Orrville / OH. (sc) The J. M. Smucker Company announced results for the fourth quarter ended April 30, 2019, of its 2019 fiscal year. Financial results for the fourth quarter and fiscal year include the contribution from Ainsworth Pet Nutrition LLC, which was acquired on May 14, 2018, and reflect the divestiture of the Company’s U.S. baking business on August 31, 2018. All comparisons are to the fourth quarter of the prior fiscal year, unless otherwise noted.
- Net sales increased USD 120.8 million, or 7 percent, driven by the addition of Ainsworth and the Company’s growth brands.
- Net income per diluted share was USD 0.63, including a noncash impairment charge related to the Natural Foods business within the U.S. Retail Consumer Foods segment.
- Adjusted earnings per share was USD 2.08, an increase of 8 percent.
- For the full year, net income per diluted share was USD 4.52. Adjusted earnings per share was USD 8.29, an increase of 4 percent.
- Cash provided by operating activities was USD 274.2 million, compared to USD 314.4 million in the prior year.
- Free cash flow was USD 181.6 million in the quarter and USD 781.4 million for the full year.
- The Company provided its fiscal 2020 outlook, with expected net sales growth of 1 to 2 percent and adjusted earnings per share to range from USD 8.45 to USD 8.65.
Chief Executive Officer Remarks
«We are pleased with the progress that we made during the year towards executing against our strategic plan, which supported fourth quarter adjusted earnings growth of 8 percent and full-year adjusted earnings growth of 4 percent. We successfully integrated Ainsworth, extending our leadership in pet foods, while our key growth brands delivered double-digit sales growth, demonstrating the power of our brands when supported by ongoing product innovation, including 1850® coffee and Jif Power Ups®. We continued to focus on productivity, allowing us to deliver on our cost reduction targets for the year, providing fuel for investment in future growth.»
«As we transition to fiscal year 2020, our organization is committed to delivering on its growth imperatives to lead in the best categories, build brands consumers love, and be everywhere our consumers want us to be. Disciplined investment in our brands across pet food, coffee, and snacking leaves us well-positioned to drive sustainable financial growth and enhance shareholder value for the long term.»
Fourth Quarter Consolidated Results
|(USD and shares in millions, except per share data)||2019/04/30||2018/04/30||Change|
|Net sales||USD 1,902.1||USD 1,781.3||7%|
|Operating income||USD 153.6||USD 312.7||(51%)|
|Adjusted operating income||353.3||352.1||–|
|Net income per common share – assuming dilution||USD 0.63||USD 1.64||(62%)|
|Adjusted earnings per share – assuming dilution||2.08||1.93||8%|
|Weighted-average shares outstanding – assuming dilution||113.8||113.6||–|
Net sales increased 7 percent, reflecting a USD 200.8 million contribution from the Ainsworth acquisition, partially offset by the impact of USD 75.0 million of noncomparable net sales in the prior year attributed to the divestiture of the U.S. baking business.
Excluding items impacting comparability, net sales decreased USD 5.0 million, primarily driven by USD 4.4 million of unfavorable foreign currency exchange. Lower net price realization, primarily in coffee and peanut butter, impacted net sales by 3 percentage points and was mostly offset by favorable volume/mix, as the lowered price points resulted in volume gains in their respective categories.
Gross profit in the fourth quarter increased USD 1.9 million, with the addition of Ainsworth being mostly offset by a USD 44.9 million unfavorable change in derivative gains and losses and a USD 21.7 million impact from the divested U.S. baking business. In addition, lower net price realization was offset by favorable volume/mix and lower input costs, notably for coffee. Operating income decreased USD 159.1 million, or 51 percent, primarily reflecting a USD 97.9 million noncash goodwill impairment charge related to the Natural Foods business within the U.S. Retail Consumer Foods segment and a USD 45.8 million increase in selling, distribution, and administrative (SD+A) expenses primarily related to the acquisition of Ainsworth. The impairment was driven by a reduction in long-term net sales and profitability projections for the beverage and ancient grains categories, reflecting an increased strategic focus on higher growth categories.
On a non-GAAP basis, adjusted gross profit increased USD 46.8 million, or 7 percent, reflecting the exclusion of the USD 44.9 million unfavorable change in unallocated derivative gains and losses. Adjusted operating income increased USD 1.2 million, reflecting the exclusion of the impairment charge, unallocated derivative gains and losses, special project costs, and amortization expense.
Interest Expense, Other Income (Expense), and Income Taxes
As a result of the Ainsworth acquisition and higher interest rates, net interest expense increased USD 1.7 million over the prior year, which included non-capitalized financing costs related to the acquisition.
The effective income tax rate was 29.8 percent compared to 29.6 percent in the prior year. On a non-GAAP basis, the adjusted effective income tax rate was 21.4 percent compared to 27.6 percent in the prior year. The adjusted effective income tax rate reflects the exclusion of certain discrete tax adjustments related to goodwill impairment charges and income tax reform. The favorable adjusted tax rate compared to the prior year reflects a reduced statutory rate and the integration of Ainsworth. The full-year adjusted effective income tax rate was 25.5 percent compared to 28.0 percent in the prior year, primarily reflecting the full-year benefit of a lower statutory tax rate due to U.S. income tax reform.
Cash Flow and Debt
Cash provided by operating activities was USD 274.2 million, compared to USD 314.4 million in the prior year driven primarily by deferred income taxes, partially offset by a benefit from other-net operating activities. Free cash flow was USD 181.6 million, compared to USD 202.8 million in the prior year, reflecting the decrease in cash provided by operating activities partially offset by a USD 19.0 million reduction in capital expenditures. Net debt repayments in the quarter totaled USD 178.0 million.
Full Year Outlook
The Company provided its full-year fiscal 2020 guidance as summarized below:
|Net sales increase vs prior year||1% – 2%|
|Adjusted earnings per share||USD 8.45 – USD 8.65|
|Free cash flow (in millions)||USD 875 – USD 925|
|Capital expenditures (in millions)||USD 300 – USD 320|
|Effective tax rate||24.5% – 25.0%|
Net sales are expected to increase 1 to 2 percent compared to the prior year, which incorporates the loss of USD 105.9 million of sales in the first 4 months of fiscal 2019 related to the divested U.S. baking business and incremental noncomparable sales for Ainsworth. On a comparable basis, net sales are expected to increase more than 2 percent.
Adjusted earnings per share is expected to range from USD 8.45 to USD 8.65, based on 114.0 million shares outstanding. The anticipated year-over-year increase in earnings reflects the contribution from increased sales, gross profit margin slightly above the prior year, and the benefit of a lower effective tax rate, partially offset by a slight increase in SD+A costs.