Hormel Foods (NYSE:HRL) has been struggling with weak sales growth for several years now while at the same time booking steady -- and often surprisingly strong -- profit gains. Investors saw that same story play out in the packaged foods specialist's recent fiscal first-quarter earnings report.

Let's take a closer look at the results:


Q1 2018

Q1 2017

Year-Over-Year Change


$2.33 billion

$2.28 million


Net income

$303 million

$235 million


Earnings per share




Data source: Hormel financial filings.

What happened this quarter?

Sales inched higher as three of the company's four core divisions met management's expectations while one missed targets. Hormel's finances, meanwhile, improved sharply thanks to recent tax law changes.

A plate of cooked bacon.

Image source: Getty Images.

Here are some of the key highlights from the quarter:

  • Organic sales rose by 1% to mark a slowdown from the 3% growth the company logged in fiscal 2017. Volume declined in each of Hormel's divisions, but overall results were lifted by strong demand for packaged products, including dips and protein drinks. Its bacon brands delivered steady gains, too.
  • The Jennie-O turkey franchise endured a 7% sales slump and saw its profits dive by nearly 30%. Management said the drop was powered by an oversupply of turkeys in the industry that sent prices plunging.
  • Operating margin worsened to 13.2% of sales from 15.6%, mainly thanks to higher pork costs and the struggles in the turkey segment.
  • Hormel's effective tax rate plunged to less than 1% from 34% last year. As a result, net income jumped 29% even though operating income declined by 14%.

What management had to say

"We are pleased to report a strong quarter of earnings growth," CEO Jim Snee said in the press release. "Grocery products delivered excellent earnings growth which was partially offset by continued challenges at Jennie-O turkey store and higher-than-expected freight costs," he explained.

Management said the grocery products, refrigerated foods, and international segments each met their targets for the quarter, while Jennie-O is struggling through a "difficult operating environment in the turkey industry."

Looking forward

Snee and his team still see overall sales coming in between $9.7 billion and $10.1 billion in fiscal 2018 despite a slower-than-expected rebound in the turkey division. Most of the growth will occur in the second half of the year, they said. In that period, several new products are set to hit the market while newly acquired brands like Columbus meats also begin contributing to results.

Meanwhile, recent tax law changes are providing a big lift to Hormel's finances. Its effective tax rate is set to plunge to 17.5%-20.5% this year, compared to the 33% rate management had expected. That reduced rate will increase annual cash flow by as much as $140 million, which should add even more security to the company's long-running dividend payout.

Hormel now sees earnings per share rising to between $1.81 and $1.95. At the midpoint of guidance, that would represent a 20% profit spike and mark a solid rebound following last year's 4% earnings decline.