ORRVILLE, Ohio, Nov 21, 2008 /PRNewswire-FirstCall via COMTEX News Network/ -- The J. M. Smucker Company (NYSE: SJM) today announced results for the second quarter ended October 31, 2008, of its 2009 fiscal year.
Second Quarter Results
Three months ended
October 31, %
2008 2007 Increase
(Dollars in millions, except per share data)
Net sales $843.1 $707.9 19%
Net income:
Income $51.5 $50.2 3%
Income per diluted share $0.94 $0.87 8%
Net sales increased 19 percent in the second quarter of 2009 compared to the second quarter of 2008. Net sales growth was broad based with all major brands and strategic business areas contributing. The Carnation(R), Europe's Best(R) and Knott's Berry Farm(R) acquisitions contributed approximately $35.8 million in net sales to the quarter while the foreign exchange impact of the weakening Canadian dollar reduced net sales by approximately $8.2 million. Excluding acquisitions and foreign exchange, net sales increased 15 percent.
Over the last year, the Company has implemented price increases necessary to offset rising costs. While pricing was the primary driver of the net sales increase, volume gains also contributed. Most categories experienced volume gains, including Smucker's(R) fruit spreads, Pillsbury(R) baking mixes and frostings, Hungry Jack(R) potatoes and pancakes, Eagle Brand(R) sweetened condensed milk, and Crisco(R) shortening and oils, while declines were primarily limited to flour and industrial oils.
Net income per diluted share for the quarter was $0.94, an increase of 8 percent compared to last year's second quarter. Included in net income for the second quarter of 2009 were restructuring and merger and integration costs of $0.08 per diluted share, while net income for the second quarter of 2008 included restructuring and merger and integration costs of $0.04 per diluted share. Excluding restructuring and merger and integration costs in both years, the Company's income per diluted share was $1.02 in the second quarter of 2009, and $0.91 in the second quarter of 2008, an increase of 12 percent.
"The number of meals prepared and consumed at home, as recent market data indicate, continues to be trending upward in this challenging economic environment, and is currently at levels not seen since 1994," commented Tim Smucker, Chairman of the Board and Co-Chief Executive Officer. "Our brands are considered by many families to be essential items in any pantry, and we are well positioned to meet the needs of those consumers looking to do more for their families by enjoying meals together at home."
"We are excited about the closing of the Folgers transaction," added Richard Smucker, Executive Chairman and Co-Chief Executive Officer. "Folgers is an excellent fit with our strategy to own and market number one food brands in North America. Along with our Smucker's, Jif, Crisco, Pillsbury, Eagle Brand, Hungry Jack, Robin Hood and Bick's brands, the Folgers brands enhance our opportunities to meet our consumers needs as we focus on our consumer with the theme 'Meals Together, Memories Forever'."
Six-Month Results
Six months ended
October 31, %
2008 2007 Increase
(Dollars in millions, except per share data)
Net sales $1,506.8 $1,269.4 19%
Net income:
Income $93.7 $90.9 3%
Income per diluted share $1.71 $1.58 8%
Net sales increased 19 percent in the first six months of 2009 compared to the first six months of 2008. Acquisitions contributed approximately $66.8 million of the increase. Excluding acquisitions net sales increased 13 percent.
Net income per diluted share for the first six months of 2009 was $1.71, an increase of 8 percent over last year's first six months. Net income for the first six months of 2009 and 2008 included restructuring and merger and integration costs of $0.13 and $0.05 per diluted share, respectively. Excluding these costs in both years, the Company's income per diluted share was $1.84 in the first six months of 2009, and $1.63 in the first six months of 2008, an increase of 13 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 six-month period is included in the "Unaudited Financial Highlights" table.
Margins
Three months ended Six months ended
October 31, October 31,
2008 2007 2008 2007
(% of net sales)
Gross profit 28.9% 30.9% 29.9% 31.9%
Selling, distribution, and
administrative expenses:
Marketing and selling 9.6% 9.7% 9.9% 10.1%
Distribution 3.3% 3.4% 3.4% 3.4%
General and administrative 5.0% 5.5% 5.5% 6.0%
17.9% 18.6% 18.8% 19.5%
Restructuring and merger and
integration costs 0.8% 0.4% 0.6% 0.4%
Other operating expense (income) 0.0% 0.1% 0.0% (0.1%)
Operating income 10.2% 11.8% 10.5% 12.1%
Overall, gross profit increased $24.9 million in the second quarter of 2009 compared to the second quarter of 2008, despite higher raw material costs for soybean oil, peanuts, wheat, fruit and, to a lesser extent, other commodities. Price increases taken to date along with the impact of recent acquisitions and plant operating efficiencies have offset these higher raw material costs and have contributed to the gross profit increase. However, the Company's hedging activities resulted in mark-to-market charges of approximately $24.4 million on nonqualifying commodity hedges reflecting the sharp decline in soybean oil and wheat commodity markets during the quarter. As a result, gross margin declined from 30.9 percent to 28.9 percent.
