. So it's not Jim Snee who's executing against the Transform and Modernize initiative every single day. It's the incredible team that we have that has bought in, they see the need, and they believe in the opportunity. So that work is underway, and that work continues. And as we've said, it really turns into this powerful growth flywheel over time, becoming even more powerful. The last part I would say, Ken, and this is another thing that deserves strong consideration. If I wait till the end of Transform and Modernize, and I say, I'm done, I'm retiring, and now the next person has to come in and then say, oh, what's next? That's not fair to that person. So I think this allows us to continue the execution of T and M that's already underway, it gives the next person appropriate time to really think about and formalize or put together their plan for the future. Right, rather than having to have that on them in day one. And so I think the timing actually makes a lot of sense. Yes, it's maybe a little bit different than we've done in the past, but I also think we're a different organization than we've been in the past, and some of the things that we've undertaken are different than we've undertaken in the past, really set us up for the future. So long-winded answer, but hopefully, as you start to put all those puzzle pieces together, you see how it really does make sense for the organization.

Thanks so much.

Your next question comes from Heather Jones with Heather Jones Research. Your line is now open.

Good morning. Thanks for the question. I need to follow-up on turkey. So I estimate that you guys have lost something north of 5% of your supply, and all but in the dark meat complex has moved considerably. But the lighter meat pricing has started to move, and the pricing commentary on whole birds has definitely gotten more constructive as shortages start to take effect in the marketplace. So just wondering when you're framing your full-year outlook, are you assuming any benefit from the more positive commentary that we're hearing on whole bird pricing, or are you only assuming benefit from passing through higher pricing on the value-added portion?

Good morning, Heather. Thanks for the question. So our assumptions on whole birds have not changed in our plan. So that's consistent. And so the change that we're referencing here relates to the rest of the turkey complex and the pressure that we're seeing on the rest of that turkey supply chain. And when we talk about pricing action, it's specific to that. And so that's what's changed in our assumptions as we look at what we guided before and where we're coming off Q1 and when we think about the back half tailwind is really specific to the rest of the turkey complex.

Okay. Thank you for that. And then my follow-up is when you take your guide and just back into rough math on the EBIT side, to get to the 2026 number implied at your 2023 analyst day, I mean, it implies somewhere between 15% to almost 25% EBIT growth in 2026. And just wondering if you could talk to your comfort level on that, and two, what would drive that kind of growth? Because, I mean, that's a pretty substantial growth number, you know, for any packaged food company. So just would be curious to hear your thoughts on that.

Yep. Thanks, Heather. And I think, again, consistent with the commentary and discussion that we had on our Q4 call, which was really our Transform and Modernize update. You know, as we laid out, you know, we do believe that we're still on track to deliver that 2026 number. And, you know, as I just mentioned to Ken, right, this Transform and Modernize work is creating this powerful growth flywheel that's only going to accelerate as we continue to move along. And so it is a combination of underlying growth in our business, and I think we've kind of laid that out in terms of value-added business, retail, food service, international, reasons to believe there. And then when you supplement that with the power of Transform and Modernize and how that's going to escalate over time, yep, that's what gives us confidence. So we're not gonna get into the specifics. Obviously, we'll continue to give you updates as we progress. It's those two things that have not changed from our perspective in Q4 of last year.

Okay. Thank you.

Your next question comes from Rupesh Parikh with Oppenheimer. Your line is now open.

Good morning. Thanks for taking my question. And Jim, also congrats on your retirement.

Yeah. Thanks, Rupesh. Thanks.

So maybe, I guess, to start out, just a question just on margins. So, obviously, gross margins are down in Q1. Wanna get a sense of how you guys would think about the interplay between gross margin SG&A for Q2 and then for the balance of the year.

Good morning, Rupesh. So when we think about our margins for Q2, we signaled that we expect it to be right, comparable to Q1. You know, we will see margin pressure coming off of our Q1 going into Q2. Our top line for sure is going to continue to be strong, but our margins will be pressured by the turkey supply as we talked about. We expect Planters to continue to recover, but we don't see that full recovery until we get into the back half of the year. And so quarter over quarter, we will see a comparable Q1 to Q2 relative to Q1, really driven by turkey and nuts.

Then, Rupesh, I think it just said a different way. You know, we're gonna have gross margins that are down versus last year, but we do expect sequential improvement from Q1 to Q2. And, you know, as Jacinth said, you know, where those pressure points are, you know, really driven by turkey market dynamics in the second quarter. But, again, I think as we're thinking about not just the second quarter, back half of the year and beyond, the portfolio is really well-positioned to drive growth and ultimately exceed historical margin levels.

