J.M. Smucker announces fiscal 2021 fourth quarter results

J.M. Smucker announces results for the fourth quarter of its 2021 fiscal year ending April 30, 2021. Financial results for the fourth quarter and fiscal year reflect the divestiture of the Crisco business on December 1, 2020, and the divestiture of the Natural Balance business on January 29, 2021. All comparisons are to the fourth quarter of the prior fiscal year, unless otherwise noted.

EXECUTIVE SUMMARY

• Net sales decreased $171.8 million, or 8 percent. Net sales excluding divestitures and foreign currency exchange decreased 3 percent, driven by lapping consumer stock-up purchasing resulting from the COVID-19 pandemic in the prior year, partially offset by continued elevated at-home consumption. 
• For the full year, net sales were $8.0 billion, an increase of 3 percent. Net sales excluding divestitures and foreign currency exchange increased 5 percent. 
• Net income per diluted share for the quarter was $1.35. Adjusted earnings per share was $1.89, a decrease of 26 percent. 
• For the full year, net income per diluted share was $7.79. Adjusted earnings per share was $9.12, an increase of 4 percent. 
• Cash from operations was $291.0 million compared to $287.7 million in the prior year. Free cash flow was $183.0 million in the quarter and $1,258.3 million for the full year. 
• Return of capital to shareholders, including cash dividends and share repurchases, was $272.7 million in the quarter and $1.1 billion for the full year. 
• The Company provided its fiscal 2022 outlook, with an expected net sales decrease of 2 to 3 percent, adjusted earnings per share to range from $8.70 to $9.10, and free cash flow of $900 million.

CHIEF EXECUTIVE OFFICER REMARKS

"Our fourth quarter and full-year results demonstrate the continued execution of our strategy, as we delivered net sales, adjusted earnings per share, and free cash flow above our expectations, with significant investment in our brands and gaining market share in several of our key categories," said Mark Smucker, President and Chief Executive Officer. "Our strong financial results reflect sustained elevated demand for at-home food and coffee consumption and consumers' desire for our trusted and iconic brands. Fiscal year 2021 marked another year of progress strengthening our financial position, with earnings growth and cash generation enabling debt reduction and return of cash to our shareholders." 

"Looking ahead to fiscal year 2022, we are focused on building upon the momentum and exceptional results we delivered this year, advancing our consumer-centric growth strategy, and supporting our talented employees who have been instrumental to our success. I am confident the investments we have made in our businesses and the increased agility and flexibility we developed during the past year will enable us to continue driving sustainable growth and shareholder value."

FOURTH QUARTER CONSOLIDATED RESULTS

Net Sales

Net sales decreased 8 percent. Excluding noncomparable net sales of $123.9 million for the divested Crisco and Natural Balance businesses, as well as $8.3 million of favorable foreign currency exchange, net sales decreased $56.2 million, or 3 percent. 

The decrease in comparable net sales was primarily driven by a 4 percentage point decline from volume/mix attributable to the Company's U.S. Retail Pet Food segment and International operating segment. Favorable net price realization increased net sales by 1 percentage point, primarily driven by the U.S. Retail Consumer Foods and U.S. Retail Pet Food segments. 

Operating Income

Gross profit decreased $52.7 million, or 7 percent, driven by the decreased contribution from volume/mix, the noncomparable impact of the Crisco and Natural Balance divestitures, and higher costs, partially offset by a favorable change in unallocated derivative gains and losses, as compared to the prior year, and higher net pricing. Operating income decreased $108.0 million, or 31 percent, primarily driven by the decrease in gross profit, a $37.7 million increase in selling, distribution, and administrative ("SD&A") expenses attributable to increased marketing expense, and higher other special project costs.

Adjusted gross profit decreased $79.4 million, or 10 percent, with the difference from generally accepted accounting principles ("GAAP") results being the exclusion of unallocated derivative gains and losses and special project costs. Adjusted operating income decreased $119.6 million, or 28 percent, primarily reflecting the further exclusion of other special project costs. 

Interest Expense, Other Income (Expense), and Income Taxes

Net interest expense decreased $3.2 million, primarily as a result of reduced debt due to net repayments of $866.4 million during the fiscal year.

The effective income tax rate was 24.0 percent, compared to 24.2 percent in the prior year. On a non-GAAP basis, the adjusted effective income tax rate was 23.3 percent, compared to 23.4 percent in the prior year. The GAAP effective income tax rate is higher than the adjusted effective income tax rate in the current year, primarily due to incremental income tax expense recorded in the fourth quarter associated with the divested Crisco business. 

Cash Flow and Debt

Cash provided by operating activities was $291.0 million, compared to $287.7 million in the prior year, primarily reflecting a favorable benefit from lapping the settlement of interest rate contracts in the prior year, offset by an increase in cash required to fund working capital, as compared to the prior year, and a decrease in net income adjusted for noncash items. Free cash flow was $183.0 million, compared to $211.3 million in the prior year, as the increase in cash provided by operating activities was more than offset by a $31.6 million increase in capital expenditures. Net debt repayments in the quarter totaled $84.0 million. 

