The J.M. Smucker Co. Announces Fiscal 2024 First Quarter Results

ORRVILLE, Ohio, Aug. 29, 2023 /PRNewswire/ -- The J.M. Smucker Co. (NYSE: SJM) today announced results for the first quarter ended July 31, 2023, of its 2024 fiscal year. Financial results for the first quarter of fiscal year 2024 reflect the divestiture of certain pet food brands on April 28, 2023. All comparisons are to the first quarter of the prior fiscal year, unless otherwise noted.

EXECUTIVE SUMMARY

• Net sales decreased $67.8 million, or 4 percent. Net sales excluding the divestiture and foreign currency exchange increased 21 percent.
• Net income per diluted share was $1.79. Adjusted earnings per share was $2.21, an increase of 32 percent.
• Cash provided by operations was $217.9 million, compared to cash used of $39.0 million in the prior year. Free cash flow was $67.6 million, compared to $(127.3) million in the prior year.
• The Company updated its full-year fiscal 2024 financial outlook.

CHIEF EXECUTIVE OFFICER REMARKS

"Our first quarter results reflect a positive start to our fiscal year, including volume growth in every business segment," said Mark Smucker, Chair of the Board, President and Chief Executive Officer. "Our ability to continue delivering results in a dynamic environment is due to our talented employees, focused strategy and execution, cost and productivity savings, partnership with our customers, and consumer demand for our leading brands."

"Our continued business momentum gives us confidence to increase our earnings per share expectations for this fiscal year. In the months ahead, we will continue to support our key growth platforms of coffee, snacking, and pet, which are well-positioned to drive sustainable growth and deliver long-term shareholder value."

FIRST QUARTER CONSOLIDATED RESULTS

Net Sales

Net sales decreased 4 percent, including a 9 percent favorable impact from Jif^® peanut butter primarily due to lapping the product recall in the prior year. Excluding noncomparable net sales in the prior year of $374.1 million from the divested pet food brands, as well as $3.8 million of unfavorable foreign currency exchange, net sales increased $310.1 million, or 21 percent.

The increase in comparable net sales was driven by a 13 percentage point increase from volume/mix, primarily driven by Jif^® peanut butter, contract manufacturing sales related to the divested pet food brands, and coffee products. Comparable net sales growth was also supported by an 8 percentage point increase from net price realization, primarily due to list price increases for the U.S. Retail Pet Foods and U.S. Retail Consumer Foods segments and for International and Away from Home and the favorable impact of lapping customer returns and fees related to the Jif^® peanut butter product recall in the prior year.

Operating Income

Gross profit increased $102.3 million, or 19 percent. The increase reflects a favorable net impact of higher net price realization and increased costs and favorable volume/mix, including the benefits from lapping the impact of the Jif^® peanut butter product recall. Gross profit also reflects the unfavorable impact from forgone profits related to the divested pet food brands. Operating income increased $123.8 million, or 69 percent, primarily reflecting the increase in gross profit, a $30.2 million decrease in selling, distribution, and administrative ("SD&A") expenses and a reduction in amortization expense as a result of the divested pet food brands. These benefits were partially offset by the lapping of the insurance recovery from the Jif^® peanut butter product recall.

Adjusted gross profit increased $57.0 million, or 10 percent. The difference between adjusted gross profit and generally accepted accounting principles ("GAAP") results reflects the exclusion of the change in net cumulative unallocated derivative gains and losses. Adjusted operating income, which further reflects the exclusion of amortization as compared to GAAP operating income, increased $61.7 million, or 23 percent.

Interest Expense and Income Taxes

Net interest expense decreased $7.0 million, primarily due to an increase in interest income, reflecting higher interest rates as compared to the prior year, and a decrease in interest expense related to the Company's commercial paper program, as there was no balance outstanding at the end of the quarter.

The effective income tax rate was 23.0 percent, compared to 22.2 percent in the prior year. The adjusted effective income tax rate was 23.6 percent, compared to 23.0 percent in the prior year. The prior year effective income tax rates included a favorable deferred tax benefit of a state income tax rate reduction.

Cash Flow and Debt

Cash provided by operating activities was $217.9 million, compared to cash used of $39.0 million in the prior year, primarily reflecting less cash required to fund working capital, lapping the $70.0 million contribution to the Company's U.S. qualified defined benefit pension plans in the prior year, and higher net income adjusted for noncash items in the current year. Free cash flow was $67.6 million, compared to $(127.3) million in the prior year, reflecting the increase in cash provided by operating activities, partially offset by a $62.0 million increase in capital expenditures.

The Company repurchased approximately 2.4 million of its common shares for $372.0 million in the first quarter.

FULL-YEAR OUTLOOK

The Company updated its full-year fiscal 2024 guidance as summarized below:

Comparable net sales are expected to increase 8.5 to 9.5 percent compared to the prior year. This reflects favorable volume/mix from underlying business momentum, as well as higher net pricing. Net sales are expected to decrease 10.0 to 11.0 percent compared to the prior year, which reflects $1.5 billion of net sales in the prior year related to the divested pet food brands.

