Earnings Call Transcript
HORMEL FOODS CORP /DE/ (HRL)
Earnings Call Transcript - HRL Q2 2025
Operator, Operator
Good morning, ladies and gentlemen, and welcome to the Hormel Foods Corporation Second Quarter Earnings Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. This call is being recorded on Thursday, May 29, 2025. And I would now like to turn the conference over to Ms. Jess Blomberg, Investor Relations. Please go ahead.
Jess Blomberg, Investor Relations
Good morning. Welcome to the Hormel Foods conference call for the second quarter of fiscal 2025. We've 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 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 second 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. 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 statements. 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 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 that 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, is 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.
Jim Snee, CEO
Thank you, Jess, and good morning, everyone. We achieved solid organic top-line growth and delivered second quarter results in line with our expectations. We are committed to delivering profitable and predictable growth and despite a dynamic operating environment, we stayed focused on our long-term strategy, executed with discipline, and delivered results consistent with our expectations. In retail, we continue to hold leadership positions in the marketplace across our diverse portfolio. Our success with both consumers and customers is rooted in providing a stable, reliable brand and products they can trust while continuously evolving to meet the expectations of today's market. We continue to find ways to drive value for our consumers beyond price through quality, product differentiation, innovation, and convenience. This quarter, I want to highlight three areas of the retail portfolio that really brought this to life. The Applegate brand is well aligned with today's consumer demand for convenient protein solutions. The brand experienced incredible sales growth, outpacing the total edible category while also growing households. The launch of the Convenience Breakfast platform has been well received in the marketplace. Building on that momentum, the brand recently introduced a new line of lightly-breaded chicken products, further expanding its reach and relevance. This ongoing pipeline of innovation combined with a compelling value proposition reinforces our confidence in the sustained strength and growth potential of the Applegate brand. At the same time, Jennie-O lean ground Turkey continues to be a high performing and strategically important offering within our portfolio, positioned to meet today's consumer preferences. As demand for lean, high protein food grows, Jennie-O is a go-to choice for consumers, demonstrated by consistent consumption gains and strong category leadership. Through the strategic transformation of the Jennie-O business over the last few years, we are further aligned, as a demand-driven portfolio. We continue to have the right strategy and structure for steady long-term growth. Finally, our Mexican foods portfolio delivered on the growing demand for high-quality and flavorful meal solutions at home. In the second quarter, we saw continued success with our legacy Herdez salsa business, while our refrigerated guacamole portfolio experienced double-digit consumption growth, driven by Herdez and Wholly Brands. To provide another authentic convenient meal solution, the team expanded our refrigerated Entrees line to now include el pastor. Led by our flagship and rising brands, our broader retail portfolio is well-positioned to deliver the quality, differentiation, innovation, and convenience that consumers demand in today's market. Turning now to Foodservice. Our foodservice business remains resilient in the quarter despite industry softness. Many of our branded products such as Jennie-O, Hormel Fire Braised meats, and Café H globally inspired proteins delivered strong volume and net sales growth in the quarter. Our direct selling organization, solution-based approach, and diverse channel presence has once again outperformed the broader foodservice industry. In addition to our already diversified portfolio that provides high quality and convenient solutions, the team is motivated to deliver on flavor trends and help our operators serve their customers faster. As an example, at the International Pizza Expo in March, the team showcased our latest pizza topping creation. Recognizing that hot honey has become the fastest growing pizza ingredient, our team saw the perfect opportunity to capture that craveable sweet heat in the form of our premium quality sausage, ultimately creating Fontanini hot honey sliced sausage. Additionally, our FLASH 180 Sous Vide chicken is designed to streamline back-of-the-house operations. It delivers a consistent high-quality product while significantly reducing prep time and labor, allowing more operators to serve the most in-demand menu item, the chicken sandwich. It's this kind of multifaceted food-forward thinking that keeps Hormel Foodservice a leader in the marketplace. Rounding out our segments, our International business delivered strong top-line growth in the quarter, driven by impressive double-digit volume and net sales growth in exports and robust growth in China. Our in-country China business continued to perform well, led by customer and distribution expansions and continues to lead the company in innovative product offerings. The recent launch of Hormel Barbecue Bites is just one example of the team's deep understanding of consumer trends, and their ability to create meaningful innovations that address in-country market demands. These six examples demonstrate the continuous transformation of our portfolio with innovative, high-quality products that meet the evolving needs of our consumers. This year is a story of momentum, and as we've discussed, we expect first half and second half results will look very different. What will not be