Earnings Call Transcript - HRL Q3 2023

Operator, Operator

Good morning, and welcome to the Hormel Foods Corporation Third Quarter Earnings Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to David Dahlstrom. Please go ahead.

David Dahlstrom, Investor Relations

Good morning. Welcome to the Hormel Foods Conference Call for the Third Quarter of Fiscal 2023. We released our results this morning before the market opened, around 6:30 a.m. Eastern Time. If you did not receive a copy of the release, you can find it on our website at hormelfoods.com under the Investors section. On our call today is Jim Snee, Chairman of the Board, President and Chief Executive Officer; Jacinth Smiley, Executive Vice President and Chief Financial Officer; and Deanna Brady, Executive Vice President of the Retail segment. Jim will review the company's third quarter results and give a perspective on our outlook for the balance of fiscal year 2023. Jacinth will then provide detailed financial results and further commentary on our outlook. Deanna will join Jim and Jacinth for the Q&A portion of the call. The line will be open for questions following Jacinth's remarks. As a courtesy to the other analysts, please limit yourself to 1 question with 1 follow-up. If you have additional questions, you're welcome to get back into the queue. At the conclusion of this morning's call, a webcast replay will be posted to our investor website and archived for 1 year. Before we get started this morning, I need to reference the safe harbor statement. Some of the comments made today will be forward-looking, and actual results may differ materially from those expressed in or implied by the statements we will be making. 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 the company uses non-GAAP results to provide investors with a better understanding of the company's operating performance. Non-GAAP figures adjust for the impact of an adverse arbitration ruling of approximately $70 million reflected in operating expense. These non-GAAP measures include adjusted operating income, adjusted operating margin, adjusted selling, general and administrative expenses and adjusted diluted net earnings per share. Discussion on non-GAAP information 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, David. Good morning, everyone. In an increasingly dynamic and competitive environment, we grew volume across all our segments, delivered adjusted diluted net earnings per share in line with last year and made further progress addressing the near-term challenges impacting the business during the quarter. This progress included reducing inventory, continuing to build momentum in the Planter snack nuts business and driving adjusted operating margin improvement compared to last year. Reducing inventory to more historical levels remains a top priority for the company. Our actions to rectify the inefficiencies caused by elevated inventory are working, demonstrated by a sequential reduction in dollars of both finished goods and total inventory. The value of finished goods inventory ended the quarter at its lowest level since the same time last year, representing meaningful improvement. We expect further declines in the fourth quarter and also plan to achieve our day sales and inventory target by the end of the year. We also drove improvement in our Planters business, supported by another quarter of higher shipments and positive results in consumption data. For the quarter, retail shipments of Planter snack nuts and Corn Nuts varieties were up 5% and 24%, respectively. Retail data shows dollar consumption and share improving sequentially for the last 52, 26 and 13-week periods. Volume trends remain encouraging as well with above category performance over the last 6 months. And more recent data shows Planters volume and dollar shares have inflected into positive territory. The launch of our innovative flavored cashews is meeting expectations, and we are seeing strong acceptance from our customers. While early, our flavored cashews are over-indexing with younger consumers as we see the benefits of leveraging our brand equity to drive excitement for the category. We are supporting the launch with social and digital activities as well as a national TV ad campaign. And we recently launched a limited-time offer for the fall season, Apple Cider Donut flavored cashews, which we expect to drive incremental volume and attention for the category. Momentum continues to build in our snack nuts business as we benefit from regained distribution, investments in innovation and effective promotional support. We continue to do our part as the category leader to support the Planters and Corn Nuts brands to drive growth for our business, the snack nuts category and for our customers. Lastly, we continue to make progress in improving our margin structure with adjusted operating margin slightly ahead of last year. Margins benefited from demand for our premium items in Foodservice and growth from the retail SPAM and Black Label bacon portfolios, areas we have invested in heavily over the past 3 years. We also more than overcame the positive mix impact from strong Skippy sales in turkey markets last year, as well as a 15% increase in advertising investments to support our brands during the third quarter. We