Smucker's Beats, Raises Guidance

J.M. Smucker Company (SJM - Snapshot Report) reported second quarter results with earnings of $1.22 per share, which was well above the Zacks Consensus Estimate of 99 cents. Quarterly earnings were up 21% compared to $1.01 reported in the prior-year quarter.

Net sales for the quarter grew 51.7% year-over-year, primarily due to the addition of the Folgers coffee business. Excluding Folgers, volumes increased 1%, driven by Pillsbury, Crisco oils, Jif peanut butter and Hungry Jack brands. These were partially offset by declines in canned milk, fruit spreads, foodservices and natural foods.

On segment basis -- the U.S. retail coffee market segment posted $445.1 million in sales during the quarter. Volume also increased by approximately 5%. The continued expansion of the Dunkin' Donuts brand in the gourmet category and strong growth in traditional roast and ground coffee led to the improvement.

Net sales of the U.S. retail consumer market segment were down 4% compared to the prior year, primarily due to flat volumes. Gains in Jif peanut butter and Hungry Jack pancake mixes and syrups were fully offset by declines in potatoes, fruit spreads, Smucker's Uncrustables sandwiches and the specialty foods business.

The U.S. retail oils and baking market segment sales declined 9% year-over-year. The decline reflected the impact of price declines in oils, flour and canned milk, and higher promotional spending on Crisco oils. However, volumes grew 3%, due to double-digit gains in Pillsbury and Crisco brands fully offsetting the declines in canned milk.

Net sales in the special markets segment grew 15%, driven primarily by the acquisition of Folgers. Volumes were down 1% due to declines in foodservice and natural foods partially offset by gains in Canada.

Gross margin for the quarter expanded 962 basis points (bps) to 38.5% versus 28.9% in the prior-year quarter. The acquisition of Folgers contributed almost 90% of this increase.

Interest expense for the quarter increased by 54% or $6.2 million during the quarter due to an increase in the debt level related to the Folgers transaction. However, the company had repaid approximately $75 million of debt on June 1, 2009.

Cash and cash equivalents at the end of the first half were $410 million, compared to $166 million in the prior-year quarter.

Based on the performance of the company during the second quarter, the company raised its guidance for fiscal 2010. Annual earnings are now expected to be in the range of $3.95 and $4.05 per share. Previous guidance was $3.65 and $3.80.

Net sales for the year are reiterated at approximately $4.5 billion.

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