different, however, is our strategy, as we have intentionally structured our business to balance changes in the marketplace. Our confidence in our brands and our team, our responsibility to our consumers, customers, and operators, and our commitment to long-term results for our shareholders remain. We anticipate strong second half growth, led by our range of consumer-focused, protein-centric products. Notably, we expect meaningful contributions from our Turkey portfolio, continued momentum in the Planters brand, growth from our leading positions in the marketplace, and ongoing benefits from our Transform and Modernize initiative. Jacinth will walk through Turkey and our continued progress against our Transform and Modernize initiative in more detail. But I want to take a moment to dive further into a Planters and SPAM update. Our Planters snack nuts performance exceeded our second quarter expectations, and these results have paved the way for what's to come in the second half. We expect to see sequential quarter-over-quarter sales improvement and year-over-year growth. This is a legacy powerhouse brand, with a loyal consumer base and a portfolio of product offerings that ranges from classic comforts to bold flavors and textures. By investing in the brand and putting our proven strategy into action, we expect the Planters brand to be a driving force in the second half. Turning now to the SPAM brand, after an impressive first half, we expect an equally impressive second half. We continue to evolve this iconic brand while staying true to its core identity as a versatile convenient protein solution. Its global momentum has been building, fueled by the strategic efforts to expand beyond the Center-Store and deeper engagement with cultural trends. The rising popularity of SPAM Musubi and a recent high-profile collaboration featured in a live-action film set in Hawaii has led to significant merchandising activity and reinforced the brand's authentic cultural connection. We believe the SPAM brand is a timeless classic. We are confident in our growth trajectory for the back half of the year, supported by strong execution and strategic momentum. In the face of an evolving backdrop, we are responsibly narrowing our fiscal 2025 outlook, which remains largely unchanged. For the full year, we now expect increased net sales growth of 2% to 3%, which is being supported by our value-added Turkey portfolio, the Planters brand, our leading positions in the marketplace, continued growth in foodservice, and higher commodity markets overall. We now expect adjusted diluted earnings per share in the range of $1.58 to $1.68, which takes into account our current views on the consumer, tariffs, and lower investment income. This range implies impressive growth in the second half of the year aided by investments across our brands and further benefits from our Transform and Modernize initiative. While the macro environment is ever-changing, our strategy is consistent and clear. Our top-line momentum is building, our diversified portfolio allows us to navigate changing preferences and trends, and we are on track to deliver the benefits of our Transform and Modernize initiative, positioning us to regain our long-term growth trajectory. Our team continues to be, in my opinion, the best in the industry, and each and every one of us is committed to the long-term success of our company. Now before I transition the call to Jacinth, I'd like to address some of the leadership changes we announced this past quarter. Our incredibly competent management team and deep bench of talented leaders is a unique advantage for our company, and I am pleased to celebrate the advancements we have recently announced. First, Dr. Kevin Myers was appointed to lead our supply chain efforts. A nearly 25-year employee of Hormel Foods, Kevin has led critical areas including product development, quality control, food safety, and packaging design. Prior to joining the company, he spent a decade in the food industry, holding leadership roles in food technology and R&D. Kevin is widely respected for his expertise and insight. He is a trusted adviser and one of the most capable leaders in the organization. Candidly, he is one of the smartest people I know. With Kevin at the helm, we remain focused on transforming our supply chain, delivering for our customers and driving operational excellence. Next, we announced that Scott Aakre, Group Vice President and Chief Marketing Officer for Retail, will retire at the end of the fiscal year after an astounding 35-year career with Hormel Foods. We are pleased to share that Scott has been appointed to the Hormel Foods Board of Directors, ensuring we will continue to benefit from his strategic insight and deep brand expertise. Throughout his career, Scott has held several pivotal leadership roles, from guiding our grocery products marketing to leading corporate innovation and launching our brand fuel growth engine. On a personal note, I am grateful to have built my career alongside him. Scott's creativity, bold thinking, and thoughtful leadership have left a lasting mark, and his impact will continue to shape our future. Finally, with Scott's impending retirement, we announced that Jeff Baker, a 35-year Hormel veteran, will lead the retail marketing efforts with the start of fiscal 2026. He will oversee the continued evolution of our branded portfolio, driving growth in Snacking and Entertaining and our Food Forward platforms. Jeff's proven track record of growth, sharp strategic insight, and a deep understanding of our brands and consumers has been built through his leadership roles across the company. Beyond his results, Jeff is known for his commitment to our company and his ability to foster an inclusive, high-trust, high-performing culture. I'm fortunate to work alongside a team of such strategic senior leaders, and our recent leadership advancements give me great confidence in our company's future. At this time, I will pass the call to Jacinth to discuss the financial details of our second quarter and provide more color on our outlook for the year.
