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The J.M. Smucker Company (SJM - Analyst Report), a leading manufacturer of food products, reported better-than-expected first-quarter fiscal 2014 adjusted earnings (excluding special project costs) of $1.24 per share.

The results exceeded the Zacks Consensus Estimate of $1.20 by 3.3% and the prior-year adjusted earnings of $1.17 per share by 6% due to lower share count and volume gains in most of the categories.

Revenues and Margin Details

Net sales in the quarter declined 1% year over year to $1.351 million compared with $1.370 million a year ago. The decline was due to a 4% decrease in net price realization, reflecting price declines earlier in fiscal 2013, mainly 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 beat the Zacks Consensus Estimate of $1.346 million.

Adjusted gross profit increased 4.3% to $494.45 million while gross margin improved 200 basis points (bps) to 36.6%, driven by lower input costs primarily that of green coffee. Despite higher operating expenses, adjusted operating profit increased 1% to $220.6 million and operating margin increased 40 bps to 16.3%.

Segment Performance

U.S.Retail Coffee Market: The company's biggest segment, U.S. Retail Coffee Market, reported a 1% decline in sales to $514.4 million due to the impact of a 6% price decline from the past year. Net sales of K-cups went up 14% and contributed 1 percentage point (pp) to total sales gain. The segment's operating margin expanded 410 bps to 28.4% 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’s sales rose 1% to $536.4 million, driven by favorable sales mix and increase in 4% gain in volumes, which offset lower price realization. The segment's profit margin contracted 240 bps to 18.0% 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 6% from the previous-year quarter to $300.1 million due to lower volume.

Segment volume declined 6% 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 part of the Sara Lee foodservice business. Moreover, decline in volume of the Santa Cruz Organic lemonades due to change in promotional strategy contribute to the volume decline in the region.

The segment's profit margin expanded 170 bps to 14.4% in the reported quarter due to lower raw material costs and favorable sales mix.

Guidance

For fiscal 2014, management raised its guidance. It now expects adjusted earnings, excluding special project costs of 20 cents per share, in the range of $5.72 to $5.82 per share compared to $5.65 to $5.75 per share announced previously. The company now expects fiscal 2014 net sales to go down by 1% compared to previous expectation of a flat year-over-year sales.

We are encouraged by the company's continued focus on its brands through innovations and promotional offerings, strategic acquisitions, improving volumes and effective utilization of cash through buybacks. The company is well positioned to drive profits in the coming quarters.

Smucker holds a Zacks Rank #3 (Hold). Other stocks in the consumer staples sector worth considering are Green Mountain Coffee Roasters Inc. (GMCR - Analyst Report), Tyson Foods Inc. (TSN - Analyst Report) and Pilgrims Pride Corporation (PPC - Snapshot Report). While Green Mountain and Pilgrims Pride carry a Zacks Rank #1 (Strong Buy), Tyson Foods carries a Zacks Rank #2 (Buy).

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