Multifoods Acquisition Contributes to Record Sales Growth of Smucker's, Jif and Crisco Brands Contribute to Sales and Earnings Gains Company Confirms its Fiscal Year 2005 Outlook
ORRVILLE, Ohio, Feb 18, 2005 /PRNewswire-FirstCall via COMTEX/ -- The J. M. Smucker Company (NYSE: SJM) today announced results for its third quarter ended January 31, 2005, of its 2005 fiscal year.
Third Quarter Results
Company sales were $550.2 million for the third quarter of fiscal 2005, up 60 percent compared to $343.8 million in the third quarter of 2004. The acquired Multifoods businesses contributed $187.6 million to sales in the third quarter of 2005. Excluding the contribution of Multifoods, sales were up five percent. Income from continuing operations was $35.5 million, an increase of 14 percent over $31.1 million in last year's third quarter. Sales growth and improved margins on the Company's existing business and the addition of Multifoods were mostly offset by merger and integration costs, an increase in restructuring expenses, higher raw material costs, start-up costs at the Company's Uncrustables(R) facility in Scottsville, Kentucky, and an increase in interest expense over the third quarter of last year. Earnings per diluted share from continuing operations for the third quarter of 2005 were $0.60, compared to $0.62 last year.
Income from continuing operations for the third quarter of 2005 included pretax merger and integration costs of $5.2 million or $0.06 per diluted share and restructuring charges of $3.4 million or $0.04 per diluted share. Income from continuing operations for the third quarter of 2004 included restructuring charges of $2.5 million or $0.03 per diluted share. Excluding these costs, the Company's income from continuing operations was up 25 percent and earnings per diluted share would have been $0.70 and $0.65, in the third quarter of 2005 and 2004, respectively, an increase of eight percent.
"Our Smucker's(R), Jif(R) and Crisco(R) brands experienced good sales growth in the quarter and the new brands we acquired from Multifoods continued to perform well," said Tim Smucker, chairman and co-chief executive officer. "We also continue to aggressively implement our strategy to own and market leading North American icon food brands sold in the center of the store and to take the necessary steps to improve our cost base. This quarter we announced the planned sale of the foodservice and bakery products businesses acquired from Multifoods, the sale of our industrial businesses and the closing of our Salinas, California facility later this calendar year. These actions position us for improved profitability."
Net income for the third quarter of 2005 was up 15 percent to $36.1 million or $0.61 per diluted share, compared to last year's third quarter net income of $31.3 million or $0.62 per diluted share. Included in this quarter's net income was income from discontinued operations of $0.6 million or $0.01 per diluted share. The operations of the Australian-based Henry Jones Foods business, the Brazilian operations, Smucker do Brasil Ltda., and the Multifoods' U.S. foodservice and bakery products business are included in discontinued operations.
Nine-Month Results
Sales for the nine-month period ended January 31, 2005, were up 47 percent to $1,552.4 million compared to $1,057.2 million for the first nine months of fiscal 2004. The acquired Multifoods businesses contributed $472.1 million to sales in the first nine months of 2005. Excluding the contribution of Multifoods, sales were up two percent.
Income from continuing operations for the first nine months of 2005 was $103.7 million or $1.81 per diluted share, compared to $90.2 million or $1.79 per diluted share last year. Income from continuing operations for the first nine months of 2005 included pretax merger and integration costs of $11.9 million or $0.13 per diluted share and restructuring charges of $8.1 million or $0.09 per diluted share. Income from continuing operations for the first nine months of 2004 included restructuring charges of $8.8 million or $0.11 per diluted share. Excluding these costs in the first nine months of 2005 and 2004, the Company's earnings per diluted share from continuing operations would have been $2.03 and $1.90, respectively, an increase of seven percent.
Net income for the first nine months of 2005 was $107.0 million or $1.86 per diluted share, compared to $89.2 million or $1.77 per diluted share in the first nine months of last year. Included in net income for the first nine months of 2005 was income from discontinued operations of $3.3 million or $0.05 per diluted share. Loss from discontinued operations for the first nine months of 2004 was $1.0 million or $0.02 per diluted share.
