J.M. Smucker Q2 Profit Rises, Meets View; Affirms 2015 Outlook

(RTTNews) - Branded food products maker J.M. Smucker Co. (SJM) on Wednesday reported a 3 percent increase in profit for the second quarter from last year, as lower expenses and higher margins offset a decline in sales. The company noted that lower volumes in the coffee segment resulted in the sales decrease.

Adjusted earnings per share for the quarter matched analysts' expectations. Looking ahead, the company affirmed its financial outlook for fiscal 2015 that it provided on November 12.

Richard Smucker, chief executive officer said, "Our second quarter fell short of expectations primarily driven by our coffee business. We are confident that this shortfall was a result of short-term challenges and that the fundamentals of our coffee business remain solid. Our rapid ascent of coffee prices to reflect higher green coffee costs impacted volume more than we expected."

The latest quarter's results include the operations of Sahale Snacks, Inc. and Enray Inc. following the completion of their acquisitions, and the impact of the company's licensing and distribution agreement with Cumberland Packing Corp.

The Orrville, Ohio-based company's net income for the second quarter rose to $158.3 million or $1.55 per share from $153.4 million or $1.46 per share in the year-ago period.

Excluding certain items, adjusted earnings per share for the quarter were $1.53, the same as last year. On average, 12 analysts polled by Thomson Reuters expected the company to report earnings of $1.53 per share for the quarter. Analysts' estimates typically exclude special items.

Net sales for the quarter declined 5 percent to $1.48 billion from $1.56 billion in the prior-year quarter. Analysts expected revenue of $1.49 billion.

The decline in sales reflect lower volume, most significantly in the U.S. Retail Coffee segment driven by the Folgers brand. Volume declines were also realized due to the continued impact of the private label hot beverage business exits in the International, Foodservice, and Natural Foods segment, and in the Pillsbury and Robin Hood baking brands.

Net price realization was essentially flat with the year-ago period as higher coffee list prices were offset by promotional coffee spending as well as lower net pricing for oils, peanut butter, and fruit spreads.

However, gross margin for the quarter rose 80 basis points from the year-ago period to 36.2 percent, while operating margin expanded 110 basis points to 17.2 percent.

Overall, the net impact of commodity costs and net price realization was slightly favorable to gross profit.

Segment-wise, U.S. Retail Coffee segment net sales for the quarter declined 10 percent from the year-ago period to $533 million, reflecting lower volume somewhat offset by favorable mix and higher net price realization. Segment volume declined 18 percent, driven by a 20 percent decrease in the Folgers brand.

U.S. Retail Consumer Foods sales declined 1 percent from last year to $605 million, owing to lower net price realization primarily for the Crisco and Jif brands. Volume was flat with last year.

International, Foodservice, and Natural Foods sales declined 2 percent to $343.8 million. Excluding the impacts of Sahale, Enray, and foreign currency exchange, segment net sales decreased 1 percent and volume decreased 3 percent.

Looking ahead to the second half of 2015, J.M. Smucker projects a modest increase in net sales over the same period last year. The company noted that higher net price realization, favorable mix, and the contribution from Sahale will be the primary contributors to the increase in sales.

For fiscal 2015, J.M. Smucker affirmed its outlook for adjusted net income in a range of $5.45 to $5.65 per share and net sales to decrease about 1 percent from last year. Street expects the company to earn $5.55 per share for the year on revenues of $5.56 billion.

Vince Byrd, president and chief operating officer, said, "Clearly our most recent pricing actions affected our volume more than we anticipated. The pricing impact of higher green coffee costs will continue through the remainder of the fiscal year; however, we expect our coffee volume trends to improve versus our second quarter as we tactically address this short-term challenge."

SJM closed Tuesday's trading at $101.97, up $0.45 or 0.44 percent on a volume of 603,912 shares.