Okay. Great. And then maybe just one follow-up question for John. You've been now with the company for a few quarters, so I just want a sense from your perspective how the business has performed versus expectations. Whether you see any new opportunities at the structure.

Oh, that's great, Rupesh. Thank you for that opportunity. Yeah. I have, excuse me, I've been back almost six months now, and I've been touching on three themes, so I'll I guess I'll touch on each one of those quickly here. First, it's been great to see the transformation happening in the company. Now that was well underway when I walked back in the door. We talk about our transformation and modernization work externally, but as a returning employee, it has been striking to see from inside the company just how many important changes we are making to refresh and update and modernize the company. Now some of that, I would say, is, you know, things that are low-hanging fruit or would be more typical in the industry. But some of it is truly work that is gonna help us leapfrog with better technology, better data, better processes, and across the board, it's been great to see how our people have been able to elevate their work, improve their decision-making through that transformation. So that was kind of one big observation. Second, it has been extremely encouraging to see the progress we're already making on the retail business. The unified approach Jim mentioned earlier to one retail is clearly beginning to work. You know, if you look at the strong consumption momentum on our flagship and rising brands that we saw in the first quarter of the year, to the stronger capabilities and bigger customer relationships we're able to build to our first-ever scale program. Jim mentioned it here for the snacks program in the first quarter. There's plenty of evidence of momentum that retail is on the right path. So that's kind of the second key point I would make. And then the third is, I think, to what you were asking around the opportunity I see, and it really comes down to our unique portfolio that we have with Hormel. So we have a very diverse and compelling roster of leading brands. And a lot of that is anchored around protein. So, you know, if you think about protein, it is a wonderful place to be anchored in the food industry from a long-term perspective. On top of that, our capabilities to bring convenience, taste, relevant innovation, to that portfolio of proteins is extremely powerful. So for me, the next step is bringing that journey on a very strong consumer focus and lens to that opportunity, and I think we have the ability to really set ourselves apart. If you look at everything from substantial nourishing snacks, which are in very high demand, to convenient food-forward satisfying meals based around protein all throughout the day. We have a lot of opportunity. So bringing that strong consumer dimension, I call it our third dimension, will really push us forward and help propel us. So, yes, I guess, in summary for your question, extremely encouraged with the progress I've seen to date. But even more excited about the future.

Great. Thank you for all the color, and best of luck.

Your next question comes from Ben Theurer with Barclays. Your line is now open.

Yeah. Thank you very much for taking my question also. From my side, Jim, all the best for retirement even if it's still a few months out that you need to hang out. Wanted to just like maybe to go a little bit deeper into some of the segment dynamics, particularly in retail. It feels like and you've called this out in the prepared remarks and during some of the commentary already. To some of, like, still solid underlying growth trends. And this is really just a question as to how these categories that you're having within retail that have been showing a more positive momentum growth just in the right categories and kind of, like, tying it back a little bit into what the benefits from Transform and Modernize are going to be as we think about this beyond 2025 into 2026. What are your, like, internal assumptions of, like, these categories that already are growing and kind of, like, outperforming? How are they expected to continue to perform into next year? Is that a key component in order to get to these 2026 targets? And if so, what gives you the confidence in that momentum to stay?

Yeah. Thank you for the question. This is John. I'll take this one to start off with just kind of looking at the retail portfolio and our confidence around it to get to that part of the question first. You know, we love the breadth and strength of our portfolio. You know, I'll start by saying that. And I think we play broadly from the standpoint of pricing tiers. Number one, you know, we have accessible affordable brands, mainstream brands, and we play up through premium, which gives us some resilience and versatility in different economic conditions for consumers. And the second part I'll just talk about is value. Right? So, you know, we're working closely with consumers around our branding categories, what we hear a lot is, it's not all about price. It really is about value. And the way they think about value is, you know, price as an element but it goes well beyond. So they're thinking about quality, they're thinking about convenience, they're thinking about emotional and functional benefits of the brands and purchases they make. So when we look at that, we say our balanced portfolio is really, really, you know, not only a positive, but is truly a strength for us. And why I talk about that is if you just look at this moment in time with our Q1 earnings, and what's underneath that, you know, consumers make those judgments as to is it worth it? Are these brands worth it right now? Do I wanna pay? And we have three very different examples in our portfolio of three, you know, very different brands delivering value in different ways and all showing very strong growth right now. So the three I would call out, one is Applegate. So Applegate is playing in the…