The Company uses earnings from continuing operations, excluding restructuring and merger and integration costs, as a key performance measure of results of operations for purposes of evaluating performance internally. These non-GAAP measurements are not intended to replace the presentation of financial results in accordance with GAAP. Rather, management believes the presentation of results excluding such charges offers additional information to investors to facilitate the comparison of past and present operations and provides a more comprehensive understanding of the financial results. A reconciliation of non-GAAP measures to earnings from continuing operations for the current quarter and nine-month period is included in the "Financial Highlights" table.
Scottsville Plant
During the first quarter of fiscal year 2005, the Company commenced operations of its Uncrustables facility in Scottsville, Kentucky. As previously announced, the new facility has experienced a longer ramp-up schedule than originally anticipated. The Company incurred approximately $6.1 million or $0.07 per diluted share in costs associated with the start-up during the third quarter of 2005 and $12.2 million or $0.14 per diluted share during the first nine months of 2005. These costs consist primarily of additional labor, materials, and unabsorbed overhead. The Company confirmed that it expects start-up costs in the second half of the fiscal year to total approximately $10 million.
"During the quarter, we were able to meet demand levels and continued to make operating improvements. We expect that the Scottsville plant will provide the capacity to meet our growth and profit objectives," commented Richard Smucker, president and co-chief executive officer. "More importantly, demand for Uncrustables in both the retail and schools markets continues to be strong and we expect it to be a growth platform in the years ahead."
Margins
Operating income in the third quarter of 2005 increased 21 percent from the third quarter last year. As expected, operating margin decreased from 14.4 percent in the third quarter of 2004 to 10.9 percent in the third quarter of 2005. The Company's gross margin decreased from 36.8 percent in the third quarter of last year to 31.7 percent in the third quarter of this year, due primarily to the impact of the Multifoods businesses, which currently earns a lower margin than the Company's base business, and higher commodity costs. The Scottsville start-up costs, an increase in restructuring costs, and merger and integration expenses further impacted operating margin.
Year-to-date operating income increased $31.2 million or 21 percent over last year and operating margin declined from 13.7 percent to 11.4 percent, due to the same factors noted above.
SD&A expenses as a percentage of sales declined from 21.8 percent in the third quarter of 2004 to 19.3 percent in the current quarter. For the first nine months of 2005, SD&A as a percentage of sales declined from 21.6 percent to 20.1 percent.
Interest expense increased from $1.4 million in the third quarter of 2004 to $6.2 million in the third quarter of 2005, and from $4.9 million for the first nine months of 2004 to $16.4 million in the first nine months of 2005, as a result of an increase in the Company's debt outstanding associated with the acquisition of Multifoods. The Company's tax rate for the quarter decreased from 37 percent in fiscal 2004 to 36 percent this year, reflecting a year-to-date adjustment of income taxes to the projected rate for the year of 36.4 percent.
Segment Performance
U.S. Retail Market
Sales in the U.S. retail market segment for the third quarter of 2005 were $381.4 million, compared to $254.3 million in the third quarter of 2004, an increase of 50 percent. The Multifoods' brands contributed $111.2 million of the segment's sales in the quarter. Sales of Smucker's, Jif and Crisco combined to increase over six percent compared to last year. Sales in the first nine months of 2005 were $1,079.9 million, compared to $784.2 million last year, an increase of 38 percent. The Multifoods' brands contributed $277.1 million of sales for the first nine months of 2005.
During the third quarter of 2005, sales in the consumer area increased 21 percent over the third quarter of last year, driven by the addition of Hungry Jack(R), growth in the Smucker's and Jif brands, and continued growth of Uncrustables in the retail channel. In the consumer oils and baking area, sales more than doubled in the third quarter of 2005 compared to 2004, due to the addition of the Pillsbury(R), Martha White(R), and Pet(R) brands and a six percent increase in Crisco sales.
Special Markets
Sales in the special markets segment were $168.9 million in the third quarter of 2005, compared to $89.5 million for the third quarter of 2004. Multifoods contributed $76.5 million of the segment's sales in the quarter. All business areas were up with the exception of the U.S. industrial business, which the Company previously announced was being divested. Key contributors included the beverage business, up seven percent, and the foodservice business, up ten percent with growth in Uncrustables in the schools market and traditional portion control items. Excluding the contribution from Multifoods and the industrial business, sales in the special markets segment increased ten percent in the third quarter of 2005 as compared to the third quarter of last year.
