The J.M. Smucker Company (SJM),a leading manufacturer of food products,reported better-than-expected fourth quarter fiscal 2013 adjusted earnings (excluding special project costs) of $1.29 per share.
The results exceeded the Zacks Consensus Estimate of $1.15 by 12.2% and the prior-year adjusted earnings of $1.10 per share by 17% on the back of robust sales growth, higher operating income, lower taxes and lower share count due to share buybacks.
Revenue and Margin Details
Net sales in the quarter declined 1% year over year to $1.340 billion compared with $1.355 billion a year ago. The decline was due to a decrease in net price realization, reflecting price declines taken earlier in fiscal 2013, notably on coffee and peanut butter.
The decline offset the volume gains in the U.S. Retail Coffee and U.S. Retail Consumer Foods segments due to higher priced K-Cups coffee and Dunkin Donut brands. The results also lagged the Zacks Consensus Estimate of $1.342 billion. Excluding acquisition impact, net sales declined 1% to $1.342 billion in the quarter.
Adjusted gross profit increased 6% while gross margin improved 240 basis points to 36.1%, driven by lower input costs primarily that of green coffee. Despite higher operating expenses, adjusted operating profit increased 5% and operating margin increased 100 basis points to 16.8%.
Segment Performance
U.S. Retail Coffee Market:The company’s biggest segment, U.S. Retail Coffee Market, reported a 1% decline in sales to $535.5 million due to the impact of price declines taken from the past year. The segment’s operating margin expanded 450 bps to 27.6% in the quarter as favorable volume, lower green coffee costs and lower manufacturing overhead costs more than offset the significant increase in marketing expenses.
U.S. Retail Consumer Foods: U.S. Retail Consumer Foods segment sales rose 5% to $485.7 million, driven by favorable sales mix and increase in volumes, which offset lower price realization. The segment’s profit margin contracted 120 bps to 18.6% in the quarter, primarily due to significantly lower price realization of peanut butter. Lower price realization and higher marketing expenses offset the benefit from higher volume and sales mix.
International, Foodservice and Natural Foods: Net sales in the International, Foodservice and Natural Foods segment declined 9% from the previous-year quarter to $318.4 million due to lower volume and lower net price realization. Segment volume declined 4% as the company exited non-branded foodservice roast and ground coffee and a portion of the school Smucker's Uncrustables frozen sandwich business, which are a part of the Sara Lee foodservice business.