The J. M. Smucker Company Announces Fourth Quarter Results
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Source: J. M. Smucker Company
19/06/2008
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Orrville, Ohio, June 19 - The J. M. Smucker Company today announced results for the fourth quarter and fiscal year ended April 30, 2008. Results for the quarter and year ended April 30, 2008, include the operations of Eagle Family Foods Holdings, Inc. which was acquired on May 1, 2007.
Fourth Quarter Results
Three months ended
April 30,
2008 2007 % Increase
(Dollars in millions, except per
share data)
Net sales $590.0 $493.5 20%
Net income:
Income $37.1 $42.5 (13%)
Income per diluted share $0.67 $0.75 (11%)
Net sales increased 20 percent in the fourth quarter of 2008 compared to the fourth quarter of 2007 as acquisitions accounted for over half of the growth, and price increases accounted for a majority of the remainder of the overall increase in sales. The acquired Eagle businesses contributed $42.5 million and acquisitions in total added $59.9 million in net sales during the quarter. The Smucker's®, Crisco®, and Hungry Jack® brands increased over last year due to a combination of volume and pricing gains. Favorable exchange rates also contributed to net sales.
Net income per diluted share for the quarter was $0.67, a decrease of 11 percent compared to last year's fourth quarter. During last year's fourth quarter, a peanut butter competitor was temporarily out of the market, and as a result, sales benefited by approximately $15 million and earnings by an estimated $0.08 per share. Included in net income for this quarter was a net insurance settlement of approximately $4 million, or $0.05 per diluted share, related to storm damage at a third-party distribution center in Memphis, Tennessee. Also included in net income for the fourth quarter of 2008 were restructuring and merger and integration costs of $0.06 per diluted share, while net income for the fourth quarter of 2007 included restructuring and merger and integration costs of less than $0.01 per diluted share. Excluding restructuring and merger and integration costs in both years, the Company's income per diluted share was $0.73 in the fourth quarter of 2008, and $0.75 in the fourth quarter of 2007, a decrease of 3 percent.
"Our performance this year is especially gratifying in a time of unprecedented cost increases," commented Tim Smucker, chairman and co-chief executive officer. "Despite raw material cost increases over $150 million, we completed another record year with both sales and earnings exceeding our long- term strategic growth goals. It is our focus on the consumer, and meeting their needs with quality products, that provides the basis for our continued success and enhances opportunities for continued growth."
"As we start the new year, we look forward to completing the transaction to merge the Folgers coffee business into Smucker," added Richard Smucker, president and co-chief executive officer. "Folgers® is a perfect fit with our strategy to own and market number one brands in North America. The addition of Folgers will strengthen our portfolio of brands and we believe it is financially compelling. This powerful combination will provide increased size and scale that will benefit all of our businesses, position us for future growth, and deliver long-term shareholder value."
Full Year Results
Year ended April 30,
2008 2007 % Increase
(Dollars in millions, except per
share data)
Net sales $2,524.8 $2,148.0 18%
Net income:
Income $170.4 $157.2 8%
Income per diluted share $3.00 $2.76 9%
Net sales increased 22 percent in 2008 compared to 2007, excluding the Canadian nonbranded, grain-based foodservice and industrial businesses sold in September 2006. The acquired Eagle businesses contributed $236.2 million in 2008 and total acquisitions added $279.7 million. Net sales increased 8 percent excluding both acquisitions and the divested Canadian businesses.
Net income per diluted share for 2008 was $3.00, an increase of 9 percent over last year. Net income for 2008 included restructuring and merger and integration costs of $0.15 per diluted share, while net income for 2007 included restructuring and merger and integration costs of $0.13 per diluted share. Excluding these costs in both years, the Company's income per diluted share was $3.15 in 2008, and $2.89 in 2007, an increase of 9 percent.
