Smucker: Announces Fiscal 2016 First Quarter Results

Orrville / OH. (sc) The J. M. Smucker Company announced results for the first quarter ended July 31, 2015, of its 2016 fiscal year. All comparisons are to the first quarter of the prior fiscal year, unless otherwise noted:

• Net sales increased 628.2 million USD, or 47 percent, reflecting the contribution of «Big Heart» Pet Brands («Big Heart»), acquired in fiscal 2015, and the Company’s U.S. retail launch of «Dunkin’ Donuts K-Cup» pods during the quarter.
• Net income per diluted share was in line with the prior year, as the benefit from «Big Heart» operations was offset by higher interest expense and the impact of additional shares outstanding.
• Non-GAAP income per diluted share was 1.32 USD, a decrease of one percent.
• Adjusted non-GAAP income per diluted share, which excludes amortization, was 1.60 USD, an increase of seven percent.
• The Company maintained its fiscal 2016 earnings outlook with non-GAAP income per diluted share expected to range from 5.65 USD to 5.80 USD, and adjusted non-GAAP income per diluted share expected to range from 6.80 USD to 6.95 USD.
• The Company reconfirmed its synergy target related to the «Big Heart» acquisition of 200 million USD by the end of fiscal 2018.

Chief Executive Remarks

«We are off to a solid start this fiscal year, with net sales increasing 47 percent and non-GAAP operating income growth of 37 percent», said Richard Smucker, Chief Executive Officer. «Contributions from the «Big Heart» acquisition and new products were key drivers of this performance. Notably, our launch of «Dunkin’ Donuts K-Cup» pods got off to a great start as we shipped over 100 million cups during the first quarter. Overall, we are on track to achieve our full year expectations for net sales and earnings, and are confident about the initiatives we have in place to support future growth».

«Integrating the Pet Food business and beginning to recognize identified synergies continues to be a significant focus area», continued Richard Smucker. «The integration efforts and first quarter results for our Pet Food business further confirms that our entry into the pet food market was timely and strategically positions us for continued growth».

First Quarter Consolidated Results

Net sales increased, reflecting the contribution of 561.3 million USD from «Big Heart». Excluding acquisitions and foreign currency exchange, net sales increased 73.6 million USD, or six percent. This was driven by favorable volume/mix led by the launch of «Dunkin’ Donuts K-Cup» pods during the quarter. Net price realization was one percentage point higher, as the impact of higher coffee net price realization was partially offset by lower net pricing for peanut butter.

Gross profit increased 250.0 million USD, or 52 percent, and non-GAAP gross profit increased 241.3 million USD, or 48 percent. The increase in both gross profit measures was primarily due to the addition of «Big Heart». Excluding «Big Heart», gross profit was higher, driven by the introduction of «Dunkin’ Donuts K-Cup» pods. Net price realization was higher and offset the impact of net higher costs, which were attributed to green coffee.

Selling, distribution, and administrative expenses increased 134.2 million USD, or 53 percent, primarily driven by the addition of «Big Heart» and higher selling expense, reflecting royalties related to «Dunkin’ Donuts K-Cup» pods. Amortization expense also increased driven by the «Big Heart» acquisition.

Operating income increased 75.5 million USD, or 39 percent, reflecting the addition of «Big Heart», partially offset by an increase in merger and integration costs. Non-GAAP operating income increased 81.1 million USD, or 37 percent.

Net interest expense increased 27.0 million USD, due to the impact of acquisition-related debt issued in the fourth quarter of 2015. Income taxes increased 26.9 million USD due to an increase in income before income taxes and a higher effective tax rate. The quarterly effective tax rate increased from 33.9 percent to 38.8 percent reflecting higher deferred state tax expense, including the impact of state tax law changes.

Cash provided by operating activities was 305.1 million USD, compared to a use of cash of 8.1 million USD in the prior year. The change in operating cash flow was primarily attributed to lower working capital needs for inventory, driven by lower green coffee costs in ending inventory, and the timing of tax payments and refunds.

Full Year Outlook

The Company confirmed its full-year fiscal 2016 guidance. In comparison to the prior fiscal year, net sales are expected to increase approximately 40 percent, reflecting a full year contribution from «Big Heart» and an increase of approximately three percent on the remainder of the Company’s businesses. Included in the earnings guidance range is 25 million USD of synergies related to the «Big Heart» acquisition, which will be mostly realized in the back half of the year.