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17.02.2017 12:30
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The J. M. Smucker Company Announces Fiscal 2017 Third Quarter Results
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PR Newswire
ORRVILLE, Ohio, Feb. 17, 2017
ORRVILLE, Ohio, Feb. 17, 2017 /PRNewswire/ -- The J. M. Smucker Company (NYSE: SJM) today announced results for the third quarter ended January 31, 2017, of its 2017 fiscal year. All comparisons are to the third quarter of the prior fiscal year, unless otherwise noted. Results for the prior year include the Company's former U.S. canned milk business, prior to its divestiture on December 31, 2015.
EXECUTIVE SUMMARY
- Net sales decreased 5 percent. Excluding the noncomparable U.S. canned milk business divested in the prior year, net sales decreased 3 percent.
- Net income per diluted share was $1.16, including a noncash impairment charge related to certain indefinite-lived trademarks, compared to $1.55 in the prior year. The prior year included a $0.14 per share gain on the U.S. canned milk divestiture.
- Adjusted earnings per share was $2.00 compared to $2.05 in the prior year. Excluding the gain on the divestiture in the prior year, adjusted earnings per share increased 5 percent.
- Incremental synergy realization was $26.3 million in the third quarter and $86.8 million through the first three quarters of fiscal 2017. The Company now expects to recognize $120 million of incremental synergies in fiscal 2017, an increase of $20 million from its previous guidance.
- Cash provided by operating activities was $419.5 million in the third quarter. Free cash flow was $366.9 million in the quarter and $658.2 million through the first three quarters of fiscal 2017.
- The Company updated its full-year fiscal 2017 net sales, earnings, and free cash flow outlook.
CHIEF EXECUTIVE OFFICER REMARKS
"Accelerating the realization of synergies and a concentrated effort to reduce costs across the Company support our ability to deliver bottom-line growth, despite the top-line softness in our business and across the industry," said Mark Smucker, Chief Executive Officer. "We are also aggressively pursuing a variety of growth opportunities. During the quarter, we launched our Nature's Recipe® premium pet food brand into grocery and mass merchandise outlets. In addition, we announced plans to build a new manufacturing facility to support growth for our Smucker's® Uncrustables® frozen sandwiches. Behind these and other initiatives, we remain confident in achieving our long-term growth objectives and continuously enhancing shareholder value."
NON-GAAP MEASURES AND SEGMENT RESULTS
Beginning May 1, 2016, the Company redefined certain non-GAAP measures and modified its segment profit calculation to exclude amortization expense and impairment charges related to intangible assets. Prior year results have been modified to conform to the new presentation. Additional information is included in the Company's Form 8-K, dated July 25, 2016.
THIRD QUARTER CONSOLIDATED RESULTS
| | | Three Months Ended January 31, | ||||
| | | | | | | % Increase |
| | | 2017 | | 2016 | | (Decrease) |
| | | (Dollars and shares in millions, except per share data) | ||||
| | | | | | | |
| Net sales | $ 1,878.8 | | $ 1,973.9 | | (5%) | |
| | | | | | | |
| Operating income | $ 237.7 | | $ 318.3 | | (25%) | |
| Adjusted operating income | 382.8 | | 408.3 | | (6%) | |
| | | | | | | |
| Net income per common share – assuming dilution | $ 1.16 | | $ 1.55 | | (25%) | |
| Adjusted earnings per share | 2.00 | | 2.05 | | (2%) | |
| | | | | | | |
| Weighted-average shares outstanding – assuming dilution | 116.5 | | 119.7 | | (3%) | |
| | ||||||
| Results for the three months ended January 31, 2016, include the Company's former U.S. canned milk business, prior to its divestiture on December 31, 2015. | ||||||
Net Sales
Net sales decreased $95.1 million, including $46.3 million attributed to the divested U.S. canned milk business. Excluding the noncomparable divested business and foreign currency exchange, net sales decreased $50.5 million, or slightly below 3 percent. This reflected a decline from volume/mix, driven by the U.S. Retail Coffee segment, and lower net price realization, which was mostly attributed to the U.S. Retail Pet Foods segment. These two factors contributed somewhat equally to the lower net sales.
