Orrville / OH. (sc) The J. M. Smucker Company announced results for the second quarter ended October 31, 2020, of its 2021 fiscal year. All comparisons are to the second quarter of the prior fiscal year, unless otherwise noted.
- Net sales increased USD 76.2 million, or 4 percent, primarily reflecting growth in the Company’s U.S. Retail Consumer Foods and U.S. Retail Coffee segments, partially offset by a decline in its Away From Home business.
- Net income per diluted share was USD 2.02. Adjusted earnings per share was USD 2.39, an increase of 6 percent.
- Cash from operations was USD 378.7 million, an increase of 69 percent. Free cash flow was USD 326.3 million, compared to USD 160.6 million in the prior year.
- The Company increased its full-year fiscal 2021 net sales, adjusted earnings per share, and free cash flow outlook.
Chief Executive Officer Remarks
«In the second quarter, we focused on meeting the demands created by the current environment, while continuing to execute our long-term strategy to deliver sustainable growth,» said Mark Smucker, President and Chief Executive Officer. «Our U.S. Retail Consumer Foods and U.S. Retail Coffee businesses experienced strong sales momentum from elevated at-home consumption trends and grew market share. I want to thank our employees for their ongoing hard work and dedication to provide our customers, consumers, and their pets with a steady food supply from trusted and iconic brands.»
«We are pleased to raise our full-year financial guidance, while making additional investments in our brands to support their momentum. I am confident that we are strengthening our foundation to deliver both our short-term and long-term financial objectives and increase shareholder value.»
Second Quarter Consolidated Results
|Three Months Ended …||2020-10-31||2019-10-31||Change|
|(Dollars and shares in millions, except per share data)|
|Net sales||USD 2,034.0||USD 1,957.8||4||%|
|Operating income||USD 380.8||USD 329.8||15||%|
|Adjusted operating income||408.8||391.0||5||%|
|Net income per common share – assuming dilution||USD 2.02||USD 1.85||9||%|
|Adjusted earnings per share – assuming dilution||2.39||2.26||6||%|
|Weighted-average shares outstanding – assuming dilution||114.2||114.1||–|
Net sales increased 4 percent, primarily due to favorable volume/mix for the Company’s U.S. Retail Coffee and U.S. Retail Consumer Foods segments, reflecting elevated at-home consumption, partially offset by reduced volume/mix for its Away From Home operating segment. Net price realization and foreign currency exchange were neutral.
Gross profit increased USD 64.2 million, or 9 percent, primarily due to a favorable change in unallocated derivative gains and losses as compared to the prior year and the increased contribution from volume/mix. Operating income increased USD 51.0 million, or 15 percent, primarily reflecting the increase in gross profit, partially offset by a USD 21.3 million increase in selling, distribution, and administrative (SD+A) expenses.
Adjusted gross profit increased USD 33.6 million, or 4 percent, with the difference from generally accepted accounting principles (GAAP) results being the exclusion of unallocated derivative gains and losses. Adjusted operating income increased USD 17.8 million, or 5 percent, further reflecting the exclusion of other special project costs and amortization.
Interest Expense, Other Income (Expense), and Income Taxes
Net interest expense decreased USD 4.0 million, primarily as a result of a decrease in interest rates and reduced debt outstanding, partially offset by interest expense related to interest rate contracts terminated in the fourth quarter of the prior year.
Net other expense increased USD 30.6 million, reflecting pension settlement charges, including a noncash pre-tax settlement charge of USD 27.9 million related to the Company’s Canadian defined benefit pension plan, which is excluded from adjusted net income.
The effective income tax rate was 24.0 percent compared to 24.3 percent in the prior year.
Cash Flow and Debt
Cash provided by operating activities was USD 378.7 million, compared to USD 224.0 million in the prior year, primarily reflecting a decrease in cash required to fund working capital and an increase in net income adjusted for noncash items. Free cash flow was USD 326.3 million, compared to USD 160.6 million in the prior year, reflecting the increase in cash provided by operating activities and an USD 11.0 million decrease in capital expenditures. Net debt repayments in the quarter totaled USD 216.1 million.
The Company updated its full-year fiscal 2021 guidance as summarized below:
|Net sales change vs prior year||1% – 2%||0% – 1%|
|Adjusted earnings per share||USD 8.55 – USD 8.85||USD 8.20 – USD 8.60|
|Free cash flow (in millions)||USD 975 – USD 1,025||USD 925 – USD 975|
|Capital expenditures (in millions)||USD 315||USD 300|
|Effective tax rate||24.0%||24.0%|
The outbreak of Covid-19 continues to impact financial results and cause uncertainty for the full-year fiscal 2021 outlook. Changes in consumer purchasing behavior, retailer inventory levels, macroeconomic conditions, and any manufacturing or supply chain disruption could materially impact actual results. This guidance reflects expectations based on the Company’s current performance and understanding of the overall environment.
Net sales are expected to increase 1 to 2 percent compared to the prior year, primarily reflecting elevated at-home consumption benefiting the U.S. Retail Coffee and U.S. Retail Consumer Foods segments. Net sales guidance also reflects a decline for the Company’s Away From Home business and the lapping of a USD 185 million incremental benefit to net sales related to Covid-19 in the fourth quarter of the prior year.
Adjusted earnings per share is expected to range from USD 8.55 to USD 8.85, based on 114.1 million shares outstanding. Earnings guidance reflects the contribution from sales at a gross profit margin range of 37.5 to 38.0 percent, SD+A expenses to increase 1 to 2 percent compared to the prior year, and an effective tax rate of 24.0 percent. Free cash flow is expected to range from USD 975 million to USD 1,025 million with capital expenditures of USD 315 million.
The full-year fiscal 2021 guidance does not reflect any impact related to the Company’s previously announced agreement to divest the Crisco® oils and shortening business. The Company expects the transaction to close during the third quarter of the current fiscal year and estimates the fiscal 2021 net sales impact to be approximately USD 100 million and adjusted earnings per share impact to be approximately USD 0.20, excluding any potential benefit from the use of proceeds from the sale.