expect our highest operating margins of the year in the fourth quarter aided by a seasonally strong sales mix and savings from a series of projects aimed at reducing costs and complexity throughout our system. Our third quarter results reflect the strength of our leading brands and the value of our balanced business model. Investments into our brands and continued improvement across our supply chain have generated positive performance in the marketplace. Volume growth for the quarter was broad-based, driven by a recovery in turkey, elevated demand for many of our Foodservice items, and growth from leading retail brands, including SPAM, Black Label, Planters and Hormel Pepperoni. On an adjusted basis, diluted net earnings per share for the quarter was $0.40, even with last year. Compared to our outlook heading into the quarter, we absorbed unexpected earnings headwinds of $0.02 to $0.03 resulting from much weaker results in our International segment and supply chain disruption caused by a third-party logistics provider shutdown. Looking to our segments, our Foodservice segment delivered balanced volume gains and another quarter of segment profit growth. Volume for the quarter increased, driven by growth in our affiliated businesses and strong demand in many branded categories, including pizza toppings, premium bacon and breakfast sausage and premium prepared proteins. Brands such as Cafe H, Fire Braised, Fontanini, Old Smokehouse and Bacon 1 delivered volume gains compared to the prior year. Net sales declined 3% due to lower market-driven pricing. For context, the average selling price per pound decreased 5% compared to last year, resulting from input cost deflation. As anticipated, our Foodservice business leveraged its differentiated capabilities to drive double-digit segment profit growth, led by better volumes and improved mix. Our team continues to successfully manage pricing and cost dynamics. They continue to actively engage with operators through our direct selling model and they continue to innovate to address key operational issues such as labor, prep time and complexity. Industry data from Technomic is also supportive of growth for our business, with operator sentiment steady, industry employment improving and dollar sales increasing. Inflation in the channel has also slowed for the fourth consecutive month. We expect a strong finish to the year from this team, driven by growth from premium items, further recovery in turkey, and as the team leverages its capabilities in the K-12 and college and university channels this fall. In our Retail segment, we grew volume in key categories and saw a recovery across the turkey portfolio. For the quarter, we delivered volume growth in 4 of our 6 retail verticals. And those verticals were value-added meats, bacon, snacking and entertaining, and emerging brands. Volume and net sales improved for the value-added meats vertical, primarily due to higher turkey volumes. The team is heavily focused on regaining distribution of our value-added Jennie-O products and managing turkey supply through the current recovery period and upcoming holiday season. The bacon vertical again delivered excellent results due to elevated demand for Black Label items and favorable input costs for most of the quarter. Over the last 52 weeks, Black Label bacon has grown share in household penetration by 1 point each. Our strategy to offer a wide variety of both raw and pre-cooked items in the marketplace has been successful, as we grow our business in the large and highly relevant bacon category. Our team is executing our brand strategy while maneuvering through the market volatility we are currently experiencing. Volume gains for the snacking and entertainment vertical were led by Planters snack nuts, Corn Nuts Corn Kernels, Hormel Pepperoni and Hormel Gatherings Party Trays. In addition to improvement for the Planters snack nuts business, our Pepperoni and Hormel Gatherings businesses are healthy, demonstrated by household penetration gains for these brands during the quarter. We expect holiday demand and promotional support to drive a strong end of the year for the Planters, Hormel Gatherings and Columbus brands. Our Applegate business posted another quarter of volume and net sales growth, led by our frozen line of breaded chicken and breakfast sausage. Many products also outpaced category dollar sales growth during the quarter, including breaded chicken, breakfast sausage, bacon and hot dogs. The team also introduced Applegate naturals for Frittata Bites, the industry's first and only certified humane frozen egg bites. In the fourth quarter, we expect to benefit from expanded distribution for the Applegate brand and from new capacity to support our popular line of frozen breakfast sausage. Net sales of global flavors items were comparable to last year, while pricing actions, operational gains and favorable input costs on avocados drove equity and earnings improvement for our MegaMex business. The Herdez brand remains relevant with consumers, outpacing category growth for dollar and volume sales in La Salsa, taco sauce, hot sauce, refrigerated guacamole and refrigerated salsa categories. Convenient meals and proteins net sales declined as higher sales to SPAM varieties and Hormel Chili were more than