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The J. M. Smucker Company F4Q10 (Qtr End 04/30/10) Earnings Call Transcript

The J. M. Smucker Company F4Q10 (Qtr End 04/30/10) Earnings Call Transcript

The J. M. Smucker Company (SJM)

F4Q10 (Qtr End 04/30/10) Earnings Call Transcript

June 17, 2010 8:30 am ET


Mark Belgya – SVP and CFO

Tim Smucker – Chairman and Co-CEO

Richard Smucker – Executive Chairman and Co-CEO

Vincent Byrd – President, U.S. Retail - Coffee

Steven Oakland – President, U.S. Retail - Smucker's Jif and Hungry Jack

Paul Smucker Wagstaff – President, U.S. Retail - Oils and Baking

Mark Smucker – President - Special Markets


Eric Katzman – Deutsche Bank

Farha Aslam – Stephens Inc.

Ken Goldman – JP Morgan

Edward Aaron – RBC Capital Markets

Alexia Howard – Sanford Bernstein

Judy Hong – Goldman Sachs

Mitchell Pinheiro – Janney Montgomery Scott

Jane Gelfand – Barclays Capital

Mike Otway – Jefferies

Chuck Cerankosky – Northcoast Research

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Scott Mushkin – Jefferies



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Good morning and welcome to the J.M. Smucker Company's fourth quarter 2010 earnings conference call. (Operator instructions) I will now turn the conference over to the Chief Financial Officer, Mr. Mark Belgya. Please go ahead sir.

Mark Belgya

Good morning everyone, and welcome to our fourth quarter earnings conference call. Thank you for joining us. On the call from the company are Tim Smucker, Chairman of the Board and co-CEO; Richard Smucker, Executive Chairman and co-CEO; Vince Byrd, President of our Coffee business; Steve Oakland, President of Smucker's, Jif and Hungry Jack; Mark Smucker, President of Special Markets; and Paul Wagstaff, President of Oils and Baking. After this brief introduction, I will turn the call over to Tim for an overview of the year. I will then review the financial results for the quarter, and Richard will provide our outlook for fiscal 2011 and closing remarks. At the conclusion of these comments, we will be available to answer your questions.

If you have not seen our press release, it is available on our website at A replay of this call is available on the website. If you have any follow-up questions or comments after today's call, please feel free to contact me or Sonal Robinson, whose is recently promoted to Vice President of Investor Relations.

I would like to remind that in both the prepared comments and during the question-and-answer period that follows, we may make forward looking statements that reflect the company's current expectations about future plans and performance. These forward looking statements rely on a number of assumptions and estimates and actual results may differ materially due to risks and uncertainties. I invite you to read the full disclosure statements in the press release concerning such forward looking statements. I also want to point out that the company uses non-GAAP results for the purpose of evaluating performance internally. Additional discussion on non-GAAP information is also detailed in our press release and on our website.

I will now turn the call over to Tim.

Tim Smucker

Thank you Mark, and good morning everyone and thank you for joining us. Before we get into the results of our fourth quarter, I would like to share some of the highlights for this past year, as well as provide an overview of activities around our major brands.

First, we concluded the most successful year in the history of our company achieving a number of financial performance records. Sales reached $4.6 billion, increasing 23% over the prior year, while non-GAAP earnings per share of $4.37 were up 16%. As a reminder, the Folgers merger closed November 6, 2008, and as a result the first two quarters of its operations were incremental to fiscal 2010.

Operating income continued to expand significantly led by the incremental coffee sales and higher probability of the coffee business. In addition, our three other segments realized margin gains, and our overall operating margin reached 18% excluding charges. We generated over $700 million in cash from operations, providing opportunities to create additional shareholder value through acquisitions, dividends, share purchases and capital investments.

Second, we celebrated the one-year anniversary of the addition of Folgers. We achieved all key milestones, delivered the targeted synergies, and introduced new products. The business has exceeded our initial projections. Third, we invested in an unprecedented level of television, print, and digital advertising with spending increasing from $77 million to $130 million in 2010.

This served to strengthen core brand equities across our entire portfolio of brands, and positions us well for the future. Finally, we announced the largest restructuring and capital investments in our history. We plan to streamline our coffee and fruit spreads operations in order to enhance the long-term strength and profitability of the businesses. Our successful performance relies on employees that are focused on a shared purpose, and implementing a clear strategy, honing and marketing North American food brands, which holds the number own market position in their respective categories.

This strategy serves us well with our consumers, customers and our shareholders. Now let me provide some commentary on each of our four business segments. Our results from Folgers and Dunkin' Donuts coffee have exceeded our original forecast at the time of the merger. Consistent with our strategic rationale, Folgers has created scale as we have increased our presence with customers and capitalized on multibrand marketing and merchandising opportunities.

During the year, we invested heavily in the coffee brands with both advertising and new products. We created 11 new commercials this year, including two supporting Dunkin' Donuts coffee. Four of these commercials aired in fiscal 2010 with the remainder to be aired in fiscal 2011. To help celebrate the 25th anniversary of the Folgers The Best Part of Wakin' Up' jingle, we recently held a contest where we asked consumers across America to create their own version for a grand prize of $25,000, and a chance to be in a future Folgers commercial.

The winner was announced at a live event earlier this month, and the contest has been the most successful in our company's history having achieved 225 million in impressions [ph] to date. Dunkin' Donuts coffee was successfully launched in the fourth quarter, and has already reached a four-week ACV of 40%. We will be introducing a variety of Dunkin' Donuts seasonal items during the upcoming year, which embody coffee flavors for the fall and spring seasons. In line with our priority to revitalize the Folgers core roast and ground business, we increased support of our Black Silk offering, and relaunched Special Roast. Lastly, our coffee brands are entering the fastest-growing segment in the Adams [ph] category.

Our K-Cup offering is being met with great customer acceptance and will be in stores by early fall. To further strengthen the coffee business, over the next few years as part of our restructuring, we will be investing $70 million to streamline the coffee supply chain.

Turning to the Consumer segment, volume, sales and profitability all improved for the year with gains across most businesses. We continued to support the brands with marketing up 8%. In fruit spreads category, we invested in new advertising with a classic voice campaign. We continue to offer consumers a wide variety of choices, and expanded our Smucker's Orchard's Finest premium fruit spreads this year.

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