J.M. Smucker Q3 Profit Down 4%, Lowers 2015 Outlook On Coffee-segment Weakness

(RTTNews) - Branded food products maker J.M. Smucker Co. (SJM) on Friday reported a 4 percent decline in profit for the third quarter from last year, reflecting lower sales and margins. The company noted that lower volumes in the coffee segment, driven by the Folgers brand, resulted in the sales decrease. Sales for the quarter missed analysts' estimates.

Looking ahead, the company forecast a modest decrease in sales for the fourth quarter and also lowered its financial outlook for fiscal 2015.

Richard Smucker, chief executive officer said, "While we are pleased with the momentum in many of our businesses, our U.S. Retail Coffee business continued to be challenged, which impacted our third quarter performance. In the near term, we expect results for the coffee segment to remain soft reflecting continued competitive dynamics, which we are addressing responsibly to ensure the long-term health of our brands."

The Orrville, Ohio-based company's net income for the third quarter was $160.9 million or $1.58 per share, down from $166.7 million or $1.59 per share in the year-ago period.

Excluding certain items, adjusted earnings per share for the quarter were $1.54, compared to $1.63 per share in the same period last year. On average, 16 analysts polled by Thomson Reuters expected the company to report earnings of $1.51 per share for the quarter. Analysts' estimates typically exclude special items.

Net sales for the quarter declined 2 percent to $1.44 billion from $1.47 billion in the prior-year quarter. Analysts expected revenue of $1.47 billion.

The decline in sales reflect lower volume, most significantly in the U.S. Retail Coffee segment.

Volume gains were realized in Jif peanut butter, Criscooils, Smucker's fruit spreads, and Smucker's Uncrustables frozen sandwiches and were offset by declines in Folgers coffee, private label canned milk and natural beverages, as well as the impact of the exited private label foodservice hot beverage business.

Net price realization was 1 percentage compared to the year-ago period as coffee list price increases were offset by lower net pricing for peanut butter and oils.

However, gross margin for the quarter contracted 90 basis points from the year-ago period to 36.3 percent, while operating margin contracted 30 basis points to 17.7 percent.

Overall commodity costs were higher, attributed to green coffee, which more than offset lower peanut and oil costs. Overall net price realization was also higher, but did not offset the impact of the higher costs and was the main contributor to the gross profit decline.

Segment-wise, U.S. Retail Coffee segment net sales for the quarter declined 1 percent from the year-ago period to $571.8 million, as lower volume was mostly offset by higher net price realization. Segment volume declined 8 percent, driven by the Folgers brand.

U.S. Retail Consumer Foods sales declined 2 percent from last year to $549.5 million, owing to lower net price realization primarily for the Crisco and Jif brands. Volume rose 1 percent from last year.

International, Foodservice, and Natural Foods sales declined 3 percent to $318.7 million. Excluding the impacts of Sahale and foreign currency exchange, segment net sales decreased 1 percent and volume declined 4 percent.

In early February, J.M. Smucker said it agreed to buy San Francisco, California-based Big Heart Pet Brands, the owner of Milk-Bone dog treats and Meow Mix cat food, in a cash-and-stock deal valued at about $5.8 billion, including debt.

Looking ahead, J.M. Smucker said that due to its pending acquisition of Big Heart Pet Brands that is expected to close in the fourth quarter, it is not providing a formal update to its full-year earnings per share and free cash flow guidance.

However, the company is providing selective forward-looking information related to its fourth quarter and a general overview of full-year 2015 earnings. The company expects to provide its outlook for fiscal 2016, including the impact of Big Heart Pet Brands, as part of its fourth-quarter earnings release, planned for June 2015.

For the fourth quarter of 2015, the company anticipates a "modest decrease" in net sales compared to the same period last year before any impact of Big Heart Pet Brands. This outlook reflects a softer volume expectation in its U.S. Retail Coffee segment than previously anticipated.

For fiscal 2015, J.M. Smucker said that based on fourth-quarter estimates, it now expects to realize a decrease in full-year net sales of nearly 3 percent as compared to the prior year. The company added that fourth-quarter earnings per share are expected to result in full-year earnings per share below the midpoint of its previous guidance range of $5.45 to $5.65 by about 3 percent.

Earlier, the company forecast fiscal 2015 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 $5.54 billion.

SJM closed Thursday's trading at $112.39. In Friday's pre-market activity, the stock is down $2.39 or 2.13 percent to $110.00.