Smucker: Announces Fiscal 2021 First Quarter Results

Orrville / OH. (sc) The J. M. Smucker Company announced results for the first quarter ended July 31, 2020, of its 2021 fiscal year. All comparisons are to Q4 of the prior fiscal year, unless otherwise noted.

Executive Summary

• Net sales increased USD 192.9 million, or 11 percent, with growth across each of the Company’s U.S. and International retail businesses, partially offset by a decline for its Away From Home business.
• Net income per diluted share was USD 2.08. Adjusted earnings per share was USD 2.37, an increase of 50 percent.
• Cash from operations was USD 409.0 million, an increase of 85 percent. Free cash flow was USD 332.4 million, compared to USD 148.5 million in the prior year.
• The Company increased its full-year fiscal 2021 net sales, adjusted earnings per share, and free cash flow outlook.

Chief Executive Officer Remarks

«I am incredibly proud and thankful for our employees, who have adapted quickly to deliver strong results and serve our constituents in an environment marked by the Covid-19 pandemic and social unrest. We continue to ensure employee safety and well-being, support the communities where we do business, and provide a steady, quality supply of food for consumers and their pets,» said Mark Smucker, President and Chief Executive Officer.

«Our first quarter results exceeded our expectations, particularly for the coffee and consumer foods portfolios. Consumers continued to seek out trusted and iconic brands as we achieved strong growth across nearly all our categories. This exceptional performance highlights the strength of our portfolio, the potential of our consumer-centric growth strategy, and our commitment to operate with financial discipline.»

«We expect continued momentum in the second quarter and are pleased to raise our full-year guidance. We remain confident in our ability to deliver on our fiscal year 2021 goals, advance our long-term strategy, and deliver increased shareholder value.»

First Quarter Consolidated Results

(Dollars and shares in millions, except per share data)		Q1-2020				Q1-2019			% Change
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Net sales	USD	1,971.8			USD	1,778.9			11	%
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Operating income	USD	361.1			USD	257.6			40	%
Adjusted operating income		404.5				290.7			39	%
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Net income per common share – assuming dilution	USD	2.08			USD	1.36			53	%
Adjusted earnings per share – assuming dilution		2.37				1.58			50	%
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Weighted-average shares outstanding – assuming dilution		114.1				113.9			—

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Net Sales

Net sales increased 11 percent, driven by favorable volume/mix across all the Company’s retail businesses, supported by increased at-home consumption for the U.S. Retail Coffee and U.S. Retail Consumer Foods segments, partially offset by reduced volume/mix for the Away From Home business. Net price realization and foreign currency exchange were neutral.

Operating Income

Gross profit increased USD 75.8 million, or 11 percent, driven by the increased contribution from volume/mix and lower costs, partially offset by an unfavorable change in unallocated derivative gains and losses as compared to the prior year. Operating income increased USD 103.5 million, or 40 percent, primarily reflecting the increase in gross profit and a USD 23.0 million decrease in selling, distribution, and administrative (SD+A) expenses.

Adjusted gross profit increased USD 88.6 million, or 13 percent, with the difference from generally accepted accounting principles (GAAP) results being the exclusion of unallocated derivative gains and losses. Adjusted operating income increased USD 113.8 million, or 39 percent, further reflecting the exclusion of other special project costs and amortization.

Interest Expense, Other Income (Expense), and Income Taxes

Net interest expense decreased USD 3.3 million, primarily as a result of a decrease in interest rates and reduced debt outstanding, partially offset by interest expense related to interest rate contracts terminated in the fourth quarter of the prior year.

The effective income tax rate was 24.4 percent compared to 25.2 percent in the prior year.

Cash Flow and Debt

Cash provided by operating activities was USD 409.0 million, compared to USD 221.5 million in the prior year, primarily reflecting a decrease in cash required to fund working capital and an increase in net income adjusted for noncash items. The decrease in working capital requirements was primarily attributable to lower payments for accounts payable driven by working capital initiatives. Free cash flow was USD 332.4 million, compared to USD 148.5 million in the prior year, reflecting the increase in cash provided by operating activities, slightly offset by a USD 3.6 million increase in capital expenditures. Net debt repayments in the quarter totaled USD 252.2 million.

Full-Year Outlook

The Company updated its full-year fiscal 2021 guidance as summarized below:

		Current		Previous
Net sales change vs prior year		0% – 1%		(2)% – (1)%
Adjusted earnings per share		USD 8.20 – USD 8.60		USD 7.90 – USD 8.30
Free cash flow (in millions)		USD 925 – USD 975		USD 900 – USD 950
Capital expenditures (in millions)		USD 300		USD 300
Effective tax rate		24.0%		24.0%

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The outbreak of Covid-19 continues to impact financial results and cause uncertainty for the full-year fiscal 2021 projections. This guidance reflects expectations based on the Company’s current performance and understanding of the overall environment.