offset by the difficult comparison from high levels of demand for Skippy spreads last year. We continue to gain distribution on both innovative and core items during the quarter, which helped alleviate some of this pressure. In the fourth quarter, we have numerous programs in place to engage consumers at the store level and online with reminders of the value offered by our products. These efforts are expected to help offset the impact of elasticities and as consumers utilize their pantry supplies. We also secured additional capacity for Skippy peanut butter, which should help meet the elevated levels of demand we continue to see. Segment profit for the Retail segment declined due to unfavorable mix and increased brand investments partially offset by the impact from pricing actions across the portfolio, improved bacon volume and higher equity and earnings from MegaMex. Our Retail business is benefiting from market share gains innovation, new distribution, higher fill rates in key categories and effective advertising and brand support. However, there remains volume pressure in many categories across the store. Strong execution this fall and holiday season will be key to delivering our outlook. Our International segment remained challenged during the third quarter and the inflection we expected in this business did not materialize. Segment profit declined significantly due to unfavorable pork and turkey commodity markets, softness in China and lower branded export demand. Commodity fresh pork and turkey volumes were strong during the quarter, though depressed pricing led to weaker mix, especially on turkey items. The commodity environment is expected to remain unfavorable for the balance of the year due to high inventories of freezer stocks in key export markets. In China, Foodservice sales improved sequentially throughout the quarter, growing 14% compared to last year. However, retail sales remained soft as we lapped difficult comparisons to last year and as consumer demand in the retail channel slowed considerably. Near term, we expect our Foodservice business in China to grow, which should help to offset continued softness in the retail channel. Lower retail sales are anticipated to have a negative impact on China's profitability for the remainder of the year. As we've reiterated over the past few quarters, our strategy is to grow our global brands, multinational businesses in China and Brazil and partnerships around the world are sound. Our international team is confident that these situational dynamics will abate, allowing for our teams to resume delivering accelerated growth. Turning to our outlook. We remain focused on driving volume and earnings growth as well as delivering on our commitments to improve our business. The operating environment domestically and abroad continues to be dynamic, and we anticipate consumers and operators to remain highly intentional in their spending. Our broad portfolio of products and diversified channel exposure position us well in this regard. As we close the year, we expect a strong finish from our Foodservice segment, incremental savings from a series of projects aimed at reducing cost and complexity throughout our system and further synergies from our implementation of Go Forward. Additionally, we expect continued softness in our International segment and earnings pressure from heightened competition at retail. We are assuming increased promotional activity this fall in the retail channel as consumer demand moderates to more historical levels and as industry-wide supply chains continue to improve. We also expect an impact from resumed student loan payments, which could pressure overall consumer spending in the U.S. Taking these factors and our performance to date into account, we are providing fourth quarter guidance and an updated outlook for fiscal 2023. For the fourth quarter, we expect modest volume growth, which assumes growth from the Foodservice segment, continued recovery in turkey and improved fill rates in key categories. Fourth quarter net sales are expected to be between $3.1 billion and $3.6 billion, reflecting our current assumptions for raw material input costs in the fourth quarter. Full year net sales are expected to be down 4% to flat. We expect fourth quarter diluted net earnings per share to be down from last year, which accounts for continued weakness in the International segment and lower retail segment results. Full year diluted net earnings per share are expected to be $1.51 to $1.57 and adjusted diluted net earnings per share are expected to be $1.61 to $1.67. We believe our continued investments into our brands, disciplined financial strategy and balanced approach across our businesses position us well for future growth as we close a challenging 2023. At our upcoming Investor Day, we plan to provide an update on our fourth quarter assumptions and outlook and further detail on how our investments and transformational efforts as a global branded food company are expected to drive earnings growth in the future. We look forward to hosting many of you in person at our mid-October event. At this time, I will turn the call over to Jacinth Smiley to discuss detailed financial information related to the third quarter and additional color on key drivers to our outlook.

