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J.M. Smucker Reports Better-Than-Expected 1Q16 Results

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Performance highlights

J.M. Smucker’s (SJM) fiscal 2016 first quarter earnings showed strong sales growth in coffee and pet food. All comparisons in this article are to the first quarter of the prior fiscal year. The results for 1Q16 include the operations of Big Heart and Sahale Snacks, which Smucker acquired after the comparable prior year period.

Below are some highlights of J.M. Smucker’s 1Q16 results:

  • Net sales increased, reflecting the contribution of $561.3 million from Big Heart.
  • Net sales increased $73.6 million, or 6%, excluding acquisitions and foreign currency exchange.
  • Favorable volume due to the launch of Dunkin’ Donuts K-Cup pods this quarter drove the change in net sales.
  • The net price realization was 1 percentage point higher.
  • A lower net pricing for peanut butter somewhat balanced the impact of higher coffee net price realization.
  • Gross profit increased $250.0 million, or 52%.
  • Non-GAAP (generally accepted accounting principles) gross profit increased $241.3 million, or 48%.
  • Both the gross profit measures improved due to the addition of Big Heart and the introduction of the Dunkin’ Donuts K-Cup pods.
  • Operating income increased $75.5 million, or 39%, reflecting the addition of Big Heart.
  • An increase in merger and integration costs compensated the operating income.
  • Non-GAAP operating income increased $81.1 million, or 37%.
  • Cash provided by operating activities was $305.1 million, compared to a use of cash of $8.1 million in the prior year.
  • The lower working capital need for inventory, lower green coffee costs in ending inventory, and the timing of tax payments and refunds caused the change in operating cash flow.
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Outlook for fiscal 2016

Compared to the prior fiscal year, J.M. Smucker’s net sales are expected to increase ~40%, reflecting a full-year contribution from Big Heart. The company’s other segments might also contribute to increasing the net sales by ~3%.

Included in the earnings guidance range is $25 million of synergies related to the Big Heart acquisition. The latter half of the year will mostly cover this.

J.M. Smucker’s peer Bunge (BG) reported a year-to-date return of -22.24%. J.M. Smucker (SJM), Campbell Soup (CPB), and Flowers Foods (FLO) reported positive year-to-date returns of 14.87%, 10.86%, and 22.98%, respectively. The Power Shares S&P 500 Low Volatility ETF (SPLV) invests 0.95% of its portfolio in CPB.

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