Orrville / OH. (sc) The J. M. Smucker Company announced results for the second quarter ended October 31, 2017, of its 2018 fiscal year. All comparisons are to the second quarter of the prior fiscal year, unless otherwise noted.
Executive Summary
- Net sales increased 1 percent, reflecting improved trends from the prior quarter.
- Net income per diluted share increased 13 percent to USD 1.71.
- Adjusted earnings per share was USD 2.02, a decrease of 1 percent.
- Cash provided by operating activities was USD 130.3 million, compared to USD 136.4 million last year.
- Free cash flow was USD 69.9 million in Q2/2018 and USD 304.6 million through H1/2018.
- The Company updated its full-year 2018 net sales and earnings outlook.
Chief Executive Officer Remarks
«We are pleased with our second quarter results, primarily driven by our pet food business and the strong performance of a number of key brands across all our businesses», said Mark Smucker, Chief Executive Officer. «This included double-digit sales increases for Nature’s Recipe® dog food, Dunkin’ Donuts® coffee, and Jif® peanut butter. We also experienced continued strong growth of our brands in e-commerce, as sales in this channel doubled in the quarter for our U.S. retail segments. We are confident in the ability of our brands to win in the rapidly changing retail environment. In addition, we remain focused on achieving sustainable cost reductions that support both the bottom-line and fuel investments in future growth».
Second Quarter Consolidated Results
| (Dollars and shares in millions, except per share data) | Q2/2017 | Q2/2016 | %Change | |||
| Net sales | USD 1’923.6 | USD 1’913.9 | 1% | |||
| Operating income | USD 330.7 | USD 303.3 | 9% | |||
| Adjusted operating income | 383.2 | 396.2 | (3%) | |||
| Net income per common share – assuming dilution | USD 1.71 | USD 1.52 | 13% | |||
| Adjusted earnings per share | 2.02 | 2.05 | (1%) | |||
| Weighted-average shares outstanding – assuming dilution | 113.6 | 116.6 | (3%) | |||
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Net Sales
Net sales increased USD 9.7 million, or 1 percent. Net price realization contributed 1 percentage point of growth, driven by higher net pricing for peanut butter and the Smucker’s® brand. Lower volume/mix impacted net sales by 1 percentage point, as declines in the oils and baking categories were partially offset by gains in pet food. Favorable foreign currency exchange contributed USD 5.4 million to net sales.
Operating Income
Gross profit increased USD 12.1 million, or 2 percent. A net benefit of higher pricing and costs more than offset lower volume/mix, primarily attributed to the oils and baking categories. Selling, distribution, and administrative (SD+A) expenses decreased USD 2.2 million, driven by incremental synergy realization and the Company’s cost savings initiatives. Operating income increased USD 27.4 million, or 9 percent, further reflecting a reduction in special project costs.
On a non-GAAP basis, adjusted gross profit decreased USD 11.2 million, or 1 percent, with the primary difference from GAAP results being the exclusion of a USD 23.9 million favorable change in unallocated derivative gains and losses. Adjusted operating income decreased USD 13.0 million, or 3 percent.
Other
Net interest expense increased USD 0.6 million. Income taxes increased USD 9.0 million. This was primarily attributed to higher income before income taxes, as the effective tax rate was 33.3 percent in the current year, compared to 33.2 percent in the prior year.
Full-year Outlook
The Company updated its full-year fiscal 2018 guidance as summarized below:
| Current | Previous | |
| Adjusted earnings per share | USD 7.75 to 7.90 | USD 7.75 to 7.95 |
| Free cash flow | USD 775 million | USD 775 million |
| Capital expenditures | USD 310 million | USD 310 million |
| Effective tax rate | 32.5 to 33.0 percent | 32.5 to 33.0 percent |
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Net sales are expected to be in the range of flat to down slightly, compared to the prior year. Adjusted earnings per share is expected to range from USD 7.75 to USD 7.90, based on 113.6 million shares outstanding. The change in earnings guidance further reflects anticipated freight cost increases for the remainder of the fiscal year, driven by industry-wide headwinds. The above guidance excludes any potential impact following completion of the Company’s previously announced definitive agreement to acquire the Wesson® oil brand from Conagra Brands Inc., which is pending regulatory approval.