Jacinth Smiley, CFO

Thank you, Jim, and good morning, everyone. During the third quarter, we delivered volume growth across all of our segments and net sales of $3 billion. Our businesses benefited from higher turkey supplies and continued improvement across our supply chain. Third quarter gross profit was $498 million. Gross margins for the third quarter increased compared to last year and improved 30 basis points sequentially compared to the second quarter. SG&A expenses increased compared to last year due to a $70 million accrual resulting from an unexpected unfavorable arbitration ruling. Adjusted SG&A expenses were in line with last year. Advertising investments were $43 million during the quarter, up 15% compared to last year, as we supported our leading brands in the marketplace. We expect full year advertising expenses to increase compared to the prior year. Equity and earnings of affiliates for the third quarter increased compared to last year due to higher results from MegaMex. Operating income for the third quarter was $217 million, and adjusted operating income was $287 million, 1% lower than last year. As Jim noted in his remarks, operating income was negatively impacted by supply chain disruption caused by third-party logistics provider shutdown. Our teams did an excellent job of diverting products through other distribution centers during this brief period, though we absorbed an impact from shortages, incremental logistics costs and elevated levels of distressed inventory. The effective tax rate for the quarter was 21.7% compared to 24.5% last year. The lower effective tax rate was primarily due to favorable adjustments related to our fiscal 2022 federal tax return filing. The effective tax rate for fiscal 2023 is still expected to be 21% to 23%. The net result of all these factors was diluted net earnings per share of $0.30 and adjusted diluted net earnings per share of $0.40, which was comparable to last year. We generated strong cash flow compared to last year. Operating cash flow during the quarter was $317 million, up 70%. This improvement was driven by favorable working capital adjustments. We paid our 380th consecutive quarterly dividend effective August 15 at an annual rate of $1.10 per share. This completes the 95th year of uninterrupted dividend payments to our shareholders. Capital expenditures in the third quarter were $78 million compared to $61 million last year. We're targeting $280 million in capital projects as we prioritize investments in growth, innovation, cost savings, automation and maintenance. We have updated our net sales and diluted net earnings per share outlook for the year. As a reminder, our diluted net earnings per share outlook reflects an adverse arbitration ruling of $0.10 per share. We said last quarter that growth in the back half would be partially dependent on the recovery in our International segment. While this dynamic has not played out as anticipated, the near-term drivers for our business continue to be successful execution against our plans for the Planter snack nuts business; improvement across the supply chain, including delivering on our internal cost reduction goals, year-over-year favorability in commodity and freight markets, and a recovery in turkey volumes. In addition to the innovation, promotional and advertising support for the Planters business that are expected to positively impact the fourth quarter, we have several work streams underway to drive further improvement in future periods. These work streams encompass all aspects of the value chain and place a heavy emphasis on enhancing mix and expanding margins. The Planters business remains key to our long-term growth as a company and we will continue to invest in and resource the business accordingly. Performance across our supply chain continues to improve, demonstrated by another quarter of higher fill rates, progress on our commitment to lower inventory and execution on our cost reduction targets. Our team has committed to several projects aimed at reducing cost and complexity to improve our margin structure. In the fourth quarter, we expect to realize incremental freight and indirect supply savings and benefits from our above historical run rate on our legacy cost mitigation efforts. Longer term, we are committed to advancing the supply chain work stream of Project Orion and a series of multi-year projects aimed at unlocking earnings growth. We plan to provide more detail on these large-scale strategic projects at our Investor Day in October. We have seen market stabilization across many inputs, though key pork raw material commodity markets were volatile throughout the third quarter. The USDA composite cutout increased more than 40% sequentially during the quarter, primarily driven by strength in the belly, loin and ham primal. To start the fourth quarter, pork costs have begun to moderate seasonally. And we expect lower pork input costs compared to the prior year. We began to see a volume recovery in turkey during the third quarter, and we expect to see higher year-over-year turkey volumes in the fourth quarter. To further support our recovery, we have invested in incremental advertising to drive consumer awareness and engagement in the retail channel. We're beginning to see signs of these actions paying off, especially for the important lean ground category. Turkey market continued to move lower in the third quarter as a result of increased supply, which is pressuring prices across our channels. Pricing is down considerably on commodity items and for breast meat entering the Foodservice and Deli channels. Importantly, we're producing a full assortment of turkey items, and our teams are selling with confidence in the retail food service and international markets. This bodes well for the long-term outlook for turkey, which remains an important part of our balanced portfolio. In closing, I want to specifically acknowledge our production professionals across the organization for their continued focus on safety. Their dedication is critical to the success of our company and the primary reason we remain on track for one of our safest years ever. Safety first is a cultural belief; it's non-negotiable and represents an integral part of our company's fabric. We are proud of our track record and the work done each day to maintain our standard of excellence. Thank you to all our team members who uphold our safety-first culture. At this time, 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 Ben Theurer from Barclays.