Selling, distribution, and administrative ("SD&A") expenses increased 15 percent for the second quarter of 2009 compared to 2008, resulting primarily from increased marketing investment and distribution expenses. Most SD&A expenses, particularly selling and corporate overhead, increased at a lesser rate than net sales resulting in an overall decrease in SD&A from 18.6 percent of net sales to 17.9 percent, providing some offset to the decline in gross margin.
Operating income increased 3 percent compared to the second quarter of
2008 and decreased from 11.8 percent to 10.2 percent of net sales.
Restructuring and merger and integration costs were $3.2 million higher in the
second quarter of 2009 compared to 2008, reducing operating margin by 0.4
percentage points.
Segment Performance
Three months ended Six months ended
October 31, October 31,
% %
2008 2007 increase 2008 2007 increase
(Dollars in millions)
Net sales:
U.S. retail market $635.0 $535.2 19% $1,107.1 $953.4 16%
Special markets $208.2 $172.7 21% $399.7 $316.0 26%
Segment profit:
U.S. retail market $99.0 $98.4 1% $186.8 $177.2 5%
Special markets $26.5 $20.8 27% $47.2 $42.4 11%
U.S. Retail Market
U.S. retail market segment net sales for the quarter were up 19 percent, with pricing accounting for the majority of the increase. Net sales in the consumer strategic business area increased 16 percent, with Smucker's fruit spreads, toppings and Uncrustables(R) sandwiches, Jif(R) and Hungry Jack all up. All major categories of the consumer business area were up in volume except for peanut butter, which was flat. Net sales in the consumer oils and baking strategic business area were up 21 percent primarily due to the effect of price increases. Volume gains in baking mixes, frostings, shortening, canned milk, and retail oil also contributed to the improvement in net sales. These increases more than offset volume declines in flour and industrial oils.
For the first six months of 2009, U.S. retail market segment net sales increased 16 percent compared to the first six months of 2008 with net sales up 14 percent in the consumer strategic business area, and up 19 percent in the consumer oils and baking strategic business area.
U.S. retail market segment profit increased 1 percent for the quarter and 5 percent for the first six months of 2009 compared to the same periods in 2008 reflecting the mark-to-market adjustment which primarily impacted the U.S. retail market segment.
Special Markets
Net sales in the second quarter for the special markets segment increased 21 percent. Net sales in the Canada strategic business area were up 29 percent, with the impact of the Carnation and Europe's Best acquisitions offsetting the impact of unfavorable foreign exchange. Pricing gains accounted for the remaining Canada net sales growth. Net sales increased in the foodservice, beverage, and international business areas by 12, 14, and 22 percent, respectively, with pricing the primary contributor. The Knott's Berry Farm acquisition also contributed to the foodservice business area increase. For the first six months of 2009, special market segment net sales increased 26 percent.
Special markets segment profit increased 27 percent for the quarter and 11 percent for the first six months of 2009 compared to the same periods in 2008 primarily resulting from the impact of recent acquisitions.
Financing Activities
During the quarter, the Company issued $400 million in Senior Notes with a weighted-average interest rate of 6.6 percent. A portion of the proceeds from the Notes was used to fund costs related to the Folgers merger including the payment of the $5 per share one-time special dividend, totaling approximately $274 million, on October 31, 2008. There was essentially no impact on interest expense for the quarter since the financing closed on October 23, 2008. In addition, subsequent to the end of the quarter, the Company's debt obligations increased by Folgers' $350 million of LIBOR-based variable rate debt.
Outlook
The Company confirmed its outlook for the year. The outlook includes the addition of the Folgers coffee business, acquired from The Procter & Gamble Company, as of the acquisition date of November 6, 2008. The Company issued approximately 63.2 million common shares related to the transaction and now has approximately 118 million common shares outstanding. The Company's net sales for 2009 are estimated to range from $3.8 to $4.0 billion, in line with the original estimate, and income per diluted share, before restructuring and merger and integration cost, are estimated to range from $3.45 to $3.50. One-time costs associated with the Folgers transaction, including amounts expected to be allocated to goodwill, are estimated at $100 to $125 million and will be incurred over the next 12 to 24 months.
