Hormel Q1 improves outlook for rest of 2018

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The Tax Cuts and Jobs Act will provide cash on hand and bring minimum wage increases.
AUSTIN, Minn. – During its first quarter report, Hormel Foods Corp. expects to see some changes to its projections for the year after the full implementation of the Tax Cuts and Jobs Act passed by federal government in late December 2017.

For fiscal 2018, the company expects an effective tax rate between 17.5 to 20.5 percent compared to original guidance of 32.3 to 33.3 percent. The company estimates that the lower statutory tax rate will provide about $110 million to $140 million in additional cash for fiscal year 2018.

Hormel stated the legislation gave them the ability to apply additional funds to its business.

“Tax reform will have a clear benefit to all Hormel Foods stakeholders — our shareholders, our employees, and the communities in which we operate,” Jim Snee, chairman of the board, president and CEO, said in a statement. “The ongoing cash tax benefit will provide additional funds, allowing us to accelerate the growth of our business. We intend to make additional strategic, disciplined capital investments into innovation, technology, and automation which will improve our operating efficiencies and enhance margins.”

In addition to awarding more 20,000 employees stock options, Snee also announced that the starting wage for all employees will be $13 per hour by the end of fiscal year 2018 and $14 per hour by the end of fiscal year 2020.

“We also plan to invest a portion of the tax benefit back into our business to drive incremental sales and earnings growth,” Snee said. “Our priorities are to invest in growing key domestic brands such as Jennie-O, Hormel Pepperoni, Skippy, Muscle Milk, and our new plant-based protein brand Evolve."

Net earnings attributable to Hormel Foods Corp. in the first quarter ended Jan. 28 were $303,107,000, equal to $0.56 per share on the common stock, which is an increase from 235,147,000, or $0.44, in the prior-year period. Net sales were up to $2,331,293,000 from $2,280,227,000 in the same quarter of 2017.

During the quarter, all but one of the company’s five segments posted earnings growth. Jennie O-Turkey Store continues to struggle with net sales down 7 percent.

“We are pleased to report a strong quarter of earnings growth. In addition to the benefit from tax reform, Grocery Products delivered excellent earnings growth which was partially offset by continued challenges at Jennie-O Turkey Store and higher-than-expected freight costs,” Snee said.

With the announcement of tax reform and other factors, the company raised its fiscal 2018 outlook to $1.81 to $1.95 per share, up from the previous guidance of $1.62 to $1.72 per share.

Elsewhere in the portfolio, Refrigerated Foods segment profit decreased 18 percent in the first quarter, driven by one-time transaction costs of two cents EPS for the Columbus acquisition, the divestiture of the Farmer John business representing one cent EPS, and increased freight expenses. Net sales, meanwhile, increased 5 percent, primarily related to the inclusion of Columbus and Fontanini but were partially offset by the divestiture of the Farmer John business.

“For the quarter, Grocery Products, Refrigerated Foods and International met our expectations,” Snee said. “Organic sales growth was led by many key brands including retail sales of Hormel Black Label bacon, Wholly Guacamole dips, Muscle Milk protein beverages, and SPAM products in addition to foodservice sales of Hormel Bacon 1 fully cooked bacon and Hormel Fire Braised meats.”

Grocery Products segment profit rose 8 percent, and net sales grew 1 percent. Beginning this quarter, the Specialty Foods segment was merged with, and is reported in, the Grocery Products segment.

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