The Company repurchased 1.3 million common shares for $150.0 million. In total, repurchases of 1.5 million shares settled in the fourth quarter for $174.3 million, inclusive of 0.2 million shares repurchased in the third quarter. 

FULL-YEAR OUTLOOK

The pandemic and related implications, along with cost inflation and volatility in supply chains, continue to impact financial results and cause uncertainty and risk for the fiscal year 2022 outlook. Any manufacturing or supply chain disruption, as well as changes in consumer mobility and purchasing behavior, retailer inventory levels, and macroeconomic conditions could materially impact actual results. While the broader outlook remains uncertain, the Company continues to focus on managing the elements it can control, including taking the necessary steps to minimize the impact of cost inflation and any business disruption. This guidance reflects performance expectations based on the Company's current understanding of the environment. 

Net sales are expected to decrease 2 to 3 percent compared to the prior year, which incorporates an impact of $355.6 million related to the divested Crisco and Natural Balance businesses. On a comparable basis, net sales are expected to increase approximately 2 percent at the mid-point of the net sales guidance range, reflecting a deceleration in at-home consumption trends, more than offset by higher net pricing across multiple categories primarily to recover higher costs, continued double-digit net sales growth for the Smucker's Uncrustables brand, and a recovery in away from home channels.

Adjusted earnings per share is expected to range from $8.70 to $9.10, based on 108.3 million shares outstanding. Earnings guidance reflects the decrease in net sales and adjusted gross profit margin to range from 37.0 to 37.5 percent, SD&A expenses down approximately 4 percent compared to the prior year, and an adjusted effective tax rate of 24.0 percent. Free cash flow is expected to be approximately $900 million, with capital expenditures of $380 million.

FOURTH QUARTER SEGMENT RESULTS

Dollar amounts in the segment tables below are reported in millions.

U.S. Retail Pet Foods

Net sales decreased $93.2 million, or 12 percent. Excluding $52.2 million of noncomparable net sales in the prior year related to the divested Natural Balance business, net sales decreased $41.0 million, or 6 percent.  Volume/mix reduced net sales by 6 percentage points, primarily driven by declines for the Rachael Ray Nutrish, Kibbles 'n Bits, Nature's Recipe, and Meow Mix brands. Net price realization increased net sales by 1 percentage point.

Segment profit decreased $47.9 million, primarily reflecting the reduced contribution from volume/mix, a $18.9 millionincrease in marketing investments excluding the divested Natural Balance business, and higher costs, partially offset by higher pricing.

U.S. Retail Coffee

Net sales increased $1.5 million. Volume/mix and net price realization were each neutral, as volume/mix increases for the Dunkin' and Café Bustelo brands were offset by a decline for the Folgers brand. 

Segment profit decreased $16.4 million, primarily due to a $12.9 million increase in marketing investments.

U.S. Retail Consumer Foods

Net sales decreased $60.7 million, or 13 percent. Excluding $65.0 million of noncomparable net sales in the prior year related to the divested Crisco business, net sales increased $4.3 million, or 1 percent. Net price realization increased sales by 4 percentage points, primarily reflecting the impact of a peanut butter list price increase taken in the second quarter. Volume/mix reduced net sales by 3 percentage points, primarily driven by declines for Smucker's fruit spreads and Jif peanut butter, partially offset by an increase for Smucker's Uncrustables frozen sandwiches. 

Segment profit decreased $38.3 million, primarily reflecting the noncomparable segment profit in the prior year related to the divested Crisco business, higher costs, and a $14.2 million increase in marketing investments, partially offset by higher net price realization. 

International and Away From Home

Net sales decreased $19.4 million. Excluding $6.7 million of noncomparable net sales in the prior year related to the divested Crisco business, net sales decreased $12.7 million, or 5 percent, primarily reflecting a 15 percent decline for the Company's International operating segment, partially offset by net sales growth of 7 percent for the Away From Home operating segment. Volume/mix for the combined businesses reduced net sales by 9 percentage points, primarily driven by declines for flour and baking, fruit spreads, and coffee, partially offset by an increase for portion control products in away from home channels. Foreign currency exchange contributed 3 percentage points, and net price realization was neutral. 

Segment profit decreased $12.5 million, primarily reflecting the decline from volume/mix, partially offset by the favorable impact of net pricing and costs and favorable foreign currency exchange. 

Conference Call

The Company will conduct an earnings conference call and webcast today, June 3, 2021, beginning at 8:30 a.m. Eastern time. Speaking on the call will be Mark Smucker, President and Chief Executive Officer, and Tucker Marshall, Chief Financial Officer. To access the webcast, please visit investors.jmsmucker.com.