Good morning, ladies and gentlemen, and welcome to the Hormel Foods Corporation First Quarter Earnings Conference Call. [Operator Instructions] This call is being recorded on Thursday, February 26, 2026. I would now like to hand the conference over to Florence Makope.

Good morning. Welcome to the Hormel Foods conference call for the first quarter of fiscal 2026. 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 Investors section, along with supplemental slide materials. On our call today is Jeff Ettinger, Interim Chief Executive Officer; John Ghingo, President; and Paul Kuehneman, Interim Chief Financial Officer and Controller. Jeff, John and Paul will review the company's fiscal 2026 first quarter results and provide a perspective on the remainder of the year. We will conclude with the Q&A portion of the call. [Operator Instructions] At the conclusion of this morning's call, a webcast replay will be posted to the Investors section of our website and archived for 1 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 the statements we will be making. Please refer to our most recent annual report, Form 10-K and quarterly reports on Form 10-Q, which can be accessed on our website 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 comparability items and reconciliations are detailed in our press release, which can be accessed on our website. I will now turn the call over to Jeff Ettinger.

Thank you, Florence, and good morning, everyone. We are pleased to report solid results for the first quarter of fiscal 2026. We delivered organic net sales growth of 2%, which marks our fifth consecutive quarter of organic net sales growth. We also achieved adjusted diluted earnings per share of $0.34. This outcome was driven by the strength of our protein-centric portfolio that continues to resonate with consumers and operators. A highlight of the quarter was the results we delivered in both our Foodservice and International segments, both with high single-digit organic net sales growth, coupled with impressive segment profit growth. This strong performance was partially offset by the decline in our Retail segment. We will review segment performances in greater detail shortly. On our fourth quarter call, I outlined the key actions we are taking to strengthen our business and position Hormel Foods for both top line and bottom line growth in fiscal 2026. We have started to see the benefit of these efforts. Our protein-centric portfolio continues to demonstrate its advantage. In response to last year's persistent inflation and key commodity inputs, our pricing is now implemented as we have begun the second quarter. Our Transform and Modernize initiative remains beneficial, and our restructuring program is progressing as planned. The financial benefits from this program will start to materialize more meaningfully in the second quarter. Finally, we continue to enhance collaboration across the organization. Overall, the solid start to fiscal 2026 gives us conviction as we look ahead. For Q2, we expect to deliver another quarter of top line growth and adjusted diluted EPS that is in the range of flat to slightly up compared to last year. For the full year, we have also reaffirmed our organic net sales and adjusted diluted earnings per share guidance. Paul will…

Thank you, Jeff, and good morning, everyone. We had an encouraging start to fiscal 2026 with strong performance in both our Foodservice and International segments. This demonstrates the strength of our protein-centric portfolio and our strategic positioning, both at home and away from home across all dayparts. These results were achieved in a challenging consumer environment marked by industry-wide limited retail consumption growth, and notable headwinds in foodservice channels as operators and consumers remain cautious. In this backdrop, we are committed to creating and marketing compelling branded offerings for our consumers and a solutions-based portfolio that makes protein easy for our operators. Now let me go into the details of our segment performance, starting with Retail. First quarter organic volume and organic net sales for the Retail segment declined. While our branded portfolio performed fairly well, top line was meaningfully impacted by our strategic exit from select non-core private label snack nuts items. That said, Circana's latest 13-week data ending January 25 showed total Hormel dollar sales were up over 2%, indicating that our portfolio continues to resonate in today's consumer environment. Several of our priority brands delivered year-over-year dollar sales consumption growth, including Jennie-O ground turkey, Planters snack nuts, Hormel Gatherings party trays, Applegate meats, and Hormel entrées, among others. This adds yet another quarter to a long-running pattern of consistent dollar consumption growth across our priority brands. However, even with this encouraging consumption data, reported top line and profitability remained challenged in retail in the first quarter. In addition to lower net sales, profitability was further pressured by expected increases in raw material costs and unexpected increases in logistics expenses. As a reminder, the second wave of retail pricing went into effect at the beginning of Q2 aimed at offsetting some of the cost pressures. Revitalizing the Retail…

