the j. m. smucker company -...
TRANSCRIPT
Investor PresentationApril 2008
Investor PresentationApril 2008
The J. M. Smucker CompanyThe J. M. Smucker Company
Forward Looking StatementDuring the course of our presentation today, we will make statements that may constitute projections, expectations, beliefs or similar forward-looking statements. We would like to caution you that the Company’s actual results could differ materially from the results anticipated or projected in these forward-looking statements. Additional detailed information concerning important factors that could cause the Company’s actual future results to differ materially from the information we will give you today is included in our public filings, including our most recent annual report on Form 10-K and quarterly report on Form 10-Q, which are available on the SEC’s EDGAR database or on our website. The Company does not undertake to update any of these forward-looking statements in light of new information or future events.
Agenda
• Our Company
• Our Business and Brands
• Our Strategy
• Financial Update
1897• Over 110 years old
• Headquartered in Orrville, Ohio
• Leading North American brands
• Five generations of family management
• Commitment to integrity, trust, and quality
Who is The J. M. Smucker Company?
Basic Beliefs
Quality
People
Ethics
Growth
Independence
Core Competencies
Relationships Emotional Bond
Ability to Implement
Sustainability
Corporate Responsibility
Advertising Standards
Community Involvement
Education Initiatives
Our Business
x% of Total Sales
X% Margin
25% of Total Sales21% of Segment
ProfitU.S. Retail Market
• Consumer • Consumer Oils
& Baking
Special Markets
• Canada• Foodservice• Beverage• International
75% of Total Sales79% of Segment
Profit
Smucker Business Segments
ConsumerConsumerConsumer
Consumer Oils / BakingConsumer Consumer Oils / BakingOils / Baking
InternationalInternationalInternational
CanadaCanadaCanada
FoodserviceFoodserviceFoodservice
BeverageBeverageBeverage
Business AreaSegment
Special Special MarketsMarkets
Brands
U.S. U.S. RetailRetailMarketMarket
R.I.
Nevada
California
Arizona
Utah
Oregon
Idaho
Montana
Wyoming
North Dakota
Minnesota
South Dakota
Nebraska
Colorado Kansas
Oklahoma
Louisiana
Arkansas
Missouri
New Mexico
Iowa
Wisconsin
Michigan
OhioIllinois Indiana
Miss. Alabama Georgia
Florida
TennesseeS. Carolina
W. VaVirginia
N. Carolina
MD
Del.
NJ
Maine
NH
VT
Conn
Mass.New York
Pennsylvania
Texas
J.M. Smucker Co.Orrville, OH
Fruit Spreads & Ice Cream Toppings
A. F. Murch Co.Grandview, WAFruit Processing
Smucker Quality BeveragesChico, CABeverages
J.M. Smucker Co.Oxnard, CA
Fruit Processing
Smucker Quality Beverages
Havre de Grace, MDBeverages
J.M. Smucker Co.Memphis, TN
Fruit Spreads & Ice Cream Toppings
JMS Specialty FoodsRipon, WI
Fruit Spreads, Condiments & Ice Cream Toppings
J.M. Smucker (Pennsylvania), Inc.New Bethlehem, PA
Peanut Butter
J.M. Smucker Co..West Fargo, ND
Frozen PB&J Sandwiches
J.M. Smucker Co.Cincinnati, OH
Oils, Shortenings, and Sprays
J.M. Smucker Co.Lexington, KYPeanut Butter
J.M. Smucker Co. Toledo, OH
Baking Mix and Frosting
J.M. Smucker Co.Scottsville, KY
Frozen PB&J Sandwiches
J.M. Smucker Co.El Paso, TX
Sweetened Condensed and Evaporated Milk
The Milnot Co.Seneca, MO
Sweetened Condensed and Evaporated Milk
Washington
Kentucky
Locations and Distribution Network United States
ALLENTOWNDSC Logistics
MIRA LOMADSC Logistics
MEMPHISDSC Logistics
ATLANTADSC Logistics
CINCINNATIExel Logistics
Five Mixing Centers – One order, one invoice across all brands
Quebec
Ontario
Manitoba
Saskatchewan
Alberta
British Columbia
J.M. Smucker Co.Dunnville, Ontario
Condiments & Pickles
J.M. Smucker Co.Ste.-Marie de Beauce, Quebec
Fruit Spreads & Ice Cream ToppingsJ.M. Smucker Co.Markham, Ontario
Canadian Headquarters
J.M. Smucker Co.Dehli Township, Ontario
Tank Farm for Pickles
J.M. Smucker Co.Sherbrooke, Quebec
Carnation Canned and Powdered Milk
Locations and Distribution Network Canada
CalgaryExcel Logistics
HamiltonAtlas Cold Storage Brampton
Thomson Terminals
Go To Market Strategy
• Direct sales force with key accounts
• National broker for remaining accounts
• Trade fund management process
• Category development leadership
Own leading food brands
Sold in the center of the store
Emphasis on North America
Strategy
Strategic Growth Objective
Total 8%
Over our five-year strategic time frame, we expect sales growth to average 8%.