Jacinth Smiley, CFO
Thank you, Jim, and good morning, everyone. As Jim noted, we achieved solid organic top-line growth and delivered second quarter results in line with our expectations. Our results once again demonstrate the effectiveness of our diverse portfolio. Net sales for the quarter were $2.9 billion, a 1% organic increase over last year. In Retail, our flagship and rising brands maintained leadership positions in the marketplace, and the Planters brand exceeded our volume and net sales expectations. Our Foodservice business again outperformed the broader foodservice industry, and our international business drove impressive top-line growth in Q2, mainly due to double-digit volume and net sales growth in exports and strong growth in China. Our gross profit margin was 16.7%, reflecting anticipated higher commodity input costs. These known headwinds were partially offset by savings from our Transform and Modernize initiative, which was on track for the second quarter. For the second quarter, expenses decreased 50 basis points, primarily driven by the lapping of prior year legal expenses and lower advertising as the brand teams continued to make strategic return on investment decisions. Interest and investment income for the second quarter decreased primarily due to lower cash balances and the performance from the rabbi trust. Altogether, we reported diluted earnings per share of $0.33 for the second quarter and adjusted diluted earnings per share of $0.35, in line with expectations. Cash flow from operations was $56 million for the quarter as we made an operational decision to build inventory for summer demand. Capital expenditures were $75 million, and our largest investments were related to value-added capacity and investments in data and technology. We continue to expect to invest $275 million to $300 million in capital expenditures for fiscal 2025, with a continued focus on capacity, infrastructure investments, and new technology. We are committed to dividend growth and remain a proud dividend aristocrat, having increased our dividend for over 59 years. Dividends paid to shareholders in Q2 marked the 387th consecutive quarterly dividend. We ended the quarter with $2.9 billion in debt and remain at the low end of our stated net debt-to-EBITDA target. Our Transform and Modernize initiative remains a critical component of our strategy to restore historical earnings growth. The benefits realized in the first half of the year were as planned, and we remain focused and on track. While there are many milestones the team achieved for this quarter, there are three that I wanted to take a moment to highlight. As part of our ongoing efforts to future fit our supply chain, one of our priorities has been to increase efficiencies in our production processes. After careful consideration and planning, we made a difficult but necessary decision to close one of our three dry sausage production facilities in California and transfer that production to other internal facilities. Another visible advancement has been the successful opening of our new distribution center in the Memphis, Tennessee metro area. This strategically located facility enhances our ability to serve customers more effectively, supporting increased demand and expectations for timely delivery. Finally, I am pleased by the team's success in advancing operational excellence through the Hormel production system, standardizing our ways of working across our manufacturing facilities. This transformation reflects a cultural shift that will deliver a long-lasting impact. We remain committed to delivering profitable and predictable growth, and the second quarter was another proof point of our commitment. We achieved results that met our expectations and firmly believe in our diversified portfolio, fueled by the Transform and Modernize initiative to achieve our long-term results. Looking ahead to the second half, we expect each of our segments to deliver strong top line growth. For Retail, we expect low single-digit net sales growth. For Foodservice, we expect mid-single-digit growth in organic net sales. And for the International segment, we expect continued strong top line performance resulting in high single-digit growth. We expect advertising investments to significantly increase in the second half, and we are reaffirming our expectation for incremental benefits from the Transform and Modernize initiative of $100 million to $150 million. Finally, we expect each segment to deliver bottom line growth in the third quarter and second half. An important component of our guide for the year is our Turkey portfolio, and I would like to provide some additional insight into our assumptions. We continue to monitor Turkey supply across the industry, and our value-added pricing is in the marketplace implemented to offset the Turkey pressures we discussed in the first half. We are constructive on our overall Turkey portfolio and are impressed by the results we are seeing from value-added Turkey across both Retail and Foodservice. Turkey remains a meaningful protein in our portfolio, as the demand for lean protein continues to grow. For other commodity markets, we continue to expect markets to be above last year, mainly pork, beef, and nut input costs. Our measured pricing actions and the benefit from our Transform and Modernize initiatives will help to offset some of the input pressures contemplated in our guidance. The interest and investment income drag we experienced in the first half is not anticipated to be recouped. The impact for that line item alone was $0.03. Netting out our deferred compensation, the bottom line impact has been $0.02 to earnings per share. Turning now to tariffs. The global environment remains dynamic and ever-changing. Although our business has not been materially impacted by the tariff landscape to date, based on what we know today, we have assumed a range of $0.01 to $0.02 of tariff impact in the back half of the year in our outlook. In the face of this dynamic environment, we are responsibly narrowing our full year organic net sales growth outlook to a range of 2% to 3% and narrowing our adjusted diluted net earnings per share expectations to $1.58 to $1.68. We remain confident in our outlook for bottom line growth for each segment in the second half of the year and remain committed to delivering long-term value through strategic execution, including continued success from our Transform and Modernize initiative. With that, I will turn the call over to the operator for the question-and-answer portion of the call.
