Hormel Foods Corp. is riding the wave of the new tax law, banking a one-time savings bump in the first quarter and feeling confident enough to boost earnings guidance for the year.
Hormel's tax savings will result in capital improvements, wage equalization and community investments
The food company's quarterly profits rose nearly 30 percent.
February 23, 2018 at 1:48AM
The Austin, Minn.-based company said Thursday it now forecasts earnings of $1.81 to $1.95 per share, up from $1.62 to $1.72, as the new law slashes its effective tax rate.
"Tax reform will have a clear benefit to all Hormel Foods stakeholders — our shareholders, our employees and the communities in which we operate," said President and CEO Jim Snee, who presented first-quarter results as part of the Consumer Analyst Group of New York conference in Boca Raton, Fla.
For the year, Hormel expects the tax savings to increase cash flow by $100 million to $140 million, freeing up funds that Snee said will allow the company "to take an invest-and-grow approach vs. a protect-and-defend approach."
The company will use some of the additional funds for capital investments, particularly in efforts already underway to modernize and improve efficiencies in its supply chain.
Some of it will go to the company's 20,000 employees, though it is unclear how much will wind up in their pockets right away.
Hormel said Thursday it will make a one-time stock option award to employees and will bring all new hires up to a starting wage of $13 an hour by the end of fiscal 2018. It will bump the scale to $14 an hour by the end of 2020. A company spokesman said wages currently differ across the enterprise, and some new workers already earn that $13-an-hour benchmark or higher.
Hormel said it also earmarked $25 million in community investments over the next five years as a result of the changes to its effective tax rate — which will be reduced to 17.5 to 20.5 percent from its current 32 to 33 percent.
Shareholders will get a portion of the cash as well, though Hormel executives declined to say how much. The company noted it has offered dividend increases for 52 straight years.
For the quarter ended Jan. 28, profit rose 29 percent to $303.1 million. Much of the credit came from a $68 million one-time, noncash benefit as part of the tax law, which resulted from revaluing Hormel's deferred tax liabilities. Earnings per share were 56 cents, above Wall Street expectations.
Sales rose 2.2 percent to $2.33 billion.
The strongest segment results came from grocery products. These include such brands as Wholly Guacamole, Muscle Milk, Skippy and Spam and account for about a quarter of sales for the $9.2 billion company.
Strength in its grocery and organic food lines helped to offset higher-than-expected freight costs and a continued oversupply of turkey that is challenging margins on Jennie-O products.
The company plans to pump up advertising and promotion of all brands, but particularly the Jennie-O Turkey Store, while waiting for what Snee described as a "slower-than-planned recovery."
During the quarter, Hormel completed the $850 million acquisition of millennial-focused Columbus Manufacturing Inc. The California-based provider of craft deli meats is central to Hormel's strategy to stay on-trend by catering to consumers willing to pay premium prices and who seek the convenience of high-quality deli foods.
Grocers are devoting more floor space to grab-and-go prepackaged meats and cheeses, signature prepared meals and artisanal meats.
It's a $35 billion "growth opportunity," Snee said, with sales in deli outpacing total food sales by more than four times.
"Columbus ... positions Hormel to compete and win in the deli of the future," he said.
The stock closed slightly higher Thursday, at $33 a share.
Jackie Crosby • 612-673-7335
Twitter: @JackieCrosby
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