The J. M. Smucker Company announced results for the first quarter ended July 31, 2016, of its 2017 fiscal year.
All comparisons are to the first quarter of the prior fiscal year, unless otherwise noted.
Executive Summary
Net sales decreased 7 percent, reflecting the impact of the divested U.S. canned milk business and price declines.
Net income per diluted share increased 28 percent to $1.46.
Adjusted earnings per share was $1.86, an increase of 16 percent, reflecting incremental synergy realization, a lower tax rate, and fewer shares outstanding.
Synergy realization was $32 million in the first quarter as the Company remains on track to achieve $100 million of incremental synergies in fiscal 2017.
Cash provided by operating activities was $238.9 million in the first quarter, compared to $307.0 million in the prior year.
The Company maintained its full-year fiscal 2017 earnings outlook, with adjusted earnings per share expected to range from $7.60 to $7.75.
Chief Executive Officer Remarks
"We are pleased with the start to our fiscal year as we delivered record first quarter earnings per share, which exceeded our expectations," said Mark Smucker, Chief Executive Officer.
"Despite the impact of deflation on the top line, we remain on track to achieve our original expectations for full-year earnings per share. We are strengthening a great portfolio of brands by investing in new capabilities and on-trend platforms that are essential to long-term sales growth. At the same time, we are focused on sustainable cost reductions that are delivering significant bottom-line benefits. For these reasons, we remain confident in achieving our long-term objectives and delivering continued shareholder value."
Non-GAAP Measures and segment results
Beginning May 1, 2016, the Company redefined certain non-GAAP measures and modified its segment profit calculation to exclude amortization expense related to intangible assets, including any related impairment charges. Prior year results have been modified to conform to the new presentation. Additional information is included in the Company's Form 8-K, dated July 25, 2016.
Net Sales
Net sales decreased $136.2 million, including $39.5 million attributed to the divested U.S. canned milk business. Excluding the noncomparable divested business and foreign currency exchange, net sales decreased $92.1 million, or 5 percent. This was driven by a 4 percentage point impact of lower net price realization, which was mostly attributed to coffee. Unfavorable volume/mix, driven by the U.S. Retail Pet Foods segment, also contributed to lower net sales.
Operating Income
Gross profit decreased $6.0 million, or 1 percent, reflecting lower net pricing and the loss of U.S. canned milk profits. These factors were mostly offset by a reduction in commodity costs, primarily attributed to green coffee, and incremental synergy realization. Selling, distribution, and administrative ("SD&A") expenses decreased $31.6 million, or 8 percent, primarily driven by synergy realization and reduced selling expense. Operating income increased $26.7 million, or 10 percent, primarily reflecting the lower SD&A expenses.
On a non-GAAP basis, adjusted gross profit decreased $22.8 million, or 3 percent, with the primary difference from GAAP results being the exclusion of a $17.7 million favorable change in unallocated derivative gains and losses. Adjusted operating income increased $7.9 million, or 2 percent.
Other
Net interest expense decreased $2.9 million, due to reduced debt levels. Income taxes decreased $3.0 million as the increase in income before tax was offset by a lower effective tax rate of 32.9 percent. This represented a decrease from 38.8 percent in the prior year, which reflected higher deferred state tax expense and the impact of state tax law changes.
Cash provided by operating activities was $238.9 million. This compared to $307.0 million in the prior year, which benefited from a non-recurring $49.6 million tax refund.