Thank you, John. Let's take a closer look at our fiscal first quarter results. Q1 net sales were just over $3 billion, a 2% organic net sales increase compared to the prior year and our fifth consecutive quarter of organic net sales growth. Our Foodservice and International segments led the company's organic net sales growth and were partially offset by the decline in the Retail segment. Gross profit continued to be hampered in the first quarter with top line growth more than offset by higher input costs and higher-than-expected logistics expenses. As expected, commodity input costs, mainly for beef, pork trim and nuts were a headwind in the first quarter. For context, beef remained a significant inflationary pressure across the industry and pork trim increased 12% compared to last year. While remaining high from a historical perspective, we did see some relief on bellies. We are still expecting to see a modest improvement in most commodity markets in the back half of the fiscal year. During the first quarter, we observed freight capacity tightening, driven by severe winter weather and industry dynamics. This has created modest upward pressure on transportation costs. We continue to monitor this to assess whether these pressures persist for the remainder of the year. For the first quarter of fiscal 2026, adjusted SG&A and adjusted SG&A as a percent of net sales were comparable to the prior year. The reduction in marketing and advertising expenses was due to timing of investments and offset by higher employee-related and legal expenses. We continue to expect an increase in marketing and advertising spend for the full year compared to last year. As a reminder, due to the timing of our corporate restructuring, we expect the financial benefits we announced last quarter to flow through beginning in quarter 2. Also…

[Operator Instructions] Your first question comes from Tom with JPMorgan.

Maybe we could just start out on 2Q? You noted the expectation for EPS to be flat to slightly up year-over-year. Could we maybe unpack this outlook segment level expectations, for instance, or maybe when discussing the logistics headwinds, any details on kind of where this is coming from and when it might start to taper off?

Yes. Thanks for the question, Tom. This is Jeff. Let me provide some added color on Paul's remarks, about Q2 a couple of minutes ago. So as we were heading into this year after a year of solid top line growth, but challenged bottom line results in fiscal '25, we tried to make it clear both to the Street and to our team that our goal for fiscal '26 was to return to bottom line growth consistent with our long-term algorithm. We also said that this recovery would likely come sequentially over the course of the year. And we're definitely pleased that our Q1 adjusted EPS turned out a little better than the minus $0.02 to $0.04 we had talked about on the last call, but we also recognize that the adjusted EPS was still $0.01 below last year. Heading into Q2, our expectation is continued sequential improvement. We should reap the benefits of the completion of the second wave of retail pricing, which was aimed at offsetting some of the cost pressures we've talked about for the last several quarters. And on top of that, we will now start having full quarters of benefit from our SG&A actions. But as you point out in your question, we are carefully watching the more challenging freight cost environment we referenced in our comments. And at this point, I mean, they've been going on for a couple of months, and it's kind of too early to tell whether they are a seasonal issue or whether they're something that will be with us for more of the year. So all told at this point, we believe we remain on a path to generate the sequential but modest bottom line improvement in Q2, hence, the comments that both Paul and I made about seeing adjusted EPS coming in at flat to slightly above last year, while we will continue to generate top line growth. And we do remain confident in the guidance we've provided for the full year.

Okay. Also wanted to just ask on the whole turkey divestiture. Maybe, one, just any added details on kind of the rationale? It was helpful to get some of the commentary about longer-term margin benefit and the annualized sales expectations, but also kind of where do we sit, I guess, when looking at the volatility of this business is -- should we look at 2026 as being perhaps a more favorable year for the whole turkey business? Yes, just any added details there.