Ben Theurer, Analyst

Yes. So Jim, I'd like to just follow up a little bit on the cadence of the year, the changes in outlook and wanted to get your thoughts on how to put things into perspective. So if we go back first quarter, obviously, there was a lot of inventory issues, too much production, you had to work this through. You took a big hit, and you kind of laid the ground as to how the rest of the year was expected to be. In the second quarter, it was very much in line with everything that you've talked about. And it feels like the third quarter started to kind of get sidetracked again. And obviously, with your implied guidance and you've mentioned, you expect EPS in the fourth quarter to be down year-over-year, that's very different from the commentary we got just about 3 months ago when you actually expected in the fourth quarter to see most of the growth. So can you help us understand what in particular it was that drove that significant turn over the last couple of weeks from being on track to being maybe not so much on drag and then to actually be off track again? And what you, as a management team can do to get back in the right direction.

Jim Snee, CEO

Yes, that's a great question, Ben. We've been thinking a lot about this, and the discussions have evolved since our Q1 call. In Q1, our focus was on internal issues, including our inventory situation, Planters' performance, and the impact of costs on our margins. Fast forward six months, and we've made significant progress on those challenges, and I'm proud of our team's efforts. However, today’s discussion is shifting towards external factors affecting the market, competition, and consumer behavior. Specifically for Q4, our Foodservice business remains strong and is expected to grow alongside segment profits. Unfortunately, our International business has underperformed compared to our expectations, particularly in China and the retail segment, where we haven't seen the anticipated turnaround. Furthermore, we've observed increased pricing elasticities in our legacy international markets, which have affected consumer demand. Our team is implementing strategies to boost demand and we've seen some positive trends recently. While commodity headwinds have been tougher than expected, we're continuing to innovate and expand our retail presence. However, the Retail segment presents unique challenges. Last year's strong turkey performance significantly benefited retail, but we’re encountering tougher conditions this year, with heightened promotion levels and soft volumes across various categories. Regarding our turkey expectations, we've realized that the recovery process is taking longer than anticipated, though there is still solid overall volume growth when excluding turkey. The lean ground turkey segment has faced distribution setbacks, but our engagement efforts are starting to yield results. Unfortunately, we also faced market challenges due to unusually hot weather, which has impacted our business in Q4. In summary, we've encountered several shifts in expectations, particularly with turkey, but there are still opportunities for growth. We're optimistic about the direction of our Planters business and improvements in our supply chain. Thank you for your question; I hope this clarifies the changes and the current state of our business.

Operator, Operator

Your next question comes from Peter Galbo from Bank of America.

Peter Galbo, Analyst

Jim, thanks for all the thoughts. I guess just maybe a follow-up to Ben's question or to put a finer point on it, one of the big questions we are getting this morning is just within the range of outcomes in 4Q in your guidance, it still seems like there is a fairly wide range, a $500 million range on revenues at least. So just, I guess, within the context of that, you talked about all of the headwinds, but I guess what could go right that would push you maybe towards the higher end of that versus the lower end of that I think might be helpful.

Jim Snee, CEO

Yes, it's a great question. And really, the biggest thing, and we've seen it very recently in terms of the market performance is we've had significant volatility in 2 very important inputs. You think about what's happened in the belly market, the run-up and now the softening of the market. We have seen strength in 72 lean trim. So there's been a lot of volatility there. And then probably the detailed answer that I gave a little while ago is how does turkey come back and at what rate. And then the other thing is you got the market conditions, but we've had pretty strong volume as well. So I think when you put those 2 things together, it's important for us just to have that range.

