The J.M. Smucker Company
) reported second quarter fiscal 2013 adjusted earnings
(excluding special project costs of 9 cents) of $1.45 per share,
which was in line with the Zacks Consensus Estimate. Reported
earnings surpassed the prior-year quarter adjusted earnings of
$1.29 per share by 12%. Robust sales growth and lower outstanding
shares due to share buyback boosted earnings.
Net sales in the quarter increased 8% year over year to $1.63
billion compared with $1.51 billion a year ago, owing to
acquisition impact and favorable sales mix. The acquisitions
contributed $90.7 million to net sales growth.
The year-over-year improvement was driven by volume gains in
the higher priced K-Cups coffee brand. The results were in line
with the Zacks Consensus Estimate. Organic net sales grew 2% to
$1.54 billion in the quarter.
The company completed its acquisition of the North American
foodservice coffee and hot beverage business on January 3, 2012
from Sara Lee Corporation, which has completed its spin-off of
D.E MASTER BLENDERS 1753 and renamed the North American business
Hillshire Brands Company
Volumes excluding the impact of the acquisition declined 2% in
the reported quarter. Price realization was slightly lower as
price declines in coffee offset pricing gains in peanut butter
over the past year.
Excluding special project costs, gross profit increased 6.4%
to $544.4 million compared with $511.4 million in the year-ago
period, driven by the acquired Sara Lee foodservice business and
strong coffee growth. Gross margin, however, contracted 40 basis
points (bps) to 33.4% in the second quarter of fiscal 2013 due to
higher costs of sales. Operating profits, excluding the impact of
project costs, increased 8.2% to $261.5 million in the reported
quarter. Operating margin expanded 10 bps to 16.1%.
U.S. Retail Coffee Market
: The company's biggest segment, U.S. Retail Coffee Market,
reported a 1% increase in sales to $622.5 million, aided by
increased volume and sales mix of K-Cups, offset by the impact of
price declines since the last year quarter. The segment's
operating margin expanded 270 bps to 25.4% in the quarter, as
favorable mix and volume growth more than offset the significant
increase in marketing expenses.
U.S. Retail Consumer Foods:
U.S. Retail Consumer Foods segment sales rose 1% to $619.3
million, driven by higher price realization offset by decline in
volume and sales mix. Volume went down 6% during the quarter. The
segment's profit margin contracted 90 bps to 17.9% in the
quarter, primarily due to increase in costs for peanut butter.
These were partially offset by higher price realization and a
decrease in marketing and other expenses.
International, Foodservice and Natural Foods
: Net sales in the International, Foodservice and Natural Foods
segment increased 38% from the previous-year quarter to $387.0
million, driven by acquisitions. Volume increased 4% in the
quarter on the back of Robin Hood brand and Five Roses Canadian
flour brands as well as non-branded beverages. The segment's
profit margin also inflated 110 bps to 15.0% in the second
quarter of fiscal 2013.
During the second quarter of fiscal 2013, the company
repurchased 2.0 million shares for approximately $170.9 million.
As of October 31, 2012, the company has approximately 1.9 million
common shares remaining for repurchase under the
Fiscal 2013 Guidance
The company has maintained its sales guidance for fiscal 2013.
Management expects its net sales to increase 7% over the
prior-year period. The sales guidance reflects the expected net
sales contribution from the Sara Lee food service business.
The company raised its fiscal 2013 adjusted earnings guidance,
excluding special project costs of 40 cents per share, to the
range of $5.12 to $5.22 per share compared with $5.00 to $5.10
per share forecasted previously.
Currently, we hold a Zacks #3 Rank (short-term Hold rating) on
Smucker, which competes with
Green Mountain Coffee Roasters Inc.
). Over the long term, we have a Neutral recommendation on the
GREEN MTN COFFE (GMCR): Free Stock Analysis
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