Yes. This is Jeff again. Let me talk about more of the kind of the financial side of it, but then I want -- I'd like John to be able to comment on where we saw this fitting in terms of our long-term view of this consumer landscape. As Paul pointed out in his comments, we not only said that, hey, we think the net sales impact for fiscal '26 will be roughly $50 million. We have most of our whole turkey sales booked already, and we have custom manufacturing arrangements with LSI to fulfill those. And then Paul gave you a kind of a generalized typical range of $200 million to $275 million. Obviously, that's in 2027. It will depend on how many whole turkey LSI decides to run through the plant. It will depend on what the pricing is and so forth. But that gives you an idea of what typically the sales of whole birds and bone-in and breast from the hen complex were in Hormel's results. In terms of the bottom line, we've said it's highly volatile and it's low margin. We have not previously provided specific margin breakout for the whole bird piece of the business. What we can tell you is that in a typical year, it is significantly dilutive to retail margins. There have been isolated years of more meaningful profitability, but those are outliers. John, do you want to comment on the more consumer side of our thinking?

Tom, and just to touch a little bit on the strategic rationale that part of your question. We continue to see an opportunity with turkey to accelerate our efforts, but really against, what I'll call, the value-added consumer opportunity. And if you look at turkey, it is on trend in so many ways with consumers and with our operator partners in Foodservice. So this transaction will really allow us to increase our focus and accelerate the efforts on that part of the business, in particular, from a Retail perspective or thriving ground turkey business, our turkey breast business, other value-added formats. These are all consumer opportunities. We continue to drive really strong growth behind those platforms. You can see the ground turkey business just this recent quarter was up over 15% for us in dollar consumption. So we want to continue to drive that. When I talk about Foodservice, turkey has become a critical part of our solution set for our operator partners across channels in Foodservice. If you think about formats like premium oven-roasted sliced Turkey, which we leverage across noncommercial and commercial foodservice outlets, it's really operators looking to deliver premium experience with less labor or another example of where we have really plugged turkey in quite well is in the K12 segment in schools. And if you think about really interesting alternatives for that K12 segment where we bring flavor and exciting formats to turkey through our Foodservice business, things like turkey taco meat, turkey jalapeño popper meatballs, turkey nuggets. There's just a lot of opportunity there for the poultry segment, and our leadership position in turkey gives us a lot of room. So whether it's Retail or Foodservice, accelerating -- increasing our focus, accelerating our efforts by -- through this transaction, what that looks like is really spending more of our time, the focus of our team, our resources, our energy and conversations with our customers, really driving against the value-added parts of the business and not as much on what I would call the whole-bird part of the business, which really is more commodity-driven, more relying on holiday demand. But certainly, to your point on volatility, very subject to those commodity fluctuations year-to-year.

Your next call comes from Leah with Goldman Sachs.

I wanted to ask about the Retail segment as it was a little light versus our expectations. And I know you called out some logistics headwinds, but we also still haven't seeing the full benefit of your recent pricing actions. So seeing if you could provide more detail on the key puts and takes for the Retail segment in the quarter? And then how we should think about them as we move throughout the year?

Great. Leah, it's John. I'll take that question. Obviously, a very good question. For me to talk about Retail, what I'll do is I'll start up at the top line and kind of work my way down to margins. I would say, overall, for Retail, we feel good about the consumer takeaway we're seeing across our branded portfolio. Despite what is a choppy environment, a strange consumer backdrop, we continue to feel good about the consumption on our branded portfolio. That being said, in the quarter, Retail top line net sales performance was down 2%. That year-over-year decline was driven by a strategic exit of certain private label nut items. The branded portfolio, on the other hand, continues to see fairly strong consumer takeaway. I mentioned in my remarks that Hormel's total dollar consumption was plus 2% on the quarter in the latest 13 weeks of Circana data. In fact, our priority brands drove that. They were up 3% on the quarter in terms of dollar consumption growth driven by Jennie-O, Planters, our Mexican brands, pretty broad-based growth, our Hormel Gatherings, Applegate continued to grow. So a nice cross-section of our priority brands really driving consumption growth, which I think does speak to the relevance of our protein-centric portfolio in this environment. That being said, profitability for the quarter, certainly below prior year. And if you kind of look at how things play out, a significant driver compared to prior year is certainly the commodities. And we're still experiencing the very high commodity markets that we saw soar on us late last year and those markets have us clearly facing increased COGS significantly above -- our COGS significantly above where they were prior year. And as we mentioned on the call last quarter, we announced 2 waves of retail pricing.…

Yes. Thanks, John. So we did see, as Jeff and John pointed out, some significant tightening in the industry and specifically across the refrigerated sector in the back half of our first quarter. Spot rates began to increase as there were severe winter weather events and driver availability did tighten. These pressures have continued in early quarter 2. And obviously, we're still seeing some severe weather events across the United States. So we're continuing to closely monitor these conditions surrounding the industry dynamics such as carrier exits and driver shortages as we head into quarter 2.

