Hormel CEO Discusses Acquisition of Planters

CEO and President Jim Sunee. He's on the phone. He is in Minnesota, So Jim, nice to have you here with us. How are you. I'm doing really well, Carol, thanks for having me on today. Yet weather cold? How are you guys doing well? I'll tell you what We're used to this unlike some other parts of the country, so we we were always cold this time of year. But I think we know how to manage it. Yeah,

you guys definitely do well. Listen, you investors seem to be responding to how you guys are managing the company, responding favorably after your latest quarter. Um, tell us about what's been driving momentum. It was really a strong first quarter for us, so a great way to start our fiscal um actually record sales in the quarter, and it was across all four of our businesses, and we haven't

seen that kind of sales growth since two thousand and sixteen. So, I mean, as you can imagine, you know, continued strong retail sales are international business continues to be really really positive. Um. We're starting to see some signs of recovery in our food service business. That's really the part over the last year that you know, early in the pandemic, we saw

food service restaurants, hotels, their business you know, collapse. But now, as you know, more states are opening up, vaccines more widely distributed, we are starting to see some signs of recovery. So that's that's got us really optimistic for the balance of the year. He Jim. I'm really eager to get more color into the decision to buy Planters from Kraft Times. It was announced earlier this month UM three point three five billion dollars UH. It includes corn nuts UH and

some other brands as well. The effective purchase price about two point seven nine billion dollars. Why is this a good fit for Hormel. It's about Mr Peanut though, let's just lay it out there. It's about Mr Peanuts. Everyone knows Mr Peanut. Sorry, go ahead, Uh Spam s Fami needed a friend or Stiffy needed a friend? Um, you know, actually, Tenda, it's a great question. But this is a business that fits in our portfolio so perfectly. I mean, it starts

with it. It's an iconic brand. So when you think about the brands and Carol you mentioned a whole bunch of them at the top. You know, our brands are so well known, so well recognized, and we know how to manage brands. Were great stewards of brands, and so Spam, Skippy and now Planters, as you know, they've been around for a long time. We know how to nurture them.

Planters happens to be in a very very attractive category for us to snacking category, and so we've already got a pretty well developed snacking business, but it's across all parts of the company. Um, this is really an opportunity for us to focus in in the snack nuts. And if you think about how much it makes sense when you think about the Skippy business, we have the Justine's business we have. This is just a natural evolution of

of that portfolio. The other thing that it does for us is, you know, over time, we've been very intentional about being less and less of a commodity meat company, and some of the acquisitions we've made over over the last several years have really moved us further down that path. And so this is this is just another step. And you know what's even more exciting is by far, it's

the largest acquisition our our company has ever made. So as as I've been telling our team all week, you know, there's a lot to love about this business and we're just we're really excited to get to work on it. Hopefully that will be some time in May. Now, I know that you expect to see synergies of between fifty and sixty million dollars a year. A year, by million dollars, I should say, by where exactly are those synergies coming from. Are they coming from bulk buying products, are they coming

from headcount reduction? What's happening? Yeah, you know, it's going to come from a little bit of everywhere. And so you know, when we think about procurement and our ability to have additional scale in some of the categories that are common, and we would expect to be able to to save some money. Um, we also think there's going to be some revenue synergies. And you know, there's parts of our business that we're not very well developed in.

So I think convenience stores, you know, you walk into convenience store today, we have very little presence with our current portfolio. Planners, on the other hand, has a huge presence. So I think we're going to have the opportunity, with their knowledge and expertise, to introduce more and more of

our products into the convenience store model. So it's really going to be be a combination of some costs, some operational and then some revenue centergy So I kind of ask you to would frustrate you, Jim, I'm looking at the Bloomberg terminal and you know, nobody, none of the analyst community that follows you has a buy on the stock. Uh, there's about ten holes in three cells. Do you feel like there's something wall streets missing about your story? Are

you frustrated a little bit by it? You know, it's really hard to say that, Carrol, because you know, when you look at our trading multiple today. I mean we're at the top of our our peer group, and so you know, for us, you know, we don't get so bogged down in that. It's really all about you know, we always call ourselves a show me company that says, now we've got to show people what we can do. And so as we're able to grow sales and ultimately grow earnings, and if we get that kind of multiple,

it's going to take care of itself. So I think are I think we get a lot of positive recognition from the analyst community. Um, they just want to see more from us, and and acquisitions like Planners really allow us to do that. So is Planners that you said, you guys have done a series of acquisitions that have helped you become less of a commoditized meat business. Is

there something else on your radar? I know you're like digesting this one, no pun intended, but like there are a lot of companies and brands who are getting rid of underperforming brands and kind of honing their companies. Is there something else that you think would be another good fit or even it's not specific, are you shopping well

