J. M. Smucker(US:SJM)2023-06-20 12:49Part I Business The J. M. Smucker Company manufactures and markets branded food and beverage products across three main segments, with a recent pet food divestiture and significant customer concentration - The company operates through three primary reportable segments which comprise 87% of its 2023 consolidated net sales, focusing on branded food and beverage products in North America11 - On April 28, 2023, the company completed a significant divestiture, selling several pet food brands including Rachael Ray Nutrish, 9Lives, and Kibbles 'n Bits to Post Holdings, Inc. These brands generated $1.5 billion in net sales in fiscal 202312 Major Trademarks by Primary Reportable Segment | Primary Reportable Segment | Major Trademark | | :------------------------- | :----------------------------------------------------- | | U.S. Retail Pet Foods | Meow Mix®, Milk-Bone®, Pup-Peroni®, and Canine Carry Outs® | | U.S. Retail Coffee | Folgers®, Dunkin'®, and Café Bustelo® | | U.S. Retail Consumer Foods | Uncrustables®, Jif®, and Smucker's® | - A significant portion of revenue comes from a single customer, Walmart Inc., which accounted for 34% of net sales in both 2023 and 202221 - The company has set specific Inclusion, Diversity, and Equity (ID&E) goals, aspiring to double the representation of People of Color and increase women in senior-level roles to 45% within its U.S. salaried employee community by 202738 Risk Factors The company faces diverse risks including macroeconomic pressures, supply chain vulnerabilities, brand reputation issues, significant debt, potential asset impairment, customer concentration, and evolving regulations - The company is exposed to risks from single-source suppliers, such as Keurig for K-Cup® pods and JDE Peet's for liquid coffee, and single manufacturing sites for products like coffee and Milk-Bone® dog snacks5960 - In May 2022, a voluntary recall of select Jif® peanut butter products due to potential salmonella contamination led to significant direct costs of approximately $120.0 million and an FDA Warning Letter in January 2023, posing ongoing legal and regulatory risks7374 - The company has a high customer concentration risk, with sales to Walmart Inc. accounting for 34% of net sales in 2023. Trade receivables from Walmart were $211.5 million, or 35% of the total, as of April 30, 202375 - As of April 30, 2023, goodwill and other intangible assets totaled $9.6 billion. The U.S. Retail Pet Foods segment's goodwill is noted as being susceptible to future impairment charges due to narrow differences between its fair value and carrying value9799 - The company faces risks related to climate change, including potential impacts on the availability and pricing of key agricultural commodities like green coffee and increased costs from environmental regulations113114 Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None124 Properties The company owns most manufacturing facilities in the U.S. and Canada, with a new Uncrustables facility under construction, and leases most distribution centers Key Manufacturing Facilities and Products | Locations | Products Produced/Processed/Stored | Primary Reportable Segment | | :---------------------------- | :--------------------------------------------------------------- | :---------------------------- | | Buffalo, New York | Dog snacks | U.S. Retail Pet Foods | | Decatur, Alabama | Dry dog and cat food | U.S. Retail Pet Foods | | Lexington, Kentucky | Peanut butter | U.S. Retail Consumer Foods | | Longmont, Colorado | Frozen sandwiches | U.S. Retail Consumer Foods | | New Orleans, Louisiana (four) | Coffee | U.S. Retail Coffee | | Scottsville, Kentucky | Frozen sandwiches | U.S. Retail Consumer Foods | - A new manufacturing facility is being built in McCalla, Alabama, to meet growing demand for Smucker's Uncrustables® frozen sandwiches, with production expected to start in calendar year 2025129 Legal Proceedings The company is involved in various legal proceedings, including class action lawsuits regarding Folgers coffee and potential litigation from the Jif peanut butter recall - The company is a defendant in putative class action lawsuits alleging misrepresentation of serving sizes on Folgers® coffee packaging189481 - The company faces ongoing consumer litigation and potential regulatory action associated with the voluntary recall of Jif® peanut butter products. The financial impact cannot be predicted, and no loss contingency has been recorded as of April 30, 2023193484 Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable131 Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common shares trade on the NYSE, with significant share repurchases in Q4 2023 and remaining authorization, and performance tracked against key indices Issuer Purchases of Equity Securities (Q4 2023) | Period | Total number