0000048465-26-000026
SEC filingQ2 FY26 adjusted EPS rose 14% YoY to $0.40, driven by segment profit growth despite a $61M loss on sale of whole-bird turkey business.
For the second quarter of fiscal 2026, Hormel Foods reported net sales of $2.97 billion, a 2.5% increase from $2.90 billion in the prior year. Organic net sales grew 3.3%, with contributions from all three segments. Gross profit rose 7.0% to $518.5 million, and gross margin expanded 70 basis points to 17.4%, driven by improved performance across the turkey manufacturing network and higher net sales, partially offset by higher commodity input costs and logistics expenses.
GAAP diluted earnings per share (EPS) decreased 12.1% to $0.29, primarily due to a $61 million pre-tax loss on the sale of the whole-bird turkey business. Adjusted diluted EPS, which excludes non-recurring items such as the loss on sale, Transform and Modernize (T&M) initiative costs, and corporate restructuring plan costs, increased 14.3% to $0.40. Adjusted earnings before income taxes rose 14% to $282.7 million, reflecting higher net sales and improved turkey manufacturing network performance, partially offset by higher logistics expenses.
Selling, general, and administrative (SG&A) expenses increased 26.7% to $318.6 million, driven by the loss on sale of the whole-bird turkey business. Adjusted SG&A increased 2.4% to $243.4 million, primarily due to increased expenses related to legal matters. Adjusted SG&A as a percent of net sales was flat at 8.2%.
Retail: Net sales increased 0.3% to $1.79 billion, with organic net sales up 1.4%. Volume declined 2.1% (organic volume down 1.6%) due to the strategic exit from select non-core private label snack nut items. Segment profit rose 13.5% to $155.6 million, driven by higher net sales, improved turkey manufacturing network performance, and lower SG&A, partially offset by inflationary pressures in the logistics network.
Foodservice: Net sales increased 6.4% to $996.7 million, with organic net sales up 6.6%. Volume grew 0.7% (organic volume up 0.8%). Segment profit rose 10.8% to $155.8 million, driven by net sales performance benefiting from market-based pricing actions and modest volume growth, as well as improved turkey manufacturing network performance.
International: Net sales increased 4.3% to $186.2 million, with organic net sales up 4.6%. Volume grew 1.3% (organic volume up 1.3%). Segment profit rose 20.3% to $22.1 million, primarily due to strong export performance and growth in China.
Total segment profit increased 12.6% to $333.6 million. Net unallocated expense increased 94.8% to $127.4 million, primarily due to the loss on sale of the whole-bird turkey business.
Management expects net sales growth in fiscal 2026, assuming growth across a broad range of categories, increased brand support, and market-based pricing actions. Risks to this outlook include slowing consumer demand and commodity price fluctuations. The effective tax rate for fiscal 2026 is expected to be between 21.5% and 22.5%. Capital expenditures for fiscal 2026 are estimated to be $260 million to $290 million, focused on infrastructure, data and technology, and equipment upgrades. The company remains committed to its disciplined capital allocation strategy, prioritizing core uses such as capital expenditures, dividends, and debt repayment, followed by strategic growth initiatives and opportunistic share repurchases.
As of April 26, 2026, Hormel Foods held $826.8M in cash and equivalents, up from $670.7M at fiscal year-end, and $33.1M in short-term marketable securities. Total debt stood at $2.86B, with current maturities of $505.3M due primarily to the reclassification of $500M 4.800% senior notes maturing March 2027. Shareholders' equity was $7.96B. Inventory remained stable at $1.75B. The company had no borrowings under its $750M revolving credit facility.
No material changes to purchase commitments were disclosed in the notes. The sale of the whole-bird turkey business had a nominal impact on future commitments.
Dividends: Quarterly dividend increased to $0.2925 per share (up 0.9% from $0.2900), with total dividends paid of $320.4M in the first half. No share buybacks were executed; the company only repurchased shares to cover tax withholdings on stock-based compensation ($1.3M net outflow). Debt repayments were minimal at $3.7M. Capital expenditures totaled $151.2M, representing 2.5% of sales, primarily for property, plant, and equipment.
Segment profit (after equity in earnings and noncontrolling interest) for Q2 2026: Retail $155.6M (up 13.5% YoY), Foodservice $155.8M (up 10.8%), International $22.1M (up 20.2%). Net sales growth was modest in Retail (+0.3%) and stronger in Foodservice (+6.4%) and International (+4.3%). International segment benefits from joint ventures and Garudafood equity income.
Operating cash flow (CFO) of $528.2M for the six months ended April 26, 2026, significantly outpaced net earnings of $339.1M, yielding a CFO-to-net-income ratio of 1.56x, indicating strong cash conversion. The primary non-cash add-backs were depreciation and amortization ($135.9M) and equity in earnings of affiliates ($33.0M), partially offset by deferred tax provisions ($7.7M) and a non-cash loss on sale of business ($36.7M).
Working capital was a net source of cash, contributing $2.3M (versus a $158.8M use in the prior period), driven by a $64.0M reduction in accounts receivable and a $23.1M inventory build. The $100.0M proceeds from a business sale boosted investing cash inflows, while capital expenditures of $151.2M (capex intensity of 28.6% of CFO) remained elevated.
Free cash flow (defined as CFO less capex) of $376.9M covered dividends of $320.4M with a 1.18x coverage ratio. No share repurchases were reported. Financing activities were a net use of cash, primarily due to dividends and net stock-based compensation settlements. Overall, cash generation is robust and fully covers strategic capital returns.
Anomalies: The $36.7M loss on sale of business is a notable non-recurring item; the prior year included a $10.8M gain. The working capital swing from a large use to a small source is a significant driver of the year-over-year CFO improvement.