Adjusted earnings per share is expected to range from $9.45 to $9.85. This range reflects the benefits of favorable volume/mix and higher net pricing actions, partially offset by increased SD&A expenses. The adjusted earnings per share range also reflects a net impact of approximately $0.60 related to stranded overhead from the pet food divestiture, inclusive of income and reimbursements from transition services and contract manufacturing agreements.

This guidance assumes an adjusted gross profit margin of approximately 37.0 percent, an adjusted effective income tax rate of 24.0 percent, and 102.5 million common shares outstanding. Free cash flow is expected to be approximately $650 million with capital expenditures of $550 million.

FIRST QUARTER SEGMENT RESULTS

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

U.S. Retail Coffee

Net sales increased $27.2 million, or 5 percent. Volume/mix increased net sales by 4 percentage points, primarily driven by the Folgers^® and Café Bustelo^® brands. Net price realization was neutral in the quarter.

Segment profit increased $24.2 million, primarily reflecting decreased commodity costs and favorable volume/mix.

U.S. Retail Consumer Foods

Net sales increased $152.9 million, or 49 percent, including a 43 percent favorable impact from Jif^® peanut butter primarily due to lapping the product recall in the prior year. Volume/mix increased net sales by 28 percentage points, primarily driven by Jif^® peanut butter and Smucker's^® Uncrustables^® frozen sandwiches. Higher net price realization increased net sales by 22 percentage points, primarily reflecting the favorable impact of lapping customer returns and fees related to the Jif^® peanut butter product recall. 

Segment profit increased $50.9 million, primarily reflecting the net favorable impact of lapping the Jif^® peanut butter product recall and favorable volume/mix for Uncrustables^® frozen sandwiches. Excluding the impact related to Jif^® peanut butter, the net impact of increased costs and higher net price realization was unfavorable.

U.S. Retail Pet Foods

Net sales decreased $288.0 million, or 40 percent. Excluding $367.7 million of noncomparable net sales in the prior year related to the divested pet food brands, net sales increased $79.7 million, or 22 percent. Volume/mix increased net sales by 12 percentage points, primarily driven by $50.6 million of contract manufacturing sales related to the divestiture and an increase for the Milk-Bone^® brand, partially offset by the Pup-Peroni^® brand. Higher net price realization increased net sales by 10 percentage points, primarily reflecting list price increases across the portfolio.

Segment profit decreased $39.0 million, primarily reflecting the noncomparable segment profit in the prior year related to the divested pet food brands, increased marketing investments for the remaining brands, and increased distribution costs, partially offset by a favorable net impact of higher net price realization and increased costs and favorable volume/mix.

International and Away From Home

Net sales increased $40.1 million, or 17 percent, including a 12 percent favorable impact from Jif^® peanut butter primarily due to lapping the product recall in the prior year. Excluding $6.4 million of noncomparable net sales in the prior year related to the divested pet food brands and $3.8 million of unfavorable foreign currency exchange, net sales increased $50.3 million, or 22 percent. Volume/mix increased net sales by 14 percentage points for the combined businesses, primarily driven by portion control and peanut butter products. Net price realization contributed an 8 percentage point increase to net sales, primarily driven by list price increases across the portfolio, partially offset by increased trade spend.

Segment profit increased $19.8 million, primarily reflecting favorable volume/mix, primarily due to the favorable impact of lapping the Jif^® peanut butter product recall in the prior year, and a favorable net impact of higher net price realization and increased costs.

Financial Results Discussion and Webcast

At approximately 7:00 a.m. Eastern Time today, the Company will post to its website at investors.jmsmucker.com a pre-recorded management discussion of its fiscal 2024 first quarter financial results, a transcript of the discussion, and supplemental materials. At 9:00 a.m. Eastern Time today, the Company will webcast a live question and answer session with Mark Smucker, Chair of the Board, President and Chief Executive Officer, and Tucker Marshall, Chief Financial Officer. The live webcast and replay can be accessed at investors.jmsmucker.com.

