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Hormel announces stock sharing, starting wage increases

WILLMAR – Hormel Foods, the parent company of Jennie-O Turkey Store, announced plans Thursday to award stock options to its employees and raise starting wages to $13 an hour by the end of fiscal year 2018.

Hormel said in its first-quarter earnings report it plans to use savings from the federal Tax Cuts and Jobs Act to fund the new employee benefits. The company operates on a fiscal year that begins in November.

The reported record results in the first quarter were due to tax reform and earnings growth in grocery products. This helped offset issues at Jennie-O and increasing freight costs, the company said in a news release Thursday.

“Grocery products delivered excellent earnings growth which was partially offset by continued challenges at Jennie-O Turkey Store and higher-than-expected freight costs," said Jim Snee, chairman of the board, president and chief executive officer at Hormel, in a news release.

For the first quarter, the company saw its net earning before taxes fall to $305.7 million from $355.6 million for the same quarter in 2017.

“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,” Snee said.

The company also intends to invest in growing key domestic brands such as Jennie-O, Hormel, Skippy and the new plant-based protein brand called Evolve.

Snee also announced plans to increase the starting wage following this year’s increase to $13 an hour. The company plans to increase its starting wage to $14 per 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 said.

At Jennie-O Turkey Store, decreases in both volume and sales were due primarily to lower harvest volumes and lower turkey commodity prices, according to the Hormel news release.

This caused a continued oversupply of turkeys and excess meat in cold storage. Production volumes were down 4 percent in the last quarter, with net sales decreasing by 7 percent. Segment profit fell 27 percent, due to lower whole bird and commodity sales and increased freight costs.

While the sale of whole birds was down, there were increased retail sales, led by Jennie-O’s lean ground turkey and Oven Ready products. Reductions in selling, general and administrative expenses also offset some of the earning declines.

“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,” Snee said.

The rest of 2018 looks to bring both opportunities and challenges to Hormel, Snee said. Tax reform will be a benefit, though freight costs will be a continuing challenge, though Hormel is looking at ways to find long-term sustainable solutions across the supply chain.

“Taking all factors into consideration, we are increasing our earnings guidance to $1.81 - $1.95 per share while leaving our sales guidance unchanged. Our plan remains back-half weighted aided by acquisitions, innovation and cost efficiencies,” Snee said.