The J. M. Smucker Company (SJM Quick QuoteSJM - Free Report) posted second-quarter fiscal 2024 results, wherein earnings beat the Zacks Consensus Estimate and increased year over year. However, the top line declined due to the divestiture of certain pet food brands.

However, results reflect the sustained demand for The J. M. Smucker’s solid brands. The company took another step toward reshaping its portfolio with the acquisition of Hostess sweet baked snacks and Voortman cookie brands. This Zacks Rank #3 (Hold) company remains on track to support its core growth platforms, including coffee, snacking and pet.

Quarter in Detail

Adjusted earnings of $2.59 per share jumped 8% year over year and surpassed the Zacks Consensus Estimate of $2.47.

Net sales amounted to $1,938.6 million, which dropped 12% year over year and missed the Zacks Consensus Estimate of $1,960 million. Excluding noncomparable sales from divestitures and currency movements, net sales grew 7%.

The uptick in comparable net sales can be attributed to the higher volume/mix and improved net price realization (mainly reflecting list price increases for the U.S. Retail Pet Foods, International and Away from Home and U.S. Retail Consumer Foods segments).

The gross profit went up 3% due to increased net price realization, a better volume mix and reduced green coffee costs. The adjusted gross profit also grew 3%. The adjusted operating income jumped 2% year over year to $385.4 million.

Segmental Performance

U.S. Retail Pet Foods: The segment’s sales tumbled 39% to $464 million compared with the Zacks Consensus Estimate of $475 million. Excluding non-comparable net sales associated with the pet food brand divestiture, net sales surged 20%. The volume/mix had a 12-percentage point positive impact on net sales, with the net price realization boosting the same by eight percentage points. The segment’s profit dropped 19% to $97.2 million.

U.S. Retail Coffee: Net sales dropped 3% to $685.7 million. The volume/mix remained neutral, while the net price realization had a negative impact of 4%. The consensus estimate for the segment’s sales stood at $708 million. The segment’s profit fell 9% to $171 million.

U.S. Retail Consumer Foods: Sales in the segment increased 7% to $464.3 million compared with the Zacks Consensus Estimate of $473 million. The volume/mix was neutral to sales, and the net price realization boosted net sales by seven percentage points. The segment’s profit went up by 28% to $128.5 million.

International and Away from Home: Net sales advanced 9% to $324.6 million. Excluding the impact of noncomparable net sales associated with the pet food brand divestiture and currency movements, net sales grew 13%. The consensus mark for segment sales was pegged at $305 million.

The volume/mix had a seven-percentage-point positive effect, and the net price realization had a positive impact of five percentage points on combined segment net sales. The segment’s profit increased 45% to $60.2 million.

Other Financials

The J. M. Smucker exited the quarter with cash and cash equivalents of $3,623.9 million, long-term debt of $7,771.7 million and total shareholders’ equity of $7,088.9 million.

Cash flow provided by operating activities amounted to $179.6 million for the three months ended Oct 31, 2023. Free cash flow was $28.2 million in the quarter.

Free cash flow and capital expenditures are likely to be $530 million and $610 million, respectively, in fiscal 2024.

Fiscal 2024 Guidance

For fiscal 2024, SJM now anticipates comparable net sales to rise 8.5-9% compared with the earlier view of 8.5-9.5%. The comparable net sales view reflects the positive impact of elevated net pricing and a favorable volume/mix.  Net sales are anticipated to decline 3-3.5% in fiscal 2024, including the impacts of recent divestitures and acquisitions.

The adjusted EPS for fiscal 2024 is now envisioned in the $9.25-$9.65 band, lower than the $9.45-$9.85 range expected earlier. The bottom-line view reflects the positive impact of pricing and volume/mix, partly countered by elevated SD&A expenses. The updated bottom-line guidance now includes a net adverse impact of around 40 cents related to the buyout of Hostess Brands.

The bottom-line view takes into account an adjusted gross profit margin of nearly 37.5%.

Shares of the company have tumbled 26.9% year to date compared with the industry’s decrease of 10%.

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