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The J. M. Smucker Company Announces Third Quarter Results

The Company Continues to Implement its Long-Term Growth Strategy

ORRVILLE, Ohio, Feb. 17 /PRNewswire-FirstCall/ -- The J. M. Smucker Company (NYSE: SJM) today announced results for the third quarter ended January 31, 2006, of its 2006 fiscal year.

    Third Quarter Results
                                         2006            2005        % Change
                                  (Dollars in millions, except per share data)

    Net sales                          $536.5          $550.2           -3%
    Income from continuing operations   $31.3           $35.5          -12%
    EPS from continuing operations      $0.54           $0.60          -10%

Excluding the U.S. industrial business, which has been divested, sales were down 1 percent for the quarter. The quarter's results were adversely affected by a decrease in sales in the consumer oils and baking business area due to an overall decline in the categories during December and January and unplanned inventory reductions by certain key customers. In addition, the Company experienced higher energy, commodity, and distribution costs in the quarter compared to last year.

"Our business remains solid for the year and we had a successful Fall Bake," said Tim Smucker, chairman and co-chief executive officer. "However, our quarter was adversely affected by a decrease in sales in our oils and baking businesses and higher operating costs. We are confident that the fundamentals of the business have not changed and we remain committed to our long-term growth goals."

Income from continuing operations for the third quarter of 2006 included pretax merger and integration costs of $7.8 million, or $0.08 per diluted share, and restructuring charges of $5.4 million, or $0.06 per diluted share. Included in other income for the quarter was a pretax gain of $5.6 million, or $0.06 per diluted share, related to the sale of the Company's Salinas, California, facility. 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. Excluding these costs in both years, the Company's earnings per diluted share would have been $0.68 and $0.70, in the third quarter of 2006 and 2005, respectively.

    Nine-Month Results
                                         2006            2005        % Change
                                  (Dollars in millions, except per share data)
    Net sales                        $1,653.0        $1,552.4           +6%
    Income from continuing operations  $107.7          $103.7           +4%
    EPS from continuing operations      $1.83           $1.81           +1%

Since the acquisition of Multifoods closed midway through the first quarter of last year, an additional six weeks of Multifoods' sales, totaling approximately $78.8 million, were realized in this year's first nine months. Excluding the additional six weeks and the U.S. industrial business, sales were up 3 percent.

Income from continuing operations for the first nine months of 2006 included pretax merger and integration costs of $14.8 million, or $0.16 per diluted share, and restructuring charges of $9.1 million, or $0.10 per diluted share. 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. Excluding these costs in both years, the Company's earnings per diluted share would have been $2.09 and $2.03, for the first nine months of 2006 and 2005, respectively.

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 U.S. 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.

    Margins
                           Third Quarter   First Nine Months
                           2006     2005   2006     2005

    Gross margin           30.5%    31.7%  32.2%    32.7%
    SD&A % of sales        19.3%    19.3%  20.2%    20.1%
    Operating margin        8.9%    10.9%  10.6%    11.4%

Approximately one-half of the decline in operating margin for the quarter was due to the increase in restructuring and merger and integration costs over last year. The remainder was due to changes in gross margin. Gross margin declined primarily due to the volume decrease in the consumer oils and baking business area, increased trade merchandising expenses, and higher commodity and freight costs. The decline in gross margin flowed through to operating margin as the percentage of selling, distribution, and administrative (SD&A) expenses to sales were flat for the quarter. Increased costs associated with the Company's distribution network were offset by a reduction in marketing and selling expenses and lower administrative overhead costs. Excluding the restructuring and merger and integration costs, operating margins would have been 11.3 percent and 12.4 percent for the third quarter of 2006 and 2005, and 12.0 percent and 12.7 percent for the first nine months of 2006 and 2005, respectively.

    Segment Performance

    Sales (Dollars in millions) Third Quarter           First Nine Months
                            2006   2005  % Change    2006      2005  % Change
    U.S. retail market    $375.8  $381.4   -1%    $1,147.2  $1,079.9   +6%
    Special markets       $160.7  $168.9   -5%      $505.8    $472.5   +7%
    Special markets
     excluding industrial $157.7  $155.2   +2%      $484.9    $429.7  +13%


    U.S. Retail Market

During the third quarter of 2006, sales in the consumer business area increased 4 percent over the third quarter of last year as sales of fruit spreads, toppings, and peanut butter were all up. Solid performance in the Hungry Jack(R) brand and significant growth in Uncrustables(R) also contributed. For the first nine months of 2006, sales in the consumer business area were up 7 percent compared to last year.

