The J.M. Smucker Co. reported its fiscal 2025 first-quarter results for the period ending July 31, 2024. The financial performance for this quarter reflects the company’s recent strategic moves, including the sale of its Canada condiment business on January 2, 2024, the acquisition of Hostess Brands, Inc. on November 7, 2023, and the divestiture of the Sahale Snacks® business on November 1, 2023. Unless otherwise stated, all comparisons are made against the first quarter of the previous fiscal year.
Executive Summary
Net sales reached $2.1 billion, marking an increase of $319.9 million, or 18%. When excluding the effects of acquisitions, divestitures, and foreign currency exchange, net sales saw a 1% increase. Diluted earnings per share were $1.74, while adjusted earnings per share rose by 10% to $2.44. Cash flow from operations amounted to $172.9 million, down from $217.9 million the previous year. Free cash flow stood at $49.2 million, compared to $67.6 million in the prior year. The company also updated its financial outlook for the full fiscal year 2025.
Remarks from the Chief Executive Officer
Mark Smucker, Chair of the Board, President, and Chief Executive Officer, expressed satisfaction with the company’s strong start to the fiscal year, highlighting net sales and earnings growth amid a dynamic consumer environment. He attributed these results to the company’s focus on core business operations, successful integration of Hostess Brands, and achievements in transformation, cost discipline, and cash generation.
Smucker emphasized the importance of employee dedication in meeting consumer needs and supporting sustainable growth and shareholder value.
Financial Performance Details
Net sales grew by $319.9 million, or 18%. This includes $333.7 million in net sales from the Hostess Brands acquisition, $28.6 million in noncomparable net sales from the prior year’s divestitures, and a $2.1 million unfavorable impact from foreign currency exchange. Excluding these factors, net sales increased by $16.9 million, or 1%.
This growth in comparable net sales was driven by a 1% increase in volume/mix, led by the Uncrustables®, Café Bustelo®, and Meow Mix® brands. This was partially offset by lower contract manufacturing sales from divested pet food brands and a decline in Dunkin’® brand sales. Net price realization was neutral, with higher prices in some segments being offset by lower prices in others.
Operating Income
Gross profit rose by $142.4 million, or 22%, largely due to the Hostess Brands acquisition and favorable volume/mix, which were partially offset by the impact of divestitures. Operating income increased by $46.0 million, or 15%, driven by higher gross profit, offset by a $76.5 million rise in selling, distribution, and administrative expenses, and a $16.2 million increase in amortization expenses, mainly related to the acquisition. Additionally, special project costs increased by $7.1 million, primarily for integration.
Adjusted gross profit saw a 29% increase of $188.1 million, with the primary difference from GAAP results being a favorable impact from the exclusion of a $40.4 million change in net cumulative unallocated derivative gains and losses. Adjusted operating income, which excludes other special project costs and amortization expenses, rose by $116.2 million, or 35%.
Interest Expense and Income Taxes
Net interest expense grew by $68.3 million, mainly due to increased expenses from Senior Notes issued to partially finance the Hostess Brands acquisition and additional short-term borrowings under the company’s commercial paper program.
The effective income tax rate was 24.8%, up from 23.0% in the prior year. The adjusted effective income tax rate also increased to 24.6% from 23.6%, largely due to a discrete unfavorable impact of share-based compensation compared to the prior year. The previous year’s effective tax rate had also benefited from deferred tax advantages due to state tax legislative changes.
Cash Flow and Debt
Cash provided by operating activities was $172.9 million, down from $217.9 million the previous year, mainly due to higher cash requirements for working capital, partially offset by increased net income adjusted for non-cash items. Free cash flow was $49.2 million, compared to $67.6 million last year, driven by the decrease in cash from operations, partially offset by lower capital expenditures.
Net sales are projected to rise by 8.5% to 9.5% compared to the prior year. Comparable net sales are expected to increase by approximately 0.5% to 1.5%, excluding noncomparable sales from the Hostess Brands acquisition and the prior year’s divestitures. This guidance also anticipates a $100 million decline in contract manufacturing sales related to the divested pet food brands. The updated outlook reflects ongoing consumer dynamics, including inflationary pressures, reduced discretionary income affecting dog snacks and sweet baked goods, and the anticipated impact of price elasticity within the coffee portfolio due to higher-than-expected green coffee costs. However, increased expectations for Uncrustables® sandwiches are expected to offset some of these challenges.
Adjusted earnings per share are projected to range from $9.60 to $10.00, based on 106.6 million weighted-average common shares outstanding. This guidance takes into account revised net sales expectations, an adjusted gross profit margin of approximately 37.5% (reflecting higher green coffee costs), and lower-than-expected selling, distribution, and administrative expenses, which are expected to rise by about 9% compared to the prior year. Interest expense is forecasted to be $400 million, and the adjusted effective income tax rate is anticipated to be 24.3%. Free cash flow is expected to be around $875 million, with capital expenditures totaling $450 million.