Your next call is from Ryan with Barclays.

This is Ryan on for Ben. So we want to look a little bit more at Foodservice and understand. So volumes were essentially flat. And with that, are your pricing tools all implemented over in Foodservice? I know there's a little bit of delay on the Retail, but want to understand the dynamic of how Foodservice customers are responding to those price increases and what you're seeing from the top line and the margins there going forward?

Yes. Thank you for the question, Ryan. This is John. I'll take that. So we are very encouraged by the start to the year in our Foodservice segment. We did see that strong top line growth with 7% organic net sales growth, and that's 10 consecutive quarters, as we've mentioned in our prepared remarks. So the heart of our Foodservice model, we think, is really a differentiated advantage model, which has allowed us to continue to drive top line growth in what is still, I'll say, a challenging foodservice environment overall. We know traffic continues to be challenged in a number of the different aspects of foodservice. What we lean into there, the way we've been able to continue to drive the growth is 3 aspects. One is our direct sales team. We feel like this is a real competitive advantage for us. Our team is out on the street, working with operators, working with our partners every day and figuring out how we can help them in the challenging environment, right? So that's a critical aspect. The second piece is our portfolio of innovative solutions. We add value for the operators, and we do help them with pain points. We help them with efficiency. We help them with reducing labor. We help them get high-quality products on their menus in affordable ways. And so the solutions-based portfolio is important. And then finally, the critical aspect is we have a very diversified channel set on our Foodservice business. So even when overall, there are some headwinds in the industry, we can still work hard to find pockets of growth, which enable us to really sustain that. Now on a net sales basis, we were plus 7%. Our volume came in flat, which obviously, with prices going up, with protein markets going up and prices flat volume delivery is a good delivery, I would say. To your question on pricing, typically, there is a lag time on our Foodservice. The prices will follow the markets. And as we talked about in Q4, we saw a pretty dramatic rapid increases in the markets, and we knew we would take a little bit of time to catch up on that. First quarter, definitely, we did see our pricing coming back in line with the market movements, which did help us on the margin side, recover what we had basically lost in Q4. So that is the heart of what kind of is going on in terms of Foodservice, which is strong top line growth, pricing catching up with the markets that we saw explode on us late last year.

Your next question comes from Heather with Heather Jones Research.

I just was wondering, first, a detailed question. If you could give us a sense of how much of the volume decline in retail was related to this snack nuts exit and it sounds like to a lesser degree, the deli, and how you all are thinking about that trajectory over the rest of the year?

Heather, yes, it's John. I'll take that question. So obviously, just stepping back on volume overall with rising protein markets, increasing prices, volume growth is more challenging. That said, we do feel good about flat volume delivery in Foodservice. We feel good about a little bit of volume growth in International, and Retail is clearly where we had our volume decline. And to answer your question, the way I would think about volume in the Retail segment is really in 3 buckets. The first bucket is what you're alluding to, which is the exit of that private label snack nuts business, which was, let's say, a less strategic business for us. That was one of the drivers of the volume decline. But there are two other aspects I would touch on. The second one is we did have a couple of declines, I'll say, on acute businesses with some soft consumption, SKIPPY being one of the areas where we have some volume softness right now. So there was some volume softness on a couple of businesses, including SKIPPY. And then the third one, maybe the most obvious, but certainly all of the pricing in the portfolio and the elasticity dynamics around that pricing, which we expected. And as I mentioned, elasticities are playing out in line with our expectations, but there is some volume coming out as a result of the pricing actions overall across the portfolio. So that said, looking forward, I do feel like we can continue to drive growth and volume growth on our Retail portfolio. If you look at our priority brands, even in the latest 13 weeks from a consumption standpoint, we do have volume growth in a number of spots on our priority brands: Planters, Hormel Gatherings, Applegate, our Mexican portfolio. So we are growing volumes in a number of places. We'll obviously continue to invest with consumers and drive increased volume in pockets. But the reality is in this environment with pricing, there will be some throttling of that volume.

