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J.M. Smucker Tops Q1 Earnings; Sales Lag on Fx, Divestiture
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The J.M. Smucker Company (SJM - Free Report) , a leading manufacturer of food products, posted better-than-expected earnings in the first quarter of fiscal 2017. However, sales missed expectations due to currency headwinds and the divestiture of the U.S. canned milk business. The company also slashed its sales outlook for fiscal 2017.
Adjusted earnings of $1.86 per share exceeded the Zacks Consensus Estimate of $1.75 by 6.3% in the first quarter. The figure was also 16% higher than the prior-year income of $1.60 per share, driven by incremental synergy realization, higher operating income, lower tax rate and lower share count.
Synergy realization was $32 million in the first quarter. Further, the company remains on track to achieve $100 million of incremental synergies in fiscal 2017.
Net sales in the first quarter declined 7% year over year to $1.816 billion, due to the divested U.S. canned milk business. Excluding the divested business and currency headwinds, net sales decreased 5%. The decline was due to lower net price realization resulting from lower net pricing on coffee. Unfavorable volume/mix, driven by the U.S. Retail Pet Foods segment, also contributed to lower net sales.
Net sales lagged the Zacks Consensus Estimate of $1.884 billion by 3.6% and compared unfavorably with the preceding quarter’s growth of 25%.
Adjusted gross profit dropped 3% due to lower net pricing and the loss of U.S. canned milk profits, which were mostly offset by a reduction in commodity costs, primarily attributed to green coffee, and incremental synergy realization.
Adjusted operating profit, however, increased 2% to $364 million owing to lower selling, general and administrative expenses.
Segment Performance
U.S.Retail Coffee Market: The company's biggest segment, U.S. Retail Coffee Market, reported a decline of 9.0% in sales to $513.3 million. This was attributable to lower net price realization due to reduced packaged coffee prices of the majority of its products recently sold in the U.S., primarily consisting of items under the Folgers and Dunkin' Donutsbrands. While lower coffee costs resulted in lower price realization during the quarter, it also led to an increase in coffee volumes.
However, favorable volume/mix for the Folgers and Café Bustelo brands was offset by declines for Dunkin' Donuts K-Cup pods.
Segment profit remained flat at $173.8 million, reflecting the net benefit of lower commodity costs and favorable Folgers volume/mix. These factors were offset by lower net price realization and reduced contribution from Dunkin' Donuts K-Cup pods.
U.S.Retail Consumer Foods: This segment’s sales declined 8% to $537.0 million due to the U.S. canned milk divestiture. Excluding the impact of the divestiture, net sales decreased 2%. The decline reflected lower net price realization, primarily attributable to the Crisco, Pillsbury, and Jif brands. Volume/mix was flat with the prior-year quarter as contributions from the R.W. Knudsen Family and Sahale Snacks brands were offset by a decrease for the Smucker's brand.
Segment profit fell 7% to $111.4 million, primarily due to the loss of U.S. canned milk profits.
U.S.Retail Pet Foods: Segment net sales were $519.5 million in the quarter, which represented a 6% year-over-year decline, due to unfavorable volume/mix. Unfavorable volume was due to Kibbles 'n Bits and Meow Mix mainstream pet food, and the Natural Balance brand. A slight decline in net price realization also contributed to the decrease in net sales.
Segment profit increased 5% to $122.2 million in the first quarter, driven by synergy realization, lower commodity costs, and a decrease in marketing expense. This more than offset the impact of unfavorable volume/mix.
International and Foodservice: Net sales in the International and Foodservice segment decreased 3% from the prior-year quarter to $246.0 million, due to lower net price realization, currency headwinds, and the divested U.S. canned milk business. This was offset by favorable volume/mix.
Segment profit grew 9% to $39.5 million, benefiting from favorable volume/mix, lower commodity costs and pricing. This more than offset the impact of the divested business and foreign currency exchange.
Revised Outlook for Fiscal 2017
The company has reiterated its fiscal 2017 earnings outlook in the range of $7.60−$7.75 per share. However, management expects net sales to decrease in the range of 2%−3% from fiscal 2016, reflecting the U.S. canned milk divestiture. Excluding the impact of the divestiture, net sales are expected to range from flat to down 1%, lower than the previous guidance of 1% growth. The decline in sales expectation is due to reduced net sales forecast for U.S. Retail Pet Foods.
Zacks Rank
Smucker currently has a Zacks Rank #3 (Hold).
Some better-ranked food companies include Ingredion, Inc. (INGR - Free Report) , Omega Protein Corp. and Sysco Corp. (SYY - Free Report) . All three stocks sport a Zacks Rank #1 (Strong Buy).
