Smucker's earnings miss expectations despite pet food sales boost
- The J.M. Smucker Company's net income this quarter totaled $188.5 million, or $1.66 per share, which decreased from $194.6 million this time last year, according to the company's most recent earnings report. Adjusted earnings came in at $2.17 per share, which missed analyst expectations of $2.33 per share.
- The company's Q2 net sales increased 5% to $97.9 million, boosted by its acquisition of Ainsworth Pet Nutrition. Smucker's revenue for the quarter also rose 5.2% to $2.02 billion, from $1.92 billion last year.
- "We are focused on growing brands consumers love in the pet food, coffee, and snacking categories, as highlighted by the completion of the U.S. baking business divestiture during the quarter," Chief Executive Officer Mark Smucker said in the release. "While the income taxes related to the sale of the baking business impacted our earnings per share, we were pleased with the business results for the quarter."
For the second consecutive quarter, the company's $1.7 billion acquisition of Ainsworth Pet Nutrition earlier this year has really paid off. This quarter's 5% sales increase is mainly because of this buy. The pet food segment's net sales increased $177 million, with a $184.2 million contribution from Ainsworth. Last quarter, Smucker's profits were also helped by the Ainsworth Pet Nutrition acquisition, which brought a 9% boost in sales from the previous year.
But the pet food segment wasn't enough to offset Smucker's decreases this quarter. For the third quarter in a row, Smucker missed analysts' expectations. Ainsworth's healthy sales were offset by a $74.2 million loss in sales that would have come from the company's baking brands.
In September, the company known for its namesake fruit spreads sold Pillsbury, Martha White, Hungry Jack, White Lily and Jim Dandy baking products to private equity firm Brynwood Partners for $375 million. Smucker used the proceeds from the sale of the baking business for $440 million of debt repayments for the quarter.
Smucker's retail consumer foods' net sales decreased by $65.9 million compared to a year ago — but showed a 1% increase when the baking brands are excluded.
Overall, the Ohio company saw sales growth from brands across its spectrum of products, including Nutrish, Uncrustables, Nature's Recipe, Jif, Crisco and Café Bustelo. Those gains were offset by lower prices at sale, mainly from higher peanut butter costs and lower prices for the spread and oils.
The company also struggled in other segments. Despite overall growth in the coffee market, Smucker's retail coffee segment didn't perk up. Net sales decreased by $6.5 million because of lower prices and smaller profit margins. Slight growth in coffee brands 1850, Café Bustelo and Dunkin' Donuts helped offset declines in its Folgers roast and ground coffee. But overall, the segment's profit rose $22.2 million, mainly because of lower input costs.
Although there is more competition in the coffee market, there is still potential for Smucker's coffee brands to grow as consumption continues to increase. Much of the segment's profit was put back into marketing for 1850, the company's newest coffee brand, created to spin Folgers' appeal forward to millennials who see themselves as "today's pioneers."
Looking ahead, the company lowered its fiscal year 2019 outlook from $8 billion to $7.9 billion to reflect the impact of its divested baking business. The company also anticipates lower pricing and more competition in coffee and peanut butter.
Despite losses from the baking business now, going forward the company could see gains from the sale. The company's baking arm had been sinking for years because consumers have been more interested in better-for-you products. Divesting the segment gives the company room for growth in other areas and could break the company's streak of missing earnings expectations. Smucker will now be able to focus on its coffee, pet food and jams, while potentially looking out for more M&A opportunities that fit in with the company's core and bring immediate results — like Ainsworth Pet Nutrition.
- The J.M. Smucker Company The J. M. Smucker Company Announces Fiscal 2019 Second Quarter Results
- Nasdaq The J. M. Smucker Company Q2 adjusted earnings Miss Estimates
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