00:00What are you seeing on that side of the business and how is that balancing out with
00:04demand that you're seeing from customers? Yeah, good afternoon. Thank you for having me.
00:10We certainly have been seeing inflation, you know, hitting our consumers. If we start with
00:15the consumer, I think about it as the cumulative effects of inflation over several years now,
00:20where consumers are really feeling that strain. Most recently, gas prices going up has added to
00:26that, obviously. We do see food being resilient, though, and in particular, we see growth coming
00:31from protein. So as we focus our company, which is a protein-centric company, we focus on the consumer
00:37and we try to bring solutions that help the consumer with time, affordability, nutrition,
00:43basically to meet their needs. And if we can adapt our protein portfolio into consumer tailwinds in
00:49terms of where the consumer momentum is, we can grow. So this quarter, we posted our sixth consecutive
00:55quarter of top-line net sales growth, which we feel good about. But more importantly,
00:59this quarter, we translated that to profit growth across all three of our operating segments,
01:04where we saw our retail division, our food service division, and our international division,
01:08all post-margin expansion and segment profit growth. Well, let's talk a little bit more about
01:13the protein portfolio, because I know that you're selling the whole bird turkey business. And,
01:19you know, within the umbrella of brands that you have, you also have more premium brands,
01:23such as Applegate, in particular, when it comes to sausages. So for those more premium,
01:28those maybe more pricier brands that you do have in your lineup, I mean, have you seen any trends
01:34emerge when it comes to a potential trade-down trade? Yeah, great question. I mean, we do see a
01:41couple of things playing out from a pricing tier. So we have a very broad portfolio in terms of
01:46affordable solutions. So if you think about Hormel Foods, we have what we call our center store
01:49portfolio. Think about affordable protein brands like Hormel Chili or Spam or Skippy Peanut Butter.
01:55And we do see some good demand for those brands. But we also do see, to your question, demand for
02:01our
02:01premium brands. So take Applegate as an example. We've had sustained demand growth on Applegate
02:05over the past couple of years as consumers continue to look for premium experiences. In the case of
02:11Applegate, the natural organic segment is a growth segment for us. And in addition, what I would comment on
02:17is just poultry in general is definitely a lot of demand for poultry. So if we think about our
02:21Genio brand, which is a leading brand in the turkey space, we've seen extremely strong consumption
02:25growth behind that brand for our lean ground, Genio dark turkey meat. And we see demand on the
02:32chicken side with products like breaded chicken from Applegate or chicken breakfast sausage. So
02:36poultry is certainly one of the opportunities with consumers where consumers are looking for
02:40lean protein. They're looking for affordable protein. And at times they are willing to stretch up and pay for
02:46premium if the value is right. John, I am curious also just to with regards to sort of the return
02:51to
02:51growth and more importantly sustaining that. Obviously, a lot of the growth is still coming from the food
02:55service side rather than the direct to consumer or consumer side, I should say. Is there any sense here
03:02that you start to see a little bit more of a balance where investors will be able to see more
03:06sustained
03:07growth from retail grocery sales rather than food service? Yeah, very good question. So I would say we've put
03:14up quarter after quarter of growth through our food service business. We consider that our away from
03:19home business where we have channels from convenience stores to commercial and non-commercial down the
03:25street and national chains in that food service segment. And while traffic remains pressured in the
03:29food service areas away from home as consumers are strained at some, you know, certain channels may be going
03:34out to eat less. We have been able to put up consistent growth through our advantage model, which we consider
03:39Sitter to be our sales force. Our sales force works extremely closely with operators. So when operators are
03:44stretched in food service with menu pricing, with traffic, we're bringing them solutions to help
03:48control some of the labor that they're spending money on or to bring some news to their menus. So
03:53food service has been a very positive growth story for us over multiple quarters. Retail, we've made
03:58strong progress this quarter. We certainly see our margins advancing. We see some of our critical
04:02brands like Applegate and Genio growing. But we do have work to do. We have work to do in terms
04:07of
04:07continuing to advance our margins. We have work to do in terms of making sure our whole portfolio is
04:12clicking. And we continue to shape our portfolio in retail. Earlier in the question, it was about
04:18our whole bird business. So that is one of the exits we've made strategically out of retail. That's a
04:23very, I'll call it highly volatile, more commodity based business, the whole turkey business. It's not
04:28really where the consumer demand is coming from. So as we exit that business, we've exited some other
04:33businesses. We continue to shape that retail portfolio. So we're focused on the consumer, focused on
04:38tailwinds. But on that on that retail consumer, and more importantly, you know, separating out the
04:42more commoditized type of business like old birds here. Are you confident that consumers will be
04:47receptive to whatever the pricing structure is going to be going forward? Because I know that
04:51tripped you guys up in quarters past. Yeah, I think a couple of things. One, we are viewing pricing as
04:58when necessary, we'll take pricing on our portfolio. But we are doing a lot to drive efficiency in our
05:03business to avoid pricing when we can. So for example, our transformation program that we've
05:08been investing in for the past two plus years has helped us find a lot of efficiency in our supply
05:12chain, in how we run our business. And as we can drive productivity, that helps us avoid pricing at
05:17times. We've also reduced our rate of SG&A spending, or the rate of increase that we were putting behind
05:22the
05:22business to control that. Those types of reductions are helping us limit pricing where we can. But that being
05:28said, when we have to price our protein businesses, we have done it, we can do it. But we have
05:32to make sure
05:33we're innovating, that we're building our brands, and that we're meeting consumer needs better.
05:37And if we can hit that sweet spot, we're doing that in categories like bacon or pizza toppings,
05:41we can actually deliver value and win. Well, certainly investors all like what they heard
05:46today. You see that reflected in the price. I didn't get a chance to listen to the call.
05:50Did you talk about this spam hot dog? Because I got this in my email box of maybe two or
05:55three weeks
05:56ago. And I was a little confused. I know it's just kind of short term promotion here. But what's the
06:01idea
06:02behind this? Yeah, so I'm glad you asked about spam. Spam is one of our favorite brands,
06:07been around for a long time around the world. It's an affordable protein, it's shelf stable,
06:11people enjoy it, fit it into all kinds of occasions. That's sort of the old part of spam.
06:15There is a whole new part of spam, which is about innovation. So you'll see more and more spam sushi
06:20like formats that are inspired by how spam is used in Asia. Those are rolling out in sushi departments
06:25across the US. But what you also have seen recently is the spam dog. So it's a spam hot dog.
06:30We did a
06:30limited channel launch of that product. You may see more of it coming in the future. It's got our spam
06:35spam fans. Very, very excited.
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