Operator, Operator

Your next question comes from Ben Bienvenu from Stephens.

Ben Bienvenu, Analyst

I would like to discuss the factors that are negatively affecting our fourth quarter results, which have become apparent during the third quarter. What is your current view on how long these impacts might last? Considering the more challenging exports, heightened promotional activities at retail, and weaker performance in China, I believe these issues may persist into the fourth quarter. How do you anticipate these factors will evolve based on your past experiences?

Jim Snee, CEO

Yes. Ben, that's a good question. And that's really what we're focused on is we know we've got some of these near-term challenges in Q4. A couple of things that we talked about that are really, we think, immediate or more closer in improvement, so when we talk about the SPAM business in International, we're seeing that improved off-take. And so we expect that business to be better in Q1. We talked about the lean ground turkey business. And so that really is just that continued acceleration. And we've seen recent improvement in that business. So that's only going to continue to get better. We're in the middle of the whole bird thing, and that will shake out here between the end of Q4 and early Q1 given the timing of the holidays. The competitive dynamics in the domestic retail business outside of what we've talked about, I think our team is doing a really good job in terms of marketplace execution. We are now seeing some cost favorability trends. I think our innovation pipeline that we're seeing is really robust. So there is a lot to like outside of some of the things that we've talked about. The part that is still a wildcard is the macro issues in China. Obviously, we've said earlier, we thought there'd be an inflection point, and we were wrong. So we're going to continue to do our work there in terms of driving distribution, the focus on innovation, and getting our Foodservice business to continue to grow. And so we are optimistic about what the future holds. But clearly, we've got some of the short-term challenges that we're addressing.

Ben Bienvenu, Analyst

Okay. Fair enough. On thinking about the Jennie-O business, there's a number of puts and takes. The International business segment seems to be negatively impacted by it, while some of the other segments are positively impacted by it. When you think about the runway over the next 6 to 12 months, we have declining turkey prices, but meaningfully stronger volumes as you regain distribution and the flock comes back, your production comes back. You should also be rotating into considerably lower feed prices over the next year. So what would you expect the net benefit or detriment of all of those various factors to be as we look out over the duration of this next 6 to 12 months?

Jim Snee, CEO

Yes, I believe the aspects you mentioned will be crucial for driving that business into 2024. As we discuss the specifics of the turkey business, it may get a bit detailed, but it's important to note that our lean ground business hasn't accelerated as swiftly as we anticipated, partly due to some turkey supply that international markets had to offload under depressed conditions. However, as our lean ground business recovers distribution and grows, we anticipate fewer of those commodity sales. This is definitely a positive for us. You're correct regarding feed costs; we foresee them being favorable as we move into 2024, and breast meat prices should align more closely with historical levels. While we haven't calculated the overall impact yet, it's clear that turkey plays a vital role in our portfolio. From a Foodservice viewpoint and within our Retail portfolio, having turkey back is significant. Being able to function in a more normalized environment over time is where we excel, and that's our goal moving forward.

Operator, Operator

Your next question comes from Rupesh Parikh from Oppenheimer.

Rupesh Parikh, Analyst

I know it's a little early, but just curious if you can give any puts and takes as you guys look to FY '24. And would you expect at this point to return to growth next year?

Jim Snee, CEO

I think we’ll collaborate on this topic a bit because as we look towards 2024, everyone will have their perspective. It's important to revisit some of those internal dynamics we addressed earlier this year and note that we are in a better position regarding those near-term challenges, which we can consider key priorities. When we evaluate the current state of the Planters business, we've made progress in inventory and margin improvement. While there is still more work to be done, we’ve achieved significant results and are leveraging the benefits moving into year two. Year one often involves some trial and error, but we anticipate greater benefits in year two. As Ben mentioned, we expect feed costs to act as a tailwind as we move into 2024, allowing us to maximize our investments. We’ve also discussed the recovery in turkey volume and having that volume under more normalized market conditions is beneficial. Of course, there are offsets to consider, such as the situation in China and labor inflation; these are significant factors. Overall, we feel confident about our core business and the aspects we can control, though there will always be external factors that could pose headwinds. However, the Foodservice sector continues to perform strongly. Retail remains competitive, but we expect to maintain our market share. I’ve already highlighted our strong innovation pipeline, which is promising, and we anticipate improvements in international sales, albeit from a significantly lower starting point. Jacinth, feel free to share your thoughts.