Net sales are expected to range from flat to up 1 percent compared to the prior year. This reflects elevated at-home consumption and retailer inventory re-stocking in the first quarter primarily benefiting the U.S. Retail Coffee and U.S. Retail Consumer Foods segments, with net sales growth anticipated to moderate throughout the remainder of the fiscal year. This net sales growth will be partially offset by a decline for the Company’s Away From Home business and the lapping of a USD 185 million incremental benefit to net sales related to Covid-19 in the fourth quarter of the prior year.

Adjusted earnings per share is expected to range from USD 8.20 to USD 8.60, based on 114.1 million shares outstanding. Earnings guidance reflects the contribution from sales at a gross profit margin range of 37.5 to 38.0 percent, SD+A expenses to increase 1 to 2 percent compared to the prior year, and an effective tax rate of 24.0 percent. Free cash flow is expected to range from USD 925 to USD 975 million.

First Quarter Segment Results

Effective during the first quarter of fiscal year 2021, the presentation of International and Away From Home represents a combination of all other operating segments that are not individually reportable. As a result of recent leadership changes, these operating segments are now being managed and reported separately, and no longer represent a reportable segment for segment reporting purposes. Prior year segment results have not been modified, as the combination of these operating segments represents the previously reported International and Away From Home reportable segment.

(Dollar amounts in the segment tables below are reported in millions.)

U.S. Retail Pet Foods		Net Sales		Segment Profit		Segment Profit Margin
FY 2021-Q1 Results		USD 692.6		USD 125.3		18.1%
Increase (decrease) vs prior year		3%		4%		20bps

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Net sales increased USD 22.7 million, reflecting a 5 percentage point improvement due to volume/mix. The contribution from volume/mix primarily reflects growth for 9Lives® and Meow Mix® cat food and Milk-Bone® dog snacks, partially offset by decreases primarily related to Natural Balance®, Nature’s Recipe®, and private label dog food. Lower net price realization reduced net sales by 2 percentage points, primarily reflecting increased trade spend for dog food and cat food.

Segment profit increased USD 5.2 million, driven by lower manufacturing costs, the increased volume/mix, and lower SD+A expenses, partially offset by lower pricing.

U.S. Retail Coffee		Net Sales		Segment Profit		Segment Profit Margin
FY 2021-Q1 Results		USD 570.9		USD 182.6		32.0%
Increase (decrease) vs prior year		23%		42%		430bps

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Net sales grew USD 105.2 million, reflecting a 23 percentage point increase from volume/mix. Favorable volume/mix was driven by Dunkin’ Donuts®, Folgers®, and Café Bustelo® coffee, reflecting elevated at-home consumption and re-stocking of retailer inventory following the surge in consumer demand in the fourth quarter of the prior year. Net price realization was neutral.

Segment profit increased USD 53.7 million, primarily due to the favorable volume/mix.

U.S. Retail Consumer Foods		Net Sales		Segment Profit		Segment Profit Margin
FY 2021-Q1 Results		USD 489.2		USD 131.5		26.9%
Increase (decrease) vs prior year		22%		62%		680bps

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Net sales increased USD 87.0 million, reflecting a 19 percentage point increase from volume/mix driven by growth for the Smucker’s® brand, inclusive of Uncrustables® frozen sandwiches and fruit spreads, Crisco® oils and shortening, and Jif® peanut butter. The increase in volume/mix includes growth due to elevated at-home consumption and retailer inventory re-stocking following the surge in consumer demand in the fourth quarter of the prior year. Higher net pricing increased net sales by 3 percentage points, primarily attributable to reduced promotional activity for Jif® peanut butter and Smucker’s® fruit spreads.

Segment profit increased USD 50.5 million, primarily reflecting the contribution from volume/mix, higher net pricing, and lower SD+A expenses.

International and Away From Home		Net Sales		Segment Profit		Segment Profit Margin
FY 2021-Q1 Results		USD 219.1		USD 30.9		14.1%
Increase (decrease) vs prior year		(9)%		(4)%		70bps

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Net sales decreased USD 22.0 million, primarily reflecting a 33 percent decline for the Company’s Away From Home operating segment, partially offset by net sales growth of 21 percent for the International operating segment, most notably for flour and baking ingredients. Volume/mix for the combined businesses reduced net sales by 8 percentage points and foreign currency exchange reduced net sales by 1 percentage point. Net price realization was neutral.

Segment profit decreased USD 1.4 million, primarily reflecting higher input costs and the decline from volume/mix, partially offset by reduced SD+A expenses.