The J.M. Smucker Co. announces fiscal 2023 second-quarter results

The J.M. Smucker Co. announced results for the second quarter ending October 31, 2022, of its 2023 fiscal year.

Summary

- Net sales increased $155.1 million, or 8%. Net sales excluding divestitures and foreign currency exchange increased 11%.

- Adjusted earnings per share was $2.40, a decrease of 1%.

- The company increased its full-year fiscal 2023 financial outlook for net sales and adjusted earnings per share.

Mark Smucker, chair of the board, president and chief executive officer, stated in the announcement: "Our second quarter results reflect the ongoing strength of our business, continued demand for our leading brands, and the ability of our team to execute with excellence. We delivered organic top-line growth across all of our businesses, driven by the strength of our portfolio, and our ability to recover cost inflation and manage our supply chain environment.

"Given our strong performance and sustained business momentum, we are raising our net sales and adjusted earnings per share expectations for this fiscal year. Looking ahead, we will continue to execute on our strategy and make investments in our key growth platforms to ensure consistent top- and bottom-line growth, continuing to position us well to deliver long-term shareholder value."

Second quarter consolidated results

Net sales increased 8%. Excluding noncomparable net sales in the prior year of $65.0 million from the divested natural beverage and grains and private label dry pet food businesses, as well as $7.0 million of unfavorable foreign currency exchange, net sales increased $227.1 million, or 11%.

The increase in comparable net sales was primarily driven by a 17 percentage point increase from net price realization, primarily reflecting list price increases for each of the company's U.S. Retail segments and for International and Away from Home, partially offset by a 6 percentage point decrease from volume/mix primarily driven by the U.S. Retail Coffee segment.

Gross profit decreased $10.4 million, or 1%. The decrease reflects a reduced contribution from volume/mix and the noncomparable impact of the divested natural beverage and grains businesses, partially offset by a favorable net impact of higher net price realization and increased commodity and ingredient, manufacturing, transportation, and packaging costs, inclusive of costs related to a voluntary recall of Jif peanut butter products in May 2022.

Operating income decreased $18.4 million, or 6%, primarily reflecting the decrease in gross profit and a $6.6 million increase in selling, distribution, and administrative (SD&A) expenses.

Adjusted gross profit increased $0.1 million. The difference between adjusted gross profit and generally accepted accounting principles ("GAAP") results reflects the exclusion of the change in net cumulative unallocated derivative gains and losses and special project costs. Adjusted operating income, which further reflects the exclusion of amortization and other special project costs as compared to GAAP operating income, decreased $8.3 million, or 2%.

Full-year outlook

The company updated its full-year fiscal 2023 guidance.

Net sales are expected to increase 5.5 to 6.5% compared to the prior year. Excluding noncomparable net sales in the prior year for the divested private label dry pet food and natural beverage and grains businesses, net sales are expected to increase approximately 8.0% at the mid-point of the guidance range. This reflects higher net pricing to recover cost inflation across multiple categories, partially offset by the anticipated volume/mix impact of price elasticity of demand, and an estimated 2% unfavorable impact related to manufacturing downtime and customer returns and fees from the Jif peanut butter product recall.

Adjusted earnings per share is expected to range from $8.35 to $8.75, including an estimated $0.80 unfavorable impact related to the Jif peanut butter product recall. This range reflects the benefits of higher net pricing actions and shares repurchased in the prior fiscal year being more than offset by cost inflation, the anticipated volume/mix impact of price elasticity of demand, the unfavorable impact of the Jif peanut butter product recall, and increased SD&A expenses. This guidance assumes an adjusted gross profit margin of 33.5%, an adjusted effective income tax rate of 24.1%, and 106.9 million common shares outstanding.

Second quarter segment results

U.S. Retail Coffee

Net sales increased $64.7 million, or 10%. Net price realization increased net sales by 23 percentage points, primarily reflecting list price increases across the portfolio, partially offset by a reduced contribution from volume/mix of 13 percentage points driven by the Folgers and Dunkin brands.

Segment profit decreased $20.1 million, primarily reflecting the decreased contribution from volume/mix and higher marketing spend, partially offset by a favorable net impact of higher net price realization and increased commodity and manufacturing costs.

U.S. Retail Consumer Foods

Net sales decreased $9.0 million, or 2%. Excluding $35.7 million of noncomparable net sales in the prior year related to the divested natural beverage and grains businesses, net sales increased $26.7 million, or 7%. Higher net price realization increased net sales by 9 percentage points, primarily reflecting list price increases across the portfolio. Volume/mix decreased net sales by 3 percentage points, primarily driven by decreases for peanut butter and fruit spread products, partially offset by an increase for Smucker's Uncrustables frozen sandwiches.

Segment profit decreased $10.7 million, primarily reflecting higher manufacturing, commodity and ingredient, and packaging costs, inclusive of costs related to the Jif peanut butter product recall, and the noncomparable segment profit in the prior year related to the divested natural beverage and grains businesses, partially offset by higher net price realization, lower marketing spend and favorable volume/mix.

International and Away From Home

Net sales increased $35.8 million, or 14%. Excluding $1.5 million of noncomparable net sales in the prior year related to the divested natural beverage and grains businesses and $7.0 million of unfavorable foreign currency exchange, net sales increased $44.3 million, or 17%. Excluding the impact of the divested businesses and foreign currency exchange, net sales increased 19% and 15% for the Away from Home and International operating segments, respectively. Net price realization contributed an 18 percentage point increase to net sales for the combined businesses, primarily driven by increases for coffee products and baking mixes and ingredients, partially offset by a decreased contribution from volume/mix of 1 percentage point.

Segment profit increased $1.1 million, primarily reflecting a favorable net impact of higher net price realization and increased commodity costs, partially offset by a decreased contribution from volume/mix.

U.S. Retail Pet Foods

Net sales increased $63.6 million, or 9%. Excluding $27.8 million of noncomparable net sales in the prior year related to the divested private label dry pet food business, net sales increased $91.4 million, or 14 percent. Higher net price realization increased net sales by 16 percentage points, primarily reflecting list price increases across the portfolio. Volume/mix decreased net sales by 3 percentage points, primarily driven by decreases for dog food.