The J.M. Smucker Co. Announces Fiscal 2022 Third Quarter Results

ORRVILLE, Ohio, March 1, 2022

EXECUTIVE SUMMARY

• Net sales decreased $19.6 million, or 1 percent. Net sales excluding divestitures and foreign currency exchange increased 4 percent.
• Net income per diluted share was $0.64, a decrease of 72 percent, primarily due to a noncash intangible asset impairment charge within the U.S. Retail Pet Foods segment.
• Adjusted earnings per share was $2.33, a decrease of 5 percent.
• Cash from operations was $439.7 million, a decrease of 10 percent. Free cash flow was $322.4 million, compared to $416.6 million in the prior year.
• The Company updated its full-year fiscal 2022 financial outlook.

CHIEF EXECUTIVE OFFICER REMARKS

"Our strong third quarter results, including organic net sales growth of 4 percent, reflects the continued momentum of our business and underlying consumer demand for our iconic brands," said Mark Smucker, President and Chief Executive Officer. "We delivered another quarter that exceeded expectations, reflecting our ability to execute on our strategy, while successfully navigating this challenging and dynamic environment. We continue to drive long-term growth by focusing on our key growth platforms of pet, coffee, and snacking, including the completion of two divestitures this quarter."

"Looking ahead, we are navigating a dynamic environment led by cost inflation and supply chain disruptions. We expect these pressures to continue in the fourth quarter. We are confident in our ability to work through these ongoing challenges, deliver on our fiscal year guidance, and support long-term shareholder value creation."

THIRD QUARTER CONSOLIDATED RESULTS

	Three Months Ended January 31, ARIVA.DE Börsen-Geflüster Kurse JM Smucker Company 106,275 € -0,49%
	2022		2021		% Increase (Decrease)
	(Dollars and shares in millions, except per share data)
Net sales	$2,057.1		$2,076.7		(1) %
Operating income	$150.6		$406.2		(63) %
Adjusted operating income	377.9		403.9		(6) %
Net income per common share – assuming dilution	$0.64		$2.32		(72) %
Adjusted earnings per share – assuming dilution	2.33		2.45		(5) %
Weighted-average shares outstanding – assuming dilution	108.5		112.6		(4) %

Net Sales

Net sales decreased 1 percent. Excluding noncomparable net sales in the prior year of $100.7 million for the divested businesses, as well as $1.8 million of favorable foreign currency exchange, net sales increased $79.3 million, or 4 percent.

The increase in comparable net sales was due to higher net price realization for each of the Company's U.S. Retail segments and for International and Away From Home, partially offset by decreased contribution from volume/mix. 

Operating Income

Gross profit decreased $126.3 million, or 16 percent, reflecting higher costs, primarily driven by increased commodity, ingredient, manufacturing, and packaging costs, decreased contribution from volume/mix, and the noncomparable impact of the Crisco^®, Natural Balance^®, and private label dry pet food divestitures, partially offset by increased pricing. Operating income decreased $255.6 million, or 63 percent, reflecting a $150.4 million impairment charge related to the Rachael Ray^® Nutrish^® brand and the decrease in gross profit, partially offset by a $35.7 million decrease in selling, distribution, and administrative ("SD&A") expenses. 

Adjusted gross profit decreased $63.3 million, or 8 percent, with the difference from generally accepted accounting principles ("GAAP") results being the exclusion of the change in net cumulative unallocated derivative gains and losses and special project costs. Adjusted operating income decreased $26.0 million, or 6 percent, further reflecting the exclusion of the impairment charge, the net pre-tax gain on divestitures, amortization, and special project costs.

Interest Expense and Income Taxes

Net interest expense decreased $4.0 million, primarily as a result of reduced debt outstanding as compared to the prior year.

The effective income tax rate was 36.4 percent compared to 27.7 percent in the prior year, primarily due to an unfavorable one-time deferred state tax impact from an internal legal entity simplification to support multiple work locations. The adjusted effective income tax rate was 25.1 percent, compared to 23.1 percent in the prior year with the primary difference from the GAAP effective income tax rate being the exclusion of the noncash deferred state tax impact from the reorganization.

Cash Flow and Debt

Cash provided by operating activities was $439.7 million, compared to $486.3 million in the prior year, primarily reflecting higher accrued income taxes in the prior year as a result of the Crisco^® and Natural Balance^® divestitures, which were accrued in the third quarter but not paid until the fourth quarter of 2021. Additionally, a favorable impact of the decrease in cash required to fund working capital in fiscal 2022 was mostly offset by a decrease in net income adjusted for noncash items. Free cash flow was $322.4 million, compared to $416.6 million in the prior year, reflecting a $47.6 million increase in capital expenditures and the decrease in cash provided by operating activities. Net debt repayments in the quarter totaled $226.1 million.

FULL-YEAR OUTLOOK

The Company updated its full-year fiscal 2022 guidance as summarized below:

The pandemic and related implications, along with cost inflation and volatility in supply chains, continue to impact financial results and cause uncertainty and risk for the fiscal year 2022 outlook. Any manufacturing or supply chain disruption, inclusive of any labor shortages, whether related to illness, vaccine requirements, or other factors, as well as changes in consumer mobility and purchasing behavior, retailer inventory levels, and macroeconomic conditions could materially impact actual results. While the broader outlook remains uncertain, the Company continues to focus on managing the elements it can control, including taking the necessary steps to minimize the impact of cost inflation and any business or labor disruption. This guidance reflects performance expectations based on the Company's current understanding of the environment.

Net sales are expected to range from down 1.5 percent to 0.5 percent compared to the prior year, which incorporates an impact of $431.8 million related to the divested Crisco^®, Natural Balance^®, private label dry pet food, and natural beverage and grains businesses. On a comparable basis, net sales are expected to increase approximately 4.5 percent at the mid-point of the net sales guidance range, reflecting a deceleration in at-home consumption trends, more than offset by higher net pricing across multiple categories, continued double-digit net sales growth for the Smucker's^® Uncrustables^® brand, and a recovery in away from home channels.

Adjusted earnings per share is expected to range from $8.35 to $8.65, based on 108.3 million shares outstanding. The earnings guidance reflects the updated net sales outlook, adjusted gross profit margin of approximately 35.0 percent, and SD&A expenses down approximately 10 percent compared to the prior year. The adjusted effective income tax rate is expected to be 24.0 percent, and free cash flow is expected to be approximately $700 million, with capital expenditures of $400 million.

THIRD QUARTER SEGMENT RESULTS

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

U.S. Retail Pet Foods

Net sales decreased $72.0 million. Excluding $66.2 million of noncomparable net sales in the prior year related to the divested Natural Balance^® and private label dry pet food businesses, net sales decreased $5.8 million, or 1 percent. Volume/mix decreased net sales by 7 percentage points, primarily driven by declines for dog food, which was partially offset by 6 percentage points of higher net price realization across the portfolio.

Segment profit decreased $39.4 million, primarily reflecting higher commodity, manufacturing, and transportation costs and the decreased contribution from volume/mix, partially offset by the higher net pricing. 

U.S. Retail Coffee

Net sales increased $35.9 million. Net price realization increased net sales by 7 percentage points, primarily reflecting list price increases across the portfolio and trade spend reductions for roast and ground products. Volume/mix decreased net sales by 1 percentage point, driven by the Folgers'^® brand, partially offset by growth for the Cafe Bustelo^® brand.

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