In the consumer oils and baking business area, sales for the quarter were down 8 percent as the Company faced significant competitive activity. Although sales of Crisco(R) were up over last year for the first nine months, much of the gain was given back in December and January as a result of lower sell through and inventory reductions by key customers. The Pillsbury(R) brand had a solid first six months but reflected similar declines in the category during December and January. Sales in the consumer oils and baking business area were up slightly during the Fall Bake period running from September through December, compared to the same period last year.

Special Markets

Key growth contributors for the quarter included the beverage business area, up 16 percent, and the foodservice business area, up 5 percent. Sales in Canada were down 6 percent, as increases in the retail spreads business and the impact of favorable exchange rates partially offset declines in baking and the planned rationalization of certain unprofitable businesses. Excluding the additional six weeks contribution from Multifoods and the U.S. industrial business, sales in the special markets segment increased 4 percent in the first nine months of 2006 as compared to the first nine months of last year.

Sale of Salinas Facility

During the third quarter, the Company completed its restructuring efforts around its Salinas, California, manufacturing and distribution facility. In January 2006, the Company completed the sale of the facility resulting in cash proceeds of $8.8 million and a gain on the sale of $5.6 million or $0.06 per diluted share. Production has been transferred to facilities in Orrville, Ohio, and Memphis, Tennessee, while distribution will be handled through a third-party warehouse in southern California.

Share Repurchase

At its most recent meeting, the Company's Board of Directors authorized an increase to its share repurchase plan. Under the plan, the Company is authorized to purchase an additional 2 million common shares. The buyback program will be implemented at management's discretion. During the third quarter, the Company purchased 200,000 shares toward the previously authorized 1 million shares leaving approximately 30,000 remaining.

Outlook

The Company expects sales for the year of approximately $2.14 billion. The Company has taken, and will continue to take, actions to offset the cost increases it has experienced including both discretionary cost reductions across the organization and potential pricing actions. Based on the input cost pressures and the uncertainty of their levels, the Company expects earnings per share for the year, excluding restructuring and merger and integration costs and the gain on the sale of the Salinas facility, to be comparable with last year's result of $2.60 per diluted share. The Company remains committed to its long-term annual growth rate for earnings per share of 8 percent over its strategic time frame.

Conference Call

The Company will conduct an earnings conference call and webcast on Friday, February 17, 2006, at 8:30 a.m. E.T. The webcast can be accessed from the Company's website at http://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 9006574. The audio replay will be available until Friday, February 24, 2006.

About The J. M. Smucker Company

The J. M. Smucker Company (http://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). The family of brands also includes 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 109 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 3,500 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 strength of commodity markets from which raw materials are procured and the related impact on costs, volatility of energy and fuel costs, the ability to achieve the amount and timing of the estimated savings associated with the Multifoods acquisition, the success in introducing new products and the competitive response, particularly in the consumer oils and baking area, 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 manage capacity and costs related to Uncrustables, 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,
                                   2006        2005        2006        2005
                               (Dollars in thousands, except per share data)

    Net sales                    $536,453    $550,234  $1,653,048  $1,552,423
    Cost of products sold         371,981     375,521   1,120,193   1,043,379
    Cost of products sold -
     restructuring                    618         515         865       1,777
    Gross Profit                  163,854     174,198     531,990     507,267
    Selling, distribution, and
     administrative expenses      103,610     106,464     334,259     312,569
    Other restructuring costs       4,783       2,837       8,248       6,358
    Merger and integration costs    7,764       5,152      14,784      11,885
    Operating Income               47,697      59,745     174,699     176,455
    Interest income                 1,709       1,044       4,858       2,429
    Interest expense               (5,984)     (6,154)    (18,116)    (16,359)
    Other income - net              6,150         883       6,269         485
    Income from Continuing
     Operations Before Income
     Taxes                         49,572      55,518     167,710     163,010
    Income taxes                   18,260      19,994      60,057      59,336
    Income from Continuing
     Operations                    31,312      35,524     107,653     103,674
    Gain on sale of discontinued
     operations, net of tax           -           -           -         2,037
    Discontinued operations,
     net of tax                       -           584         -         1,250
    Net Income                    $31,312     $36,108    $107,653    $106,961

