Hormel Foods Corporation

Good morning, everyone, and welcome to the Hormel Foods fourth quarter 2021 earnings webcast. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to Nathan Annis, Director of Investor Relations. Sir, please go ahead.

Good morning. Welcome to the Hormel Foods conference call for the fourth quarter of fiscal 2021. We released our results this morning before the market opened around 630 AM Eastern. If you did not receive a copy of the release, you can find it on our website at Hormelfoods.com under the investor section. On our call today is Jim Snee, Chairman of the Board, President and Chief Executive Officer. Jim Sheehan, Executive Vice President and Chief Financial Officer, and Jacinthe Smiley, Group Vice President of Corporate Strategy. Jacinthe becomes Executive Vice President and Chief Financial Officer on January 1st. Jim Snee will provide a review of the company's current and future operating conditions and a perspective on fiscal 2022. Jim Sheehan will provide detailed financial results and commentary on the fourth quarter, and Jacinthe Smiley will provide commentary on the company's fiscal 2022 outlook. As a reminder, the fourth quarter of fiscal 2021 contained an extra week compared to fiscal 2020. The line will be open for questions following Jacinthe's remarks. As a courtesy to the other analysts, please limit yourself to one question with one follow-up. If you have additional questions, you are welcome to get back in the queue. An audio replay of this call will be available beginning at noon today Central Time. The dial-in number is 877-344-7529 and the access code is 101-61982. It will also be posted on our website and archived for one year. Before we get started, 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 pages 35 through 41 in the company's Form 10-Q for the fiscal quarter ended July 25, 2021. It can be accessed on our website. Additionally, please note the company uses non-GAAP results to provide investors with a better understanding of the company's operating performance. These non-GAAP measures include organic volume, organic sales, and adjusted diluted earnings per share. Discussion on non-GAAP information is detailed in our press release located on our corporate website. I will now turn the call over to Jim Snee.

Thank you, Nathan. Good morning, everyone. I want to start this morning by congratulating Jim Sheehan on his upcoming retirement. Jim will be retiring as CFO at the end of the calendar year, so this will be his last earnings call. Jim has over four decades with our company and Under his tenure, has built a world-class finance, accounting, and technology organization. Jim was the guiding force behind Project Orion, an initiative that will benefit our company for decades to come. For over 43 years, with the last five years as CFO, Jim has been a trusted partner to me and many of my predecessors. Jim helped complete over $5 billion in strategic acquisitions, including Justin's, Fontanini, Sirachi, Columbus, Sadler's, and our largest acquisition ever, Planters. Equally impressive was Jim's contribution to reshaping our portfolio, as he was also a guiding force behind many of the divestitures we made to transform our company. Jim's oversight to our evolution puts us on a solid foundation for the future growth of our company. Additionally, Jim has overseen the distribution of over $2 billion in dividends to our shareholders. In addition to his business accolades, Jim was the key voice behind our game-changing Inspired Pathways program, which provides free college education for children of our team members. Jim will be missed, and we wish him well in retirement along with his wife, Jean. Jacinthe Smiley succeeds Jim and brings a wealth of experience from outside Hormel Foods. She has deep and broad domestic and international experience in areas such as corporate finance, public accounting, and compliance. Most recently, She served as the group vice president of corporate strategy. Hormel Foods is fortunate to have Jacinthe as CFO, and I'm looking forward to her leadership in her new role. My sincere congratulations to both Jim and Jacinthe. In an incredibly difficult and rapidly changing operating environment, our team delivered outstanding top-line results. We achieved record sales in fiscal 2021, exceeding both $10 billion and $11 billion in sales for the first time. For the full year, sales were $11.4 billion, representing 19% sales growth. On an organic basis, sales increased 14%. Our top-line growth was incredibly balanced. as each of our go-to-market sales channels and business segments posted strong double-digit sales gains underpinned by value-added volume growth, pricing, and a better mix. Adjusted diluted earnings per share for the full year increased 4 percent to $1.73 in spite of inflationary pressure and supply chain challenges. Diluted earnings per share was $1.66. We had an excellent fourth quarter and posted numerous records, including a fourth consecutive quarter of