The Company uses income and income per diluted share, excluding restructuring and merger and integration costs, as key measures of results of operations for purposes of evaluating performance internally. These non-GAAP measures are not intended to replace the presentation of financial results in accordance with U.S. GAAP. Rather, the presentation of results excluding such charges is consistent with the way management internally evaluates its businesses, facilitates the comparison of past and present operations, and provides management a more comprehensive understanding of the financial results. A reconciliation of non-GAAP measures to net income for the current quarter and year is included in the "Unaudited Financial Highlights" table.
Margins
Three months ended Year ended
April 30, April 30,
2008 2007 2008 2007
(% of net sales)
Gross profit 30.9% 36.5% 31.0% 32.7%
Selling, distribution, and
administrative expenses 20.3% 22.2% 19.4% 20.6%
Operating income 10.5% 13.9% 11.3% 11.8%
Operating income decreased by $6.9 million, or 10 percent, compared to the fourth quarter of 2007, and decreased from 13.9 percent to 10.5 percent of net sales. The impact of higher raw material costs, predominantly the record levels for soybean oil and wheat, was the primary cause of the decline in gross profit to 30.9 percent of net sales compared to an unusually high 36.5 percent in last year's fourth quarter. The impact of price increases taken to date, while essentially offsetting higher raw material costs, was not sufficient to maintain profit margins and accounted for approximately one- third of the gross margin decline. Margins in the current quarter were also negatively impacted by the Eagle business which, due to higher milk costs and a higher percentage of non-branded versus branded sales, realized margins below the Company's average. Last year's fourth quarter results also were favorably affected by the nonrecurring benefit of incremental higher-margin peanut butter sales.
Selling, distribution, and administrative ("SD&A") expenses increased 9 percent, for the fourth quarter of 2008 compared to 2007, resulting from increased marketing investment, along with costs related to the acquired Eagle business. However, all SD&A expenses, particularly corporate overhead expenses, increased at a lesser rate than net sales resulting in an overall decrease in SD&A from 22.2 percent of net sales to 20.3 percent, providing some offset to the decline in gross profit as a percent of net sales. Restructuring and merger and integration costs were $4.1 million higher in the fourth quarter of 2008 compared to 2007, further reducing operating margin by almost 70 basis points.
Other
Interest expense increased by $4.7 million in the fourth quarter of 2008 compared to the fourth quarter of 2007, resulting from the issuance of $400 million in senior notes in the first quarter of 2008, a portion of which repaid short-term debt used in financing the Eagle acquisition.
The effective tax rate decreased to 30.0 percent in the fourth quarter of 2008, from 35.3 percent in the comparable period in 2007 primarily due to a lower state tax rate.
During the fourth quarter, the Company repurchased 1,296,600 common shares for $66.2 million in cash, including one million common shares under a previously announced Rule 10b5-1 trading plan.
Segment Performance
Net sales
Three months ended April 30, Year ended April 30,
% Increase % Increase
2008 2007 (Decrease) 2008 2007 (Decrease)
(Dollars in millions) (Dollars in millions)
U.S. retail market $419.0 $365.5 15% $1,874.5 $1,547.1 21%
Special markets $171.0 $128.0 34% $650.2 $601.0 8%
Special markets excluding
divested nonbranded
Canadian businesses $171.0 $128.0 34% $650.2 $525.8 24%
U.S. Retail Market
U.S. retail market segment net sales for the quarter were up 15 percent. Net sales in the consumer strategic business area increased 5 percent led by Smucker's fruit spreads and Uncrustables®, and Hungry Jack products. Net sales in the consumer oils and baking strategic business area were up 32 percent. Excluding the contribution of $34.1 million from the acquired Eagle business, consumer oils and baking strategic business area net sales increased 6 percent, primarily due to volume gains in oils and price increases.
For 2008, U.S. retail market segment net sales increased 21 percent compared to 2007. Net sales in the consumer strategic business area increased 9 percent. Excluding the contribution of $198.9 million from the acquired Eagle business, net sales in the oils and baking strategic business area increased 8 percent over 2007.
