MILAN – JM Smucker Co announced on June 4 its fourth-quarter results for fiscal 2020 surpassing Wall Street’s estimates driven by increased customer demand for non-perishables, including coffee, during the quarter resulting from the Covid-19 pandemic. However, the Orrville, Ohio-based company forecast full-year sales in 2021 to decrease 1% to 2%, citing weakness in sales to restaurants and schools.
Adjusted earnings per share came in at $2.57, increasing 24% from the year-ago quarter. Analysts had anticipated EPS of $2.29. Revenue of $2.09 billion surged 10% compared to the prior-year quarter and surpassed estimates of $2.06 billion.
JM Smucker – Key figures
- Net sales increased $189.9 million, or 10 percent, driven by increased consumer demand resulting from the COVID-19 pandemic.
- For the full year, net sales were $7.8 billion, a 1 percent increase of comparable sales excluding acquisition, divestiture, and foreign currency exchange.
- Net income per diluted share was $1.98. Adjusted earnings per share was $2.57, an increase of 24 percent.
- For the full year, net income per diluted share was $6.84. Adjusted earnings per share was $8.76, an increase of 6 percent.
- Cash from operations was $287.7 million compared to $274.2 million in the prior year.
- Free cash flow was $211.3 million in the quarter and $985.5 million for the full year.
- JM Smucker provided its fiscal 2021 outlook, with an expected net sales decline of 1 to 2 percent, adjusted earnings per share to range from $7.90 to $8.30, and free cash flow to range from $900 to $950 million.
Commenting the company’s performance, President and CEO Mark Smucker said:
“I am extremely proud and thankful for how our employees have responded during the COVID-19 pandemic. We ensured our employee safety and well-being, supported the communities where we do business, maintained our product quality standards, and partnered with our suppliers and retailers to provide a steady supply of food for consumers and their pets,” said Mark Smucker, President and Chief Executive Officer of JM Smucker.
“Our strong response is reflected in our exceptional fourth quarter results, with record-setting net sales and adjusted earnings per share. This exceptional growth is a testament to the strength of our brands and consumer-centric strategy, as consumers turned to trusted products to stock their kitchens as stay-at-home orders were implemented across North America.”
“Looking ahead, we anticipate increased at-home consumption to continue during the beginning of our fiscal year 2021 – though at a more moderate rate as stock-up purchasing in the fourth quarter is not anticipated to reoccur, and significant declines for the Away From Home business are expected to persist throughout the year. We remain focused on meeting the demand needs created by the current environment, while continuing to execute against our strategic priorities to position the business for long-term growth.”
Net Sales
Net sales increased 10 percent, driven by an 11 percentage point contribution from higher volume/mix across the majority of categories and brands in the U.S. Retail Consumer Foods, U.S. Retail Coffee, and U.S. Retail Pet Foods segments. Lower net price realization, primarily for coffee, reduced net sales by 1 percentage point.
Operating Income
Gross profit increased $96.0 million, or 14 percent, driven by the increased contribution from volume/mix and reduced input costs, partially offset by lower net pricing. Operating income increased $193.1 million, or 126 percent, primarily attributable to a $97.9 million goodwill impairment charge in the prior year and the increase in gross profit. Selling, distribution, and administrative expenses (“SD&A”) increased $3.6 million, including incremental expenses related to COVID-19, primarily for employee compensation and benefits as well as community support initiatives.
Adjusted gross profit increased $84.8 million, or 12 percent, with the difference from generally accepted accounting principles (“GAAP”) results being the exclusion of unallocated derivative gains and losses. Adjusted operating income increased $77.9 million, or 22 percent, further reflecting the exclusion of a goodwill impairment charge in the prior year, other special project costs, and amortization.
JM Smucker and Covid-19
Prior to the COVID-19 pandemic, fourth quarter performance was trending in-line with the Company’s previous guidance expectations. Stay-at-home orders implemented during the quarter resulted in a significant increase in consumer demand across each of the Company’s U.S. and international retail businesses and a significant decline for its Away From Home business.
In March, the Company announced its priorities to support its employees and communities, while ensuring people and pets had access to a steady supply of food. The Company implemented measures including additional sanitation and safety procedures, hardship awards for its front-line employees, preserving compensation for those temporarily unable to perform their job, and incremental monetary and product donations to severely impacted communities. Incremental expenses related to these initiatives totaled approximately $13.0 million.
Fourth quarter results included approximately $185.0 million of incremental net sales versus prior expectations. The estimated benefit to earnings per share was approximately $0.50 versus the mid-point of the Company’s prior guidance, most of which is attributed to the gross profit from increased sales, less the incremental costs of COVID-related initiatives.
JM Smucker – Full-Year Outlook
- The Company provided its full-year fiscal 2021 guidance as summarized below:
- Net sales change vs prior year (2)% – (1)%
- Adjusted earnings per share $7.90 – $8.30
- Free cash flow (in millions) $900 – $950
- Capital expenditures (in millions) $300
- Effective tax rate 24.0%
The outbreak of COVID-19 had a material benefit to fiscal year 2020 results and has caused significant uncertainty for fiscal year 2021 projections. This guidance reflects performance expectations based on the Company’s current understanding of the environment.
Net sales are expected to decrease 1 to 2 percent compared to the prior year. The decline reflects lapping the $185 million of incremental net sales in the fourth quarter of fiscal year 2020 and an estimated $120 million COVID-related reduction to fiscal year 2021 net sales primarily resulting from a significant and extended decline in the Company’s Away From Home business, partially offset by increased at-home consumption benefiting the U.S. Retail Coffee and U.S. Retail Consumer Foods segments.
Adjusted earnings per share is expected to range from $7.90 to $8.30, based on 114.0 million shares outstanding. Earnings guidance reflects the decrease in net sales and estimates for adjusted gross profit margin of approximately 37.5 percent, SD&A expenses flat to slightly down compared to the prior year, and an adjusted effective tax rate of approximately 24.0 percent. Free cash flow is expected to range from approximately $900 to $950 million.
U.S. Retail Coffee
Segment net sales increased $55.3 million, or 11 percent, including an estimated 9 percentage point benefit from increased at-home coffee consumption related to COVID-19. Volume/mix contributed 13 percentage points to growth, reflecting increases for the Folgers®, Dunkin’ Donuts®, and Café Bustelo® brands. Net price realization reduced net sales by 3 percentage points, primarily driven by the Folgers® brand.
Segment profit increased $19.6 million, primarily due to the favorable volume/mix.
