Smucker earnings dip 3% after charges

by Jeff Gelski
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ORRVILLE, OHIO — Third-quarter income decreased 3% for J.M. Smucker Co. because of restructuring charges, but coffee sales powered a 9% gain in overall third-quarter sales, the Orrville-based company said Feb. 17. Smucker had income of $132 million, equal to $1.12 per share on the common stock, in the quarter ended Jan. 31, which compared with income of $135.5 million, or $1.14 per share, in the previous year’s third quarter.

Restructuring and merger and integration costs accounted for 16c per share in the third quarter of fiscal year 2011 and 3c per share in the third quarter of fiscal year 2010. Excluding the restructuring charges, Smucker’s third-quarter e.p.s. was up 9%.

Third-quarter sales rose to $1,312.4 million from $1,205.9 million in the previous year’s third quarter due to an 18% gain in U.S. retail coffee market sales. Overall volume increased 3% as gains were realized in Crisco oils, Jif peanut butter, Smucker’s fruit spreads, Dunkin’ Donuts packaged coffee and natural foods beverages. The net impact of pricing contributed about 4% to net sales. The overall impact of sales mix was favorable.

“Our team continues to drive results, including volume growth and strong cash flow, which have enabled us to repurchase over 3% of outstanding shares and declare a 10% quarterly dividend increase,” said Tim Smucker, chairman of the board and co-chief executive officer. “As we navigate through an uncertain commodity cost environment, we expect to continue to drive financial results by maintaining our balanced approach to pricing, market share growth and profitability.”

Third-quarter net sales in the U.S. retail coffee market segment were $554.7 million, up from $471.5 million in the previous year’s third quarter. U.S. retail coffee market operating profit in the third quarter was $158.1 million, up 19% from $132.6 million.

Coffee price increases of 13% taken during 2011 covered rising green coffee costs. The impact of the price increases and a favorable sales mix more than offset a 2% volume decline. Introducing Folgers Gourmet Selections and Millstone K-Cups earlier in the fiscal year added about 4% to third-quarter sales in the U.S. retail coffee market segment. When comparing the third quarter of 2011 to the third quarter of 2010, Folgers brand volume decreased 3% while Dunkin’ Donuts packaged coffee volume increased 8%.

Throughout the company, raw material cost increases were most significant for green coffee, milk, sugar and soybean oil, which more than offset lower costs for peanuts.

The U.S. retail consumer market segment had third-quarter sales of $273.5 million, down slightly from $273.8 million in the previous year’s third quarter, and third-quarter operating profit of $72.2 million, up 9% from $66.2 million. Volume gains were realized in Jif peanut butter, Smucker’s fruit spreads and Hungry Jack pancake mixes and syrup.

The U.S retail oils and baking market posted third-quarter sales of $253.3 million, up 4% from $244.2 million, and third-quarter operating profit of $31.5 million, down 12% from $35.9 million. Net sales for the Crisco brand increased 14%. Pillsbury baking volume fell 9% because of a combination of planned reductions in lower-margin products and a continuing competitive and promotional environment.

The special market segment had third-quarter sales of $230.8 million, up 7% from $216.5 million, and third-quarter operating profit of $28.3 million, down 8% from $30.7 million. Third-quarter impairment charges of $17.2 million were related to Europe’s Best intangible assets in Canada, which compared with $7.3 million in the previous year’s third quarter.

For the first nine months of fiscal year 2011, Smucker had net income of $384.6 million, or $3.23 per share, which was up 3% from $373.5 million, or $3.14 per share, in the same time period of the previous year. Nine-month sales rose 3% to $3,638.6 million from $3,536.2 million. Smucker expects fiscal year 2011 sales to be up 4% when compared to fiscal year 2010.

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