The J.M. Smucker Company (SJM)
Q2 2011 Earnings Call
November 18, 2010 11:00 AM ET
Mark Belgya – Chief Financial Officer
Tim Smucker – Chairman and Co-CEO
Richard Smucker – Executive Chairman and Co-CEO
Vince Byrd – President, Coffee Business
Steve Oakland – President, Smucker’s, Jif and Hungry Jack
Mark Smucker – President, Special Markets
Paul Wagstaff – President, Oils and Baking
Farha Aslam – Stephens Equity
Ed Aaron – RBC Capital Markets
Alexia Howard – Sanford Bernstein
Chuck Cerankosky – Northcoast Research
Ken Goldman – J.P. Morgan
Jason English – Goldman Sachs
Jane Gelfand – Barclays Capital
Jon Anderson – William Blair
Ian Zaffino – Oppenheimer & Co.
Eric Serotta – Wells Fargo Securities
Scott Mushkin – Jefferies & Company
Mitch Pinheiro – Janney Capital Markets
Karen Lamark – Federated Investors
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I will now turn the conference over the Chief Financial Officer, Mr. Mark Belgya. Please go ahead, sir.
Good morning, everyone. And welcome to our second quarter earnings conference call. Thank you for joining us. On the call from the company are Tim Smucker, Chairman of the Board and Co-CEO; Richard Smucker, Executive Chairman and Co-CEO; Vince Byrd, President of Coffee Business; Steve Oakland, President of Smucker’s, Jif and Hungry Jack; Mark Smucker, President of Special Markets; and Paul Wagstaff, President, Oils and Baking.
After this brief introduction, I will turn the call over to Tim for opening comments. I will then review the financial results for the quarter and Richard will provide closing remarks. At the conclusion of these comments we will be available to answer your questions.
If you’ve not seen our press release it is available on our website at smuckers.com. A replay of this call is available on the website. If you have any follow-up questions or comments after today’s call, please feel free to contact me or Sonal Robinson, Vice President of Investor Relations.
I would like to remind you that in both the prepared comments and during the question-and-answer period that follows we may make forward-looking statements that reflect the company’s current expectations about future plans and performance. These forward-looking statements rely on a number of assumptions and estimates, and actual results may differ materially due to risks and uncertainties. I invite you to read the full disclosure of statement in the press release concerning such forward-looking statements. I also want to point out the company uses non-GAAP results for the purpose of evaluating performance internally. Additional discussion on non-GAAP information is also detailed in our press release and on our website.
I’ll now turn the call over to Tim.
Thank you, Mark. Good morning, everyone, and thank you for joining us. We are pleased to report another quarter of earnings growth, even though we continue to operate in a challenging economic and competitive environment. Let me summarize the key highlights for the quarter.
First, sales for the quarter increased 1%, excluding the impact of divestitures and foreign exchange. Pricing and favorable mix offset an overall decline in volume. Second, on a non-GAAP basis, operating profit was up 10% and combined with a lower effective income tax rate resulted in a 13% increase in earnings per share.
Third, we announced an expansion of our current restructuring project to improve the cost structure of our Canadian pickle and condiments business. And finally, we entered this year’s Fall Bake and Holiday period with strong multi-brand promotional programs that incorporate all of our major brands and we are optimistic about the season.
Now, let me provide commentary on each of our four business segments. In our Coffee segment, sales and segment profit were up for the quarter despite a decline in volume. We anticipated volume declines in the quarter due to significant pricing actions taken earlier in the year to offset increased green coffee costs. The decrease driven by Folgers coffee was larger than anticipated as our primary competitor continued to be aggressive with promoted price points.
Overall, we remain encouraged as we move through the Holiday period and into the remainder of the fiscal year. Our launch of Folgers Gourmet Selections and Millstone brand K-Cups this quarter, enhances our participation with the single serve category. We are pleased with the K-Cups performance to date as all major customers have accepted the product offering. Primary marketing support of the launch including television advertising began in November.
The Dunkin’ Donuts coffee brand is continuing its strong momentum aided by distribution gains, turns on the core business and the success of new product launches and this includes our new Dunkin’ Donuts seasonal items which are all performing well.
In the Consumer segment, volume increased 1%, excluding divestitures while net sales declined reflecting the price decrease taken on peanut butter earlier in the fiscal year. During the quarter we concluded a successful back-to-school period despite a very competitive environment particularly in the peanut butter category. We are encouraged by the consumer response to our Jif To Go offering, also the growth of Jif Natural continues to drive share gains in the peanut butter category.
Turning to our Oils and Baking segment, unprecedented competitive pricing throughout the quarter contributed to sales in volume declines, compared to a strong second quarter last year. In many instances particularly in the baking business we chose to protect profits over market share. We believe the current aggressive pricing will continue throughout the remainder of the Fall Bake period but are encouraged by the merchandising programs we have in place for the Fall Bake period.