Special Markets
Net sales in the fourth quarter for the special markets segment increased 34 percent. Net sales in the Canada strategic business area were up 63 percent primarily due to the impact of the acquired Eagle and Carnation® canned milk businesses, the Europe's Best® acquisition, and favorable exchange rates. Net sales increased 20 percent in the foodservice strategic business area, and were up 8 percent, excluding the contribution of the Eagle acquisition. Net sales in the beverage strategic business area increased by 16 percent.
For 2008, special markets segment net sales increased 24 percent compared to 2007, excluding divested Canadian businesses.
Outlook
Earlier this month, the Company announced that it entered into a definitive agreement with The Procter & Gamble Company ("P&G") to merge P&G's Folgers coffee business with and into the Company. Assuming the transaction closes early in the fourth quarter of calendar 2008, the Company's net sales are estimated to range from $3.8 to $4.0 billion and earnings per share before one-time costs associated with the transaction, are estimated to range from $3.45 to $3.50. Actual results for the year will depend on the final closing date of the transaction.
On its base business, the Company expects raw material costs in 2009 to increase approximately $150 million over 2008 levels with soybean oil, wheat, peanuts, and certain fruits accounting for the majority of the increase. Pricing actions, taken over the last several months, and including those effective in May, will help offset the impact of the cost increases, but will not be sufficient to expand margins in the near term. The Company also plans to increase its 2009 marketing investment by 20 percent.
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The J. M. Smucker Company
Unaudited Condensed Consolidated Statements of Income
Three Months Ended Year Ended
April 30, April 30,
2008 2007 2008 2007
(Dollars in thousands, except per share data)
Net sales $589,998 $493,472 $2,524,774 $2,148,017
Cost of products sold 406,511 313,569 1,741,100 1,435,981
Cost of products sold -
restructuring 1,248 - 1,510 9,981
Gross Profit 182,239 179,903 782,164 702,055
Selling, distribution, and
administrative expenses 119,647 109,540 490,665 442,814
Other restructuring costs 1,631 783 3,237 2,120
Merger and integration
costs 2,083 61 7,967 61
Other operating (income)
expense - net (2,809) 955 (3,879) 2,689
Operating Income 61,687 68,564 284,174 254,371
Interest income 2,244 2,600 13,259 9,225
Interest expense (10,410) (5,682) (42,145) (23,363)
Other (expense) income -
net (592) 247 (500) 771
Income Before Income Taxes 52,929 65,729 254,788 241,004
Income taxes 15,878 23,230 84,409 83,785
Net Income $37,051 $42,499 $170,379 $157,219
Net income per common
share $0.68 $0.76 $3.03 $2.79
Net income per common
share- assuming
dilution $0.67 $0.75 $3.00 $2.76
Dividends declared per
common share $0.32 $0.30 $1.22 $1.14
Weighted-average shares
outstanding 54,721,975 56,240,696 56,226,206 56,432,839
Weighted-average shares
outstanding - assuming
dilution 55,229,379 57,044,652 56,720,645 57,056,421
The J. M. Smucker Company
Unaudited Condensed Consolidated Balance Sheets
April 30, 2008 April 30, 2007
(Dollars in thousands)
Assets
Current Assets:
Cash and cash equivalents $184,175 $200,119
Trade receivables 162,426 124,048
Inventories 379,608 286,052
Other current assets 49,998 29,147
Total Current Assets 776,207 639,366
Property, Plant, and Equipment, Net 496,296 454,028
Other Noncurrent Assets:
Goodwill 1,132,476 990,771
Other intangible assets, net 614,000 478,194
Marketable securities 16,043 44,117
Other assets 94,859 87,347
Total Other Noncurrent Assets 1,857,378 1,600,429
$3,129,881 $2,693,823
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $119,844 $93,500
Current portion of long-term debt - 33,000
Other current liabilities 119,553 109,968