    Earnings per common share:
       Income from continuing
        operations                  $0.54       $0.61       $1.85       $1.83
       Discontinued operations        -          0.01         -          0.06
       Net income                   $0.54       $0.62       $1.85       $1.89

       Income from continuing
        operations - assuming
        dilution                    $0.54       $0.60       $1.83       $1.81
       Discontinued operations -
        assuming dilution             -          0.01         -          0.05
       Net income - assuming
        dilution                    $0.54       $0.61       $1.83       $1.86

    Dividends declared per
     common share                   $0.27       $0.25       $0.81       $0.75

    Weighted-average shares
     outstanding               57,944,604  58,108,123  58,106,913  56,708,018
    Weighted-average shares
     outstanding - assuming
     dilution                  58,486,412  58,743,522  58,708,209  57,356,653



                          The J. M. Smucker Company
               Unaudited Condensed Consolidated Balance Sheets

                                            January 31, 2006    April 30, 2005
                                                 (Dollars in thousands)
    ASSETS
    Current Assets:
       Cash and cash equivalents                    $89,246           $58,085
       Marketable securities                         15,176            17,739
       Trade receivables                            122,514           145,734
       Inventories                                  321,484           284,487
       Other current assets                          52,417            49,806
          Total Current Assets                      600,837           555,851

    Property, Plant, and Equipment, net             524,061           521,101

    Other Noncurrent Assets:
       Goodwill                                     950,253           951,208
       Other intangible assets, net                 472,477           469,758
       Marketable securities                         36,974            59,074
       Other assets                                  81,702            78,902
          Total Noncurrent Assets                 1,541,406         1,558,942
                                                 $2,666,304        $2,635,894

    LIABILITIES & SHAREHOLDERS' EQUITY
    Current Liabilities:
       Notes payable                                $37,749           $33,378
       Current portion of long-term debt                  -            17,000
       Accounts payable                              80,608           105,290
       Other current liabilities                    146,740           152,624
          Total Current Liabilities                 265,097           308,292

    Noncurrent Liabilities:
       Long-term debt, net of current portion       429,341           431,560
       Other noncurrent liabilities                 230,251           205,242
          Total Noncurrent Liabilities              659,592           636,802

    Shareholders' Equity, net                     1,741,615         1,690,800
                                                 $2,666,304        $2,635,894



                          The J. M. Smucker Company
                        Unaudited Financial Highlights

                                   Three Months Ended     Nine Months Ended
                                       January 31,           January 31,
                                     2006      2005        2006        2005
                                 (Dollars in thousands, except per share data)

    Net sales                      $536,453  $550,234  $1,653,048  $1,552,423

    Net income and net income per
     common share:
      Net income                    $31,312   $36,108    $107,653    $106,961
      Net income per common share --
       assuming dilution              $0.54     $0.61       $1.83       $1.86

    Income and income per common
     share from continuing
     operations:
      Income                        $31,312   $35,524    $107,653    $103,674
      Income per common share --
       assuming dilution              $0.54     $0.60       $1.83       $1.81

    Income and income per common
     share from continuing
     operations before
     restructuring and merger and
     integration costs: (1)
      Income                        $39,711   $40,956    $122,993    $116,407
      Income per common share --
       assuming dilution              $0.68     $0.70       $2.09       $2.03


    (1)Reconciliation to income from
        continuing operations:
       Income from continuing
        operations before income
        taxes                       $49,572   $55,518    $167,710    $163,010
       Merger and integration costs   7,764     5,152      14,784      11,885
       Cost of products sold -
        restructuring                   618       515         865       1,777
       Other restructuring costs      4,783     2,837       8,248       6,358

       Income from continuing
        operations before income
        taxes, restructuring, and
        merger and integration costs 62,737    64,022     191,607     183,030
       Income taxes                  23,026    23,066      68,614      66,623
       Income from continuing
        operations before
        restructuring and merger
        and integration costs       $39,711   $40,956    $122,993    $116,407

SOURCE: J. M. Smucker Company CONTACT: The J. M. Smucker Company, +1-330-682-3000or Investors, Mark R. Belgya, Vice President, Chief Financial Officer and Treasurer, +1-330-684-3312 or George G. Sent, Jr., Director, Corporate Finance and Investor Relations, +1-330-684-3855 or Media, Maribeth Badertscher, Director, Corporate Communications, +1-330-684-3034 all of The J. M. Smucker Company Web site: http://www.smuckers.com

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