Yeah. And, Ben, I think the other part of your question that's important to address is, you know, the impact of Transform and Modernize. And, you know, John did a great job talking about why, you know, we see those opportunities. But underneath that, obviously, is we need to be able to support innovation. And so a lot of the work that we're doing in terms of reshaping the portfolio for growth, but then as we think about portfolio optimization and making sure that there is room for these great innovations, that's an important part of the Transform and Modernize work. And then, also, we talked on Q4 about, you know, Hormel production system and making sure that we're as efficient as possible because that allows us to make sure that we have capacity to support the growth. So, you know, all of these things, again, linked together to give us that confidence in this retail business that John talked about over time.

Okay. Got it. And then quick follow-ups really, I think it's for Jacinth, just on advertising investments, which were basically flat versus a year ago. But if I remember right, you're guiding for an increase. So you've called out the lower investments for Planters, obviously, still in the ramp-up here. But is that essentially the part where you're expecting to see the ramp-up as you need to get back into the different point of sales in order to gain back the market share you lost because of the outages and stuff? And how should we think about the cadence of the increase of marketing expense throughout the rest of the year?

Yeah. Ben, I mean, you've hit it right on the head. Right? It was we pulled back on some Planters to make sure we got the market recovery right. And we said we're doing that on we're on track. We will see the sequential ramp-up of investments, and I think the important thing here is that we do expect a full year of double-digit marketing and advertising increases.

Got it. Thank you.

Your next question comes from Thomas Palmer with Citi. Your line is now open.

Hi. Good morning. And, Jim, I know this is probably not your last earnings call, but I do want to congratulate you.

Yeah. Thank you, Tom.

On Planters, I just wanted to clarify. It's good to hear the plant issues are resolved. What about on the distribution side? How much work is left to kind of regain distribution? Is there a point where we might see retail sales trends start to more clearly inflect? And then just the level of investment, be it, you know, traditional marketing or maybe slotting fees, how much does that really start to ramp? And how much, I guess, is that a consideration in 2Q versus the back half?

Thanks for the question, Tom. This is John. I'll kind of ground us in where we are and I think what's ahead for Planters. So, yes, to your point, we continue to be fully recovered in our Suffolk facility and have been fully servicing our customers for Planters items out of that facility. Our inventory levels are in a good position, beginning to ramp back up our advertising and promotions. And we are seeing very clearly sequential improvement in our scanner data in terms of both points of distribution and overall consumption. So the distribution point specifically, last quarter, we talked about two different types of distribution losses. One, I would characterize more as holes on the shelf as a result of just not being able to get enough product to the shelf as quickly as we want to. Those types of holes were more temporary in nature, and we have recovered that distribution. The second type of distribution losses were where we didn't have sufficient supply and were taken out of a planogram or reset, taken out of the shelf set. Those, we are recovering largely. The places where we haven't recovered that type of distribution yet is largely related to timing, meaning waiting for the customer resets, which typically happen once or twice per year. So we are recovering distribution very well sequentially and on track to continue on that path. In terms of your question around the cost of that and any slotting investments, nothing has changed with that relative to our expectations and what we have projected in our plan. Now as we continue through the remainder of the second quarter, we expect to see that sequential progress continue. Although, I will note, we are lapping an incredibly strong second quarter of 2024 for Planters. And…

Great. Thanks for all that detail. Second, I wanted to ask on the input cost inflation commentary. You noted pork, beef, and nuts as running inflationary in the quarter. I guess, to what extent is it running consistent with what you expected? You did note the higher pricing in turkey. Are there pricing actions to consider for the other commodities?

Yeah. Tom, those the ones we called out, you know, were higher than last year and slightly above our plan. You know, as we think about that, you know, we can manage commodity fluctuations because a lot of them were more pass-through pricing mechanisms. So an impact but certainly not the order of magnitude of the pressures in the turkey supply chain.

Got it. Thank you.

Your next question comes from Michael Lavery with Piper Sandler. Your line is now open.

Thank you. Good morning. And, Jim, congrats as well.

Thanks, Michael.