Operator, Operator
Your first question comes from Peter Galbo from Bank of America.
Peter Galbo, Analyst
Jim, I wanted to focus on the revised operating income outlook you provided for the year. To reach the midpoint of this revised guidance in the back half of the year, you need to generate about $700 million in operating income, which is an increase from the $575 million achieved in the second half of last year. That represents a significant ramp-up. Could you help us understand how you plan to achieve this? You have increased advertising costs in the second half and potentially some benefits from the closure of the dry sausage facility. Any additional details you could share about this ramp-up and where T&M savings stand year-to-date, given the $100 million to $150 million target, would be appreciated.
Jim Snee, CEO
Yes. Great. Thanks, Peter. Appreciate the question. Let's start with that first part in terms of the back half of the year. And I think what's really important here is this idea that there's a lot to like about how well-positioned we are for the back half of this year and our ability to deliver a strong second half. Some of the things that we've been talking about over the last number of quarters, and that is that Planters recovery is on track. What's happening with our Turkey portfolio, especially value-added Turkey, we're seeing really positive momentum. And then when we get into the businesses, specifically, our value-added business in Retail continues to perform well. And it might be helpful when I wrap up here to have John give you just a little more color on that. When we get to Foodservice, we've had strong momentum on the top line, and we do expect to have some favorable year-over-year comps in the second half. We'll have International with steady, strong growth. And then just in regards to T&M, overall, we've said it's on track, right? And so it is delivering what we expect it to deliver in fiscal year 2025. There's a lot going on in the organization. There's a lot of projects that we're working on. But again, the important thing here is when we roll up all of these drivers for our business, it's really what we expected at the beginning of the year for the back half of the year. And so there's this really great substance in our ability and our confidence to be able to deliver this strong, achievable second half number. And John, if you want to maybe add some color on Retail?
John Ghingo, EVP Retail
Yes. Thanks, Jim. I'll add a couple of comments. We do feel confident in our second half. We have a lot to be excited about for Retail, elements that will help us navigate what I would call a choppy environment and a strained consumer in the backdrop. I'll comment briefly why we feel good about the relevance of our flagship and rising brands right now and also the support plans we have in place in the back half behind those brands. If you step back and just look at our protein-centric portfolio right now, it offers a lot of value to consumers. We know consumers are willing to pay for protein, especially with the added benefits of convenience, food, flavor experiences. And generally, the emotional and functional benefits of our brands continue to resonate. So when you take those protein offerings and put those added benefits on top, we know that it's still equating strongly to value for the consumer. And then on top of that, we're planning double-digit advertising increases in the second half of the year, including significant investment in Planters. So we'll be returning that flagship brand to growth in the back half. But we also have new advertising, good investment levels planned across other priority brands in the portfolio: Applegate, SPAM, Hormel Pepperoni, SKIPPY. Those investments will leave us with advertising spending planned up year-over-year for the full fiscal year basis. All in all, I would say for Retail, we feel confident. We have good momentum. Our portfolio is strong in this environment. And our plans for the back half are strong to support our brands. So we are feeling good going into the back half of the year.
Peter Galbo, Analyst
Okay. Thanks for that. And Jim, maybe you can just help us a little bit on cadence and maybe specifically on Turkey cadence in the back half. A, whether we should think about 4Q, that improvement really being probably the bigger contributor given when you ship whole bird? And in the context of Turkey, just the market has changed so dramatically. The competitive landscape is changing. Just what are you kind of seeing on the ground?
Jim Snee, CEO
Peter, I'm going to let Jacinth start off on the cadence, and then I can come back to Turkey.
