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J.M. Smucker Company: The J. M. Smucker Company Announces Fiscal 2016 Second Quarter Results

The following excerpt is from the company's SEC filing.

ORRVILLE, Ohio, Nov. 19, 2015 /PRNewswire/ -- The J. M. Smucker Company (NYSE: SJM) today announced results for the second quarter ended October 31, 2015, of its 2016 fiscal year. All comparisons are to the second quarter of the prior fiscal year, unless otherwise noted.

EXECUTIVE SUMMARY

Net sales increased $595.9 million, or 40 percent, reflecting the contribution of Big Heart Pet Brands ("Big Heart"), acquired in fiscal 2015, and growth within the U.S. Retail Coffee segment.

Net income per diluted share was $1.47, a decrease of 5 percent, as the benefit from Big Heart operations was offset by merger and integration costs, higher interest expense, and the impact of additional shares outstanding.

Non-GAAP income per diluted share was $1.62, an increase of 6 percent, while adjusted non-GAAP income per diluted share, which excludes amortization, was $1.91, an increase of 13 percent.

Free cash flow was $211.0 million, reflecting the benefits of the Company's working capital reduction initiatives.

The Company updated its fiscal 2016 earnings outlook with non-GAAP income per diluted share expected to range from $5.70 to $5.80, and adjusted non-GAAP income per diluted share expected to range from $6.85 to $6.95.

CHIEF EXECUTIVE OFFICER REMARKS

"We are pleased to have delivered another quarter of solid financial results, which reflects the momentum we are seeing across our businesses," said Richard Smucker, Chief Executive Officer. "Much of our net sales growth is coming from the addition of the pet food business which continues to perform well. In addition, our coffee business had a strong second quarter, with double-digit volume gains for

Folgers

roast and ground coffee and contributions from our recently introduced

Dunkin' Donuts

K-Cup

pods. With a number of key initiatives ongoing across the Company, including the integration of Big Heart, this remains a dynamic and exciting time for our teams, and we thank all our employees for their continued dedication."

SECOND QUARTER CONSOLIDATED RESULTS

Three Months Ended October 31,

% Increase

(Decrease)

(Dollars and shares in millions, except per share data)

$ 2,077.7

$ 1,481.8

Operating income

$ 313.8

$ 254.8

Non-GAAP operating income

$ 341.4

$ 250.3

Net income per common share - assuming dilution

$ 1.47

$ 1.55

Non-GAAP income per common share - assuming dilution

$ 1.62

$ 1.53

Adjusted non-GAAP income per common share - assuming dilution

$ 1.91

$ 1.69

Weighted-average shares outstanding – assuming dilution

Results for the period ended October 31, 2015, include the operations of Big Heart, which was acquired after the comparable prior year period, and the incremental impact of Sahale Snacks, Inc. ("Sahale"), which was acquired on September 2, 2014. Adjusted non-GAAP income per diluted share excludes the noncash impact of amortization.

Net sales increased reflecting the contribution of $576.7 million from Big Heart. Excluding Big Heart, the incremental impact of Sahale, and foreign currency exchange, net sales increased $35.8 million, or 2 percent. This was driven by favorable volume/mix led by the U.S. Retail Coffee segment. Net price realization was 3 percentage points lower, reflecting lower net pricing for coffee and peanut butter.

Gross profit increased $250.8 million, or 47 percent, primarily due to the addition of Big Heart. Excluding Big Heart, gross profit was higher, driven by

pods, which were introduced in May 2015, and other favorable volume/mix within the U.S. Retail Coffee segment. The impact of lower net pricing was offset by a reduction in commodity costs.

Selling, distribution, and administrative expenses increased $137.4 million, or 54 percent, primarily driven by the addition of Big Heart, higher selling expense due to royalties related to

Dunkin' Donuts

pods, and a planned increase in marketing expense. Amortization expense also increased driven by the Big Heart acquisition.

Operating income increased $59.0 million, or 23 percent, reflecting the addition of Big Heart, partially offset by an increase in merger and integration costs.

On a non-GAAP basis, gross profit increased $255.1 million, or 48 percent, and operating income increased $91.1 million, or 36 percent.

Net interest expense increased $26.4 million, due to the impact of acquisition-related debt issued in the fourth quarter of 2015. Income taxes increased $13.0 million due to an increase in income before income taxes and a higher effective tax rate. The quarterly effective tax rate increased from 33.7 percent to 34.7 percent.

For the quarter, cash provided by operating activities was $275.4 million, compared to $92.0 million in the prior year. The change in operating cash flow was primarily attributed to an increase in net income adjusted for noncash items and a decrease in working capital, including lower inventory levels. The Company's working capital initiatives and lower green coffee costs were key drivers of the reduced inventory.

FULL-YEAR OUTLOOK

The Company updated its full-year fiscal 2016 guidance as provided below:

$7.9 billion

$5.70 - $5.80

$6.85 - $6.95

$925 million

Capital expenditures

$220 million

In comparison to the prior fiscal year, net sales are expected to increase approximately 38 percent reflecting a full year contribution from Big Heart and an increase of approximately 3 percent on the remainder of the Company's businesses. Included in the earnings guidance range is $25 million of synergies related to the Big Heart acquisition, of which $8 million has been realized through the first six months of the fiscal year. The net sales and earnings guidance reflects the projected impact of the previously announced canned milk divestiture on the Company's operating results, but excludes an estimated one-time gain of $0.10 to $0.15 per share related to the transaction, which is expected to close by December 31, 2015.

SECOND QUARTER SEGMENT RESULTS

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

Segment

Profit

Profit Margin

FY16 Q2 Results

$586.1

$161.7

Change vs prior year

-80bps

Segment net sales increased $53.1 million reflecting favorable volume/mix which contributed 13 percentage points of growth, primarily driven by

pods. The

brand also contributed to net sales growth as volume gains on mainstream roast and ground offerings more than offset lower net price realization. Segment profit increased $10.5 million reflecting the contribution from

pods, other favorable volume/mix, and the benefit of lower costs which were mostly offset by lower prices. These combined benefits to segment profit more than offset an increase in marketing expenses.

U.S. Retail Consumer Foods

$644.0

$125.4

Segment net sales decreased $20.4 million as net price realization was lower, reflecting price declines on the

Pillsbury

brands in July 2015 and November 2014, respectively...


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