Sales for the first nine months of 2005 in the special markets segment were $472.5 million, compared to $272.9 million last year. Multifoods contributed $194.9 million in sales for the first nine months of 2005. Excluding the Multifoods sales and the industrial business, special markets increased six percent in the first nine months of 2005 compared to the first nine months of last year.
Outlook for Fiscal 2005
The Company confirmed its objective to increase its 2005 diluted earnings per share from continuing operations by its long-term growth goal of eight percent. This equates to an earnings growth rate of approximately 23 percent in 2005. An increase of approximately eight million shares outstanding resulting from the Multifoods acquisition accounts for the difference in these growth rates. This earnings goal excludes the impacts of restructuring, merger and integration costs, and gains and losses on sales of assets.
The Company confirmed total merger and integration costs related to the Multifoods transaction at $20 million. Approximately $15 million of these costs will be incurred in fiscal year 2005 and the remainder is expected to be incurred in fiscal year 2006. Earnings for 2005 are expected to include approximately $10 to 12 million in restructuring costs. The increase in the restructuring estimates reflects the additional costs related to the Company's announced closing of its Salinas, California, facility and the restructuring of its distribution operations.
Conference Call
The Company will conduct an earnings conference call and webcast on Friday, February 18, 2005, at 8:30 a.m. E.T. The webcast can be accessed from the Company's website at www.smuckers.com . For those unable to listen to the webcast, an audio replay will be available following the call and can be accessed by calling (888) 203-1112 or (719) 457-0820 and entering replay pass code 4598871. The audio replay will be available until Friday, February 25, 2005.
About The J. M. Smucker Company
The J. M. Smucker Company ( www.smuckers.com ) was founded in 1897 when the Company's namesake and founder sold his first product - apple butter - from the back of a horse-drawn wagon. Today, over a century later, the Company is the market leader in fruit spreads, peanut butter, shortening and oils, ice cream toppings, and health and natural foods beverages in North America under such icon brands as Smucker's(R), Jif(R) and Crisco(R). In June 2004, the Company expanded its family of products to include such brands as Pillsbury(R) baking mixes and ready-to-spread frostings; Hungry Jack(R) pancake mixes, syrups and potato side dishes; and Martha White(R) baking mixes and ingredients in the U.S., along with Robin Hood(R) flour and baking mixes and Bick's(R) pickles and condiments in Canada. For over 107 years, The J. M. Smucker Company has been headquartered in Orrville, Ohio, and has been family run for four generations. Since the 1998 inception of FORTUNE Magazine's annual survey of the 100 Best Companies to Work For, The J. M. Smucker Company has consistently been recognized as one of the top 25 companies to work for in the United States. The J. M. Smucker Company has over 4,200 employees worldwide and distributes products in more than 45 countries.
The J. M. Smucker Company Forward-Looking Language
This press release contains forward-looking statements, including statements regarding estimates of future earnings and cash flows that are subject to risks and uncertainties that could cause actual results to differ materially. Uncertainties that could affect actual results include, but are not limited to, the ability to achieve the amount and timing of the estimated savings associated with the Multifoods acquisition, the timing and amount of capital expenditures and merger and integration costs, success and costs of new marketing and sales programs and strategies intended to promote growth in the Company's businesses, the ability to successfully implement price changes, particularly in the consumer oils and baking business, the Company's ability to effectively ramp up and manage capacity related to Uncrustables(R), the strength of commodity markets from which raw materials are procured and the related impact on costs, and other factors affecting share prices and capital markets generally. Other risks and uncertainties that may materially affect the Company are detailed from time to time in the respective reports filed by the Company with the Securities and Exchange Commission, including Forms 10-Q, 10-K, and 8-K.