Jacinth Smiley, CFO
Peter, so as we think about the back half and double clicking into the expectations here, we're expecting strong top line growth in Q3 with low double-digit EPS growth. And when we tick through the segments of the business or Retail from a sales guide perspective, we're expecting low single-digit, Foodservice, mid-single-digit, and then the International business, high single digits. So all in all, that's what really gets us to that Q3 outlook.
Jim Snee, CEO
Yes. And when we think about Turkey specifically, I mean, you're right. I mean, the competitive landscape, we've seen a tightening supply. And so of course, we're thinking about it from our perspective and thinking about the work that we did several years ago to really make this a demand-driven business. I mean, we're really well-positioned on the supply chain. And we've got and are in a good supply chain because we're a good supply position overall. Again, I want to emphasize, right? We are focused on the value-added portion of this business. Right? We think about lean ground Turkey in our Retail segment and the great work that that team has done, right, to drive that business. The number one brand in a growing category, strong supply behind it. That's really, really important. And I mean, we're overcoming Turkey markets that not all of them are in our favor, right? And so this is something that we're navigating, but it's something that we do really well. We understand how to manage through it. There's a backdrop of whole birds and what's happening there. Those are slightly better than our original outlook. So we do expect most of the upside will be captured during the fresh season, which is closer to Thanksgiving. But again, overall, the Turkey complex is doing really well and well-positioned for the back half of the year.
Operator, Operator
And your next question comes from the line of Michael Lavery from Piper Sandler.
Michael Lavery, Analyst
Just wanted to drill into second half margins a little more, specifically. And I know you said that the year is kind of according to plan, but obviously, first half margins were fairly weak, and there's a big step-up now expected. Maybe just how much more can you unpack some of the key drivers there and what we should be looking for?
Jacinth Smiley, CFO
Good morning, Michael. As we look at the margins for the second half, we anticipate some expansion, mainly due to Turkey, Planters, and our value-added business. Jim mentioned earlier that our T&M segment continues to perform well, and we expect its positive contribution to increase as we move into the latter part of this year. We've already witnessed a sequential improvement in margins at the end of Q2, and this trend is likely to persist. We anticipate benefits from Turkey pricing in the second half as we approach fiscal '26, particularly around Thanksgiving, and Planters is also expected to maintain strong performance. Q2 results exceeded our expectations, and we believe this momentum will carry into the second half, resulting in significant margin growth for Planters. Regarding commodity markets, they remain elevated, impacting certain areas of our business which will necessitate pass-through pricing. For other segments, we implement strategic pricing to mitigate this effect. Overall, we expect margin expansion in the second half and believe our portfolio is well-positioned for continued margin growth in the long term.
Michael Lavery, Analyst
Okay. And just on Foodservice, the mid-single-digit growth expectations are certainly ahead of what would seem to be the industry backdrop, just given tough traffic and a stretched consumer. Can you just tell us how you're thinking about your ability to grow there? And what some of the maybe specific drivers are?
Jim Snee, CEO
Yes, I'll take that one, Michael. I think it starts with our comments about the Foodservice business, which has historically outperformed the industry. While we haven't been immune to the current challenges, our focus is on delivering strong results. We have seen robust momentum in this area, which is a positive indicator. As we move into the latter half of the year, we anticipate benefits from improvements in our Planters and convenience store business. We also have an impressive pipeline of innovation that we showcased at the recent National Restaurant Show. Additionally, we expect a favorable year-over-year comparison for Foodservice in the second half. When you combine all these factors with the fundamentals of our business, including our direct selling organization and diverse channel presence, we are well-prepared for success. Our solution-based portfolio underpins all of this, positioning us to achieve those results in the second half of the year.
Operator, Operator
And your next question comes from the line of Tom Palmer from Citi.
Tom Palmer, Analyst
Maybe I could just first ask on the Transform and Modernize savings. Any quantification that you could give for savings in the first half of the year? And then when we're thinking about the $100 million to $150 million range, could you maybe give some examples of key initiatives, progress towards them? And kind of what might swing us to the high end or the low end of the range this year?
Jacinth Smiley, CFO
Yes, of course. To reiterate, we are continuing to perform well against our guidance for the year. As we move into the second half, we are on track to achieve our set expectations. There is a lot happening within the business. For instance, we completed 66 projects under the Transform and Modernize initiative this quarter, covering all aspects of our operations: move, buy, plan, and make. A few examples include opening our facility in the Memphis metro area, which enhances our logistics network for efficient customer delivery, and closing the dry sausage facility in California, optimizing our portfolio for better efficiency and margin structure. We are also enhancing our logistical efficiency across our locations. Additionally, our end-to-end planning is greatly adding value; we are addressing inefficiencies in inventory management by investing significantly in production planning to ensure the right supply levels and timely delivery to our customers. We are creating a comprehensive solution for our business while building the necessary infrastructure for data and analytics. Overall, we are managing this program flexibly. Our confidence in the Transform and Modernize initiative is strong, allowing us to adapt quickly to savings opportunities and pivot to other projects if initial expectations are not met. We have a solid pipeline of projects to fulfill our Transform and Modernize objectives and goals.