Jacinth Smiley, CFO

Yes, certainly. Rupesh, Jim has talked about a lot of the headwinds and some of the tailwinds here and things that we're working through from a market and customer consumer standpoint, there are a lot of other things we're also doing in parallel here as we think about getting back to the margin structure that we have talked about before. And so we're heavily focused from a project standpoint, working through how do we get our portfolio more healthy. And so there are a couple of projects I'll just throw out here that we'll talk more about in Investor Day as we think about portfolio segmentation and optimization, continuing on with Project Orion as we think about our supply chain and the effectiveness there and building out the right infrastructure to support this business as we continue to evolve and modernize and just also thinking through advancing on different areas from an end-to-end planning standpoint and continuing the transformation and getting the cost out of our system internally from an effectiveness and efficiency standpoint. So there is a lot of work going on in parallel as we deal with the tactical to operate the business. We're also thinking about long-term growth and setting this business up as I said, to continue to return to a margin structure and expanding margins from where we are today.

Deanna Brady, EVP of Retail

Rupesh, this is Deanna. I wanted to address this from a supply chain perspective, but also from a retail perspective, we've been successfully managing in the current environment while staying focused on the Go Forward initiative and its implications, and we're beginning to see positive results. The Go Forward initiative aims to align our structure with our strategy. One of our company strategies revolves around snacking and entertaining, and the team has been working cross-functionally to modernize the Planters business, which has shown notable progress. We have implemented several initiatives to support Planters, including boosting our innovation pipeline. We recently launched three new flavors of cashews and quickly introduced advertising to generate demand, receiving strong feedback from both retailers and consumers. Moreover, the team has assessed necessary capital expenditures and modernization in the plant to better align with consumer preferences and packaging, alongside a promising innovation pipeline. From a sales execution standpoint for Planters, another advantage of the Go Forward initiative is our focus on regaining distribution. Earlier this year, we conducted a price pack architecture study, and the team is actively collaborating with our retailers to enhance understanding of the category and its setup. This work is facilitating constructive, insightful discussions with our retailers about mutual growth and how we can both better serve consumers with relevant products that drive category growth.

Operator, Operator

Your next question comes from Tom Palmer from JP Morgan.

Tom Palmer, Analyst

I think in the past, what we have seen with the whole turkey business is falling commodity prices don't always flow through the retail business immediately just given how supply contracts are structured. You made a comment about unique market dynamics and customer behavior for whole birds. I just wanted to unpack what's happening. Is the net of this that whole bird prices are coming down at retail maybe faster than we typically see? Or did you mean something else by that?

Jim Snee, CEO

No, that's correct, Tom. I mean I think at this point in the year, you'd see some higher bookings, but as the market has declined, I think there is a bit more of a wait-and-see mentality, and so that's really what we're talking about when we're saying that there's some unique market dynamics.

Tom Palmer, Analyst

And then just on the competitive environment at retail and your comment about the promotional activity, just categories stepping up. Are these – I guess, first, like what are the categories where you’re seeing that competition and promotional activity most intense? And then how would you describe kind of the start of that activity? Is it you’re running it to drive share in certain categories? Or is the promotion step up on your side more in response to what you’re seeing from competitors?

