The J. M. Smucker Co. announced results for the third quarter ended Jan. 31, 2011, of its 2011 fiscal year.
"We continue to deliver solid earnings and sales growth in a dynamic consumer environment," commented Richard Smucker, executive chairman and co-chief executive officer in a prepared statement. "These strong results reflect our disciplined approach to managing our business, the ongoing investments in the equity of our brands, and the benefit of a cultural commitment to making the highest-quality products."
"Our team continues to drive results, including volume growth and strong cash flow which have enabled us to repurchase over three percent of outstanding shares and declare a 10 percent quarterly dividend increase," added Tim Smucker, chairman of the board and co-chief executive officer. "As we navigate through an uncertain commodity cost environment, we expect to continue to drive financial results by maintaining our balanced approach to pricing, market share growth, and profitability."
Net sales in the third quarter of 2011 increased $106.5 million, or 9 percent, compared to the third quarter of 2010, and increased 10 percent, excluding the impact of the 2010 potato products divestiture and foreign exchange. Overall volume increased 3 percent as solid gains were realized in Crisco(R) oils, Jif(R) peanut butter, Smucker's(R) fruit spreads, Dunkin' Donuts(R) packaged coffee, and natural foods beverages. The net impact of pricing contributed approximately 4 percent to net sales and the overall impact of sales mix was favorable.
Gross profit increased $16.1 million in the third quarter of 2011, compared to 2010, as the increase in net sales offset the impact of overall higher raw material costs and $16.9 million of special project costs included in cost of products sold. Excluding special project costs, gross profit increased $33.0 million, or 7 percent, yet decreased as a percent of net sales from 38.0 percent in the third quarter of 2010, to 37.4 percent in the third quarter of 2011. Raw material cost increases were most significant for green coffee, milk, sugar, and soybean oil, and more than offset lower costs for peanuts. Coffee price increases taken earlier in the year offset higher green coffee cost and contributed to the gross profit increase in the third quarter of 2011, but did not result in an overall gross margin gain. Gross margin was further impacted by price declines taken on oils during the second quarter in response to competitive dynamics.
Selling, distribution, and administrative expenses in the third quarter of 2011, were flat compared to 2010, and decreased as a percentage of net sales from 17.8 percent to 16.3 percent. Marketing and distribution expenses for the third quarter of 2011 both decreased 1 percent, compared to 2010, while selling expenses increased approximately 7 percent related to the increase in net sales. General and administrative expenses decreased 3 percent over the same period.
Operating income increased $3.1 million, or 1 percent, in the third quarter of 2011, compared to 2010, despite an overall increase in special project costs of approximately $23.3 million. Excluding the impact of special project costs in both periods, operating income increased $26.4 million, or 12 percent, and improved from 17.8 percent of net sales in 2010, to 18.4 percent in 2011. Additionally, noncash impairment charges of $17.2 million and $9.8 million, primarily related to the Europe's Best(R) intangible assets in Canada, reduced the company's overall operating margin by 1.3 and 0.8 percentage points in the third quarters of 2011 and 2010, respectively.
While the company's four reportable segments remain the same for 2011, the calculation of segment profit was modified at the beginning of 2011 to include intangible asset amortization and impairment charges related to segment assets, along with certain other items in each of the segments. These items were previously considered corporate expenses and were not allocated to the segments. This change more accurately aligns the segment financial results with the responsibilities of segment management, most notably in the area of intangible assets. Fiscal 2010 segment profit has been recalculated to be consistent with the current methodology.