The J. M. Smucker Company
Unaudited Condensed Consolidated Statements of Income
Three Months Ended Nine Months Ended
January 31, January 31,
2005 2004 2005 2004
(Dollars in thousands, except per share data)
Net sales $550,234 $343,788 $1,552,423 $1,057,167
Cost of products sold 375,521 216,837 1,043,379 674,626
Cost of products sold -
restructuring 515 425 1,777 3,619
Gross Profit 174,198 126,526 507,267 378,922
Selling, distribution, and
administrative expenses 106,464 74,956 312,569 228,452
Other restructuring costs 2,837 2,074 6,358 5,200
Merger and integration costs 5,152 - 11,885 -
Operating Income 59,745 49,496 176,455 145,270
Interest income 1,044 851 2,429 1,952
Interest expense (6,154) (1,372) (16,359) (4,913)
Other income - net 883 383 485 746
Income from Continuing
Operations Before Income
Taxes 55,518 49,358 163,010 143,055
Income taxes 19,994 18,238 59,336 52,859
Income from Continuing
Operations 35,524 31,120 103,674 90,196
Gain on sale of discontinued
operations, net of tax - - 2,037 -
Discontinued operations,
net of tax 584 198 1,250 (1,026)
Net Income $36,108 $31,318 $106,961 $89,170
Earnings per common share:
Income from continuing
operations $0.61 $0.62 $1.83 $1.81
Discontinued operations 0.01 0.01 0.06 (0.02)
Net income $0.62 $0.63 $1.89 $1.79
Income from continuing
operations - assuming
dilution $0.60 $0.62 $1.81 $1.79
Discontinued operations
- assuming dilution 0.01 - 0.05 (0.02)
Net income - assuming
dilution $0.61 $0.62 $1.86 $1.77
Dividends declared per
common share $0.25 $0.23 $0.75 $0.69
Weighted-average shares
outstanding 58,108,123 49,867,349 56,708,018 49,775,508
Weighted-average shares
outstanding - assuming
dilution 58,743,522 50,498,462 57,356,653 50,309,783
The J. M. Smucker Company
Unaudited Condensed Consolidated Balance Sheets
January 31,
2005 2004
(Dollars in thousands)
ASSETS
Current Assets:
Cash and cash equivalents $55,452 $107,573
Trade receivables 129,737 84,247
Inventories 301,463 174,659
Current assets of discontinued operations 34,220 28,837
Other current assets 39,179 48,694
Total Current Assets 560,051 444,010
Property, Plant, and Equipment, Net 507,833 298,932
Other Noncurrent Assets:
Goodwill 934,041 519,502
Other intangible assets, net 469,733 314,649
Marketable securities 71,276 40,722
Other assets of discontinued operations 27,526 26,602
Other assets 60,620 32,693
Total Noncurrent Assets 1,563,196 934,168
$2,631,080 $1,677,110
LIABILITIES & SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $56,393 $0
Current portion of long-term debt 17,000 0
Accounts payable 100,872 52,592
Current liabilities of discontinued operations 18,718 6,127
Other current liabilities 188,472 98,491
Total Current Liabilities 381,455 157,210
Noncurrent Liabilities:
Long-term debt, net of current portion 432,300 135,000
Other noncurrent liabilities of
discontinued operations 28 422
Other noncurrent liabilities 138,723 188,203
Total Noncurrent Liabilities 571,051 323,625
Shareholders' Equity, net 1,678,574 1,196,275
2,631,080 $1,677,110
The J. M. Smucker Company
Unaudited Financial Highlights
Three Months Ended Nine Months Ended
January 31, January 31,
2005 2004 2005 2004
(Dollars in thousands, except per share data)
Net sales $550,234 $343,788 $1,552,423 $1,057,167
Net income and net income per
common share:
Net income $36,108 $31,318 $106,961 $89,170
Net income per common share
-- assuming dilution $0.61 $0.62 $1.86 $1.77
Income and income per common
share from continuing
operations:
Income $35,524 $31,120 $103,674 $90,196
Income per common share --
assuming dilution $0.60 $0.62 $1.81 $1.79
Income and income per common
share from continuing
operations before
restructuring and merger and
integration costs: (1)
Income $40,956 $32,695 $116,407 $95,756
Income per common share --
assuming dilution $0.70 $0.65 $2.03 $1.90
(1) Reconciliation to income
from continuing operations:
Income from continuing
operations before income
taxes $55,518 $49,358 $163,010 $143,055
Merger and integration costs 5,152 - 11,885 -
Cost of products sold -
restructuring 515 425 1,777 3,619
Other restructuring costs 2,837 2,074 6,358 5,200
Income from continuing
operations before income
taxes, restructuring, and
merger and integration
costs 64,022 51,857 183,030 151,874
Income taxes 23,066 19,162 66,623 56,118
Income from continuing
