The latest earnings report from jam specialist J.M. Smucker (NYSE:SJM) heralds "Record First Quarter Results." Read carefully, though. When it comes to reporting bad news, the company spreads on a thick sugar coating.
Consider sales. They jumped 22% because of the acquisition of International Multifoods. "Excluding the contribution of the Multifoods' brands, higher sales of branded products were offset by declines in non-branded industrial sales." Without the sugar coating, comparable sales were actually down $1.6 million.
How about margins? "Improved margins on the Company's existing business and the addition of Multifoods were the primary causes for the earnings increase." Sounds great, doesn't it? Then there is this: "... operating margin decreased from 12.1 percent in the first quarter of 2004 to 11.6 percent in the first quarter of 2005." (Emphasis mine.)
So, without the sugar coating, Smucker was making less per dollar, but higher revenues created record income.
Recently, Smucker was boasting about its Jif and Crisco sales -- products it acquired from Procter & Gamble (NYSE:PG). It seemed to enjoy the same success Del Monte Foods (NYSE:DLM) realized when it took over products from H.J. Heinz (NYSE:HNZ).
For example, Jif peanut butter was repriced to take market share away from Unilever's (NYSE:UL) Skippy and ConAgra's (NYSE:CAG) Peter Pan. This quarter, it is said that Jif had "growth," but Crisco sales were down 6%.
Why be concerned about semantics? A year ago, Smucker's net cash (cash minus debt) was $10 million. Now, Smucker's net debt (debt minus cash) is $549 million. Record sales and income were the result of the acquisition of International Multifoods. Instead of the sugar coating, a sober look at why core sales failed to increase would have made for a better understanding of how the company expects to prosper in its indebted future.
For more Foolish takes about Smucker, read:
Fool contributor W.D. Crotty does not own stock in any of the companies mentioned.