The J.M. Smucker Co. Forward-Looking Statements

This press release contains forward-looking statements, such as projected net sales, operating results, earnings, and cash flows that are subject to risks and uncertainties that could cause actual results to differ materially from future results expressed or implied by those forward-looking statements. The risks, uncertainties, important factors, and assumptions listed and discussed in this press release, which could cause actual results to differ materially from those expressed, include: the effect of the sale of certain pet food brands on the Company's ability to retain key personnel and to maintain relationships with customers, suppliers, and other business partners, and any impact to the value of the Company's investment in Post common stock or the Company's ability to dispose of some or all of such securities at favorable market prices; disruptions or inefficiencies in the Company's operations or supply chain, including any impact caused by product recalls (including the Jif^® peanut butter product recall), political instability, terrorism, armed hostilities (including the ongoing conflict between Russia and Ukraine), extreme weather conditions, natural disasters, pandemics (including the novel coronavirus), work stoppages or labor shortages, or other calamities; risks related to the availability, and cost inflation in, supply chain inputs, including labor, raw materials, commodities, packaging, and transportation; the impact of food security concerns involving either the Company's products or its competitors' products, including changes in consumer preference, consumer litigation, actions by the U.S. Food and Drug Administration or other agencies, and product recalls; risks associated with derivative and purchasing strategies the Company employs to manage commodity pricing and interest rate risks; the availability of reliable transportation on acceptable terms; the ability to achieve cost savings related to restructuring and cost management programs in the amounts and within the time frames currently anticipated; the ability to generate sufficient cash flow to continue operating under the Company's capital deployment model, including capital expenditures, debt repayment, dividend payments, and share repurchases; the ability to implement and realize the full benefit of price changes, and the impact of the timing of the price changes to profits and cash flow in a particular period; the success and cost of marketing and sales programs and strategies intended to promote growth in the Company's businesses, including product innovation; general competitive activity in the market, including competitors' pricing practices and promotional spending levels; the Company's ability to attract and retain key talent; the concentration of certain of the Company's businesses with key customers and suppliers, including single-source suppliers of certain key raw materials and finished goods, and the Company's ability to manage and maintain key relationships; impairments in the carrying value of goodwill, other intangible assets, or other long-lived assets or changes in the useful lives of other intangible assets or other long-lived assets; the impact of new or changes to existing governmental laws and regulations and their application; the outcome of tax examinations, changes in tax laws, and other tax matters; a disruption, failure, or security breach of the Company or their suppliers' information technology systems, including, but not limited to, ransomware attacks; foreign currency exchange rate and interest rate fluctuations; and risks related to other factors described under "Risk Factors" in other reports and statements filed with the Securities and Exchange Commission, including the Company's most recent Annual Report on Form 10-K. The Company undertakes no obligation to update or revise these forward-looking statements, which speak only as of the date made, to reflect new events or circumstances. 

About The J.M. Smucker Co.

At The J.M. Smucker Co., it is our privilege to make food people and pets love by offering a diverse portfolio of brands available across North America. We are proud to lead in the coffee, consumer foods, dog snacks, and cat food categories by offering brands consumers trust for themselves and their families each day, including Folgers^®, Dunkin'^®, Café Bustelo^®, Jif^®, Smucker's^® Uncrustables^®, Smucker's^®, Milk-Bone^®, and Meow Mix^®. Through our unwavering commitment to producing quality products, operating responsibly and ethically and delivering on our Purpose, we will continue to grow our business while making a positive impact on society. For more information, please visit jmsmucker.com.

The J.M. Smucker Co. is the owner of all trademarks referenced herein, except for Dunkin'^®, which is a trademark of DD IP Holder LLC. The Dunkin'^® brand is licensed to The J.M. Smucker Co. for packaged coffee products sold in retail channels such as grocery stores, mass merchandisers, club stores, e-commerce and drug stores, and in certain away from home channels. This information does not pertain to products for sale in Dunkin'^® restaurants.

Non-GAAP Financial Measures

The Company uses non-GAAP financial measures, including: net sales excluding divestitures and foreign currency exchange; adjusted gross profit; adjusted operating income; adjusted income; adjusted earnings per share; earnings before interest, taxes, depreciation, amortization, impairment charges related to intangible assets, and gains and losses on divestitures ("EBITDA (as adjusted)"); and free cash flow, as key measures for purposes of evaluating performance internally. The Company believes that investors' understanding of its performance is enhanced by disclosing these performance measures. Furthermore, these non-GAAP financial measures are used by management in preparation of the annual budget and for the monthly analyses of its operating results. The Board of Directors also utilizes certain non-GAAP financial measures as components for measuring performance for incentive compensation purposes.

Non-GAAP financial measures exclude certain items affecting comparability that can significantly affect the year-over-year assessment of operating results, which include amortization expense and impairment charges related to intangible assets; certain divestiture, acquisition, integration, and restructuring costs ("special project costs"); gains and losses on divestitures; the net change in cumulative unallocated gains and losses on commodity and foreign currency exchange derivative activities ("change in net cumulative unallocated derivative gains and losses"); and other infrequently occurring items that do not directly reflect ongoing operating results. Income taxes, as adjusted is calculated using an adjusted effective income tax rate that is applied to adjusted income before income taxes and reflects the exclusion of the previously discussed items, as well as any adjustments for one-time tax-related activities, when they occur. While this adjusted effective income tax rate does not generally differ materially from the GAAP effective income tax rate, certain exclusions from non-GAAP financial measures can significantly impact the adjusted effective income tax rate.

These non-GAAP financial measures are not intended to replace the presentation of financial results in accordance with U.S. GAAP. Rather, the presentation of these non-GAAP financial measures supplements other metrics used by management to internally evaluate its businesses and facilitate the comparison of past and present operations and liquidity. These non-GAAP financial measures may not be comparable to similar measures used by other companies and may exclude certain nondiscretionary expenses and cash payments. A reconciliation of certain non-GAAP financial measures to the comparable GAAP financial measure for the current and prior year periods is included in the "Unaudited Non-GAAP Financial Measures" tables. The Company has also provided a reconciliation of non-GAAP financial measures for its fiscal year 2024 outlook.

The following tables provide a reconciliation of the Company's fiscal 2024 guidance for estimated adjusted earnings per share and free cash flow.

SOURCE The J.M. Smucker Co.