Conference Call
The Company will conduct an earnings conference call and webcast today, Friday, November 21, 2008, at 8:30 a.m. E.T. The webcast, as well as a replay in downloadable MP3 format, 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 dialing 888-203- 1112 or 719-457-0820, with a pass code of 4221422, and will be available until Friday, November 28, 2008.
About The J. M. Smucker Company
For more than 100 years, The J. M. Smucker Company has been committed to offering consumers quality products that help families create memorable mealtime moments. Today, Smucker is the leading marketer and manufacturer of fruit spreads, retail packaged coffee, 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), Folgers(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. For more information about the Company, visit www.smuckers.com.
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 Forward-Looking Language
This press release contains forward-looking statements, such as projected operating results, earnings and cash flows, that are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from any future results, performance or achievements expressed or implied by those forward-looking statements. You should understand that the risks, uncertainties, factors and assumptions listed and discussed in this press release, including the following important factors and assumptions, could affect the future results of Smucker and could cause actual results to differ materially from those expressed in the forward-looking statements: (i) volatility of commodity markets from which raw materials, particularly wheat, soybean oil, milk, peanuts, and green coffee beans, are procured and the related impact on costs; (ii) the successful integration of the coffee business with Smucker's business, operations and culture and the ability to realize synergies and other potential benefits of the merger within the time frames currently contemplated; (iii) crude oil price trends and their impact on transportation, energy, and packaging costs; (iv) the ability to successfully implement price changes; (v) the success and cost of introducing new products and the competitive response; (vi) the success and cost of marketing and sales programs and strategies intended to promote growth in Smucker's businesses, which include the coffee business; (vii) general competitive activity in the market, including competitors' pricing practices and promotional spending levels; (viii) the concentration of certain of Smucker's businesses, which include the coffee business, with key customers and the ability to manage and maintain key customer relationships; (ix) the loss of significant customers or a substantial reduction in orders from these customers or the bankruptcy of any such customer; (x) changes in consumer coffee preferences, and other factors affecting the coffee business, which represent a substantial portion of Smucker's business; (xi) the timing and amount of capital expenditures, restructuring, and merger and integration costs; (xii) the outcome of current and future tax examinations and other tax matters, and their related impact on Smucker's tax positions; (xiii) foreign currency and interest rate fluctuations; (xiv) other factors affecting share prices and capital markets generally; and (xv) the other factors described under "Risk Factors" in other reports and statements filed by Smucker with the Securities and Exchange Commission, including its most recent Annual Report on Form 10-K.
You are cautioned not to unduly rely on such forward-looking statements, which speak only as of the date made, when evaluating the information presented in this press release. Smucker does not assume any obligation to update or revise these forward-looking statements to reflect new events or circumstances.
(Logo: http://www.newscom.com/cgi-bin/prnh/20071219/SMUCKERLOGO )
The J. M. Smucker Company
Unaudited Condensed Consolidated Statements of Income
Three Months Ended Six Months Ended
October 31, October 31,
2008 2007 2008 2007
(Dollars in thousands, except per share data)
Net sales $843,142 $707,890 $1,506,799 $1,269,403
Cost of products sold 599,723 489,402 1,055,601 864,931
Gross Profit 243,419 218,488 451,198 404,472
Selling, distribution, and
administrative expenses 151,292 131,361 283,176 248,111
Restructuring costs 127 588 646 901
Merger and integration costs 6,210 2,552 9,610 2,984
Other operating (income)
expense - net (507) 313 (359) (1,373)
Operating Income 86,297 83,674 158,125 153,849
Interest income 1,901 3,826 3,239 7,321
Interest expense (11,314) (10,917) (22,058) (21,010)
Other income (expense) - net 341 (707) 1,366 (461)
Income Before Income Taxes 77,225 75,876 140,672 139,699
Income taxes 25,772 25,710 46,928 48,772
