Market Overview

The J. M. Smucker Company Announces Fiscal 2020 First Quarter Results

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ORRVILLE, Ohio, Aug. 27, 2019 /PRNewswire/ -- The J. M. Smucker Company (NYSE:SJM) today announced results for the first quarter ended July 31, 2019, of its 2020 fiscal year. Financial results include the contribution from Ainsworth Pet Nutrition, LLC ("Ainsworth"), which was acquired on May 14, 2018, and reflect the divestiture of the Company's U.S. baking business on August 31, 2018. All comparisons are to the first quarter of the prior fiscal year, unless otherwise noted.

EXECUTIVE SUMMARY

  • Net sales decreased $123.6 million, or 6 percent. Comparable net sales decreased 4 percent.
  • Net income per diluted share was $1.36. Adjusted earnings per share was $1.58, a decrease of 11 percent.
  • Cash from operations was $221.5 million, a decrease of 9 percent. Free cash flow was $148.5 million in the quarter, compared to $141.7 million in the prior year.
  • The Company updated its full-year fiscal 2020 net sales and adjusted earnings per share outlook.



CHIEF EXECUTIVE OFFICER REMARKS

"Our first quarter performance fell short of our expectations primarily due to the timing of shipments and deflationary pricing in the coffee and peanut butter categories, as well as competitive activity in the premium dog food category," said Mark Smucker, Chief Executive Officer.

"We have continued momentum in many key product categories, and we are already taking decisive actions and prioritizing initiatives that strengthen our business. We remain confident in our strategy, which includes a continued focus on our growth imperatives to lead in the best categories, build brands consumers love, and be everywhere, combined with a relentless focus on operating with financial discipline, all of which will enhance shareholder value for the long term."



FIRST QUARTER CONSOLIDATED RESULTS



Three Months Ended July 31,


2019


2018


% Increase
(Decrease)


(Dollars and shares in millions, except per share data)







Net sales

$1,778.9


$1,902.5


(6%)







Operating income

$257.6


$226.9


14%

Adjusted operating income

290.7


317.1


(8%)







Net income per common share – assuming dilution

$1.36


$1.17


16%

Adjusted earnings per share – assuming dilution

1.58


1.78


(11%)







Weighted-average shares outstanding – assuming dilution

113.9


113.7




 

Net Sales

Net sales decreased 6 percent, reflecting the impact of $73.1 million of net sales in the prior year attributed to the divested U.S. baking business, partially offset by an incremental $25.4 million contribution from the Ainsworth acquisition. Excluding items impacting comparability, net sales decreased $75.9 million, or 4 percent. Lower volume/mix reduced sales by 3 percentage points driven primarily by declines for private label pet food offerings and coffee. Net price realization reduced net sales by 1 percentage point, mostly due to lower pricing for coffee and peanut butter, partially offset by higher pricing for pet food and snacks. Foreign currency exchange was neutral.

Operating Income

Gross profit increased $21.4 million, or 3 percent, primarily driven by a favorable net impact of lower prices and lower costs and the noncomparable benefit of the Ainsworth acquisition, partially offset by a decline in volume/mix and the impact of the U.S. baking business divestiture. The favorable net impact of price and cost was mostly driven by a favorable change in derivative gains and losses. Operating income increased $30.7 million, or 14 percent, reflecting the increase in gross profit and decreases in other special project costs, selling, distribution, and administrative expenses ("SD&A"), and amortization.

On a non-GAAP basis, adjusted gross profit decreased $29.6 million, or 4 percent, with the primary difference from GAAP results being the exclusion of unallocated derivative gains and losses, which resulted in a $51.0 million favorable change as compared to the prior year. Adjusted operating income decreased $26.4 million, or 8 percent, further reflecting the exclusion of special project costs.

Interest Expense, Other Income (Expense), and Income Taxes

Net interest expense decreased $4.2 million, reflecting the benefit of reduced debt due to net repayments of $934.0 million during the last twelve months.

The effective income tax rate was 25.2 percent compared to 23.2 percent in the prior year. The effective income tax rate in the prior year included a non-recurring deferred tax benefit related to the Ainsworth acquisition.

Cash Flow and Debt

Cash provided by operating activities was $221.5 million, compared to $243.0 million in the prior year reflecting an increase in working capital, partially offset by the increase in net income adjusted for noncash items. Free cash flow was $148.5 million, compared to $141.7 million in the prior year, as a $28.3 million reduction in capital expenditures more than offset the decrease in cash provided by operating activities. Net debt repayments in the quarter totaled $130.0 million.

FULL-YEAR OUTLOOK

The Company provided updated full-year fiscal 2020 guidance as summarized below:



Current


Previous

Net sales increase (decrease) vs prior year


(1%) - 0%


1% - 2%

Adjusted earnings per share


$8.35 - $8.55


$8.45 - $8.65

Free cash flow (in millions)


$875 - $925


$875 - $925

Capital expenditures (in millions)


$300 - $320


$300 - $320

Effective tax rate


24.5% - 25.0%


24.5% - 25.0%

Net sales are expected to range from down 1 percent to flat compared to the prior year, which includes the loss of $105.9 million of sales in the first 4 months of fiscal 2019 related to the divested U.S. baking business and $25.4 million of incremental noncomparable sales for Ainsworth. On a comparable basis, net sales are expected to range from flat to up 1 percent.

Adjusted earnings per share is expected to range from $8.35 to $8.55, based on 114.0 million shares outstanding. Earnings guidance reflects the reduced contribution from sales, gross profit margin of approximately 38.5 percent, and SD&A expenses declining slightly compared to the prior year.

FIRST QUARTER SEGMENT RESULTS

Dollar amounts in the segment tables below are reported in millions.

U.S. Retail Pet Foods



Net

Sales


Segment
Profit


Segment
Profit Margin

FY20 Q1 Results


$669.9


$120.1


17.9%

Increase (decrease) vs prior year



20%


290bps

 

Segment net sales decreased $1.3 million, including the $25.4 million contribution from Ainsworth related to the first two weeks of the fiscal year. Excluding the noncomparable Ainsworth sales, net sales declined

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