Deanna Brady, EVP of Retail

Tom, this is Deanna. Thanks for the question. This isn’t new for us, although it’s new probably over the last couple of years as companies have pulled back on promotions just because of supply and high demand. So this isn’t new for us. And having promotional activity as well as a balance with our baseline business is really normal, but it hasn’t been normal in the last few years. So as we re-enter promotional activity, we have the opportunity to really think about it strategically and to leverage our revenue growth management team and price pack architecture work to really inform and sit down with the retailers to say, how do we do this, that’s really positive for both of us. And how do we ensure that we’re meeting the consumer and that we’re reminding the consumer about our products the value that they provide as well as keep them coming in the store, either in-store or online. And so we’re thinking about both our digital activation, our in-store activation. And it really goes beyond just a promotion or price point. We need to make sure that we have advertising in place as well. We need to make sure that we have innovation. So I point again to the Planters example where we have innovation coupled with advertising and promotion in place, and it’s working. From other categories, we’re really, again, as we re-enter promotional, trying to do it as smart as we can, I point to bacon. We’ve had a lot of good activity and growth in bacon this past year. We’ve had a cadence of promotional activity in bacon, advertising, as well as we’ve got innovation coming in the bacon category that we’re really excited about in 2024.

Jim Snee, CEO

And Tom, at an even higher level, Deanna gave you a great answer. When we said heightened competition at retail, I think it’s fair to say that we are seeing demand normalizing to some more historical levels. Edible sales are flat versus last year. Units have declined since 2019. And so as you’ve got that and supply chains have somewhat normalized, that I’m not going to say everywhere there’s capacity, but there’s probably some additional capacity in the industry, and fill rates get better, there’s work to make sure that you’re filling that up. So it’s that at a higher level. And then to some of the specific activities that we’re working on that Deanna talked about, that’s really what we meant when we say heightened competition at retail.

Operator, Operator

Your next question comes from Adam Samuelson from Goldman Sachs.

Adam Samuelson, Analyst

I guess the first question is trying to maybe clarify on tying the turkey comments, specifically. I think previously, I know Jennie-O is on a reported segment as such any more of a previously playing turkey profitability in fiscal '23 as being roughly flat year-on-year. Is it fair to say that, that's a decent chunk of the outlook cut today is attributable to turkey, and so that is going to be down a decent amount year-on-year even with the volume recovery from HPAI.

Jim Snee, CEO

Yes. I think that's fair to say, Adam, is to be slightly down year-over-year. That's really due to some of these Q4 issues that we've talked about.

Adam Samuelson, Analyst

Okay. And I guess just to the Q4 point, I mean, the full year range, you've got 1 quarter left. The sales range widened relative to your prior guidance, you have the EPS range narrowed. And I appreciate that maybe there was a pretty wide EPS range previously. But can you just help us understand kind of the puts and takes around, is it just the uncertainty on some of the commodity pork cuts and some of the turkey pricing? We've got much uncertainty on volume. And why wouldn't that revenue volatility kind of manifest in a wider EPS range out of the outlook having been recalibrated?

Jacinth Smiley, CFO

So Adam, I'd say for all the reasons that Jim talked about in terms of just the dynamic that we're seeing here and just the volatility, that is exactly why we have the ranges that we have as we sit here at the moment.

Adam Samuelson, Analyst

Okay. But that's certainly about revenue. Why would changes in revenue not impact earnings? And why has there been more volatility in earnings outcomes previously compared to revenue today? I'm just wondering if this is a recalibration.

Jacinth Smiley, CFO

All mix, right, all mix driven. You think about the mix between even from a commodity standpoint and where markets are priced, it really depends on what that mix looks like? I mean you could have a drag on the top line where you have really strong volume hitting your top line, and just depending on where markets are, it doesn't necessarily fall through on your margin line.

Operator, Operator

There are no further questions at this time. I will turn the call back over to Jim Snee, CEO, for closing remarks.

Jim Snee, CEO

Yes. Thank you. 2023 has certainly been a challenging year, but we continue to make great progress addressing the near-term challenges. Our continued investment into our brands, our disciplined financial strategy, and our continued balanced approach across our business all position us very well for future growth. My sincere thanks to all the hard work being done by the Hormel team to set us up for future success. And I want to thank all of you for joining us this morning and hope that you all have a safe Labor Day weekend.

Operator, Operator

Ladies and gentlemen, this concludes your conference call for today. We thank you for joining, and you may now disconnect your lines. Thank you.