J.M. Smucker Misses Its Fourth-Quarter Profit Targets

The selling environment has been tough in recent years for most packaged foods companies, and J.M. Smucker's (SJM 2.35%) latest operating results showed it isn't immune to the wider challenges its segment faces. On Thursday, the owner of Jif, Crisco, and other popular consumer brands posted flat sales to end its fiscal 2018, with profits coming in below management's targets.

Executives issued a conservative outlook for fiscal 2019, which began May 1, that suggests its struggles will continue for at least another year. More on that forecast in a moment, but first here's how the fourth quarter 2018 results stacked up against the prior-year period:

Data source: J.M. Smucker's financial filings. 

What happened this quarter?

Sales were flat for the quarter and for the year, which lined up with the forecast that management last provided back in February. J.M. Smucker came up well short of its profit goals, though.

Image source: Getty Images.

Among the key results from the quarter:

• Sales held steady after rising by 1% in the prior quarter. Sales in each of the company's core segments -- coffee, consumer foods, pet foods, and international sales -- were essentially flat as price increases barely offset lower selling volumes.
• Gross profit margin was flat on an adjusted basis.
• Operating income spiked, but that was mainly thanks to a large impairment charge in the prior-year period. After adjusting for that charge, operating profit increased 3% due to cost cuts.
• Operating cash flow improved to $314 million from $264 million.
• J.M. Smucker made several changes to its portfolio, including announcing the divestiture of its baking business and the $1.9 billion acquisition of the Ainsworth Pet Nutrition franchise.
• Charges related to this buyout, plus weak industry trends, combined to produce adjusted earnings for the year of $7.96 per share, trailing management's target range of $8.20 to $8.30 per share.

What management had to say

Executives said that several temporary issues contributed to the profit shortfall. "While fourth quarter adjusted earnings per share was below our projections due to industrywide headwinds and certain discrete items," CEO Mark Smucker said in a press release, "the actions we are taking to align our portfolio for growth set up our business to win."

Management highlighted a few of these actions, including the launch of a new premium coffee brand and a fresh lineup of Jif-branded snacks. J.M. Smucker strengthened its pet food offerings with the Ainsworth acquisition, too. " As we continue to transform our company, we are confident in our ability to deliver against our strategic objectives and enhance long-term shareholder value," Smucker said.

Looking forward

Nearly all of the company's expected 13% sales gain in fiscal 2019 will come from that added Ainsworth pet business, executives projected. This segment should help keep profits ticking higher despite the fact that rising commodity costs and weak pricing trends are holding back the coffee and consumer foods segments.

Overall, Smucker and his team forecast that adjusted earnings per share will rise to between $8.40 and $8.65, for an improvement in the range of 5.5% to 8.7% over fiscal 2018. But while it's good to see profits rising, the weak results in the core packaged foods categories suggest J.M. Smucker's business is still far from achieving the turnaround that investors have awaited for more than two years.