The J. M. Smucker Company announced results for the second quarter ended Oct. 31, 2013, of its 2014 fiscal year, with second quarter net sales decreasing 4 percent. In addition, there was an increase in U.S. retail coffee segment profit.
Results for the quarter and six months ended Oct. 31, 2013, include the operations of Enray Inc. ("Enray") since the completion of the acquisition on Aug. 20, 2013, and the impact of the company's licensing and distribution agreement with Cumberland Packing Corp. ("Cumberland"), which commenced on July 1, 2013.
Second quarter net sales, including the contributions from Enray and Cumberland, decreased 4 percent in 2014, compared to 2013, reflecting pricing actions taken over the past twelve months and the impact of the planned exit of certain portions of the company's business in its international, foodservice and natural foods segment.
Operating income excluding the impact of restructuring, merger and integration and certain pension settlement costs decreased 1 percent in the second quarter of 2014, compared to 2013. The decrease in operating income was attributed primarily to an increase in selling, distribution and administrative (SD&A) expenses, the impact of the previously announced foodservice business exits and a decrease in U.S. retail consumer foods segment profit, which offset an increase in U.S. retail coffee segment profit.
Income excluding special project costs increased 1 percent in the second quarter of 2014, compared to 2013, impacted by lower interest expense. Second quarter income per diluted share, excluding special project costs, increased 5 percent in 2014, compared to 2013, benefiting from the company's share repurchase activities over the past year.
"We delivered another record quarter of earnings per share as a result of our commitment to our long-term strategy, the strength of our brands and the passion of our team," commented Richard Smucker, chief executive officer, in a prepared statement. "We are encouraged by the resilience that many U.S. shoppers have demonstrated in the face of uncertainty. Our volume has been solid in many of our categories, and we remain confident in achieving our overall earnings per share guidance for the year."
"Staying true to our long-term strategy has always driven our business forward," added Vince Byrd, president and chief operating officer. "Creating consumer value through product innovation, offering the highest quality and broadest variety of products with the backing of great marketing and merchandising, and doing so at fair consumer prices, has time and again proven to be a winning formula. The benefit of lower commodity costs has provided us with the flexibility to further support our value proposition. We believe we have this combination solidly in place for the holiday season and beyond."
Gross profit increased $10.7 million, or 2 percent, in the second quarter of 2014, compared to 2013. Excluding special project costs as previously defined, gross profit increased $10.6 million, or 2 percent, during the same period. Unrealized mark-to-market adjustments on derivative contracts contributed $8.8 million to the increase in gross profit as the impact of losses decreased from $10.3 million in the second quarter of 2013 to $1.5 million in the second quarter of 2014.
The favorable impact of an increase in U.S. retail coffee volume and the addition of the Cumberland and Enray businesses contributed to gross profit in the second quarter of 2014, but were mostly offset by the impact of the exited foodservice businesses. In addition, gross profit in the second quarter of 2014 was impacted by an increase in temporary incremental costs at the company's new fruit spreads manufacturing facility and capacity expansion costs at its Smucker's® Uncrustables® facility.
Overall commodity costs were lower during the second quarter of 2014, compared to the second quarter of 2013, due primarily to green coffee. However, the impact of pricing actions taken across all categories more than offset the benefit of these lower commodity costs resulting in a slightly unfavorable impact on gross profit.
Operating income increased $3.2 million in the second quarter of 2014, compared to 2013, as special project costs were $4.7 million lower in the second quarter of 2014, compared to 2013. Excluding special project costs in both periods, operating income decreased $1.5 million, but increased from 16.1 percent of net sales in the second quarter of 2013 to 16.7 percent in the second quarter of 2014.