0000048465-25-000044
SEC filingQ3 FY25 net sales grew 5% YoY, but segment profit fell 3% due to input cost pressures and higher SG&A.
For the third quarter of fiscal 2025, Hormel Foods reported net sales of $3.03 billion, a 4.6% increase compared to $2.90 billion in the same period last year. Organic net sales grew 5.7%, with growth across all three segments. Diluted earnings per share (EPS) rose 3.1% to $0.33, while adjusted diluted EPS declined 5.4% to $0.35. Earnings before income taxes increased 4.8% to $236.5 million, benefiting from higher net sales and increased interest and investment income, partially offset by higher input costs. Adjusted earnings before income taxes decreased 2%.
Gross profit was essentially flat at $487.3 million, down 0.2% year-over-year, with gross margin contracting 70 basis points to 16.1% from 16.8%. The decline was driven by higher commodity input costs, particularly for pork bellies, beef, and nuts, and increased volume. Selling, general and administrative (SG&A) expenses decreased 0.4% to $258.7 million, primarily due to lapping prior year legal expenses, partially offset by higher employee-related costs. Adjusted SG&A as a percent of net sales increased to 8.1% from 7.9%.
Cash flow from operations for the first nine months of fiscal 2025 was $522 million, a 39% decrease from $858 million in the prior year, driven by a planned inventory build and elevated commodity market prices.
Retail: Net sales increased 5.2% to $1.86 billion, with volume up 4.8%. Growth was led by the turkey portfolio, Planters snack nuts, and the SPAM family of products. Segment profit declined 4.2% to $122.6 million, as robust net sales growth was more than offset by input cost pressures and higher SG&A expenses.
Foodservice: Net sales rose 3.5% to $987.0 million, with organic net sales up 6.7%. Organic volume grew 2.1%. Growth was broad-based, led by the customized solutions business, Planters snack nuts, and the Jennie-O turkey portfolio. Segment profit decreased 1.2% to $140.7 million, as meaningful net sales growth was more than offset by rising commodity input costs and margin pressures, primarily in non-core businesses.
International: Net sales increased 5.8% to $187.5 million, with volume up 8.4%. Growth was driven by the China market and robust exports of SPAM luncheon meat. Segment profit declined 13.1% to $18.9 million, as net sales growth was more than offset by competitive pressures in Brazil and lower pork offal margins.
Management expects net sales growth in each segment in the fourth quarter of fiscal 2025 compared to the prior year. Gross profit as a percent of net sales is expected to decrease, with Retail segment profit anticipated to be comparable to the prior year, while Foodservice and International segment profits are expected to decrease. The effective tax rate for fiscal 2025 is expected to be approximately 22.0%. Capital expenditures for fiscal 2025 are estimated to be approximately $300 million. The company continues to monitor the impact of tariffs and trade policies, which did not have a material impact on results in the third quarter or first nine months of fiscal 2025.
As of July 27, 2025, Hormel Foods held $599.2M in cash and cash equivalents plus $31.5M in short-term marketable securities, totaling $630.7M in liquid assets. Total debt stood at $2.86B (including current maturities of $6.7M), yielding a net debt position of $2.23B. Shareholders' equity was $8.09B, resulting in a debt-to-equity ratio of 0.35. Inventory increased to $1.82B from $1.58B at fiscal year-end, driven by higher finished products. Operating cash flow for the nine months was $522.3M, down from $858.1M in the prior year, primarily due to working capital changes.
The Notes state no material changes to purchase commitments or other contractual obligations outside the ordinary course of business since the October 27, 2024 Form 10-K. Accordingly, no new purchase commitments were disclosed in this interim filing. Legal proceedings include several antitrust cases, with settlements paid in fiscal 2024 and 2025; the company continues to defend remaining claims.
Hormel did not repurchase any shares during the first nine months of fiscal 2025. Dividends declared totaled $479.3M, reflecting a quarterly per-share dividend of $0.29, a 2.7% increase from $0.2825 in the prior year. Capital expenditures were $219.4M (2.5% of sales), up from $172.7M in the prior-year period. Net debt repayments were $6.3M; no new debt was issued. The company maintains a $750M revolving credit facility with no outstanding borrowings.
In the third quarter, Retail segment generated $1.86B in net sales (61.3% of total) and $122.6M in segment profit (43.4% of total segment profit). Foodservice contributed $987.0M sales (32.5%) and $140.7M profit (49.9%), while International added $187.5M sales (6.2%) and $18.9M profit (6.7%). Operating margins were 6.6% for Retail, 14.3% for Foodservice, and 10.1% for International. Revenue growth was led by Retail (+5.2%) and International (+5.8%), with Foodservice up 3.5%. Segment profit declined across all segments versus the prior-year quarter, with Retail down 4.2%, Foodservice down 1.2%, and International down 13.1%.
Operating cash flow (CFO) of $522.3 million for the nine months ended July 27, 2025, was significantly lower than the prior-year period ($858.1 million). Net earnings declined to $534.0 million from $584.7 million, but the primary drag on CFO came from working capital: a $247.1 million increase in inventories (versus a $30.6 million decrease last year) and a $100.4 million reduction in accounts payable/accrued expenses. These swings overshadowed modest improvements in receivables and equity method distributions.
Capital expenditures rose to $219.4 million (from $172.7 million), representing 42% of CFO, up from 20% last year. Dividends paid of $473.7 million consumed 90.7% of CFO, and no share repurchases were recorded. Free cash flow (CFO minus capex) was approximately $302.9 million, insufficient to fully cover dividend payments, highlighting increased reliance on debt or cash reserves.