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J.M. Smucker Tops Q1 Earnings; Sales Lag on Fx, Divestiture
The J.M. Smucker Company (SJM - Free Report) , a leading manufacturer of food products, posted better-than-expected earnings in the first quarter of fiscal 2017. However, sales missed expectations due to currency headwinds and the divestiture of the U.S. canned milk business. The company also slashed its sales outlook for fiscal 2017.
Adjusted earnings of $1.86 per share exceeded the Zacks Consensus Estimate of $1.75 by 6.3% in the first quarter. The figure was also 16% higher than the prior-year income of $1.60 per share, driven by incremental synergy realization, higher operating income, lower tax rate and lower share count.
Synergy realization was $32 million in the first quarter. Further, the company remains on track to achieve $100 million of incremental synergies in fiscal 2017.
SMUCKER JM Price and Consensus
SMUCKER JM Price and Consensus | SMUCKER JM Quote
Revenue and Margin Details
Net sales in the first quarter declined 7% year over year to $1.816 billion, due to the divested U.S. canned milk business. Excluding the divested business and currency headwinds, net sales decreased 5%. The decline was due to lower net price realization resulting from lower net pricing on coffee. Unfavorable volume/mix, driven by the U.S. Retail Pet Foods segment, also contributed to lower net sales.
Net sales lagged the Zacks Consensus Estimate of $1.884 billion by 3.6% and compared unfavorably with the preceding quarter’s growth of 25%.
Adjusted gross profit dropped 3% due to lower net pricing and the loss of U.S. canned milk profits, which were mostly offset by a reduction in commodity costs, primarily attributed to green coffee, and incremental synergy realization.
Adjusted operating profit, however, increased 2% to $364 million owing to lower selling, general and administrative expenses.
Segment Performance
U.S.Retail Coffee Market: The company's biggest segment, U.S. Retail Coffee Market, reported a decline of 9.0% in sales to $513.3 million. This was attributable to lower net price realization due to reduced packaged coffee prices of the majority of its products recently sold in the U.S., primarily consisting of items under the Folgers and Dunkin' Donutsbrands. While lower coffee costs resulted in lower price realization during the quarter, it also led to an increase in coffee volumes.
However, favorable volume/mix for the Folgers and Café Bustelo brands was offset by declines for Dunkin' Donuts K-Cup pods.
Segment profit remained flat at $173.8 million, reflecting the net benefit of lower commodity costs and favorable Folgers volume/mix. These factors were offset by lower net price realization and reduced contribution from Dunkin' Donuts K-Cup pods.
U.S.Retail Consumer Foods: This segment’s sales declined 8% to $537.0 million due to the U.S. canned milk divestiture. Excluding the impact of the divestiture, net sales decreased 2%. The decline reflected lower net price realization, primarily attributable to the Crisco, Pillsbury, and Jif brands. Volume/mix was flat with the prior-year quarter as contributions from the R.W. Knudsen Family and Sahale Snacks brands were offset by a decrease for the Smucker's brand.
Segment profit fell 7% to $111.4 million, primarily due to the loss of U.S. canned milk profits.
U.S.Retail Pet Foods: Segment net sales were $519.5 million in the quarter, which represented a 6% year-over-year decline, due to unfavorable volume/mix. Unfavorable volume was due to Kibbles 'n Bits and Meow Mix mainstream pet food, and the Natural Balance brand. A slight decline in net price realization also contributed to the decrease in net sales.
Segment profit increased 5% to $122.2 million in the first quarter, driven by synergy realization, lower commodity costs, and a decrease in marketing expense. This more than offset the impact of unfavorable volume/mix.
International and Foodservice: Net sales in the International and Foodservice segment decreased 3% from the prior-year quarter to $246.0 million, due to lower net price realization, currency headwinds, and the divested U.S. canned milk business. This was offset by favorable volume/mix.
Segment profit grew 9% to $39.5 million, benefiting from favorable volume/mix, lower commodity costs and pricing. This more than offset the impact of the divested business and foreign currency exchange.
Revised Outlook for Fiscal 2017
The company has reiterated its fiscal 2017 earnings outlook in the range of $7.60−$7.75 per share. However, management expects net sales to decrease in the range of 2%−3% from fiscal 2016, reflecting the U.S. canned milk divestiture. Excluding the impact of the divestiture, net sales are expected to range from flat to down 1%, lower than the previous guidance of 1% growth. The decline in sales expectation is due to reduced net sales forecast for U.S. Retail Pet Foods.
Zacks Rank
Smucker currently has a Zacks Rank #3 (Hold).
Some better-ranked food companies include Ingredion, Inc. (INGR - Free Report) , Omega Protein Corp. and Sysco Corp. (SYY - Free Report) . All three stocks sport a Zacks Rank #1 (Strong Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download7 Best Stocks for the Next 30 Days.Click to get this free report >>