Tom Palmer, Analyst
One thing mentioned in the prepared remarks was the inventory build for summer demand. Can you provide more details on which products this pertains to? It has been a few years, but there was a time when excess inventory presented some challenges for your team. Could you please discuss the visibility regarding the sell-through of these products for which inventory has been built up?
Jacinth Smiley, CFO
Certainly. And that actually ties back into the comment I just made here around our ability to manage our inventory in a different way as part of this investment that we're making in Transform and Modernize. And so we have intentionally and strategically built inventory for our upcoming summer demand, and some of those particular areas are around Planters. We also have promotions coming up with SPAM. And then the other piece I want to just include there, if we think about elevated commodity markets and our input costs, that also have an impact on our balances that are showing in inventory.
Jim Snee, CEO
Yes. And Tom, I think that last part is important because our pounds are down, and our commodity prices are up. So when you look at the dollars, it's one thing, but we are managing this inventory very effectively to align with the needs of the business.
Operator, Operator
And your next question comes from the line of Ben Theurer from Barclays.
Ben Theurer, Analyst
Maybe to circle back to Planters and its progress, you mentioned that you are essentially on track, possibly even slightly surpassing expectations for the second quarter. As you look ahead to the third quarter and the latter part of the year, how would you assess the recovery of shelf space and distribution points that were lost last year due to the facility outage? What are your expectations for the growth contribution from Planters specifically as it pertains to the outlook for the second half?
Jim Snee, CEO
Yes. Ben, I'm going to start, and then I'm going to let John answer most of that question. But I think the important thing here is that this recovery is on track, as we've been describing. Right? And when we're looking at the charts and the graphs and everything, right, all of the trends are headed in the right direction. And that's a really positive signal for us when we think about where the brand is headed. And we know, as we've said, how important this brand is to our portfolio. John, I'll let you get into maybe some of the specific actions.
John Ghingo, EVP Retail
Yes, that's great. Thanks, Jim. I think good morning, Ben, thanks for the question. We do have a lot of enthusiasm and excitement for Planters and the growth potential there. The foundational work is in good shape. Our supply is corrected. We continue to see, as Jim said, that sequential improvement in the marketplace. And in fact, as he mentioned, the second quarter did come in a bit better than expected for Planters, which was good. As we look forward, we expect to see the distribution continue to ramp, the overall consumption on the brand continue to ramp. We've seen that pretty clearly. And we are confident in Planters in the back half of the year that it will be a driving force for growth for us. As you look at Q3 and kind of map it out and you see that sequential progress continue, we will see year-over-year consumption turn positive in the latter part of the quarter. That's where we lapped the time period in 2024 when we were impacted by those distribution losses at the shelf. And then we expect that year-over-year consumption gain to continue for the remainder of the year. And we're driving our three-part plan with Planters that we've talked about before. So stepped up advertising, strong in-store promotions, our renewed and increased focus on our exciting innovation. And if you remember, that's flavored cashews, it's flavored nut duos. Both of those innovation platforms have proven to be highly incremental, attracting new, younger consumers to our brand and to the category. And so as we talked about the increased advertising spend on Planters, that's going to help us accelerate attracting consumers back, driving trial and repeat on those platforms. And overall, Planters just continues to sit in a great spot in the macro snacking category, consumer demand for substantial snacks with protein, nourishing snacks, real food, portable real food, Planters is extremely well-positioned in that space. So we are feeling very good about the sequential improvement we've seen to date, our expectations for the back half of the year, and the longer-term ability for us to drive this growth platform.
Ben Theurer, Analyst
Okay. Perfect. And then one quick one for Jacinth. You talked about the interest and investment income and that it's basically not going to be recovered. But just to understand, I mean, obviously, there was a little bit of an income as well, if you want to put it this way, in 3Q and to a lesser degree in 4Q of last year. So would you expect it to be, on a year-over-year basis, similar to last year? Or would you expect it to be similar to what we've seen, particularly in maybe 2Q?
