The J.M. Smucker Co. announced results for the first quarter ending July 31, 2022, of its 2023 fiscal year. Financial results for the first quarter of fiscal year 2023 reflect the divestitures of the natural beverage and grains businesses on January 31, 2022, and the private label dry pet food business on December 1, 2021. All comparisons are to the first quarter of the prior fiscal year, unless otherwise noted.
Summary
- Net sales increased $15.0 million, or 1%. Net sales excluding divestitures and foreign currency exchange increased 4%. Net sales reflect a 9% unfavorable impact related to the Jif peanut butter product recall.
- Net income per diluted share was $1.03. Adjusted earnings per share was $1.67, a decrease of 12 percent, primarily as a result of the Jif peanut butter product recall.
- The company increased its full-year fiscal 2023 financial outlook for net sales, adjusted earnings per share and free cash flow.
Mark Smucker, chair of the board, president and chief executive officer, stated in the announcement: "Our first quarter results reflect a strong start to the fiscal year, demonstrating our operational excellence and strength of our strategy. Our teams have done outstanding work to manage headwinds from cost inflation, industry-wide supply chain challenges, and the Jif peanut butter recall. We delivered another quarter that exceeded our expectations, as consumers' demand for our iconic brands continued in a rising cost environment, driving robust organic top-line growth for our key focus platforms of pet, coffee, and snacking.
"Due to the better-than-expected first quarter results and sustained momentum for our trusted brands, we are raising our net sales, adjusted earnings per share, and free cash flow expectations for this fiscal year. In the months ahead, we will sustain investment in our growth platforms including the Milk-Bone, Dunkin', and Smucker's Uncrustables brands. We remain confident in our ability to drive long-term growth and shareholder value creation through the current dynamic operating environment."
First-quarter consolidated results
Net sales
Net sales increased 1%, including a 9% unfavorable impact related to the Jif peanut butter product recall. Excluding noncomparable net sales in the prior year of $58.5 million for the divested businesses, as well as $4.4 million of unfavorable foreign currency exchange, net sales increased $77.9 million, or 4%.
The increase in comparable net sales was primarily driven by a 14 percentage point increase from net price realization, primarily reflecting list price increases for the U.S. Retail Coffee, U.S. Retail Pet Foods, and International and Away from Home businesses, partially offset by the unfavorable impact of customer returns and fees related to the Jif peanut butter product recall. The favorable net price realization was partially offset by a 9 percentage point decrease from volume/mix, primarily due to manufacturing downtime related to the Jif peanut butter product recall and declines for mainstream roast and ground coffee.
Operating Income
Gross profit decreased $86.9 million, or 14%, including an unfavorable impact related to the Jif peanut butter product recall. The decrease also reflects the lower contribution from volume/mix, primarily due to manufacturing downtime related to the Jif peanut butter product recall, unsaleable inventory related to the recall, and the noncomparable impact of the divested natural beverage and grains and private label dry pet food businesses. Higher costs, primarily driven by increased commodity and ingredient, manufacturing and packaging costs, were offset by higher net price realization, inclusive of the unfavorable impact to net price realization from customer returns and fees related to the Jif peanut butter product recall. Operating income decreased $79.7 million, or 31%, reflecting the decrease in gross profit and a $19.8 million increase in selling, distribution, and administrative (SD&A) expenses, partially offset by an anticipated insurance recovery related to the Jif peanut butter product recall.
Adjusted gross profit decreased $58.8 million, or 9%, including an unfavorable impact related to the Jif peanut butter product recall. The difference between adjusted gross profit and generally accepted accounting principles (GAAP) results reflects the exclusion of the change in net cumulative unallocated derivative gains and losses and special project costs. Adjusted operating income decreased $53.4 million, or 17%, further reflecting the exclusion of amortization, gain on divestiture, and other special project costs.
