J.M. Smucker Co. has released its financial results for the first quarter of fiscal year 2025, which ended on July 31, 2024. These results reflect the company’s recent strategic moves, including the divestiture of its Canada condiment business on January 2, 2024, the acquisition of Hostess Brands, Inc. on November 7, 2023, and the sale of the Sahale Snacks® business on November 1, 2023. Comparisons are made with the first quarter of the prior fiscal year unless otherwise noted.
Executive Summary
- Net Sales: Reached $2.1 billion, marking an increase of $319.9 million, or 18%. Excluding impacts from acquisitions, divestitures, and foreign currency exchange, net sales saw a 1% increase.
- Net Income: Earnings per diluted share were $1.74, while adjusted earnings per share rose by 10% to $2.44.
- Cash Flow: Cash generated from operations was $172.9 million, down from $217.9 million the previous year. Free cash flow was $49.2 million, compared to $67.6 million last year.
- Outlook: The company updated its financial outlook for fiscal year 2025.
CEO Remarks
Mark Smucker, Chair of the Board, President, and CEO, expressed satisfaction with the strong start to the fiscal year, highlighting the company’s ability to achieve growth in both net sales and earnings despite a challenging consumer environment. He credited this success to the company’s focus on core business operations, successful integration of Hostess Brands, and efforts in transformation, cost discipline, and cash generation.
Smucker also emphasized the role of employees in driving the company’s success, noting their dedication to meeting consumer needs and supporting sustainable growth and shareholder value.
Detailed Financials
- Sales Growth: The $319.9 million increase in net sales was significantly driven by the Hostess Brands acquisition, which contributed $333.7 million in the current year. Excluding the impacts of acquisitions, divestitures, and foreign currency exchange, comparable net sales increased by $16.9 million, or 1%, reflecting positive volume/mix contributions from brands like Uncrustables®, Café Bustelo®, and Meow Mix®, offset by declines in contract manufacturing sales and the Dunkin’® brand.
- Operating Income: Gross profit increased by $142.4 million, or 22%, largely due to the acquisition of Hostess Brands and favorable volume/mix. Operating income rose by $46.0 million, or 15%, despite increased selling, distribution, and administrative expenses, as well as higher amortization costs linked to the acquisition.
- Adjusted Figures: Adjusted gross profit grew by $188.1 million, or 29%, while adjusted operating income saw a 35% increase, primarily due to the exclusion of special project costs and amortization expenses.
Interest Expense and Taxes
- Interest Expense: Rose by $68.3 million, mainly due to costs associated with financing the Hostess Brands acquisition and increased short-term borrowings.
- Tax Rate: The effective income tax rate increased to 24.8% from 23.0% in the prior year, while the adjusted rate rose to 24.6% from 23.6%, largely due to unfavorable impacts related to share-based compensation.
Cash Flow and Debt
- Operating Cash Flow: Decreased to $172.9 million from $217.9 million the previous year, primarily due to higher working capital requirements.
- Free Cash Flow: Fell to $49.2 million from $67.6 million last year, driven by the decline in operating cash flow, partially offset by lower capital expenditures.
Outlook for Fiscal 2025
- Net Sales: Expected to grow by 8.5% to 9.5% compared to the previous year, with comparable net sales projected to increase by 0.5% to 1.5%.
- Earnings: Adjusted earnings per share are anticipated to range between $9.60 and $10.00.
- Cash Flow: Free cash flow is expected to be around $875 million, with capital expenditures estimated at $450 million.
