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Smucker 4Q Earnings Exceed, Revs Lag

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The J.M. Smucker Company (SJM - Free Report) ,a leading manufacturer of food products,reported better-than-expected fourth quarter fiscal 2013 adjusted earnings (excluding special project costs) of $1.29 per share.

The results exceeded the Zacks Consensus Estimate of $1.15 by 12.2% and the prior-year adjusted earnings of $1.10 per share by 17% on the back of robust sales growth, higher operating income, lower taxes and lower share count due to share buybacks.

Revenue and Margin Details

Net sales in the quarter declined 1% year over year to $1.340 billion compared with $1.355 billion a year ago. The decline was due to a decrease in net price realization, reflecting price declines taken earlier in fiscal 2013, notably 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 also lagged the Zacks Consensus Estimate of $1.342 billion. Excluding acquisition impact, net sales declined 1% to $1.342 billion in the quarter.

Adjusted gross profit increased 6% while gross margin improved 240 basis points to 36.1%, driven by lower input costs primarily that of green coffee. Despite higher operating expenses, adjusted operating profit increased 5% and operating margin increased 100 basis points to 16.8%.

Segment Performance

U.S. Retail Coffee Market:The company’s biggest segment, U.S. Retail Coffee Market, reported a 1% decline in sales to $535.5 million due to the impact of price declines taken from the past year. The segment’s operating margin expanded 450 bps to 27.6% 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 sales rose 5% to $485.7 million, driven by favorable sales mix and increase in volumes, which offset lower price realization. The segment’s profit margin contracted 120 bps to 18.6% 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 9% from the previous-year quarter to $318.4 million due to lower volume and lower net price realization. Segment volume declined 4% 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 a part of the Sara Lee foodservice business.

The segment’s profit margin expanded 60 basis points to 15.5% in the fourth quarter of fiscal 2013 due to lower raw material costs and favorable sales mix.

Fiscal 2013 Results

Smucker reported adjusted earnings (excluding special project costs) of $5.37 per share in fiscal 2013. The results exceeded the Zacks Consensus Estimate of $5.22 by 2.9% and the prior-year adjusted earnings of $4.73 per share by 14% on the back of robust sales growth. Net sales in fiscal 2013 increased 7% year over year to $5.898 billion compared with $5.526 billion a year ago.


For fiscal 2014, management expects adjusted earnings, excluding special project costs of 20 cents per share, in the range of $5.65 to $5.75 per share. The company expects fiscal 2014 net sales to be almost at par with 2013 levels. It expects price declines in fiscal 2013 to be offset by net sales of Cumberland products and expected volume growth in key categories in fiscal 2014.

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 #2 (Buy). Other stocks worth a look in the food products industry are Flower Foods Inc (FLO - Free Report) , Omega Protein Corp and J&J Snack Foods Corp (JJSF - Free Report) . While Flower Foods and Omega Protein hold a Zacks Rank #1 (Strong Buy), J&J Snack carries a Zacks Rank #2.

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