Full-year outlook
Ongoing cost inflation, volatility in supply chains and the overall macroeconomic environment continue to impact financial results and cause uncertainty and risk for the fiscal year 2023 outlook. Any manufacturing or supply chain disruption, as well as changes in consumer purchasing behavior, including the potential impact to volume due to recent price increases, retailer inventory levels, and broader macroeconomic conditions, could materially impact actual results. In particular, the Jif peanut butter product recall will continue to impact financial results for the fiscal year. The company continues to focus on managing the elements it can control, including taking the necessary steps to minimize the impact of cost inflation, the product recall, and any potential business disruption. This guidance reflects performance expectations based on the company's current understanding of the overall environment, inclusive of the estimated unfavorable impact of the product recall.
Net sales are expected to increase 4.0 to 5.0% compared to the prior year. Excluding noncomparable net sales in the prior year for the divested private label dry pet food and natural beverage and grains businesses, net sales are expected to increase approximately 6.5 percent at the mid-point of the guidance range. This reflects higher net pricing to recover cost inflation across multiple categories, partially offset by the anticipated volume/mix impact of price elasticity of demand, and an estimated 2 percent unfavorable impact related to manufacturing downtime and customer returns and fees from the Jif ;peanut butter product recall.
Adjusted earnings per share is expected to range from $8.20 to $8.60, including an estimated $0.80 unfavorable impact related to the Jif peanut butter product recall. This range reflects the benefits of higher net pricing actions and shares repurchased in the prior fiscal year being more than offset by cost inflation, the anticipated volume/mix impact of price elasticity of demand, the unfavorable impact of the Jif peanut butter product recall, and increased SD&A expenses. This guidance assumes an adjusted gross profit margin range of 33.5 to 34.0%, an adjusted effective income tax rate of 24.2%, and 106.5 million common shares outstanding.
First-quarter segment results
U.S. Retail Coffee
Net sales increased $54.7 million, or 10%. Net price realization increased net sales by 24 percentage points, primarily reflecting list price increases across the portfolio. A reduced contribution from volume/mix decreased net sales by 14 percentage points, primarily driven by mainstream roast and ground coffee.
Segment profit decreased $5.4 million, primarily reflecting a decreased contribution from volume/mix and increased marketing investment, partially offset by the favorable net impact of higher net price realization and increased commodity costs.
U.S. Retail Consumer Foods
Net sales decreased $124.5 million, or 29%, including a 32% unfavorable impact related to the Jif peanut butter product recall. Excluding $31.4 million of noncomparable net sales in the prior year related to the divested natural beverage and grains businesses, net sales decreased $93.1 million, or 23%. Volume/mix decreased net sales by 20 percentage points, primarily driven by manufacturing downtime for Jif peanut butter, partially offset by an increase for Smucker's Uncrustables frozen sandwiches. Lower net price realization also contributed 3 percentage points to the net sales decline, primarily driven by the unfavorable impact of customer returns and fees related to the Jif peanut butter product recall, partially offset by list price increases across the remainder of the portfolio.
Segment profit decreased $63.9 million, primarily reflecting the unfavorable impact of the Jif peanut butter product recall and the noncomparable segment profit in the prior year related to the divested natural beverage and grains businesses. Excluding the unfavorable impact of the Jif peanut butter product recall and divested businesses, segment profit increased primarily due to the net favorable impact of higher net price realization and higher commodity and ingredient, manufacturing, and packaging costs and favorable volume/mix.
International and Away From Home
Net sales increased $3.8 million, or 2%, including a 10% unfavorable impact related to the Jif peanut butter product recall. Excluding $2.0 million of noncomparable net sales in the prior year related to the divested natural beverage and grains businesses and $4.4 million of unfavorable foreign currency exchange, net sales increased $10.2 million, or 4%. Excluding the impact of the divested businesses and foreign currency exchange, net sales increased 15% for the Away from Home operating segment, partially offset by a 6% decrease for the International operating segment, including the impact related to the Jif peanut butter product recall. Net price realization contributed a 4 percentage point increase to net sales for the combined businesses, primarily driven by increases for coffee products and baking mixes and ingredients, partially offset by the unfavorable impact of customer returns and fees related to the Jif peanut butter product recall. Volume/mix was neutral compared to the prior year.
Segment profit decreased $16.3 million, primarily reflecting the impact of the Jif peanut butter product recall and higher commodity costs, partially offset by higher net pricing.
