The J.M. Smucker Co. Announces Fiscal 2024 Second Quarter Results, Lower Coffee Prices Show Impact

By: Alexis Rubinstein, Managing Editor - Coffee Network

Fri, 15 Dec 2023, 15:30

Alexis Rubinstein

Managing Editor

CoffeeNetwork (New York) - The J.M. Smucker Co. (NYSE: SJM) announced results for the second quarter ended October 31, 2023, of its 2024 fiscal year.

EXECUTIVE SUMMARY

Net sales decreased $266.5 million, or 12 percent. Net sales excluding the divestiture and foreign currency exchange increased 7 percent.
Net income per diluted share was $1.90. Adjusted earnings per share was $2.59, an increase of 8 percent.
Cash provided by operations was $176.9 million compared to $205.0 million in the prior year. Free cash flow was $28.2 million, compared to $102.9 million in the prior year.

Net Sales

Net sales decreased $266.5 million, or 12 percent. Excluding noncomparable net sales in the prior year of $385.0 million from the divested pet food brands, as well as $2.5 million of unfavorable foreign currency exchange, net sales increased $121.0 million, or 7 percent.

The increase in comparable net sales reflects a 4 percentage point increase from volume/mix, primarily driven by Smucker's® Uncrustables® frozen sandwiches and contract manufacturing sales related to the divested pet food brands, partially offset by Jif® peanut butter. Comparable net sales growth was also supported by a 3 percentage point increase from net price realization, primarily due to list price increases for the U.S. Retail Pet Foods and U.S. Retail Consumer Foods segments and for International and Away From Home, partially offset by a net price decline for the U.S. Retail Coffee segment.

Operating Income

Gross profit increased $23.1 million, or 3 percent. The increase primarily reflects higher net price realization, lower green coffee costs, and favorable volume/mix. Gross profit also reflects the unfavorable impact from the divested pet food brands. Operating income increased $5.5 million, or 2 percent, primarily reflecting the increase in gross profit, a $20.8 million decrease in selling, distribution, and administrative ("SD&A") expenses, and a $16.0 million reduction in amortization expense as a result of the divested pet food brands. These benefits were mostly offset by a $48.3 million increase for net other operating expense, primarily driven by a $39.1 million unfavorable impact related to the termination of a supplier agreement and an estimated net pre-tax loss on assets held for sale.

Adjusted gross profit increased $19.5 million, or 3 percent. The difference between adjusted gross profit and generally accepted accounting principles ("GAAP") results primarily reflects the exclusion of the change in net cumulative unallocated derivative gains and losses. Adjusted operating income, which further reflects the exclusion of amortization, the estimated net pre-tax loss on assets held for sale, and special project costs as compared to GAAP operating income, increased $5.8 million, or 2 percent.

Interest Expense, Other Debt Costs, and Income Taxes

Net interest expense decreased $4.6 million, primarily due to an increase in interest income, reflecting an increase in our cash investments and higher interest rates as compared to the prior year, and a decrease in interest expense related to the Company's commercial paper program, as there was no balance outstanding at the end of the quarter. The decrease in net interest expense also includes interest expense related to the new Senior Notes issued during the quarter to fund the acquisition of Hostess Brands.

U.S. Retail Coffee

Net sales decreased $24.1 million, or 3 percent. Net price realization reduced net sales by 4 percentage points, primarily driven by list price decreases, partially offset by reduced trade spend. Volume/mix was neutral in the quarter, as increases for the Café Bustelo® and Dunkin'® brands were mostly offset by the Folgers® brand.

Segment profit decreased $16.7 million, primarily reflecting the $39.1 million unfavorable impact related to the termination of a supplier agreement. Excluding this item, segment profit increased, primarily driven by a favorable net impact of decreased commodity costs and lower net price realization.

However, the company expects positive sales momentum for its coffee brands across the next six months, driven by lower pricing and higher marketing spend.

“With competitive price points now broadly reflected on-shelf and increased marketing investments planned for the second half of the year, we anticipate continued momentum for the coffee business in the back half of the fiscal year, including low-single digit volume growth,” said CEO Mark Smucker.

Alexis Rubinstein

Coffee

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