Net Income $51,453 $50,166 $93,744 $90,927
Net income per common
share $0.95 $0.88 $1.73 $1.60
Net income per common
share - assuming dilution $0.94 $0.87 $1.71 $1.58
Dividends declared per
common share $5.32 $0.30 $5.64 $0.60
Weighted-average shares
outstanding 54,385,025 57,104,442 54,333,865 56,875,027
Weighted-average shares
outstanding - assuming
dilution 54,777,202 57,531,816 54,722,389 57,398,474
The J. M. Smucker Company
Unaudited Condensed Consolidated Balance Sheets
October 31, 2008 April 30, 2008
(Dollars in thousands)
Assets
Current Assets:
Cash and cash equivalents $192,505 $184,175
Trade receivables 267,498 162,426
Inventories 500,608 379,608
Other current assets 44,749 49,998
Total Current Assets 1,005,360 776,207
Property, Plant, and Equipment, Net 514,002 496,296
Other Noncurrent Assets:
Goodwill 1,121,406 1,132,476
Other intangible assets, net 638,388 614,000
Other assets 97,185 110,902
Total Other Noncurrent Assets 1,856,979 1,857,378
$3,376,341 $3,129,881
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $146,799 $119,844
Current portion of long-term debt 75,000 -
Other current liabilities 245,532 119,553
Total Current Liabilities 467,331 239,397
Noncurrent Liabilities:
Long-term debt, net of current portion 1,113,205 789,684
Other noncurrent liabilities 283,520 300,947
Total Noncurrent Liabilities 1,396,725 1,090,631
Shareholders' Equity, net 1,512,285 1,799,853
$3,376,341 $3,129,881
The J. M. Smucker Company
Unaudited Condensed Consolidated Statements of Cash Flow
Six Months Ended
October 31,
2008 2007
(Dollars in thousands)
Operating Activities
Net income $93,744 $90,927
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 30,043 28,651
Amortization 2,953 1,538
Share-based compensation expense 6,035 5,973
Working capital (110,494) (86,664)
Net Cash Provided by Operating Activities 22,281 40,425
Investing Activities
Businesses acquired, net of cash acquired (56,076) (163,494)
Additions to property, plant, and equipment (55,770) (36,319)
Proceeds from sale of business - 3,407
Purchases of marketable securities - (179,505)
Sales and maturities of marketable securities 866 183,411
Other - net 8,267 446
Net Cash Used for Investing Activities (102,713) (192,054)
Financing Activities
Proceeds from long-term debt 400,000 400,000
Repayments of long-term debt - (148,000)
Dividends paid (309,160) (34,243)
Purchase of treasury shares (3,356) (3,627)
Other - net 2,185 19,413
Net Cash Provided by Financing Activities 89,669 233,543
Effect of exchange rate changes (907) 5,090
Net increase in cash and cash equivalents 8,330 87,004
Cash and cash equivalents at beginning
of period 184,175 200,119
Cash and cash equivalents at end of period $192,505 $287,123
The J. M. Smucker Company
Unaudited Financial Highlights
Three Months Ended Six Months Ended
October 31, October 31,
2008 2007 2008 2007
(Dollars in thousands, except per share data)
Net sales $843,142 $707,890 $1,506,799 $1,269,403
Net income and net income per
common share:
Net income $51,453 $50,166 $93,744 $90,927
Net income per common share
-- assuming dilution $0.94 $0.87 $1.71 $1.58
Income before restructuring
and merger and integration
costs: (1)
Income $55,675 $52,219 $100,578 $93,456
Income per common share -
assuming dilution $1.02 $0.91 $1.84 $1.63
(1) Reconciliation to net income:
Income before income taxes $77,225 $75,876 $140,672 $139,699
Merger and integration
costs 6,210 2,552 9,610 2,984
Restructuring costs 127 588 646 901
Income before income taxes,
restructuring, and merger
and integration costs 83,562 79,016 150,928 143,584
Income taxes 27,887 26,797 50,350 50,128
Income before restructuring
and merger and integration
costs $55,675 $52,219 $100,578 $93,456
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 Six Months Ended
October 31, October 31,
2008 2007 2008 2007
(Dollars in thousands)
Net sales:
U.S. retail market $634,988 $535,224 $1,107,129 $953,379
Special markets 208,154 172,666 399,670 316,024
Total net sales $843,142 $707,890 $1,506,799 $1,269,403
Segment profit:
U.S. retail market $98,960 $98,407 $186,821 $177,165
Special markets 26,451 20,788 47,189 42,424
Total segment profit $125,411 $119,195 $234,010 $219,589
Interest income 1,901 3,826 3,239 7,321
Interest expense (11,314) (10,917) (22,058) (21,010)
Amortization (1,482) (1,417) (2,953) (1,538)
Share-based compensation
expense (3,236) (3,147) (6,035) (5,973)
Restructuring costs (127) (588) (646) (901)
Merger and integration
costs (6,210) (2,552) (9,610) (2,984)
Corporate administrative
expense (27,736) (27,249) (56,628) (55,380)
Other unallocated income
(expense) 18 (1,275) 1,353 575
Income before income taxes $77,225 $75,876 $140,672 $139,699
SOURCE The J. M. Smucker Company
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