Okay. And my follow-up is just as you all have taken a closer look at the business over these last few years -- sorry, these last few months, when I look at the Retail segment on profitability using just '25 has dropped roughly 1/3 since '21. Volumes are down some, but margins are down considerably. The Foodservice piece has grown nicely. But just as you've taken a look at the business, I was wondering if you could just sort of flesh out for us like the opportunity to return to the margin levels we saw in the past? Are there any structural changes that are going to limit that ability? How much do you think it's related to company-specific execution issues? And just how you're thinking about maybe the next few years and what that Retail business will look like?

Yes, sure. I'll comment a little bit on that, Heather, just to give you a little bit more depth around what I talked about earlier in Retail. Last week, I spoke extensively at the CAGNY conference about kind of our new lens on our opportunity as a company. And we believe we have a really strong opportunity with our brands and capabilities in the Retail segment to win with consumers. We're in the process of pivoting our brands into some big consumer opportunity spaces, modernizing and refreshing our brands, modernizing our capabilities as a company. I talked a lot about that in terms of some of the investments we're making in areas like data, technology, analytics, e-commerce. So there's a lot of pivot happening to make sure we can unlock those opportunities. But I will tell you, when I look at our portfolio, and I look at our roster of brands and what we call our top 8 priority brands, which I talked about at CAGNY, when I look at our next sources of growth, which are incredibly aligned with future consumer trends, we have a lot of opportunity to drive growth and profitable growth. So the lens we brought to that was a consumer lens, but it certainly was also a financial and strategic lens to say, how do we make sure we're driving the parts of our portfolio where we have strategic advantage, where we have strong margins, where we have consumer opportunity, so we can drive growth and favorable mix over time on the Retail business. And then the capability piece is what is it going to take to deliver all of that. So we feel very good about the outlook for our Retail business, our ability to do that over time. We feel like we're making the right investments now to continue to make that pivot.

Your next question comes from Chris with Bank of America.

It's Chris Downing on for Pete. Two quick ones on the whole bird business divestiture. One, how should we think about this transaction relative to the WholeStone Farms transition you went through in 2018 on the pork side? What would be some of the similarities and differences? And two, can you remind us what percent of the legacy Jennie-O portfolio whole bird was? I believe at last disclosure, it was around 20%, but I just wanted to double check that.

Chris, this is Jeff. I'll tackle this one. So I mean, I would look at the turkey complex that Hormel has owned is differently than the pork complex. Hormel at its peak in the pork complex was like the #6 or 7 player. Another dynamic in it is in the Upper Midwest, there are anticorporate farming laws that apply to beef and pork. And so Hormel never had a vertical operation here in the Upper Midwest. We did own farms at Mountain Prairie out in the Western area for a while and with Farmer John. But again, it was a small percentage of the business. So I think in that case, the notion of having somebody else take over some of the deep verticality of that business made a lot of sense. On the turkey side, Jennie-O has been the big player, 1 of the 2 or 3 big players in the industry for a long time. We think we are an effective low-cost producer. We have substantial tom assets that we are retaining indeed, we talk about selling the Melrose plant, but we're actually keeping plants in Barron, Faribault, Willmar, Montevideo and Pelican Rapids. So I think they're different. I mean the mentality of ultimately, a, there may be opportunities to get closer to the consumer and not be as vertical. It's a logical question. We did ultimately identify the whole bird business as being less strategic and more volatile, and hence, thought it was better owned, frankly, by LSI. But otherwise, no, we're committed to the Tom aspect of the business, and we think it gives us an important continuity of supply and cost advantage ultimately for those value-added products. In terms of the percentage, I mean, I think we could follow up with you on that. I mean I don't think you're way off, but it's at the $200 million to $275 million. I mean it's been a while since obviously, we reported Jennie-O as its own segment, but I hope that gives you some ballpark.