record sales, record diluted earnings per share, and record cash flow from operations. I want to commend our entire team for delivering this impressive performance and the numerous fourth quarter records. Sales increased 43%, and organic sales increased 32%. Volume increased 14%, and organic volume increased 8%. We grew sales in every segment and every channel for the quarter. Compared to pre-pandemic levels in 2019, all channels grew by over 25%, driven by strong demand and pricing action in almost every category. This all-time record performance was led by further acceleration in our food service businesses. Our food service teams across the organization posted 72% sales growth for the quarter, 33% higher than pre-pandemic levels. This followed second quarter growth of 28% and third quarter growth of 45%. Strength was broad-based, with significant contributions from refrigerated foods, Genio Turkey Store, and Megamix. We also saw a strong recovery in our non-commercial segments, including college and university, and K through 12 institutions. Our food service portfolio remains perfectly positioned to meet the needs of today's food service operators with labor and time-saving products. I believe our growth in food service is a function of our differentiated value proposition in the industry, as well as our dedication during the pandemic. We have grown with our distributor and operator partners during the recovery, strengthening many of our partnerships and decades-long relationships. The top-line performances from our other channels were equally impressive. Retail, Delhi, and international each delivered a second consecutive year of growth. Retail and international sales both increased 34%, and Delhi sales increased 24%. On an organic basis, each channel posted strong double-digit growth. Growth came from numerous brands across all areas of our portfolio, including Spam, Applegate, Columbus, Hormel Black Label, Holy, Hormel Complete, Gatherings, and many more. We continue to see very positive trends for consumer takeaway at retail. According to IRI, key metrics for our brands, such as buy rate, and trips per buyer remain favorable, which indicates elevated consumer spending on our products has remained. We also continue to grow share in many important categories, including Hormel gatherings party trays, Hormel pepperoni, SPAM luncheon meat, and Hormel chili. Our One Supply Chain team has done an excellent job operating in and navigating constant supply chain disruptions. We have also seen the positive impact of their strategic actions. Namely, we're starting to see an increasing number of our open positions being filled, more automation being implemented in our facilities, and a more simplified product portfolio. In total, these actions are allowing us to maximize our throughput to meet the continued strong demand of our customers. From a bottom line perspective, fourth quarter earnings were a record 51 cents per share, a 19% increase compared to 2020. An acceleration in our top line results and the addition of the planters business led to the earnings growth. As we said in the third quarter, we expected margins to improve as pricing actions took effect. Indeed, margins improved sequentially in all four segments. Pricing actions, improved promotional effectiveness, and a more profitable mix all contributed to the improvement. We started to see relief in key raw materials in the fourth quarter compared to prior quarters. However, labor rates freight, supplies, and raw material costs remain above year-ago levels, and in the case of freight, increased further. Looking at the segments, grocery products, refrigerated foods, and international segments each posted double-digit segment profit growth. Genio Turkey Store profits declined due to higher feed costs. A few highlights from the quarter include the following. Refrigerated foods delivered strong volume sales and profit growth. The team was able to leverage the numerous capacity expansion projects since the start of the pandemic for categories such as pizza toppings, bacon, and dry sausage. Within grocery products, our simple meals and Mexican portfolios generated excellent growth in addition to contributions from the planters' Snack Nuts business. Notably, the Spam brand delivered its seventh consecutive year of record growth, and we recently announced plans for additional capacity to support future growth. Our international team achieved a seventh consecutive quarter of record earnings growth with strong results from all of their businesses. The momentum this business has generated over the last two years supports our plans to aggressively expand internationally. Lastly, planters made a positive impact, especially in the fast-growing snacking and entertaining space and within the convenience store channel. This quarter's results were outstanding, and we intend to build on this momentum going into 2022. Over the past decade, Hormel Foods has deliberately evolved from a meat-centric, commodity-driven