Total Current Liabilities 239,397 236,468
Noncurrent Liabilities:
Long-term debt, net of current portion 789,684 392,643
Other noncurrent liabilities 300,947 269,055
Total Noncurrent Liabilities 1,090,631 661,698
Shareholders' Equity, net 1,799,853 1,795,657
$3,129,881 $2,693,823
The J. M. Smucker Company
Unaudited Condensed Consolidated Statements of Cash Flow
Year Ended April 30,
2008 2007
(Dollars in thousands)
Operating Activities
Net income $170,379 $157,219
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation 58,497 57,346
Amortization 4,122 1,528
Asset impairments and other
restructuring charges 1,510 10,089
Share-based compensation expense 11,531 11,257
Working capital (54,462) 35,985
Net Cash Provided by Operating Activities 191,577 273,424
Investing Activities
Businesses acquired, net of cash
acquired (220,949) (60,488)
Additions to property, plant, and
equipment (76,430) (57,002)
Proceeds from sale of business 3,407 84,054
Purchases of marketable securities (229,405) (20,000)
Sales and maturities of marketable
securities 257,536 26,272
Other - net 3,355 123
Net Cash Used for Investing
Activities (262,486) (27,041)
Financing Activities
Proceeds from long-term debt 400,000 -
Repayments of long-term debt (148,000) -
Dividends paid (68,074) (63,632)
Purchase of treasury shares (152,521) (52,125)
Other - net 18,434 (1,868)
Net Cash Provided by (Used for)
Financing Activities 49,839 (117,625)
Effect of exchange rate changes 5,126 (595)
Net (decrease) increase in cash and
cash equivalents (15,944) 128,163
Cash and cash equivalents at
beginning of period 200,119 71,956
Cash and cash equivalents at end of
period $184,175 $200,119
The J. M. Smucker Company
Unaudited Financial Highlights
Three Months Ended Year Ended
April 30, April 30,
2008 2007 2008 2007
(Dollars in thousands, except per share data)
Net sales $589,998 $493,472 $2,524,774 $2,148,017
Net income and net income per
common share:
Net income $37,051 $42,499 $170,379 $157,219
Net income per common share
-- assuming dilution $0.67 $0.75 $3.00 $2.76
Income before restructuring
and merger and integration
costs: (1)
Income $40,433 $43,025 $178,881 $165,152
Income per common share --
assuming dilution $0.73 $0.75 $3.15 $2.89
(1) Reconciliation to net
income:
Income before income taxes $52,929 $65,729 $254,788 $241,004
Merger and integration
costs 2,083 61 7,967 61
Cost of products sold -
restructuring 1,248 - 1,510 9,981
Other restructuring costs
(credits) 1,631 783 3,237 2,120
Income before income taxes,
restructuring, and merger
and integration costs 57,891 66,573 267,502 253,166
Income taxes 17,458 23,548 88,621 88,014
Income before restructuring
and merger and integration
costs $40,433 $43,025 $178,881 $165,152
The Company uses income and income per diluted share, excluding
restructuring and merger and integration costs, as key performance
measures of results of operations for purposes of evaluating
performance internally. These non-GAAP measures are not intended to
replace the presentation of financial results in accordance with U.S.
GAAP. Rather, the presentation of results excluding such charges is
consistent with the way management internally evaluates its businesses,
facilitates the comparison of past and present operations and provides
management a more comprehensive understanding of the financial results.
The J. M. Smucker Company
Unaudited Reportable Segments
Three Months Ended April 30, Year Ended April 30,
2008 2007 2008 2007
(Dollars in thousands)
Net sales:
U.S. retail market $418,994 $365,508 $1,874,547 $1,547,064
Special markets 171,004 127,964 650,227 600,953
Total net sales $589,998 $493,472 $2,524,774 $2,148,017
Segment profit:
U.S. retail market $76,283 $82,999 $332,827 $319,795
Special markets 24,389 20,526 92,019 72,974
Total segment profit $100,672 $103,525 $424,846 $392,769
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