J. M. Smucker Company — Form 10-K Summary
Business context and reporting period
This annual report covers the fiscal year ended April 30, 2021, compared with fiscal 2020 unless noted. It is not a standalone fourth-quarter report. Smucker manufactures and markets branded food and beverage products, primarily in the United States. Its reportable segments are U.S. Retail Pet Foods, U.S. Retail Coffee, and U.S. Retail Consumer Foods; International and Away From Home combines other operating segments. U.S. retail segments accounted for 88% of fiscal 2021 sales.
Financial performance
Amounts are in millions of dollars except per-share data and percentages.
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Net sales | $8,002.7 | $7,801.0 | +3% |
| Gross profit / margin | $3,138.7 / 39.2% | $3,002.0 / 38.5% | +5% |
| Operating income / margin | $1,386.8 / 17.3% | $1,223.1 / 15.7% | +13% |
| Net income | $876.3 | $779.5 | +12% |
| Diluted EPS | $7.79 | $6.84 | +14% |
| Adjusted operating income (non-GAAP) | $1,528.8 / 19.1% | $1,508.7 / 19.3% | +1% |
| Adjusted income / diluted EPS (non-GAAP) | $1,025.0 / $9.12 | $999.1 / $8.76 | +3% / +4% |
| Operating cash flow | $1,565.0 | $1,254.8 | +$310.2 |
| Capital expenditures / free cash flow (non-GAAP) | $306.7 / $1,258.3 | $269.3 / $985.5 | FCF +$272.8 |
Sales excluding divestitures and foreign exchange, a non-GAAP measure, rose 5% to $7,995.0, reflecting favorable volume/mix across retail businesses, partly offset by weaker Away From Home performance. Operating income benefited from higher gross profit, the absence of a prior-year $52.4 intangible impairment, and a net $25.3 divestiture gain; higher selling, distribution, and administrative expenses partly offset those benefits. Interest expense fell 6% to $177.1, principally due to lower debt. The effective tax rate rose to 25.2% from 24.1%, including divestiture-related tax effects.
At April 30, 2021, cash and cash equivalents were $334.3 (prior year $391.1); total debt was $4,751.7 (prior year $5,621.3); and shareholders’ equity was $8,124.8. Debt included $1,152.9 of current maturities and $82.0 of commercial paper borrowings. The company prepaid the remaining term loan during the year. It had a $1.8 billion revolving credit facility, no balance drawn on it, and reported compliance with debt covenants.
Segments and material changes
| Segment | FY2021 sales | FY2021 segment profit | Change in sales / profit |
|---|---|---|---|
| U.S. Retail Pet Foods | $2,844.5 | $487.0 | Sales -1%; profit -12% |
| U.S. Retail Coffee | $2,374.6 | $769.1 | Sales +10%; profit +11% |
| U.S. Retail Consumer Foods | $1,835.7 | $472.5 | Sales +6%; profit +21% |
| International and Away From Home | $947.9 | $124.1 | Sales -10%; profit -28% |
Segment comparisons reflect divestitures and pandemic-related demand shifts. Excluding Natural Balance, Pet Foods sales grew 1%, but profit fell amid lower net pricing, increased marketing, and the absence of a prior-year supplier-related legal settlement recovery. Coffee growth reflected elevated at-home consumption. Consumer Foods sales excluding Crisco grew 13%, supported by Jif and Uncrustables; pricing also contributed. Away From Home sales declined 21% while International sales grew 4%.
Smucker sold the Crisco oils and shortening business in December 2020 for net proceeds of $530.2 and recorded a pretax gain of $114.8. It sold Natural Balance in January 2021 for net proceeds of $33.8 and recorded a pretax loss of $89.5. Together, reported proceeds were $564.0. The businesses contributed $198.9 and $156.7, respectively, to fiscal 2021 sales before their sales ceased being included following sale. These divestitures, and the prior sale of the U.S. baking business, affect period comparisons.
Outlook, risks, contingencies, and unusual items
- Management’s long-term objectives are average annual growth of 2% in sales, 5% in adjusted operating income, and 8% in adjusted EPS. These are long-term objectives, not fiscal 2022 guidance. Management expected a fiscal 2022 effective tax rate of approximately 24%.
- Management anticipated elevated at-home consumption continuing, to a lesser extent, into early fiscal 2022. Away From Home had improved from the initial pandemic months, but remained exposed to restrictions, consumer behavior, and renewed outbreaks. The overall COVID-19 effect remained uncertain.
- A restructuring program is expected to cost approximately $85.0, with $24.1 incurred in fiscal 2021. More than half of expected costs were projected by the end of fiscal 2022, with activities expected to finish by the end of 2023. The Suffolk, Virginia liquid-coffee plant was planned to close by the end of 2022 following a production partnership.
- Commodity and input-cost inflation, notably for green coffee, peanuts, protein meals, fats, and packaging, could pressure margins; pricing and hedging may not fully offset increases. Derivative mark-to-market accounting can cause earnings volatility.
- Goodwill and other intangible assets totaled $12.1 billion. Pet Foods goodwill fair value exceeded carrying value by approximately 6%; disclosed sensitivity tests indicated that a 50-basis-point reduction in long-term growth or increase in discount rate could produce impairment. Rachael Ray Nutrish also had limited valuation headroom. No goodwill impairment was recorded in fiscal 2021.
- Walmart represented 32% of sales in fiscal 2021, 2020, and 2019, and 28% of year-end net trade receivables in fiscal 2021. Customer concentration and reliance on selected single-source suppliers and manufacturing sites are significant exposures.
- Folgers serving-size putative class actions and an appeal concerning alleged coffee acrylamide warnings remained pending. No loss contingency was recorded for these matters because loss was not considered probable or reasonably estimable; outcomes and potential financial effects were uncertain.
- Other unusual items included $35.5 of pension settlement charges, including $29.6 related to transferring Canadian pension obligations, and $678.4 of cash used to purchase treasury shares. The company reported $304.2 of supplier payment obligations sold by participating suppliers to a financial institution under its supplier-financing program.
Most important facts for investors to verify
- Separate recurring operating performance from divestiture gains/losses, derivative movements, pension settlements, impairments, and other non-GAAP adjustments.
- Assess whether pandemic-driven coffee and consumer-food demand and the reported segment growth can persist as consumer mobility and purchasing patterns change.
- Review debt maturities, refinancing plans, liquidity, and the effect of the $1.15 billion current debt portion alongside planned dividends and capital spending.
- Monitor Pet Foods and Nutrish valuation headroom, future impairment assumptions, and the impact of divestitures and restructuring on costs and margins.
- Evaluate commodity inflation and pricing recovery, Walmart/customer concentration, supplier-financing balances, and the status and potential consequences of disclosed litigation.