Jacinth Smiley, CFO
Thank you for the question. We generally don't plan for investment income because the markets are unpredictable. We wait to see how the market develops, and the impact on our business comes from the actual results that occur.
Operator, Operator
And your next question comes from the line of Heather Jones from Heather Jones Research.
Heather Jones, Analyst
Thank you for the question. I was curious about ground turkey. I know the second half will benefit from the price increases you've implemented to counter the higher input costs. I wanted to know if you are seeing any market share gains as a result of your competitors shutting down facilities, or if those gains are expected to come later.
Jim Snee, CEO
Yes, Heather, I'll go ahead and start. What you said is exactly right, is that we have seen this tightening supply across the competitive landscape. And so while the headlines are out there about what's happening, I think the full details about how it's really unfolding is TBD. And I mean, at this point, the biggest facility that's been announced isn't shut down yet. And so again, what's important here is we know the work that we're doing to drive demand, that it's well-positioned in the category with the consumer. And then as those opportunities present themselves, we can rest assured that we're going to do everything we can to capitalize on them. And John and the team obviously are working hard in this space.
John Ghingo, EVP Retail
Yes. Thanks for the question, Heather. I'll just comment briefly a little bit from the consumer lens on your question, too, which is, I mentioned earlier, delivering value for the consumer and ground Turkey just continues to be a winning proposition in that sense. It's a highly versatile option for consumers, plugs in very well to everyday life, different meal occasions, food experiences, and that versatility is valuable. And then beyond that, just poultry and ground Turkey right now, very aligned with dietary needs from consumers who seek out lean sources of protein. So if I kind of walk down the line and you look at the recent consumption data, Jennie-O continues to perform very well, consistent household penetration gains. Over the past 52 weeks, up over 4% in dollar consumption in the latest quarter. And if you look at the demand trend, we believe those trends underneath that rising demand are longer term in nature. And we love having the number one brand in ground Turkey, right? It's a great position to continue to capitalize on that consumer momentum.
Heather Jones, Analyst
Okay, perfect. On my follow-up, I wanted to focus on Retail. Looking at your volumes for Q2 compared to '25 and '21, you’re down about 20% over that period. I understand a significant part of this is due to contract manufacturing, some from Jennie-O, and obviously the impact from Planters. Considering this business now and looking ahead, do you think we are nearing a stabilization point and will begin to see growth from here? How are you viewing that business and the volumes?
John Ghingo, EVP Retail
Thank you, Heather. Let me discuss the quarter and provide some insights about Retail in general. You are correct that our Retail volumes contracted in the second quarter. It's important to highlight that two-thirds of this decline was due to lower commodity shipments and contract manufacturing. Even though contract manufacturing volume decreased, it had a favorable mix and contributed to net sales growth this quarter. Another significant factor affecting volume was the timing of promotions, particularly in the club channel, which impacted year-over-year comparisons. When examining the volume decline, it's clear that the quality of retail volume varied, as net sales remained flat while profitability improved over the quarter. Regarding our outlook for the second half of the year, we are optimistic about driving increased consumer demand for our flagship and rising brands. We are seeing strong consumption momentum in those areas and have advantageous conditions supporting us. Additionally, we will continue to strategically manage commodities and the less strategic aspects of our business moving forward.
Operator, Operator
And your next question comes from the line of Rupesh Parikh from Oppenheimer.
Rupesh Parikh, Analyst
So I guess I just have an intermediate-term question. So going back to your targets for $250 million-plus in operating income growth by FY '26, just given, I guess, the tariff and consumer backdrop, is your team still confident being able to deliver on that target?
Jim Snee, CEO
Yes. Rupesh, I mean, for us, at this point, nothing has changed. Right? I mean, we're obviously very excited about the work that's happening. Jacinth did a really nice job here elaborating on just how much work is happening across the organization. While we want to get to '26, obviously, our focus right now is on '25 and all of the work that's happening here. And so nothing has changed in our outlook or from our perspective. Really excited about the benefits that Transform and Modernize is bringing to the organization, not just the financial benefits, but the long-term capabilities that we've needed. So all of that is what leaves us in a really, really favorable position for this entire initiative.
Rupesh Parikh, Analyst
Great. And then maybe my follow-up question, just on the macro, as you look at Foodservice and your Retail business, any changes in consumer behavior lately, positive or negative? So just love to hear your latest thoughts on the consumer backdrop.