Your next question comes from Rupesh with Oppenheimer.

So just going back to the full year guidance. So given your 2Q guide implies a pretty significant profit acceleration in the back half of this fiscal year. So just curious on your confidence in being able to drive that improvement as we get towards the back half of the year.

Thanks, Rupesh. This is Jeff again, I'll tackle that. And we're pleased to be off to the solid start that we've talked about today. We're happy with our fifth consecutive quarter of organic net sales growth and glad to be $0.02 ahead of our bottom line target after Q1. In light of the logistics cost trend, we think our confirmation of both our top and bottom line annual guidance range should be seen as a prudent yet confident sign. And we would remind you that as we head through the year, we're expecting sequential profit improvement, and there's a number of levers or drivers to that. We should see benefit from the pricing actions. We should continue to see T&M benefits. We will benefit from ongoing SG&A savings. We expect modest improvements in many of the commodity markets in the back half. And frankly, in Q4, we had some onetime discrete events that hurt us last year that we don't expect to happen again, obviously. And so that should be a benefit as well.

Great. And then maybe one follow-up question. Just on the Retail segment. I know you've gotten a number of questions so far on the call. As we think out maybe the exit rate from a top line perspective, would you be -- would you expect to be closer to flat on the organic net sales line for Retail as you get towards the end of this fiscal year? Just trying to get a sense of the exit rate.

I mean for our segment detailed guide in Retail, I think on net sales, we continue to -- you're right in terms of where the private label nuts business really has been and where it exists here for the first quarter. I do think that for volume, we expect modest declines just given the private label nuts and the elasticities related to pricing within the Retail segment. And as we stated back at the start of the fiscal year back in November, retail for segment, we're going to have modest declines in volume with net sales in low single digits to flat, and that's where we kind of think we're still going to be.

[Operator Instructions]. Your next question comes from Pooran with Stephens.

I wanted to maybe start off with understanding what percent of your profits are now commodity? I think in your 2023 Investor Day, it was about 10%, but you've made some moves. You sold off Mountain Prairie. Now with the sale of commodity, I was just wondering how we should think of Hormel profits in terms of value-add and commodity?

Yes. This is Paul, I'll try to answer that, but we really don't track that answer specifically. This could be something that Florence and the IR team follow up with you later. Obviously, as you know, we have had declines here with the sale of Mountain Prairie and then the definitive agreement here with the whole-bird turkey operation, which will limit some of our commodity growth as well as what we went through with the reorganization, and what we call Project Tower internally with looking at our turkey operation full and reducing some of the harvest levels a couple of years ago. So they can follow up with you more on that, but it definitely is down from where it was back in '23.

Okay. Appreciate the color there. I wanted to -- for my follow-up, I wanted to ask about whole bird, sorry to pile on here. But I know you had a procurement strategy for Jennie-O before where I believe you were an overall buyer of dark meat just given the prevalence of your ground turkey product. Does the sale of the whole-bird business because in your prepared comments, you mentioned breast in there as well. Does this change your procurement strategy at all at Jennie-O?

This is Jeff. No, it really doesn't. I mean the tom complex, if you will, we mentioned the farms and feed mills and plants that we have related to that. But for many years, Jennie-O has also supplemented its own production with the purchase of certain raw materials that are key to many of our value-added items, and that will continue. There is an aspect of the contract whereby we can get a small amount of some of the dark meat products from LSI on the hens that they bone out. And so that would be one minor change, I guess, to the operation.

And I would just add also to what you heard in the call, we identified bone-in and breast as a product coming off of the hand. So that's not really breast me that's going into the value-added product coming off of tom turkey. So that is a finished good product that's coming off of a hen only.

All right. Thank you so much. That concludes our Q&A session. I will turn the call over to Jeff. Please go ahead.

Thank you very much. I appreciate everyone's questions today, and we thank you for joining us, particularly at this early hour. We are pleased with our solid start to fiscal 2026 and the momentum we are building across our business. The initiatives we have implemented are positioning our company for continued success, and we look forward to updating you on our progress throughout the year. Thanks very much.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating, and you may now disconnect.