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Hormel Foods Q1 Profit Tops View, But Sales Miss; Lifts 2018 Profit Outlook

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Hormel Foods Corp. (HRL) reported a profit for the first quarter of fiscal 2018 that increased 28.9 percent from the prior year. The latest-quarter result benefited from $63 million or earnings per share of $0.12, in one-time tax events. The company raised annual earnings per share guidance due to U.S. tax reform, while it maintained annual net sales outlook.

Earnings per share topped analysts' expectations, while quarterly revenues missed their estimates.

"Fiscal 2018 brings both opportunities and challenges.... We continue to build earnings power through our three recent strategic acquisitions and increased capital investments for value-added capacity. 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...,"said Jim Snee, chairman of the board, president, and chief executive office.

In addition to awarding over 20,000 employees stock options, the company said it will raise starting wage for all employees to $13 per hour by the end of fiscal 2018 and to $14 per hour by the end of fiscal 2020. It also pledged an additional $25 million in donations over the next five years as supporting communities through product and monetary donations is important to the company.

For fiscal 2018, the company expects an effective tax rate of between 17.5 to 20.5 percent compared to original guidance of 32.3 to 33.3 percent. The change is due primarily to the decrease in the statutory tax rate, one-time discrete tax events, and the adoption of new accounting standards related to stock compensation. The full year cash flow benefit is expected to be between $100 million - $140 million. For Fiscal 2019 and beyond, the Company expects an effective tax rate of between 21.5 to 24.5 percent.

The company raised earnings guidance for fiscal 2018 to a range of $1.81 to $1.95 per share from the prior outlook of $1.62 to $1.72 per share. Analysts expect annual earnings of $1.73 per share.

The company still expects net sales to be between $9.70 billion and $10.10 billion for 2018. Analysts project net sales of $9.88 billion for 2018.

Net earnings attributable to the company for the first quarter of fiscal 2018 rose 28.9 percent to $303.11 million from last year's $235.15 million, with earnings per share improving to $0.56 per share from $0.44 per share in the prior year. Analysts polled by Thomson Reuters expected the company to report earnings of $0.44 per share for the first-quarter. Analysts' estimates typically exclude special items.

Total net sales for the quarter grew 2.2 percent to $2.33 billion from $2.28 billion in the prior year. Wall Street expected revenues of $2.41 billion for the quarter. Organic net sales were up 1%.

HRL closed Wednesday's regular trading at $32.68, down $1.12 or 3.31 percent.

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