company with a heavy focus on retail pork and turkey to a global branded food company with leading brands across numerous channels. Our company today is more food-forward than ever, with a sharp focus on the needs of our customers, consumers, and operators. As we begin fiscal 2022, we plan to continue our evolution. First, we will complete the full integration of the planter's business across all functions. The first of three production facilities was successfully integrated in the fourth quarter, and the remaining two facilities are scheduled to be fully integrated in our first quarter. Since acquiring planter six months ago, Our sales, marketing, innovation, and R&D teams have been hard at work developing new and innovative products and flavors, many of which will be rolled out this coming year. They've also been working on refreshing the branding and packaging, which will also be launched in 2022. Seeing the great work of our teams has me even more confident about where we are able to take this brand in the future and further strengthens our conviction of the potential for planters. From a financial standpoint, the planters business is performing at the top end of our expectations, and we expect that trend to continue in fiscal 22. Second, we are also taking a series of actions at Jenny O. Turkey Store. Over time, We expect these actions to result in a more demand-oriented and optimized Turkey portfolio that is better aligned to the changing needs of our customers, consumers, and operators that will result in long-term growth, improved profitability, and lower earnings volatility. The transformation starts with accelerating our efforts to shift from commodity to branded value-added products. This is similar to the successful strategy we have executed in refrigerated foods over the past 15 years. As a result, we will close the Benson Avenue plant located in Wilmer, Minnesota in the first half of fiscal 2022. This plant is an older, inefficient facility which produces numerous commodity items. Value-added products will be consolidated into multiple other facilities. Team members will transition to our newer and larger facility, also located in WOMER, which will supplement staffing levels. Finally, we will continue to integrate business functions into the Hormel Foods parent organization. Over the past two years, we have successfully integrated IT services, finance and accounting, and HR into the Hormel organization through Project Orion, and we will continue these efforts for other functions. By doing so, we will bring the deep Turkey expertise and competitive advantages of the Genio team to the broader organization. I want to be very clear that Turkey will continue to play an important role in our company for many brands, including Columbus, Applegate, Hormel Natural Choice, in addition to Genio. Turkey is vital to our balanced business model, serves to diversify our portfolio, and is important to consumers who are looking for high-protein, lean, and versatile offerings. We will provide a further update and details on the financial components and timing on our first quarter call. Finally, we made additional progress on optimizing our pork supply chain by signing a new five-year raw material supply agreement with our supplier in Fremont, Nebraska. This new agreement more closely matches our pork supply with the needs of our value-added businesses, while simultaneously reducing the amount of commodity pork we sell. Similar to the rationale for selling the Fremont plant in 2018, this new agreement further diversifies us away from commodity sales, increases our flexibility within our supply chain, and decreases our earnings volatility. This agreement should result in a reduction of approximately $350 million of commodity fresh pork sales at very low margins. The impact is split between the refrigerated foods and international segments. The contract will be effective at the start of calendar year 2022. The success we are having with planters, the actions we are taking at Genio Turkey Store, and the continued progress we are making on our pork supply chain all provide great insights into how we are continuing to evolve Hormel Foods for next year and beyond. And not only have we evolved our portfolio, but we will continue to evolve how we operate as a company with initiatives such as One Supply Chain, Project Orion, and our Digital Experience Group. Looking at fiscal 2022, we expect net sales to be between $11.7 and $12.5 billion. and for diluted earnings per share to be between $1.87 and $2.03 per share. We expect growth in excess of our long-term goals due to organic growth across each of our segments and strength in our planters business. I have confidence in our ability to achieve our guidance with all four segments delivering growth. Jacinthe Smiley will provide more color regarding key drivers to our fiscal 2022 outlook. At this time, I will turn the call over to Jim Sheehan to discuss financial information relating to the quarter.