Orrville, Ohio, Aug. 14 - The J. M. Smucker Company today announced results for the first quarter ended July 31, 2008, of its 2009 fiscal year.
First Quarter Results
Three months ended
July 31,
2008 2007 % Increase
(Dollars in millions, except per share data)
Net sales $663.7 $561.5 18%
Net income:
Income $42.3 $40.8 4%
Income per diluted share $0.77 $0.71 8%
Net sales increased 18 percent in the first quarter of 2009 compared to the first quarter of 2008 as sales growth was broad-based with all major brands contributing. In addition, the Carnation(R), Europe's Best(R) and Knott's Berry Farm(R) acquisitions contributed approximately $31 million in sales to the quarter. Excluding acquisitions and foreign exchange, sales increased 12 percent.
The strength of the Company's brands made it possible to successfully implement the price increases necessary to offset rising commodity costs. While pricing was the primary driver of the sales increase, volume gains were realized in several categories including Smucker's(R) fruit spreads and Uncrustables(R) sandwiches, Pillsbury(R) baking mixes and frostings, and Hungry Jack(R) potatoes and pancakes. Volume declines were primarily limited to oils and peanut butter, which were anticipated, resulting in a net tonnage decrease of approximately 4 percent.
Net income per diluted share for the quarter was $0.77, an increase of 8 percent compared to last year's first quarter. Included in net income for the first quarter of 2009 were restructuring and merger and integration costs of $0.05 per diluted share, while net income for the first quarter of 2008 included restructuring and merger and integration costs of $0.01 per diluted share. Excluding restructuring and merger and integration costs in both years, the Company's income per diluted share was $0.82 in the first quarter of 2009, and $0.72 in the first quarter of 2008, an increase of 14 percent.
"We delivered good sales and earnings growth this quarter, establishing momentum as we enter the Back-to-School and Fall Bake periods," commented Richard Smucker, president and co-chief executive officer. "We are particularly pleased that we are experiencing sales growth across most of our brands despite taking significant price increases to offset record raw material costs. Our strategy of owning number one brands and supporting them with consistent investments in marketing and product innovation provides opportunities for continued long-term profitable growth."
"We look forward to adding another number one brand with the merger of the Folgers coffee business into Smucker," added Tim Smucker, chairman and co- chief executive officer. "Folgers(R) will be our largest brand, with sales in excess of $1.5 billion, and builds on our center of the store focus. We expect the addition of Folgers to significantly increase cash flow and, combined with the substantial increase in our size and scale, provide a platform for future growth and enhance our long-term growth opportunities."
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 is included in the "Unaudited Financial Highlights" table.
The impact of price increases taken to date has offset higher raw material costs, predominantly soybean oil, peanuts and wheat, contributing to a $22 million increase in gross profit. While price increases contributed to the overall gross profit increase, the incremental dollars did not provide gross margin expansion, and gross margin declined from 33.1 percent to 31.3 percent. Other factors impacting gross margin were increased fuel costs, the loss of nonrecurring peanut butter sales, and unfavorable product mix. As expected, margins improved in the Eagle business compared to last year, helping to offset these other factors.
Selling, distribution, and administrative ("SD&A") expenses increased 13 percent for the first quarter of 2009 compared to 2008, resulting primarily from increased marketing investment, and distribution and amortization expenses. However, most SD&A expenses, particularly corporate overhead, increased at a lesser rate than net sales resulting in an overall decrease in SD&A from 20.8 percent of net sales to 19.9 percent, providing some offset to the decline in gross margin.
Operating income increased 2 percent compared to the first quarter of 2008, and decreased from 12.5 percent to 10.8 percent of net sales. Restructuring and merger and integration costs were $3.2 million higher in the first quarter of 2009 compared to 2008, reducing operating margin by 50 basis points. In addition, last year's operating income included the gain on the sale of the industrial ingredient business in Scotland, benefiting last year's first quarter operating margin by 30 basis points.
Other
The effective tax rate decreased to 33.3 percent in the first quarter of 2009, from 36.1 percent in the comparable period in 2008. In the first quarter of 2008, the Company's divestiture of its industrial ingredient business in Scotland, and the resulting repatriation of foreign earnings had a negative impact on the effective tax rate.
Segment Performance
Net sales Three months ended July 31,
2008 2007 % Increase
(Dollars in millions)
U.S. retail market $472.1 $418.2 13%
Special markets $191.5 $143.4 34%
U.S. Retail Market
U.S. retail market segment net sales for the quarter were up 13 percent. Net sales in the consumer strategic business area increased 11 percent, with Smucker's fruit spreads, toppings and Uncrustables sandwiches, Jif(R) and Hungry Jack all up. All major categories of the consumer business area were up in volume, except for peanut butter. Net sales in the consumer oils and baking strategic business area were up 15 percent, due to price increases taken over the course of fiscal 2008, and volume gains in baking mixes and frostings. These increases more than offset anticipated volume declines in oils.
Special Markets
Net sales in the first quarter for the special markets segment increased 34 percent. Net sales in the Canada strategic business area were up 79 percent, with the impact of the Carnation and Europe's Best acquisitions, and favorable exchange rates contributing over two-thirds of the increase. Volume and pricing gains accounted for the remaining Canadian sales growth. Net sales increased 13 percent in the foodservice strategic business area, led by pricing, with the Knott's Berry Farm acquisition and volume growth in the schools channel also contributing. The beverage business area was up by 11 percent, primarily due to pricing.
Outlook
The Company confirmed its outlook for the year. The outlook includes the impact of its previously announced 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 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 primarily 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.
