J. M. Smucker Company (SJM) reported an 85% dip in earnings for the third quarter due to the inclusion of non-cash impairment charge within the US Retail Pet Foods segment and the divestiture of US baking business. However, the results exceeded analysts’ expectations. The packaged food maker maintained its full-year 2019 outlook.
Earnings plunged 85% to $121.4 million or $1.07 per share. The results included the contribution from Ainsworth Pet Nutrition, LLC, which was acquired on May 14, 2018, and reflect the divestiture of the company’s U.S. baking business on August 31, 2018. Adjusted earnings dropped 10% to $2.26 per share.
Net sales rose 6% to $2.01 billion, led by the addition of Ainsworth and the company’s growth brands. This reflects a contribution from the Ainsworth acquisition, partially offset by the impact of noncomparable net sales in the prior year attributed to the divestiture of the US baking business.
Excluding items impacting comparability, net sales increased by 1%, as favorable volume/mix in US Retail Coffee and US Retail Consumer Foods was partially offset by declines in US Retail Pet Foods. Net price realization was neutral as lower pricing on coffee was offset by higher pricing on pet food and pet snacks.
Looking ahead into the full year 2019, the company still expects net sales of $7.9 billion and adjusted earnings in the range of $8.00 to $8.20 per share. Free cash flow is still predicted to be $700 million to $750 million and capital expenditures are anticipated to be $350 million to $370 million.
For the third quarter, sales from US Retail Coffee rose by 2% year-over-year as favorable volume/mix contributed 5 percentage points, primarily due to the Dunkin’ Donuts and 1850 brands. The favorable volume/mix was partially offset by lower net price realization due to increased trade spend.
Sales from US Retail Consumer Foods fell by 17% due to non-comparable net sales in the prior year related to the divested US baking business. Excluding the noncomparable results, net sales rose 4%, reflecting favorable volume/mix, which contributed 3 percentage points, primarily attributed to Smucker’s Uncrustables and Jif, driven by Power-Ups.
Sales from US Retail Pet Foods jumped by 35%, reflecting contribution from Ainsworth. Excluding Ainsworth, net sales declined $1.2 million, reflecting the exit of certain private label businesses and the discontinuation of Gravy Train wet dog food products, which impacted net sales by $18.8 million.
Sales from International and Away From Home declined by 6% hurt by a 2 percentage point decrease due to volume/mix, unfavorable foreign currency exchange, lower net price realization, and the impact of non-comparable net sales in the prior year related to the divested US baking business. The decline in volume/mix was primarily driven by declines for the Folgers brand and exported products.
Cash provided by operating activities fell by 10.2% from the prior year with the decrease reflecting a less significant reduction in working capital. Free cash flow dropped by 14.3%, due to the decrease in cash provided by operating activities and an increase in capital expenditures. Total debt was reduced by $186 million.
Shares of J. M. Smucker ended Monday’s regular session down 0.35% at $101.06 on the NYSE. Following the earnings release, the stock inched up over 7% in the premarket session.
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