Branded food products maker J.M. Smucker Co. (SJM) reported Wednesday a 68% year-over-year surge in profit for the third quarter, helped by strong sales of Folgers coffee.
Adjusted earnings per share for the quarter rose 34%, and significantly topped analysts' expectations. Boosted by the strong first-half performance, the company lifted its adjusted earnings as well as sales outlook for the full-year 2010.
In a statement, executive chairman and co-chief executive officer, Richard Smucker said, "We delivered record results once again this quarter, driven by a successful Fall Bake and Holiday period, with volume and sales gains across most of our brands. Our demonstrated ability to leverage multi-brand, promotional events during key periods enhances our performance and reaffirms the advantage we enjoy by owning leading brands."
Third-Quarter Results
The Orrville, Ohio-based company reported net income of $135.48 million or $1.14 per share for the third quarter, sharply higher than $77.94 million or $0.68 per share in the prior-year quarter.
On November 6, 2008, the jam and jelly maker completed the acquisition of Folgers Coffee Co., which Smucker bought from Proctor & Gamble Co. (PG). The results for the latest quarter include merger and integration costs of $0.03 per share, while the year-ago quarter results included $0.19 per share of restructuring and merger and integration costs.
Excluding the special items, non-GAAP net income for the quarter rose to $138.90 million or $1.17 per share from $100.27 million or $0.87 per share in the year-ago quarter.
On average, ten analysts polled by Thomson Reuters expected earnings of $1.05 per share for the third quarter. Analysts' estimate typically excludes one-time items.
Net sales for the quarter increased 2% to $1.21 billion from $1.18 billion in the same quarter last year, and topped ten Wall Street analysts' consensus estimate of $1.16 billion. Excluding Folgers and foreign exchange, net sales for the quarter were down 2% to $1.16 billion.
Peer Performance
Among others in the industry, Northfield, Illinois-based packaged food giant Kraft Foods, Inc. (KFT) reported last week a profit for the fourth quarter that climbed four-fold from last year, but came up just short of revenue estimates despite rising sales overseas. Net earnings climbed to $710 million or $0.48 per share from $178 million or $0.12 per share in the prior-year quarter. Quarterly net revenues grew 3.2% to $11.03 billion from $10.68 billion in the same quarter last year.
Another peer, Omaha, Nebraska-based packaged foods company ConAgra Foods, Inc. (CAG) reported in December a 43% year-over-year surge in profit for the second quarter, driven by strong performance at its consumer foods segment. Net income of $239.7 million or $0.54 per share, higher than $168.4 million or $0.37 per share in the prior-year quarter. Quarterly net sales decreased 2.4% to $3.17 billion from $3.25 billion in the same quarter last year.
Segmental Details
J.M. Smucker operates in four segments, such as U.S. retail coffee market, U.S. retail consumer market, U.S. retail oils and baking market, and special markets.
Net sales for the U.S. retail coffee market grew 9% to $471.5 million from $432.0 million in the prior-year quarter. Volume increased about 4%, with the Folgers brand contributed strongly to the increase, while the continued growth of Dunkin' Donuts coffee in gourmet category also contributed double-digit growth. Segment profit surged 62% to $148.6 million, while margins improved to 31.5% from last year's 21.3%.
U.S. retail consumer market net sales were up 1% to $273.8 million from $270.5 million in the year-ago quarter. Total volume grew 4%, with gains in Hungry Jack pancake mixes and syrups, Jif peanut butter, and Smucker's fruit spreads. Segment profit increased 6% to $66.5 million, while margins improved to 24.3% from last year's 23.2%, primarily due to lower raw material and freight costs, partially offset by incremental marketing.
U.S. retail oils and baking market posted quarterly net sales of $244.2 million, a decline of 12% from $278.8 million in the same quarter last year, reflecting price declines and increased promotional spending. Total volumes rose 3%, with gains in the Pillsbury and Crisco brands. Segment profit decreased 17% to $39.2 million, while margins were down to 16.1% from last year's 17.0%.
Additionally, special markets net sales grew 8% to $216.5 million from $201.3 million in the prior-year quarter. Net sales, excluding acquisitions and foreign exchange, decreased 1%. Total volumes rose 6%. Segment profit surged 53% to $38.6 million, while margins improved to 17.8% from last year's 12.6%, primarily due to lower raw material costs and the impact of increased coffee sales.
Other Metrics
Operating income for the fourth quarter surged 55% to $209.64 million from $135.46 million in the prior-year quarter, and operating margins climbed 590 basis points to 17.4% from last year's 11.5%.
Excluding items, adjusted operating income was $214.31 million, up from $168.53 million in the prior-year quarter, and adjusted operating margins rose 350 basis points to 17.8% from last year's 14.3%.
Gross profit for the quarter was $458.30 million, up 14% from $401.04 million in the year-ago quarter, and gross margin rose to 38.0% from last year's 33.9%, due to lower raw material and freight costs across the businesses contributing to the increase.
The company ended the third quarter with cash and cash equivalents of $125.56 million, compared to $359.91 million at end of the prior-year quarter.
Nine-Month Highlights
For the nine-month period, the company posted net income of $373.53 million or $3.14 per share, sharply higher than $171.69 million or $2.29 per share in the prior-year period.
Excluding the special items, non-GAAP net income for the period rose to $392.96 million or $3.30 per share from $200.85 million or $2.68 per share in the year-ago period.
Net sales for the year-to-date period rose 31% to $3.54 billion from $2.69 billion in the same period last year. Excluding Folgers and foreign exchange, net sales for the period were down 3% to $2.61 billion.
Looking Ahead...
"The continued momentum we are experiencing is a result of a solid strategy and the efforts of an outstanding team. The businesses have delivered strong performance and we look forward to additional opportunities. We have once again raised our outlook for the year and believe that our brands have proven that they are well-positioned for continued growth," chairman and co-chief executive officer, Tim Smucker added.
For fiscal 2010, the company raised its adjusted earnings outlook to a range of $4.02 to $4.07 per share from the previous range of $3.95 to $4.05 per share. The Street is looking for full-year 2010 earnings of $4.09 per share.
The forecast excludes merger and integration costs of $0.17 to $0.19 per share. It also reflects about $0.40 per share of noncash amortization expense.
Further, net sales for the year are now projected in range of $4.5 billion to $4.6 billion, up from the prior sales forecast of about $4.5 billion. Analysts estimate revenues $4.57 billion for fiscal 2010.
Meanwhile, the company maintains its long-term strategic objectives of 6% annual sales growth and greater than 8% adjusted earnings per share growth.
Stock Quote
In Wednesday's regular trading session, SJM is currently trading at $58.95, down $1.16 or 1.93% on a volume of 22,990 shares. In the past 52-week period, the stock has been trading in a broad range of $34.09 to $63.00.
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