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Hormel to give employees stock shares, increase wages

James Snee mug
James Snee
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AUSTIN — Hormel Foods Corp. this morning announced that it plans to use savings from the federal Tax Cuts and Jobs Act to award stock options to its employees and raise starting wages to $13 an hour.

Hormel announced the new employee benefits as part of a first-quarter earnings report. It operates on a fiscal year that starts in November, so the first quarter included performance from November, December and January.

"Tax reform will have a clear benefit to all Hormel Foods stakeholders — our shareholders, our employees, and the communities in which we operate," Hormel President and CEO Jim Snee said in the announcement. "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," he added. "We also plan to invest a portion of the tax benefit back into our business to drive incremental sales and earnings growth."

Hormel stated that the Tax Cuts and Jobs Act signed by President Donald Trump in December saved the Fortune 500 company $63 million in the first quarter of the year, and it will inject an estimated $110 to $140 million to cash flow in fiscal 2018. The cuts dropped the company’s effective tax rate for the first quarter to 0.6 percent from 33.7 percent for the same quarter in 2017.

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Snee also announced that Hormel will continue to raise its starting wages following the $13 an hour increase. The company plans to bump the starting wage to $14 an hour by the end of fiscal 2020.

"We also pledged an additional $25 million in donations over the next five years as supporting our communities through product and monetary donations is important to us," he added.

Hormel also expects to pass some of the tax savings on to its shareholders. Long known as a strong income generator for investors, Hormel has provided dividend increases for 52 consecutive years.

The Austin company issued a similar employee benefit in 2007, when it awarded more than 18,000 workers stock options for 100 shares each as a long-term investment in Hormel.

For the first quarter, Hormel saw its net earnings before income taxes fall to $305.7 million from $355.6 million in for the same quarter in 2017. However, the tax cuts and growth from some of segments pushed its diluted net earnings per share to 0.56 from 0.44 the previous year.

"We are pleased to report a strong quarter of earnings growth,"Snee said. "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."

Hormel also spotlighted the creation of its new deli division in its Refrigerated Foods segment, describing it as the company’s "next growth engine."

Looking to the rest of the year, Snee wrote that while the tax cuts will be helpful, it won’t all be smooth sailing.

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"Fiscal 2018 brings both opportunities and challenges. Tax reform will have a clear benefit and allow us to increase investments into our business to drive long-term profitable growth," Snee said. "While our expectations for Grocery Products, Refrigerated Foods and International have not changed, we project a slower-than expected recovery at Jennie-O Turkey Store as we continue to work through a difficult operating environment in the turkey industry. Freight costs will continue to be a headwind for the balance of the year, and we are working to mitigate the impact through long-term sustainable solutions across our entire supply chain."

Hormel revised its earnings per share outlook for 2018 to $1.81-$1.95 from its previous estimates of $1.62-$1.72. However, its net sales estimates remained at $9.7 billion-$10.1 billion.

• Diluted earnings per share of $0.56, up 27 percent.

• Sales of $2.3 billion, up 2 percent.

• Volume of 1.2 billion pounds, down 4 percent.

• Earnings before income taxes of $305.1 million, down 14 percent.

• Cash flow from operations of $304 million, up 56 percent.

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