for the time being? Our CFO took my check book away, but well, you know, the beauty of it is, you know, the balant, the strength of our balance sheet is just absolutely phenomenal, and we had essentially no debt, you know, and then what we're going to be able to finance this dat at the incredibly low rates, historically low rates, and then the cash flow that our current business generates,

and then the additional cash flow of planters. Um. You know, we might be out of the market for a little while as we digest this one, but it's not going to be that long. And to your point, Carol, we'll be back in there. And there are a lot of attractive a lot of attractive businesses to us, and some of them will have been longer standing and some of them are emerging in the beauty. If you look across our acquisition history, we've done a little bit of both

and we've done them both successfully. So so even though the CFO is taking your your check book away, um, if they had, I'm wondering what's exciting to you out there right now? I mean, independent snacks are absolutely booming right now, and even snacks that that aren't independent, that have been bought up by some of the your bigger

rivals are absolutely booming right now. What's exciting to you, Well, I mean what we're really excited about, tim is is just what we have coming into the family with Planters, and so we've got a lot of work to integrate that business and get it up and running and do what we say we're going to do, but our ability to leverage that knowledge and experienced in snacking inconvenience stores

across other parts of our portfolio. So I mean, Justin's is a brand that, from my perspective, is going to be a huge beneficiary of what we learn from Planters, and that's not that snacking category. And so you're exactly right. I mean, the snacking business is very strong, continues to grow, and Planters just gives us another opportunity to have insights and innovation and we'll share those both ways. Things that we're doing here at Hormel that we can apply there

and vice versa. So yeah, it's a very attractive space and we're gonna have enough on our hands for for a little while that we're not gonna we're not gonna get distracted. We're going to get the blinders on and get to work. So one thing I've got to ask you, Jim, And this is something near and dear to us. I mean, we are constantly as a family looking at ingredients and healthier food. And you know, that is a significant consumer trend that I think the train has left the station

on it. So I'm just curious, how do you guys factor that when you know, people will say cold Cuts not the healthiest, um, but you also have things like Applegate, Like, so where do you like, how do you move that when you still got a lot of brands that some

people might say or you know, the healthiest for consumers. Well, we wouldn't say that, I mean, because it's all it's all about consumer choice, right, and some of the some of the best brands that we have that appeal to consumers in that space you mentioned Applegate, We've got Justine's, We've got other internally developed brands like Natural Choice, um, you know, so no preservatives and and so I mean, we continue to find ways to not only acquire, but

to innovate, and and it's all about consumer choice. And so you know, you've got to you got to think about the economic ladder, what consumers can afford. Not every consumer today can can afford a premium package of Applegate lunches. Many more can afford a no preservative or preservative free package of natural choice. So, you know, we what we love about our foot portfolio is you go across the spectrum of options and opportunities. We've got something for everyone.

And even in the in the gross restore retail outlets, there aren't too many places in the grocery store that you're going to go and you you won't find a Hormel brand. It may not Hormel may not be at the top of your mind when you're looking at it, but brands like Holy GUACAMOLEI are Dez Salsa. You know, we've talked about Skippy Peanut Butter, Guinee, Moore Beust, the Columbus Grab and Go charcouterie offerings. I mean, the portfolio that we've built is absolutely phenomenal and it caters to

consumers at every point in the economic ladder. Hey, Jim, can you talk a little bit about the Inspired Pathways program. It's it's something that Hormel launched over the summer and it's it's a two year community college education funding for that for dependence of team members. Um, take us through your thinking behind launching that. Yep, you know, Tim, we we obviously had a front row seat everything that happened in Minneapolis last year, and so you know, as we

took a step back and thought about it. I mean, one of the things that we do really really well as we don't rush in to anything. We're very thoughtful, very disciplined. The easy thing to do would have been to, you know, to write a check in support of some initiative. And what we said is, you know what, let's put our money where our mouth is. Let's make a difference and make a difference where of matters to our team members and to us. And we believe, you know, the

way you change this world is through education. And so knowing that we have so many team members where perhaps English is a second language and they've got you know, children who maybe don't have the opportunity or the resources that some of us had to go to college, how can we make a difference for them? And so this program is it's going to allow some team members, but more importantly, you know, their dependence to get a leg

up and to really get a head start. And community colleges are just a hidden jewel in in our country where it's a great place to go and to really get started in the higher education world. And so we've been hard at work. UM. We've actually got well over a hundred applicants already, We've got team members who are excited to support those applicants. UM, and so we're we're

just really excited for the first class. And you know, I'm sure you'll hear a lot more from us because we're really proud of what we're going to be able to do to change the trajectory as some of these people's lives. Listen. It's so important, and we're really glad, and we do hope you keep us up to date on what you're doing, because a lot of individuals just

need someone to help get them going. I also thought it was really fascinating what Jim had to say about two tiers in terms our different tiers in terms of different consumers. Jim Sneed. He's a CEO at Hormel. This is Bloomberg