ORRVILLE, Ohio, US – The J. M. Smucker Company has announced results for the second quarter ended October 31, 2013, of its 2014 fiscal year.
Results for the quarter and six months ended October 31, 2013, include the operations of Enray Inc. (“Enray”) 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. (“Cumberland”), which commenced on July 1, 2013.
Second quarter net sales, including the contributions from Enray and Cumberland, decreased 4 percent in 2014, compared to 2013, reflecting pricing actions taken over the past twelve months and the impact of the planned exit of certain portions of the Company’s business in its International, Foodservice, and Natural Foods segment.
Operating income excluding the impact of restructuring, merger and integration, and certain pension settlement costs (“special project costs”) decreased 1 percent in the second quarter of 2014, compared to 2013. The decrease in operating income was attributed primarily to an increase in selling, distribution, and administrative (“SD&A”) expenses, the impact of the previously announced foodservice business exits, and a decrease in U.S. Retail Consumer Foods segment profit, which offset an increase in U.S. Retail Coffee segment profit.
Income excluding special project costs increased 1 percent in the second quarter of 2014, compared to 2013, impacted by lower interest expense. Second quarter income per diluted share, excluding special project costs, increased 5 percent in 2014, compared to 2013, benefiting from the Company’s share repurchase activities over the past year.
Net Sales
Net sales decreased 4 percent in the second quarter of 2014, compared to the second quarter of 2013, due to the impact of a 4 percent reduction in net price realization reflecting price declines taken over the past twelve months, notably on coffee and peanut butter.
Favorable sales mix contributed 1 percent to net sales in the second quarter of 2014 and was attributed to volume gains in retail coffee combined with a decrease in flour.
Contributing to net sales in the second quarter of 2014 is a combined $21.5 million from the acquired Enray business and the Cumberland distribution agreement.
Volume gains were realized in Crisco oils, Folgers coffee, Jif peanut butter, and Smucker’s fruit spreads while flour and canned milk experienced declines.
In addition, volume declines were realized in private label foodservice roast and ground coffee and cappuccino, and Smucker’s Uncrustables frozen sandwiches due to the impact of the previously announced exiting of portions of these businesses in the International, Foodservice, and Natural Foods segment.
Margins
Gross profit increased $10.7 million, or 2 percent, in the second quarter of 2014, compared to 2013. Excluding special project costs as previously defined, gross profit increased $10.6 million, or 2 percent, during the same period.
Unrealized mark-to-market adjustments on derivative contracts contributed $8.8 million to the increase in gross profit as the impact of losses decreased from $10.3 million in the second quarter of 2013 to $1.5 million in the second quarter of 2014.
The favorable impact of an increase in U.S. Retail Coffee volume and the addition of the Cumberland and Enray businesses contributed to gross profit in the second quarter of 2014, but were mostly offset by the impact of the exited foodservice businesses.
In addition, gross profit in the second quarter of 2014 was impacted by an increase in temporary incremental costs at the Company’s new fruit spreads manufacturing facility and capacity expansion costs at its Smucker’s Uncrustables facility.
Overall commodity costs were lower during the second quarter of 2014, compared to the second quarter of 2013, due primarily to green coffee.
However, the impact of pricing actions taken across all categories more than offset the benefit of these lower commodity costs resulting in a slightly unfavorable impact on gross profit.
SD&A expenses increased 5 percent in the second quarter of 2014, compared to the second quarter of 2013, and increased as a percentage of net sales from 15.8 percent to 17.3 percent. General and administrative expenses increased 10 percent in the second quarter of 2014, compared to 2013.
Selling expenses increased 6 percent while marketing and distribution expenses increased 2 percent and 3 percent, respectively, in the second quarter of 2014, compared to 2013.