Operating Income
Gross profit decreased $40.9 million, or 5 percent, driven by volume/mix and the loss of U.S. canned milk profits. Lower net price realization was partially offset by a reduction in commodity and manufacturing overhead costs. Selling, distribution, and administrative ("SD&A") expenses decreased $43.9 million, or 12 percent, primarily driven by incremental synergy realization and lower marketing expense. Operating income decreased $80.6 million, primarily reflecting a $75.7 million noncash impairment charge associated with certain indefinite-lived trademarks within our U.S. Retail Pet Foods segment. The charge resulted from an increase in the weighted-average cost of capital used in the impairment analysis, reflecting rising market-based interest rates during the quarter.
On a non-GAAP basis, adjusted gross profit decreased $37.6 million, or 5 percent. Adjusted operating income decreased $25.5 million. Excluding $10.7 million of profit and the $25.3 million gain related to the divested U.S. canned milk business, adjusted operating income increased 3 percent.
Other
Net interest expense decreased $3.3 million, due to debt repayments of $200.0 million made during the first half of the fiscal year. Income taxes decreased $27.0 million attributed to lower income before income taxes and a lower effective tax rate of 31.9 percent, compared to 32.7 percent in the prior year.
Cash provided by operating activities was $419.5 million. This compared to $542.3 million in the prior year, which benefited from the Company's working capital initiatives.
FULL-YEAR OUTLOOK
The Company updated its full-year fiscal 2017 guidance as summarized below:
| | | Current | Previous |
| | Comparable net sales (decrease) vs prior year | (3%) | 0% to (1%) |
| | Adjusted earnings per share | $7.60 - $7.70 | $7.60 - $7.75 |
| | Free cash flow | $950 million - $1.0 billion | $1.0 billion |
| | Capital expenditures | $240 million | $240 million |
| | Effective tax rate | 32.5% | 33.0% |
Net sales are expected to decrease approximately 5 percent from fiscal 2016, including a 2 percent impact of the U.S. canned milk divestiture. Excluding the impact of the divestiture, net sales are expected to decrease 3 percent. The change from previous guidance reflects reduced U.S. Retail Coffee segment net sales results in the third quarter and forecasted sales in the fourth quarter. Adjusted earnings per share is expected to range from $7.60 to $7.70, based on 116.6 million shares outstanding. The Company reduced its effective tax rate guidance by 50 basis points to 32.5 percent. Included in the updated earnings guidance is $120 million of incremental synergies in fiscal 2017 compared to previous guidance of $100 million of incremental synergies.
THIRD QUARTER SEGMENT RESULTS
Dollar amounts in the segment tables below are reported in millions.
U.S. Retail Coffee
| | | Net | | Segment | | Segment |
| | | Sales | | Profit | | Profit Margin |
| FY17 Q3 Results | | $537.6 | | $172.2 | | 32.0% |
| Increase (decrease) vs prior year | (7%) | | (12%) | | -180bps | |
Segment net sales decreased $37.9 million, primarily due to volume/mix, which reduced net sales by 5 percentage points. This was driven by lower volume for the Folgers® brand, partially offset by gains for the Dunkin' Donuts® and Café Bustelo® brands. Lower net price realization reduced net sales by 1 percent. Segment profit decreased $22.4 million due to the impact of volume/mix, lower net pricing, and higher commodity costs.
U.S. Retail Consumer Foods
| | | Net | | Segment | | Segment |
| | | Sales | | Profit | | Profit Margin |
| FY17 Q3 Results | | $517.3 | | $119.2 | | 23.0% |
| Increase (decrease) vs prior year: | | | | | | |
| As reported | | (9%) | | (8%) | | 30bps |
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