Just wanted to see if we could get a better sense of maybe some of the price mix split or, you know, versus volume. You know, you've talked about how the turkey pricing is a big factor for the second half. The price mix was strong in 1Q, and volumes were down. So I guess I want to make sure we understand how much higher you expect price mix to go and what the pressure on volumes might look like. And I guess part of the question is a follow-up to your comments to Peter's first question, just talking about how, you know, what hasn't changed is the strength of the value-added business in retail, and it's performing well. I assume that means ex-Planters, obviously, because it masks some of the momentum and maybe just tying all that together, how to think about, you know, where we go from 1Q.

Yeah. I think the big driver in that, Michael, and as we've talked about, you know, having Planters show that sequential improvement, and that's gonna continue to ramp up. I mean, that's a big part of that price mix ratio. And so having that come back into play and being in a much stronger position is really positive for us. Obviously, it's very accretive. And as we see that continue to ramp up in the back half of the year, and, of course, then with the year-over-year comps, it'll be very favorable.

Yeah. And the other thing I would add to that, Jim, is just from a year-over-year pricing perspective, in our center store portfolio, we had taken price in the second quarter of last year. And so in the first quarter, you're still seeing that pricing play through and some suppression of the volumes related to that center store portfolio. Very much in line or a little bit ahead of our elasticity assumptions that we had built in. But that will be, you know, behind us as we move through the second quarter. We'll pass the lapping of that pricing. That was the other dynamic.

And then I guess maybe just the same question, tweaked a little bit. You know, in the first quarter, your price mix in retail and, of course, we don't have the turkey segment separated. You know, we don't have visibility on that like we used to, but, you know, it being in retail and food service, you know, your price mix this quarter was highest in about seven or so quarters. Foodservice, it goes even a bit further back. The momentum is already very strong without the turkey pricing coming. I guess, you know, how much price should we be expecting? And are you suggesting it accelerates from here? There's the mix left from Planters you're pointing to as well. Maybe just help us, you know, understand how high that could go.

Yeah. I think it really goes back to the strength of the value-added portfolio, Michael, and it is, you know, the beauty of our portfolio was value-added as in retail, it's in food service, and it's in international. And so, you know, I don't know beyond, you know, the Planters, the lapping of the pricing, you know, we haven't talked a lot about food service. But I think it's important to note that the food service segment does remain historically strong. You know, and that the top-line growth has been really broad-based for them. We did have some unfavorable comps expected in the first half, mainly through divestiture of HHL, some of the marketing dynamics, but they're able to be closer to the market in terms of pricing that is obviously a benefit for us. So, you know, I think really, the best answer is it's the entire value-added portfolio that really has strength for us, and we expect that to continue.

No. That's helpful. And maybe one last piece of that same question. What volume expectations really should we have? That's been pressured in retail for some time. The Planters piece is, of course, a part of that, but, you know, with such strong pricing, should we expect volumes down, or do you think that, you know, you'll see them both be positive? Maybe what's the breakdown of just how you're thinking about the year?

Yeah. I mean, if you look at the Q1 dynamics around volume in retail, you mentioned snack nuts. You know, that is a factor, and I also mentioned the pricing impacts from a year ago, kind of lapping those pricing impacts. If you look at the consumption, you know, on our business and retail from a volume perspective, it's fairly flat, you know, despite some of those dynamics. And so we believe we can continue to, you know, hold and grow volume and hold and grow sales. Right? That's our expectation behind the strength of the overall portfolio.

Okay. Thanks so much.

Your next question comes from Pooran Sharma with Stephens. Your line is now open.

Great. Thanks for the question. Just wanted to get a sense of what led you to kind of reduce the commodity exposure, was there something that happened during the quarter? Was it kind of just more of an opportunistic move? And just to follow-up on that, you've obviously been taking steps to reduce your commodity exposure over the past couple of years. Was just wondering if you could quickly remind us where you are at with this move now.

Yeah. Pooran, that's a great question. And so you're referencing our Mountain Prairie divestiture, which was really the last piece of our business that was in, you know, hog live production. And so, you know, again, as we look across our organization and think about our differentiating capabilities, it's not in hog production. And so, you know, we've been in that business. We've, you know, through the Transform and Modernize process, as we think about portfolio optimization, and even though it's on the front end of the supply chain, still an important part of the portfolio, you know, it just didn't make sense for us. And when we think about the volatility that it could introduce from time to time, that's not the business that we're in. And so, I mean, it's very strategic. It's very thoughtful. Makes a lot of sense. So we're not in the hog production side at all. We certainly are in the hog harvest here at our Austin, Minnesota facility in a fairly sizable way. And we think that's an important part of our business. And so we're in a really good place on the hog side of our business.

