The J.M. Smucker Company
), a leading manufacturer of food products, reported
third-quarter fiscal 2014 adjusted earnings (excluding special
project costs) of $1.66 per share. The results exceeded the
prior-year adjusted earnings of $1.47 per share by 13% owing to
lower share count. However, earnings lagged the Zacks Consensus
Estimate by a penny due to lower-than-expected sales.
Revenue and Margin Details
Net sales in the quarter declined 6% year over year to $1.465
billion. The decline was due to a 6% decrease in net price
realization, owing to price declines taken earlier in fiscal
2013, mainly on coffee and peanut butter.
In addition, volume gains realized in Crisco oils, Folgers
coffee and the Robin Hood brand were offset by declines in
Pillsbury baking mixes and flour and the negative impact of the
previously announced exit of portions in International,
Foodservice, and Natural Foods segments. Also, unfavorable mix
and foreign exchange each reduced net sales by 1% in the quarter.
The results also lagged the Zacks Consensus Estimate of $1.531
The acquisition of Enray Inc (Aug 2013) and the impact of the
company's licensing and distribution agreement with Cumberland
Packing Corp., which commenced on Jul 1, 2013 also added a
combined $23.7 million to third quarter sales. However, these
positives could not offset the price declines in coffee and
peanut butter. Excluding acquisition and currency impact, sales
declined 7% to $1.450 billion in the quarter.
Adjusted gross profit increased 2% to $548.1 million while
adjusted gross margin improved 290 basis points (bps) to 37.4%,
driven by lower input costs primarily that of green coffee.
Adjusted operating profit increased 2.7% to $273.5 million
whereas adjusted operating margin increased 160 bps to 18.7%,
primarily due to decline in general, administrative and
U.S. Retail Coffee Market:
The company's biggest segment, U.S. Retail Coffee Market,
reported an 8% decline in sales to $578.9 million due to the
impact of a 6% price decline from the past year, unfavorable mix
and increased promotional spending during the holiday season,
which more than offset the impact of lower commodity costs. Net
sales of K-cups declined 3%, while volumes improving 2% driven by
the Folgers brand and
) packaged coffee.
The segment's operating margin expanded 360 bps to 31.5% in
the quarter owing to improved volumes, lower green coffee costs,
which more than offset the negative impact of lower price
realization, decreased marketing expenses and lower manufacturing
U.S. Retail Consumer Foods:
U.S. Retail Consumer Foods segment sales declined 4% to $557.8
million due to the impact of a 7% price decline from the past
year. Segment volumes were also flat. Segment profit margin
expanded 60 bps to 18.9% in the quarter, primarily due to lower
commodity costs, primarily for peanuts, oils, and flour.
The company expects peanut costs and manufacturing costs to
decline in the second half of fiscal 2014, thus resulting in
segment profit growth.
International, Foodservice and Natural Foods:
Net sales in the International, Foodservice and Natural Foods
segment declined 6% from the previous-year quarter to $328.8
million due to lower volume. Excluding the impact of the acquired
Enray business, the Cumberland distribution agreement and foreign
exchange, segment net sales decreased 11% from the prior-year
The sales decline was due to the impact of the exit of the
company's hot beverage and Smucker's Uncrustables frozen sandwich
businesses and an unfavorable mix. Segment volume declined 2%,
excluding the acquisition impact, as increases in the Robin Hood
and Five Roses brands in Canada were more than offset by the
impact of the exited foodservice businesses.
The segment's profit margin contracted 60 bps to 13.6% in the
reported quarter due to the impact of the foodservice businesses
exit, increase in marketing expenses and currency headwinds,
despite lower commodity costs.
Following lower-than-expected results, the company lowered its
sales and earnings guidance for fiscal 2014. In addition, the
company anticipates lower volumes in the fourth quarter, a
difficult pricing environment in key categories and currency
headwinds to persist in fiscal 2014.
Management now expects its earnings in the range of $5.55 to
$5.60 (excluding the special project costs of 20 cents per
share), lower than the prior expectation of $5.72 to $5.82 per
share. The company has also lowered its sales guidance and now
expects fiscal 2014 net sales to go down 5% on a year-over-year
basis compared to its previous expectation of a decline of 2%.
The company lowered its sales guidance in the last quarter too.
Smucker holds a Zacks Rank #4 (Sell).
Other better ranked food companies include
Post Holdings Inc
Kraft Foods Group Inc
Hain Celestial Group Inc
). All of them carry a Zacks Rank #2 (Buy).
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