Smucker Beats, Provides 2013 View - Analyst Blog
07 June 2012 - 9:00PM
Zacks
The J.M. Smucker Company (SJM) delivered
fourth-quarter 2012 adjusted earnings (excluding restructuring,
merger and integration charges) of $1.10 per share, which exceeded
the Zacks Consensus Estimate by 11 cents, driven by robust sales
growth. The results also surpassed the prior-year quarter's
adjusted earnings of $1.00 per share.
However, the adjusted earnings includes the loss of $11.3
million due to the sale of the Europe's Best frozen fruit and
vegetable business in fiscal year ended 2012, and a non-cash
impairment charge of $17.2 million occurred in the fiscal year
ended 2011.
Revenue Details
Net sales in the quarter increased 14% year over year to $1.36
billion. The results marginally exceeded the Zacks Consensus
Revenue Estimate of $1.35 billion. The increase was primarily
driven by pricing actions and the benefits from acquisitions.
The company completed its acquisition of Rowland Coffee Roasters
Inc. on May 16, 2011, and the North American foodservice coffee and
hot beverage business from Sara Lee Corporation
(SLE) on January 3, 2012. The acquisitions have contributed $28.4
million to net sales.
Excluding acquisitions, divestiture and foreign exchange, net
sales increased 5% to $1.23 billion in the fourth quarter. The
overall sales volume was disappointing, particularly of products
like Jif peanut butter, Pillsbury baking mixes and Folgers coffee.
Volume plummeted 7% in the reported quarter, owing to significantly
higher retail prices and the weak economic environment.
Fiscal 2012 Results
Smucker posted fiscal 2012 adjusted earnings of $4.73 per share,
which exceeded both the Zacks Consensus Estimate and the
prior-year's earnings of $4.69 per share. Net sales in the fiscal
year 2012 increased 14.5% year over year to $5.53 billion. The
Zacks Consensus Revenue Estimate was $5.52 billion.
The positive growth in net sales was helped by the acquisition
impact of the Rowland Coffee brands and the Sara Lee business.
Margin Details
Excluding special project costs, gross margin contracted 310
basis points (bps) to 33.7% in the fourth-quarter 2012 due to
higher costs for green coffee and peanuts. Operating margin,
excluding the impact of the project costs, contracted 90 basis
points to 15.8%.
Segment Performance
U.S. Retail Coffee Market: The company’s
biggest segment, U.S. Retail Coffee Market, reported a 7% increase
in sales to $542.2 million, aided by price increases. The
acquisition of Rowland Coffee contributed approximately $24.0
million to segment net sales. Volume decreased 8% in the fourth
quarter of 2012, excluding Rowland Coffee.
The segment’s operating margin contracted 10 bps to 23.1% in the
quarter, due to volume declines.
U.S. Retail Consumer Foods: The U.S. Retail
Consumer Foods segment’s sales soared 5% to $463.2 million, driven
by higher price realization. However, volumes declined 11%.
The segment’s operating margin shrinked 230 bps to 19.8% in the
quarter, primarily due to volume declines. Further, higher
commodity costs overshadowed the price increases taken on peanut
butter, leading to the decline.
International, Foodservice and Natural Foods:
Net sales in the International, Foodservice and Natural Foods
segment increased 47% over fourth quarter of 2011 to $349.9
million. Excluding the impact of acquisitions, divestiture, and
foreign exchange, segment net sales increased 9% led by a 4%
increase in volume.
The segment’s profit margin declined 300 bps to 14.9% in the
fourth quarter of 2012, partially reflecting the acquisition of the
lower-margin Sara Lee foodservice business.
Other Financial Updates
During the fourth quarter, Smucker repurchased 3 million shares
for approximately $225.3 million. The company now has 3.9 million
common shares remaining for repurchase under its Board
authorization.
Fiscal 2013 Guidance
Following the robust fourth-quarter and fiscal 2012 results, the
company has raised its sales guidance for fiscal 2013, and expects
its net sales to increase 7% over the prior-year period. The sales
guidance reflects the expected net sales contribution from the Sara
Lee business.
The fiscal 2013 adjusted earnings, excluding special project
costs of 50 cents per share, is expected to range from $5.00 to
$5.10 per share. The special project costs for fiscal 2013 would
also include costs that the company expects to incur related to its
initiative to settle certain pension liabilities.
Currently, we hold a Zacks #3 Rank (short term Hold rating) on
Smucker. Over the long term, we provide a Neutral recommendation on
the stock.
SMUCKER JM (SJM): Free Stock Analysis Report
SARA LEE (SLE): Free Stock Analysis Report
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