Great. Thank you for that color. And just wanted to ask about Transform and Modernize real quick. You said you made progress on all initiatives. Was just wondering if you could share any color in terms of the amount of progress and then if you could share any color in terms of the ramp for the new DC in Memphis?

Good morning, Pooran. So as we mentioned, we are really off to a good start here in 2025, coming off of a solid year in 2024 where we delivered what we said we would do on Transform and Modernize. And the guide that we've put out for 2025 is between $100 to $150 million, and we are on track to do that. And, yes, there will be a little bit of ramp as we go into the second half of the year when we think about those numbers and where we will land. And, you know, in general, you know, everything remains on track. I mean, we feel really good about the long term in delivering 2026 when we think about where we're investing in driving value for the organization. And so in terms of your next part of your question around, you know, the Memphis DC, I mean, that, of course, is part of this Transform and Modernize work that we're doing, which is designed to enhance our inventory flow and increase our distribution capacity for the business. So really part and parcel of how we're thinking about our network and getting closer to our customers and reducing logistics cost for the business.

Great. Thanks for the color. And, Jim, congrats again on the announcement.

Thanks, Pooran.

Ladies and gentlemen, as a reminder, should you have a question, please press star one. Your next question comes from Max Gumport with BNP. Your line is now open.

Hey. Thanks for the question. On the last quarter, you talked about how the high end of your guidance range would be possible depending on better volume, better product mix, improved turkey markets, Transform and Modernize over delivery. It sounds like in terms of what we've learned so far through the first quarter, that improved turkey market piece probably is maybe not coming to fruition. It sounds like there's been pressure so far. So did you say coming out of the first quarter that you now view the high end of your guidance range as less likely given what you're seeing in turkey markets? Just wanted to clarify that. Thanks very much.

Yeah. Good morning, Max. So our guidance range, as we talked about before, calling out everything we said there and remembering what we said about what gets us to that high end of that range, which we consider to be very holistic. And so we are still committed to what gets us to that $1.72, which is the high end of the range. So that's consistent. Right? All those other things. The only thing that, you know, could change, and it's always the case, right? Turkey could play, right? Plays up and down the range that we have there. And that's the only thing that could change, but everything else that we talked about, right, higher volume, better mix, right? The Planters recover, which is on track. Transform and Modernize delivering, that's on track. Right? Getting returns from our marketing investments, all of those things are still in play. And, again, I mean, really just the turkey dynamic here that could skew across that cadence.

Okay. Got it. Thanks very much. And then just on Transform and Modernize specific, I think last quarter, there was some confusion about how to think about various targets you have on Transform and Modernize in terms of what's net target for EBIT and what the gross target in terms of the savings. So you have an explicit target of the Transform and Modernize program driving $200 million plus in projected EBIT income from 2023 to 2026. We also have a target this year of getting savings that I believe are in a $100 to $115 million range. But can you just help us tie those three targets together? Maybe give us a sense for when you end FY 2025, how much of that $200 million plus in EBIT income from Transform and Modernize would you have expected to now have achieved? I'll leave it there. Thanks very much.

Yeah, Max. I mean, I think there's a key here is this Transform and Modernize just continues to build. Right? And we talk about the growth flywheel that we've got in place. And this is only gonna continue to become more powerful and escalate. You know, our 2025 guide obviously has a portion of reinvestment as well when we think about brands, people, data. Right? There's a lot going on. Again, in terms of the specific breakdown, I think having Jacinth walk through that with you would be really helpful. But the key takeaway here for us in terms of Transform and Modernize and the success that we've seen, you know, off to a great start in 2025, will be another strong year. And really keeps us on track to deliver against what we've laid out here.

Okay. Thanks very much.

No further questions at this time. I will now turn the call over to Jim for closing remarks.

Yeah. Good morning. And I want to thank all of you for joining us. You know, as we've discussed this morning, we achieved solid top-line results and remain on track to deliver against our 2025 expectations. And we'll do that with a strong value-added business in our retail segment, continued broad-based growth in food service, strong steady growth in international, the significant sequential market recovery of our Planters business, the on-track performance of our Transform and Modernize initiative, all of those things is what gives us the confidence to deliver on these expectations but more importantly, drive long-term and sustainable earnings growth. Thanks again for your time. Have a great day.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.