The J. M. Smucker Company — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended January 31, 2023 (quarter ended January 31, 2023); comparisons are to the corresponding prior-year periods. Dollars are in millions except per-share amounts.
Financial performance
| Metric | Quarter | Nine months |
|---|---|---|
| Net sales | $2,216.3; up 8% | $6,294.4; up 6% |
| Gross profit / margin | $755.8 / 34.1% | $2,009.4 / 31.9% |
| Operating income / margin | $317.9 / 14.3% | $791.0 / 12.6% |
| Net income | $208.5; diluted EPS $1.95 | $509.4; diluted EPS $4.77 |
| Adjusted operating income (non-GAAP) | $357.6; down 5%; 16.1% margin | $1,007.2; down 8%; 16.0% margin |
| Adjusted income / diluted EPS (non-GAAP) | $236.8 / $2.21 | $671.1 / $6.28 |
| Operating cash flow | Not presented for quarter alone | $750.6, versus $742.6 |
| Capital expenditures / free cash flow (non-GAAP) | Not presented for quarter alone | $332.3 / $418.3, versus $244.5 / $498.1 |
Quarterly sales grew 11% excluding divestitures and foreign exchange, reflecting 15 percentage points of higher net price realization, partly offset by a 4-point decline in volume/mix. Nine-month comparable sales grew 9%, with pricing adding 15 points and volume/mix subtracting 6 points. Price increases and cost inflation supported reported gross profit, but adjusted gross profit declined 2% for the nine months. Reported operating income and net income benefited from comparison with the prior-year $150.4 intangible impairment charge; adjusted operating income and adjusted income declined.
Segment picture: Quarterly sales increased in Pet Foods (9%), Coffee (11%), and International and Away From Home (9%); Consumer Foods was nearly flat. Segment profit rose in Pet Foods and International and Away From Home, but fell in Coffee and Consumer Foods. For the nine months, Consumer Foods sales fell 10% and segment profit fell 24%, including effects of the Jif recall and divestitures; Coffee segment profit fell 6% despite 10% sales growth.
Liquidity, debt, and capital allocation
- Cash was $104.2 at January 31, 2023, down from $169.9 at April 30, 2022. Current assets were $2,027.8 and current liabilities $1,740.7.
- Total debt was $4,313.3, all long-term; there were no commercial paper borrowings or revolving-credit borrowings. The $2.0 billion revolving credit facility matures in August 2026. The company reported compliance with debt covenants and expects to remain compliant over the next 12 months.
- Nine-month dividends paid were $321.8. Capital expenditures were $332.3, primarily for the McCalla, Alabama, facility and capacity expansion in Longmont, Colorado. Management said available cash, operating cash flow, borrowing capacity, and capital-market access should cover requirements for the next 12 months, absent material acquisitions or other significant investments.
Outlook, developments, and risks
- Management anticipated elevated input-cost inflation, supply-chain disruption, labor constraints, and consumer price sensitivity would continue through the remainder of fiscal 2023. It expected a full-year effective tax rate of approximately 24%, excluding the expected impact of the pet-food transaction described below.
- The May 2022 voluntary recall of select Jif peanut butter products generated about $110.0 of direct costs through January 31, net of insurance recoveries. The company expected additional recall costs to be minimal and Jif product availability to return to normal by the end of 2023. The FDA issued a warning letter regarding facility practices and controls; related litigation and potential regulatory outcomes were not considered probable or estimable, so no loss contingency was recorded.
- Subsequent event: After January 31, the company agreed to sell several pet-food brands and related operations to Post Holdings for approximately $1.2 billion—$700.0 cash, subject to working-capital adjustment, plus about 5.39 million Post shares. Closing was expected in fiscal fourth-quarter 2023, subject to conditions and regulatory approvals. Smucker estimated an approximately $815.0 pretax loss, including goodwill and intangible assets to be disposed.
- The U.S. Retail Pet Foods segment’s goodwill was identified as susceptible to future impairment because of a narrow fair-value cushion. Broader risks include commodity and foreign-exchange volatility, supply interruptions, geopolitical developments, and the ability to realize pricing and restructuring benefits.
- The company expected to incur approximately $65.0 in total restructuring costs; $60.2 had been incurred by January 31. Remaining restructuring activities were expected to be completed by the end of 2023. The planned $1.1 billion Uncrustables facility in Alabama was under construction, with production expected to begin in calendar 2025.
Most important facts for investors to verify
- Whether volume and mix stabilize as price increases continue, particularly in Coffee and Consumer Foods, and whether higher prices offset input-cost inflation.
- Jif product recovery, remaining recall costs, FDA follow-up, and outcomes of related consumer litigation.
- Completion terms, regulatory approval, timing, and actual accounting impact of the Post pet-food sale, including the estimated loss.
- Progress on cash conversion and capital spending: operating cash flow was nearly flat year over year, while free cash flow declined to $418.3.
- Pet Foods goodwill impairment sensitivity and delivery of expected restructuring savings and completion milestones.