operations before
restructuring and merger
and integration costs $40,956 $32,695 $116,407 $95,756
The J. M. Smucker Company
Unaudited Condensed Consolidated Statements of Income
Unaudited Financial Highlights, Fiscal Year 2004
Three Months Ended
July 31, October 31, January 31, April 30,
2003 2003 2004 2004
(Dollars in thousands, except per share data)
Net sales $339,176 $374,203 $343,788 $312,389
Cost of products sold 218,362 239,427 216,837 203,865
Cost of products sold -
restructuring 1,388 1,806 425 4,845
Gross Profit 119,426 132,970 126,526 103,679
Selling, distribution, and
administrative expenses 74,721 78,775 74,956 68,502
Other restructuring costs 1,825 1,301 2,074 2,162
Merger and integration
costs - - - 1,266
Operating Income 42,880 52,894 49,496 31,749
Interest income 363 738 851 809
Interest expense (1,923) (1,618) (1,372) (1,296)
Other income (expense) - net 484 (121) 383 2,853
Income from Continuing
Operations Before Income
Taxes 41,804 51,893 49,358 34,115
Income taxes 15,447 19,174 18,238 13,013
Income from Continuing
Operations 26,357 32,719 31,120 21,102
Discontinued operations,
net of tax (572) (652) 198 1,078
Net Income $25,785 $32,067 $31,318 $22,180
Earnings per common share:
Income from continuing
operations $0.53 $0.66 $0.62 $0.42
Discontinued operations (0.01) (0.02) 0.01 0.02
Net income $0.52 $0.64 $0.63 $0.44
Income from continuing
operations - assuming
dilution $0.53 $0.65 $0.62 $0.42
Discontinued operations
- assuming dilution (0.02) (0.01) - 0.02
Net income - assuming
dilution $0.51 $0.64 $0.62 $0.44
Dividends declared per
common share $0.23 $0.23 $0.23 $0.25
Weighted-average shares
outstanding 49,674,408 49,784,767 49,867,349 49,944,566
Weighted-average shares
outstanding - assuming
dilution 50,129,828 50,301,060 50,498,462 50,657,023
Income from continuing
operations before
income taxes 41,804 51,893 49,358 34,115
Merger and integration
costs - - - 1,266
Cost of products sold -
restructuring 1,388 1,806 425 4,845
Other restructuring costs 1,825 1,301 2,074 2,162
Income from continuing
operations before income
taxes, restructuring, and
merger and integration
costs 45,017 55,000 51,857 42,388
Income taxes 16,634 20,322 19,162 16,109
Income from continuing
operations before
restructuring and
merger and integration
costs 28,383 34,678 32,695 26,279
Per share -- assuming
dilution 0.57 0.69 0.65 0.52
The J. M. Smucker Company
Unaudited Condensed Consolidated Statements of Income
Unaudited Financial Highlights, Fiscal Year 2004 (continued)
Year Ended
April 30, 2004
(Dollars in thousands, except per share data)
Net sales $1,369,556
Cost of products sold 878,491
Cost of products sold - restructuring 8,464
Gross Profit 482,601
Selling, distribution, and administrative expenses 296,954
Other restructuring costs 7,362
Merger and integration costs 1,266
Operating Income 177,019
Interest income 2,761
Interest expense (6,209)
Other income (expense) - net 3,599
Income from Continuing Operations Before Income Taxes 177,170
Income taxes 65,872
Income from Continuing Operations 111,298
Discontinued operations, net of tax 52
Net Income $111,350
Earnings per common share:
Income from continuing operations $2.23
Discontinued operations 0.01
Net income $2.24
Income from continuing operations - assuming dilution $2.21
Discontinued operations - assuming dilution -
Net income - assuming dilution $2.21
Dividends declared per common share $0.94
Weighted-average shares outstanding 49,816,926
Weighted-average shares outstanding - assuming dilution 50,395,747
Income from continuing operations before income taxes 177,170
Merger and integration costs 1,266
Cost of products sold - restructuring 8,464
Other restructuring costs 7,362
Income from continuing operations before income taxes,
restructuring, and merger and integration costs 194,262
Income taxes 72,227
Income from continuing operations before restructuring
and merger and integration costs 122,035
Per share -- assuming dilution 2.42
SOURCE J. M. Smucker Company
Investors, Mark R. Belgya, Vice President, Chief Financial Officer and Treasurer, or George G. Sent, Jr., Director, Corporate Finance and Investor Relations, or Media, Maribeth Badertscher, Manager, Corporate Communications, all of The J. M. Smucker Company, +1-330-682-3000
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