ORRVILLE, OHIO — The Uncrustables brand was a highlight for The J.M. Smucker Co. in the third quarter ended Jan. 31, said Mark T. Smucker, president and chief executive officer. With additional capacity coming on-line, dramatic growth in the business is expected ahead.
Smucker net income in the third quarter ended Jan. 31 was $831.3 million, equal to $7.32 per share on the common stock, up dramatically from $139.6 million, $1.16 per share in the third quarter last year. Sales were $1,903.3 million, up 1.3% from $1,878.8 million in the same period last year.
Third-quarter results included a $715.3 million income tax benefit, versus a $63 million charge during the same period last year. Partly offsetting the impact of the tax windfall were impairment charges of $176.9 million in the third quarter, versus $75.7 million in the third quarter of fiscal 2017.
The charge in the current year reflected a reduction in the value of goodwill and trademarks in the company’s Retail Pet Foods segment.
“The current year charge resulted from reduced growth expectations for the U.S. Retail Pet Foods segment,” the company said.
|Mark Smucker, president and c.e.o. of The J.M. Smucker Co.|
“We had a strong third quarter, with sales growth for key brands in every business and strong earnings per share growth fueled by the benefits of U.S. income tax reform and ongoing cost discipline,” Mr. Smucker said. “These results reflect our commitment to delivering top- and bottom-line growth and supporting our portfolio of iconic and emerging brands. In addition, the benefits of income tax reform provide incremental fuel to invest in our growth initiatives and support our employees and communities as well as opportunities to increase cash returned to shareholders.”
Net income in the nine months ended Jan. 31 was $1,152.7 million, equal to $10.15 per share, up from $481.9 million, or $4.14 per share, over the same period in fiscal 2017. Sales were $5,575.8 million, down 0.6% from $5,608.5 million.
Mr. Smucker was upbeat on the performance of and outlook for the company’s Uncrustables frozen sandwich business.
“Momentum for the Smucker's Uncrustables brand also remained strong, with company-wide sales up 23% in the third quarter and on pace for another year of double-digit sales growth,” he said on a Feb. 16 conference call with investment analysts. “In addition, construction of our new Uncrustables sandwiches facility in Longmont, Colo., is on track. When complete in fiscal 2020, we will have capacity to further accelerate growth as we expect to double net sales from the $250 million level we project for the current fiscal year.”
The sales growth in the fourth quarter represented an acceleration from the third, when the company said Uncrustables sales were up high single-digits.
Mr. Smucker did not comment on whether or the degree to which capacity constraints could throttle back Uncrustables growth during the next year-plus period before the new capacity comes on line.
In its breakdown of operating results by business sector, Smucker said U.S. Retail Consumer Foods operating profits were $121.3 million in the third quarter, up 1.8% from the previous year's quarter. Profit margin in the quarter was 23.7%, up 70 basis points. Sales were $511.6 million, down 1.1%.
Improved profitability was attributed to higher net pricing and operational efficiencies, partially offset by lower volume/mix.
“Segment net sales decreased $5.7 million,” Smucker said. “Volume/mix reduced net sales by 3 percentage points, primarily driven by the Crisco and Pillsbury brands, partially offset by gains for the Smucker’s brand. Net price realization increased net sales by 2 percentage points.”
Additional detail was provided on the call by Mark R. Belgya, vice-chairman and chief financial officer.
|Mark R. Belgya, vice-chairman and c.f.o. of The J.M. Smucker Co.|
“Sales for the Jif brand increased 2%, while the Smucker’s brand was up 9%, benefiting from growth in both Uncrustables frozen sandwiches and fruit spreads,” he said. “Sales for the Crisco brand declined 15%, partially reflecting loss distribution at a key retailer in the club channel, which we lapped late in the third quarter.”
More disappointing in the Smucker grain-based portfolio was the performance of the company’s Pillsbury baking mix business. Steve Oakland, the company’s former vice-chairman and president of U.S. Food and Beverage, indicated the competitive landscape in the mix business intensified during the quarter.
“The economics of that didn’t make sense to us,” he said.
By contrast, he said the company applied “the gas” to the Uncrustables business.
Protecting profitability factored in the company’s decision making regarding Pillsbury, Mr. Smucker said.
“(Regarding) Pillsbury, we made some conscious decisions when we see that the competitive environment is such that ... an investment in a brand might actually create a situation where profit is just too challenged,” he said. “I think that’s been sort of the case for Pillsbury this past year. We consciously chose not to go deep, if you will.“That said, we do have some nice innovation coming out on Pillsbury in the next year. So it’s not that we’re ignoring it, and it’s not that just we are letting it stagnate, but we do have some nice innovation that will continue to support that business going forward.”