J. M. Smucker(SJM) - 2024 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section details the company's financial statements, management's discussion, market risk, and internal controls Financial Statements The financial statements for Q1 2024 show decreased net sales but increased net income, with improved operating cash flow Condensed Statements of Consolidated Income Net sales decreased to $1.81 billion from $1.87 billion, yet gross profit, operating income, and net income significantly increased for the three months ended July 31, 2023 Three Months Ended July 31, (in millions, except per share data) | Financial Metric | 2023 | 2022 | | :--- | :--- | :--- | | Net sales | $1,805.2 | $1,873.0 | | Gross Profit | $654.8 | $552.5 | | Operating Income | $303.5 | $179.7 | | Net Income | $183.6 | $109.8 | | Net Income – Assuming Dilution (EPS) | $1.79 | $1.03 | Condensed Consolidated Balance Sheets Total assets slightly decreased to $14.71 billion, with a significant decline in cash, while liabilities remained stable as of July 31, 2023 Balance Sheet Highlights (in millions) | Account | July 31, 2023 | April 30, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $241.1 | $655.8 | | Total Current Assets | $2,496.8 | $2,858.7 | | Total Assets | $14,711.8 | $14,991.4 | | Long-term debt | $4,315.1 | $4,314.2 | | Total Liabilities | $7,708.4 | $7,700.6 | | Total Shareholders' Equity | $7,003.4 | $7,290.8 | Condensed Statements of Consolidated Cash Flows Net cash from operating activities significantly improved to $217.9 million, while investing and financing activities used substantial cash Cash Flow Summary - Three Months Ended July 31, (in millions) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net Cash Provided by (Used for) Operating Activities | $217.9 | $(39.0) | | Net Cash Provided by (Used for) Investing Activities | $(151.9) | $(71.5) | | Net Cash Provided by (Used for) Financing Activities | $(481.3) | $91.9 | | Net increase (decrease) in cash | $(414.7) | $(18.3) | Notes to Financial Statements Notes detail the $1.2 billion pet food brand divestiture, strong U.S. Retail Consumer Foods growth, and share repurchases - On April 28, 2023, the company sold certain pet food brands (including Rachael Ray Nutrish, 9Lives, Kibbles 'n Bits) to Post Holdings, Inc. for net proceeds of $1.2 billion, consisting of cash and Post common stock[28] - The company is a defendant in class action lawsuits alleging misrepresentation of the number of servings in Folgers coffee canisters; the outcome is not yet predictable, and no loss contingency has been recorded[99][100] - In May 2022, the company initiated a voluntary recall of select Jif peanut butter products due to potential salmonella contamination, incurring total direct costs of approximately $120.0 million, net of insurance recoveries[101] - During the quarter, the company repurchased approximately 2.4 million common shares for $362.8 million under a 10b5-1 plan; approximately 1.1 million shares remain available for repurchase under the current authorization[104] Management's Discussion and Analysis (MD&A) MD&A highlights a 4% net sales decrease due to divestitures, masking 21% underlying growth, driven by Jif recovery and Uncrustables expansion Q1 2024 vs Q1 2023 Performance Summary | Metric | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $1,805.2M | $1,873.0M | (4)% | | Gross Profit | $654.8M | $552.5M | 19% | | Operating Income | $303.5M | $179.7M | 69% | | Net Income | $183.6M | $109.8M | 67% | | Diluted EPS | $1.79 | $1.03 | 74% | - Excluding the $374.1 million impact from the pet food brand divestiture, net sales increased by $310.1 million, or 21%, driven by 13 percentage points from favorable volume/mix and 8 percentage points from higher net pricing[118] - The U.S. Retail Consumer Foods segment saw a 49% increase in net sales, primarily due to the recovery of Jif peanut butter sales after the prior year's product recall and growth in Smucker's Uncrustables[129][131] - The company is investing $1.1 billion to build a new manufacturing facility and distribution center in McCalla, Alabama, for Smucker's Uncrustables, with production expected to begin in calendar year 2025[154] Market Risk Disclosures The company manages market risks from interest rates, commodity prices, and foreign currency fluctuations using derivatives - A hypothetical 100 basis-point decrease in interest rates at July 31, 2023, would increase the fair value of the company's long-term debt by $292.0 million[170] - The company uses commodity derivatives to manage price volatility for key raw materials such as green coffee, corn, soybean meal, edible oils, and wheat; these derivatives are not qualified for hedge accounting[171] - Foreign currency exchange risk is primarily related to Canadian operations; the company uses derivatives to manage fluctuations affecting purchases of raw materials and finished goods[174][175] Controls and Procedures The CEO and CFO concluded that disclosure controls were effective, with no material changes to internal control over financial reporting - Management, including the CEO and CFO, concluded that as of July 31, 2023, the company's disclosure controls and procedures were effective[183] - No changes occurred in the company's internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[184] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, share repurchases, and other relevant information Legal Proceedings Legal proceedings, including the Folgers coffee lawsuit and Jif product recall, are incorporated by reference from Note 14 - Information regarding legal proceedings is incorporated by reference from Note 14: Contingencies in Part I, Item 1 of this report[187] Risk Factors No material changes to the risk factors previously disclosed in the Annual Report on Form 10-K have occurred - The risk factors described in the Annual Report on Form 10-K for the year ended April 30, 2023, remain relevant and should be considered[188] Share Repurchases During Q1 2024, the company repurchased 2.41 million common shares, with 1.1 million shares remaining available under authorization Share Repurchases for Q1 2024 | Period | Total Shares Purchased | Average Price Paid Per Share | Shares Purchased as Part of Program | | :--- | :--- | :--- | :--- | | May 2023 | 2,353,066 | $154.37 | 2,350,000 | | June 2023 | 57,779 | $151.81 | — | | July 2023 | 18 | $148.16 | — | | Total | 2,410,863 | $154.31 | 2,350,000 | - As of July 31, 2023, there were approximately 1.1 million common shares remaining available for repurchase under the company's authorized plans[190] Other Information No director or Section 16 officer adopted or terminated any Rule 10b5-1 trading arrangements during Q1 2024 - No director or Section 16 officer adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the first quarter of 2024[191] Exhibits This section provides an index of exhibits filed with the Form 10-Q, including CEO/CFO certifications and XBRL data files - The report includes an index of exhibits, such as certifications by the CEO and CFO, and XBRL data files[192][198]