John Ghingo, EVP Retail
Yes. Thanks for the question. I'll comment on the consumer and kind of backdrop and a little bit of what we're seeing in the marketplace. So I would describe the consumer sentiment as not great, meaning they're feeling the cumulative effects of inflation and at the same time, feeling uncertainty in the macro environment. So I would describe that as a strained consumer sentiment. And what's interesting is you do see some trading down from consumers to lower prices. Fortunately, with our portfolio being so broad, we do offer products at all different pricing tiers, including more value-oriented options. Some of our categories actually play very well for affordability. But if we pull back even from that and say where is the growth coming from, right? In our own portfolio, we can see some very different pockets of strong growth because consumers are still looking for solutions. They're still looking for what they would classify, as I said earlier, as value. And so within our own portfolio, we see strong growth still in the premium end with our Applegate brand. So Applegate is playing in the more premium side, natural organic segment, experiencing very strong growth with consumers gravitating to the brand for differentiated product quality, attaching themselves to the brand and the brand building we're doing as well as convenient forms of product innovation. We also see strong growth in our Mexican portfolio. There, we're delivering authentic Mexican food experiences with the Herdez brand, the Wholly brand, and both of those brands delivered really strong growth in the quarter. And again, consumers there are gravitating to innovation, right? We're extending the Herdez brand into our refrigerated entrees category, flavor forward, super convenient meal platform also creating value for consumers. So paying for flavor and convenience. And then a very different example we touched on earlier is Jennie-O and ground Turkey, right? And we continue to see strong demand there as consumers are willing to pay for lean sources of protein and the versatility that ground Turkey provides. So I think the answer is the consumer is feeling strain. There is some trading down. But for the most part, consumers are looking for value. And protein, we feel really good about our protein-centric portfolio being able to meet their needs for the value they're looking for.
Jim Snee, CEO
Yes. Regarding Retail, as John mentioned, we're maintaining our market share. We're focused on our flagship and emerging brands and see clear opportunities ahead. On the Foodservice side, we've addressed the challenges of dining away from home. We're positioned correctly and have effective strategies to excel in this macro environment. Overall, whether independently or combined, we believe our businesses and portfolio are well-equipped to handle these macro factors.
Operator, Operator
And your last question comes from the line of Pooran Sharma from Stephens.
Pooran Sharma, Analyst
I wanted to ask about Foodservice. I noticed you've mentioned that you're outperforming the general market and your positioning in that area. However, margins have remained at a similar level for the past four quarters. As you look toward the rest of the year, do you expect margins for this business to improve along with the performance you've described for the second half? How should we consider Foodservice margins for the latter part of the year?
Jim Snee, CEO
Yes. Pooran, I'll go ahead and take that. I mean, I think for us, right, is the strong momentum on the top line that we'll continue to have. Right? And I think when we're able to capitalize on the opportunities with Planters, when we're able to really start selling against this great pipeline of innovation. I mean, that's what gives us the confidence in growth and broad-based growth in Foodservice. And yes, you're right. I mean, we have talked extensively about how we outperform what is happening in the foodservice marketplace. That's something that we absolutely have to continue to do in order to be able to deliver growth. And so we do expect segment profit growth from Foodservice in the back half of the year. And it is, it's Planters, it's innovation. But then again, as I said, we do have some favorable year-over-year comps in the second half.
Pooran Sharma, Analyst
Okay. Appreciate that color. And just really quickly, just on International, you wanted to kind of understand how the shift in export customer mix impacted margins? I think you mentioned it was temporary, and I just wanted to see if that's resolved or any ongoing headwind from that, just in light of the strong top line growth in that segment?
Jim Snee, CEO
Yes. It's a good question, Pooran, thanks. And it's fixed. It really is more of a timing issue in terms of shipments and location. But as we think about the back half of the year for International, right, it's steady, strong growth. Our business in China continues to perform really well, and that's obviously a key driver for their ability to deliver what we need them to deliver in the back half of the year. But really a timing issue that has been resolved.
Operator, Operator
Thank you. The question-and-answer session has concluded. I will now hand the call back to Mr. Jim Snee for any closing remarks.
Jim Snee, CEO
Yes. Thank you, and thank you all for joining us this morning. We achieved solid top line performance and delivered results in line with our expectations for the second quarter. This accomplishment leaves us incredibly well-positioned to deliver a strong second half. And while there's work to do, we have the right structure, the right strategies, and the right portfolio that allows us to be confident in our ability to get this done. Thank you for joining us today, and I hope you have a great rest of your day.
Operator, Operator
And this concludes today's call. Thank you for participating. You may all disconnect.