Food products maker The J. M. Smucker Co. (SJM) Friday reported a sharp rise in second-quarter profit, helped by 52% revenue growth and higher margins, both led by Folgers Coffee Co. acquisition. Adjusted earnings came in better than analysts' estimate. Boosted by the strong first-half performance, the company lifted its fiscal 2010 adjusted earnings per share outlook and confirmed its full-year sales forecast.
Smucker's products include coffee, peanut butter, shortening and oils, fruit spreads, canned milk, baking mixes and ready-to-spread frostings, flour and baking ingredients, juices and beverages, frozen sandwiches, dessert toppings, syrups, pickles and condiments, as well as potato side dishes. The Orrville, Ohio-based company operates in four segments: U.S. retail consumer market, U.S. retail oils and baking market, U.S. retail coffee market, and Special markets.
Second-quarter net income was $140 million or $1.18 per share, compared with $51.45 million or $0.94 per share last year.
On November 6, 2008, the jam and jelly maker completed the acquisition of Folgers Coffee Co. The company's current-year quarter results included merger and integration costs of $0.04 per share and amortization expense of $0.10 per share. Included in last year's second quarter results were restructuring and merger and integration costs of $0.07 per share and amortization expense of $0.02 per share.
Excluding the special items, JM Smucker's non-GAAP income per share of $1.22 compared with $1.01 a year earlier. On average, nine analysts polled by Thomson Reuters expected earnings per share of $1.04 for the quarter. Analysts' estimate typically excludes one-time items.
Second quarter net sales were $1.28 billion, up 52% from $843.14 million in the previous year, driven by the addition of Folgers. Eight analysts had a consensus revenue estimate of $1.24 billion for the quarter.
Excluding Folgers and foreign exchange, second-quarter net sales were down 6% to $789.5 million. Volume rose 1% and was more than offset by a 7% decline due to price and mix, with price reductions in the U.S. retail oils and baking segment.
Excluding Folgers, net volume was higher, primarily led by gains in Pillsbury, Crisco, Jif, and Hungry Jack brands in the U.S. and the company's baking brands in Canada. These gains were partially offset by decreases in canned milk, fruit spreads, and declines in the foodservice and natural foods businesses, JM Smucker noted.
Gross margin for the quarter rose to 38.5% from 28.9% last year with Folgers contributing approximately 90% of the increase. Folgers' gross margin was favorably impacted by green coffee market conditions, volume-related plant efficiencies, and product sales mix. Gross profit on the company's base business improved about 10%.
Based on segments, U.S. retail coffee market generated second-quarter net sales of $445.1 million. Prior to the Folgers transaction, volume increased approximately 5%. Strong growth in the Folgers brand contributed over three-quarters of the volume increase compared to last year, while the continued growth of Dunkin' Donuts coffee in gourmet contributed the remainder, JM Smucker stated.
U.S. retail consumer market net sales were down 4% to $290.1 million from $301.7 million in the prior-year quarter, hurt by sales mix. Total volume was flat compared to the second quarter last year, as gains in Jif peanut butter and Hungry Jack pancake mixes and syrups were offset by declines in potatoes, fruit spreads, Smucker's Uncrustables sandwiches, and the specialty foods business.
U.S. retail oils and baking market posted quarterly net sales of $303.9 million, a decline of 9% from $333.3 million in the previous year, reflecting the impact of price declines in shortening, oils, flour, and canned milk, and higher promotional spending on Crisco oils. Total volume rose 3%, with double-digit gains in the Pillsbury and Crisco brands offsetting declines in canned milk.
Additionally, special markets net sales grew 15% to $239.7 million from $208.2 million in the previous year. The acquisition of Folgers added $42.8 million to special markets net sales, offsetting a 1% volume decline in the base business. The company said that volume gains were realized in Canada primarily in the baking and pickles categories while declines in foodservice and natural foods were generally attributable to the current economic environment.
In August, the company reported first-quarter net income of $98.06 million, up from $42.29 million reported last year. Quarterly earnings per share were $0.83 compared with prior year's $0.77. Net sales for the first quarter grew 58% to $1.05 billion from $663.66 million in the prior-year quarter.
For the six-month period, the company posted net income of $238.05 million or $2 per share, compared with $93.74 million or $1.71 per share in the previous year. Net sales rose 55% to $2.33 billion from $1.51 billion a year ago.
Going forward, JM Smucker's Executive Chairman and Co-Chief Executive Officer Richard Smucker stated, "With strong momentum in the first half of the year, and confidence in our strategy and our ability to execute this strategy, we are raising our outlook for the year."
For fiscal 2010, the company now sees income per share, excluding merger and integration costs of $0.17 to $0.19, in the range of $3.95 - $4.05, up from the previous range of $3.65 - $3.80. Income per share is expected to reflect approximately $0.40 per share of non-cash amortization expense resulting from the significant amount of intangible assets recorded on the company's balance sheet.
Meanwhile, JM Smucker continues to expect full-year 2010 net sales of approximately $4.5 billion. Analysts are of the view that the company will earn $3.83 per share for the full-year on sales of $4.55 billion.
Among rivals, Kraft Foods Inc. (KFT) said on November 3 that its third-quarter profit dropped 39.5% from last year when results were boosted by huge gains from divestiture of discontinued operations. Kraft's third-quarter net income declined to $824 million or $0.55 per share from $1.4 billion or $0.91 per share for the year-ago quarter. Net revenue slipped 5.7% to $9.80 million from $10.40 million in the same quarter last year.
SJM is trading at $56.2699, up $2.7899, on 1.14 million shares.
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