J.M. Smucker Q2 Profit Up 3%, But Results Miss View; Trims Sales 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 sales were more than offset by improved margins amid lower commodity costs.

However, both adjusted earnings per share and quarterly revenues missed analysts' expectations. Looking ahead, the company maintained its earnings guidance for fiscal 2014, but lowered its sales outlook.

Richard Smucker, chief executive officer of J.M. Smucker said, "We are encouraged by the resilience that many U.S. shoppers have demonstrated in the face of uncertainty. Our volume has been solid in many of our categories, and we remain confident in achieving our overall earnings per share guidance for the year."

The Orrville, Ohio-based maker of Smucker's jams and Folgers coffee reported net income for the second quarter of $153.4 million or $1.46 per share, higher than $148.8 million or $1.36 per share in the prior-year quarter.

The latest quarter's results include the operations of Enray Inc. since the completion of the acquisition on August 20, 2013, and the impact of the company's licensing and distribution agreement with Cumberland Packing Corp., which commenced on July 1, 2013.

Excluding special project costs, adjusted net income for the quarter was $159.5 million or $1.52 per share, compared to $158.1 million or $1.45 per share in the year-ago quarter.

On average, seventeen analysts polled by Thomson Reuters expected the company to report earnings of $1.60 per share for the quarter. Analysts' estimate typically excludes one-time items.

Net sales for the quarter declined 4 percent to $1.56 billion from $1.63 billion in the same quarter last year and missed analysts' consensus estimate of $1.61 billion.

The sales decline was primarily attributable to a 4 percent reduction in net price realization reflecting price declines taken over the past twelve months, notably on coffee and peanut butter. The decline also reflects the impact of the planned exit of certain portions of the company's business in its International, Foodservice, and Natural Foods segment.

Favorable sales mix contributed 1 percent to net sales in the quarter and was attributed to volume gains in retail coffee combined with a decrease in flour. Net sales also includes a combined $21.5 million from the acquired Enray business and the Cumberland distribution agreement.

U.S. retail coffee net sales for the quarter declined 4 percent from the year-ago period to $594.9 million, while U.S. retail consumer foods net sales edged down 1 percent to $612.6 million. International, foodservice, and natural foods net sales declined 9 percent to $352.4 million from last year.

The company's operating income margin expanded 60 basis points from last year to 16.7 percent, while gross profit margin improved 210 basis points from last year to 35.4 percent.

Overall commodity costs were lower during the quarter, due primarily to green coffee. However, the impact of pricing actions taken by the company across all categories more than offset the benefit of these lower commodity costs, resulting in a slightly unfavorable impact on gross profit.

Looking ahead to fiscal 2014, J.M. Smucker maintained its guidance for adjusted earnings in a range of $5.72 to $5.82 per share, excluding special project costs of about $0.20 per share.

The range includes the impact of about $13 million in estimated lower interest expense associated with the interest rate swap entered into during the second quarter of 2014, which was not included in the management's previous guidance range.

The company now expects net sales for the year to decrease by about 2 percent from last year. Earlier, the company forecast sales to decline about 1 percent from the $5.9 billion generated in 2013.

Street is currently looking for fiscal 2014 earnings of $5.84 per share on revenues of $5.83 billion.

SJM closed Tuesday's regular trading session at $108.59, down $0.22 on a volume of 313,600 shares.