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JM Smucker's 2nd-Quarter Financial Results: Key Takeaways for Investors

- By Mayank Marwah

The U.S. manufacturer of fruit spreads, ice cream toppings, consumer food and beverage products JM Smucker Co. (SJM) presented second quarter earnings on Wednesday. The company posted declines in its earnings and revenues for the quarter and gave a bleak outlook for the year.

Snapshot of the quarter

The company's earnings per share for the second quarter stood at $2.17, up 7% year-on-year. Revenue during the same period was $2.02 billion versus $1.92 billion reported in the year-ago quarter. The sales growth was attributable to robust performance of the company's key brands as well as contributions from Ainsworth. Mark Smucker, CEO of the company, commented:


"Our net sales increase was supported by the positive contribution from the acquired Rachael Ray Nutrish brand ... We also realized strong sales gains across many of our growth brands, including Smucker's Uncrustables, Nature's Recipe, and Cafe Bustelo. We are focused on growing brands consumers love in the pet food, coffee, and snacking categories, as highlighted by the completion of the U.S. baking business divestiture during the quarter."

The food company registered adjusted gross profit of $771.4 million that reflected 3% growth. By contrast, company's adjusted gross margin plunged to 38.2% and operating income amounted to $415.7 million for the quarter. Moreover, operating margin jumped to 20.6%. SG&A expense soared $23 million. Furthermore, marketing expense rose 17% or $20 million from last year primarily due to the addition of Ainsworth.

At the end of the quarter, the company had cash and cash equivalents of $171.2 million while its long-term debts stood at $5885.1 million. As a matter of fact, its cash flow from operations was $202.9 million and free cash flows were $125.1 million.

Segment details

Net sales plummeted in the coffee sector by 1% in the second quarter. The company blamed the timing of promotional activities for the Dunkin' Donuts brand as compared to the previous year for its poor performance. Besides, the company attributed a fall in the net price realization. In contrast, the segment's profit surprisingly spiked 15% despite more than 40% rise in the marketing expenses.

In the consumer food segment, net sales dropped 12%. Strong volumes of sales of some of the key brands, such as Smucker's, Uncrustables and Crisco, powered the segment's sales. In contrast, gains witnessed were partially offset by lower net price realizations for oils and peanut butter. Segment profit totaled $134.3 million, up 3% as a result of sale of its baking business.

The company generated sales of $728.1 million from the pet food segment with huge support coming from its Ainsworth buyout. Profit in the segment grew 1% to $123.9 million. Excluding the Ainsworth acquisition, the company's profit declined due to growing raw material and freight costs.

The company's international business saw sales plummet 2% to $286.6 million, owing to a number of factors, such as lower net price realization, unfavorable currency rates and discontinuance of its baking business. Segment profit inched up 2% to $56.7 million.

Guidance

The company gave full-year earnings per share projection in the range of $8 to $8.20. On the other hand, revenue for the whole year was estimated to be $7.9 billion. Free cash flows were expected to be between $700 million and $750 million.

Disclosure: I do not hold any position in the stock mentioned.

This article first appeared on GuruFocus.