of shares purchased | Average price paid per share ($) | Shares purchased as part of publicly announced program | | :---------------------------- | :------------------------------- | :------------------------------- | :----------------------------------------------------- | | Feb 1, 2023 - Feb 28, 2023 | — | $ — | — | | Mar 1, 2023 - Mar 31, 2023 | 2,350,000 | $152.34 | 2,350,000 | | Apr 1, 2023 - Apr 30, 2023 | 10,177 | $152.60 | — | | Total | 2,360,177 | $152.34 | 2,350,000 | - As of April 30, 2023, approximately 3.5 million common shares remained available for repurchase under the Board's authorizations138 Comparison of 5-Year Cumulative Total Return | Index | 2018 ($) | 2019 ($) | 2020 ($) | 2021 ($) | 2022 ($) | 2023 ($) | | :-------------------------- | :------- | :------- | :------- | :------- | :------- | :------- | | The J. M. Smucker Company | $100.00 | $110.79 | $107.08 | $125.91 | $135.52 | $157.21 | | S&P Packaged Foods & Meats | $100.00 | $110.49 | $116.11 | $136.53 | $153.65 | $171.17 | | S&P 500 | $100.00 | $113.49 | $114.47 | $167.11 | $167.47 | $171.93 | Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal 2023 saw net sales growth driven by pricing, but operating income declined sharply due to a divestiture loss, while the company manages inflation, supply chain issues, and invests in growth Quantitative and Qualitative Disclosures About Market Risk The company manages market risks from interest rates, commodity prices, and foreign currency fluctuations using derivatives, with sensitivity analyses provided for potential impacts - A hypothetical 100 basis-point decrease in interest rates at April 30, 2023, would increase the fair value of the company's long-term debt by $307.7 million243 - The company uses commodity derivatives to manage price volatility for key raw materials. A sensitivity analysis shows a hypothetical 10% change in market prices could result in a potential loss of fair value ranging from $21.6 million to $53.9 million during 2023246247 - Foreign currency exchange risk is limited, as revenues from customers outside the U.S. represented only 5% of net sales in 2023250 Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements, including the Report of Management on Internal Control, auditor's reports, and detailed notes on various financial matters Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. The company reports no changes in or disagreements with its accountants regarding accounting principles or financial disclosure - None488 Controls and Procedures Management concluded the company's disclosure controls were effective as of April 30, 2023, with new controls implemented post-divestiture - Management concluded that as of the evaluation date (April 30, 2023), the company's disclosure controls and procedures were effective489 - New controls and procedures were executed during the fourth quarter as a result of the divestiture of certain pet food brands490 Other Information The company reports no other information for this item - None491 Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the August 16, 2023 Proxy Statement - Required information is incorporated by reference from the definitive Proxy Statement for the Annual Meeting of Shareholders on August 16, 2023494 Executive Compensation Information on executive compensation is incorporated by reference from the August 16, 2023 Proxy Statement - Required information is incorporated by reference from the definitive Proxy Statement for the Annual Meeting of Shareholders on August 16, 2023496 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership and equity compensation plans is incorporated by reference from the August 16, 2023 Proxy Statement - Required information is incorporated by reference from the definitive Proxy Statement for the Annual Meeting of Shareholders on August 16, 2023497 Certain Relationships and Related Transactions, and Director Independence Information on related party transactions and director independence is incorporated by reference from the August 16, 2023 Proxy Statement - Required information is incorporated by reference from the definitive Proxy Statement for the Annual Meeting of Shareholders on August 16, 2023498 Principal Accountant Fees and Services Information on principal accountant fees and Audit Committee pre-approval policies is incorporated by reference from the August 16, 2023 Proxy Statement - Required information is incorporated by reference from the definitive Proxy Statement for the Annual Meeting of Shareholders on August 16, 2023499 Part IV Exhibits and Financial Statement Schedules This section provides an index to financial statements and a comprehensive list of all exhibits filed with the Form 10-K - This section provides an index to the financial statements and a comprehensive list of all exhibits filed with the Annual Report on Form 10-K501