About The J. M. Smucker Company
The J. M. Smucker Company is the leading marketer and manufacturer of fruit spreads, peanut butter, shortening and oils, ice cream toppings, sweetened condensed milk, and health and natural foods beverages in North America. Its family of brands includes Smucker's(R), Jif(R), Crisco(R), Pillsbury(R), Eagle Brand(R), R.W. Knudsen Family(R), Hungry Jack(R), White Lily(R) and Martha White(R) in the United States, along with Robin Hood(R), Five Roses(R), Carnation(R), Europe's Best(R) and Bick's(R) in Canada. The Company remains rooted in the Basic Beliefs of Quality, People, Ethics, Growth and Independence established by its founder and namesake more than a century ago. Since 1998, the Company has appeared on FORTUNE Magazine's annual listing of the 100 Best Companies to Work For in the United States, ranking number one in 2004. The J. M. Smucker Company is the owner of all trademarks, except Pillsbury is a trademark of The Pillsbury Company, used under license and Carnation is a trademark of Societe des Produits Nestle S.A., used under license.
The J. M. Smucker Company
Unaudited Condensed Consolidated Statements of Income
Three Months Ended July 31,
2008 2007
(Dollars in thousands, except
per share data)
Net sales $663,657 $561,513
Cost of products sold 455,878 375,529
Gross Profit 207,779 185,984
Selling, distribution, and administrative expenses 131,884 116,750
Restructuring costs 519 313
Merger and integration costs 3,400 432
Other operating expense (income) - net 148 (1,686)
Operating Income 71,828 70,175
Interest income 1,338 3,495
Interest expense (10,744) (10,093)
Other income - net 1,025 246
Income Before Income Taxes 63,447 63,823
Income taxes 21,156 23,062
Net Income $42,291 $40,761
Net income per common share $0.78 $0.72
Net income per common share- assuming dilution $0.77 $0.71
Dividends declared per common share $0.32 $0.30
Weighted-average shares outstanding 54,282,700 56,645,611
Weighted-average shares outstanding - assuming
dilution 54,667,666 57,265,133
The J. M. Smucker Company
Unaudited Condensed Consolidated Balance Sheets
July 31, 2008 April 30, 2008
(Dollars in thousands)
Assets
Current Assets:
Cash and cash equivalents $142,699 $184,175
Trade receivables 182,693 162,426
Inventories 471,768 379,608
Other current assets 37,920 49,998
Total Current Assets 835,080 776,207
Property, Plant, and Equipment, Net 505,919 496,296
Other Noncurrent Assets:
Goodwill 1,149,494 1,132,476
Other intangible assets, net 632,914 614,000
Other assets 108,914 110,902
Total Other Noncurrent Assets 1,891,322 1,857,378
$3,232,321 $3,129,881
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $154,942 $119,844
Current portion of long-term debt 75,000 -
Other current liabilities 173,811 119,553
Total Current Liabilities 403,753 239,397
Noncurrent Liabilities:
Long-term debt, net of current portion 713,945 789,684
Other noncurrent liabilities 297,338 300,947
Total Noncurrent Liabilities 1,011,283 1,090,631
Shareholders' Equity, net 1,817,285 1,799,853
$3,232,321 $3,129,881
The J. M. Smucker Company
Unaudited Condensed Consolidated Statements of Cash Flow
Three Months Ended July 31,
2008 2007
(Dollars in thousands)
Operating Activities
Net income $42,291 $40,761
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 15,036 14,770
Amortization 1,471 121
Share-based compensation expense 2,799 2,826
Working capital (6,094) (48,851)
Net Cash Provided by Operating Activities 55,503 9,627
Investing Activities
Businesses acquired, net of cash acquired (55,593) (133,446)
Additions to property, plant, and equipment (22,197) (16,787)
Proceeds from sale of business - 3,407
Purchases of marketable securities - (144,705)
Other - net 1,694 2,931
Net Cash Used for Investing Activities (76,096) (288,600)
Financing Activities
Proceeds from long-term debt - 400,000
Repayments of long-term debt - (115,000)
Dividends paid (17,451) (17,014)
Purchase of treasury shares (3,356) (3,627)
Other - net 322 19,296
Net Cash (Used for) Provided by Financing Activities (20,485) 283,655
Effect of exchange rate changes (398) 1,861
Net (decrease) increase in cash and cash equivalents (41,476) 6,543
Cash and cash equivalents at beginning of period 184,175 200,119
Cash and cash equivalents at end of period $142,699 $206,662
The J. M. Smucker Company
Unaudited Financial Highlights
Three Months Ended July 31,
2008 2007
(Dollars in thousands, except
per share data)
Net sales $663,657 $561,513
Net income and net income per common share:
Net income $42,291 $40,761
Net income per common share -- assuming dilution $0.77 $0.71
Income before restructuring and merger and
integration costs: (1)
Income $44,903 $41,237
Income per common share -- assuming dilution $0.82 $0.72
(1) Reconciliation to net income:
Income before income taxes $63,447 $63,823
Merger and integration costs 3,400 432
Restructuring costs 519 313
Income before income taxes, restructuring, and
merger and integration costs 67,366 64,568
Income taxes 22,463 23,331
Income before restructuring and merger and
integration costs $44,903 $41,237
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 July 31,
2008 2007
(Dollars in thousands)
Net sales:
U.S. retail market $472,141 $418,155
Special markets 191,516 143,358
Total net sales $663,657 $561,513
Segment profit:
U.S. retail market $87,861 $78,758
Special markets 20,738 21,636
Total segment profit $108,599 $100,394
Interest income 1,338 3,495
Interest expense (10,744) (10,093)
Amortization (1,471) (121)
Share-based compensation expense (2,799) (2,826)
Restructuring costs (519) (313)
Merger and integration costs (3,400) (432)
Corporate administrative expense (28,892) (28,131)
Other unallocated income 1,335 1,850
Income before income taxes $63,447 $63,823