We expect to grow our bottom line at this rate or slightly greater.
Acquisitions4%
New Products1%
Core Business Growth
3%
Core Growth
Strategy Implementation
Growing Our Brands
New Products
Acquisitions
Advertising Campaigns
Advertising expense has increased 240% since FY 2002.
Cross Promotions
Themed Events
Power of Family Meals
Sponsorships
Category Leadership
Core Growth
Strategy Implementation
Growing Our Brands
New Products
Acquisitions
Good & Good For
“You”
Emotional Fulfillment
Adding TasteAdding Health
Fun
Strategic Architecture
Makes “You” Smile
Easy For “You”
Ease of UseEase of Purchase
Strategic Architecture
Makes “You” SmileMakes “You” Smile
Strategic Architecture
Good & Good For “You”Good & Good For “You”
Easy For “You”Easy For “You”
Strategic Architecture
Expanding Brands into New Categories
Core Growth
Strategy Implementation
Growing Our Brands
New Products
Acquisitions
Acquisitions
FY 2003FY 2003
FY 2005FY 2005
FY 2007FY 2007FY 2008FY 2008
KING KELLY
15.0%
17.0%
19.0%
21.0%
23.0%
25.0%
FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 (9 months)
SD&A as % of Net Sales
24.6%
21.6% 21.7%
20.0% 20.3% 20.6%
19.2%
2005 Henry Jones Foods (Australia)
2005 Smucker Brazil (Fruit Ingredients)
2005 U.S. Industrial Business (Fruit Ingredients)
2005 Multifoods Foodservice Business
2007 Canadian Non-branded Grain Business
2008 Smucker Scotland (Fruit Fillings)
DivestituresFiscal Year
Supply Chain Initiatives
Plant Closings and Consolidations
2004 Ripon, WI Facilities Combined and Expanded
2004 Woodburn & Watsonville (Fruit Processing)
2006 Salinas (Plant Consolidation)
Other Initiatives2005 Exit Contract Packaging in Europe and U.K.
2006 Distribution Network Realignment
Fiscal Year
Portfolio Transformation
Serving categories totaling over $8 billion
Broader Portfolio Reaching a Broader Market
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
FY2002 FY2003 FY2004 FY2005 FY2006 FY2007
Core Acquisitions
Net Sales
$650MM
$1.3B
$2.0B $2.1B
5-Year Total Business CAGR = 27%
5-Year Base Business CAGR = 7%
Sales Growth
$1.4B
$2.1B
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
FY2002 FY2003 FY2004 FY2005 FY2006 FY2007
Earnings Per Share (Non-GAAP)
$1.38
$2.14
$2.60$2.89
Earnings Growth
$2.42$2.77
5-Year CAGR = 16%
Smucker Market Share Leadership – U.S.
10.3%
14.9%
20.0%21.3%18.8%
41.9%45.3%46.2%47.5%
50.6%
65.9%
75.7%
5.3%
0%
10%
20%
30%
40%
50%
60%
70%
80%
% Dollar Share of Category
#2#2 #3#3 #3#3 #3#3#4#4
#4#4
#1#1 #1#1 #1#1 #1#1 #1#1 #1#1#1#1
Shorten. Ice Cream Swtnd. Nat. PB Nat. Fruit Peanut Edible Flour Baking Potatoes Pancake SyrupToppings Cond. Milk Butter Beverages Spreads Butter Oils Mixes Mixes
$183MM $147MM $136MM $119MM $358MM $873MM $1.1B $1.2B $480MM $1.5B $394MM $342MM $570MM
4.1%7.8%8.3%
35.0%
49.5%51.8%52.3%
55.6%59.4%
62.7%
0%
10%
20%
30%
40%
50%
60%
70%
% DollarShare of Category
#1#1 #1#1 #1#1 #1#1
#3#3 #4#4#4#4
Flour Toppings Evap. Milk Swtnd. Cond. Shorten. Condiments Fruit Oils Hot Cereal PeanutMilk Spreads Butter
$106MM $12MM $62MM $21M $29MM $168MM $154MM $127MM $103MM $165MM
#1#1#1#1
#1#1
Smucker Market Share Leadership – Canada
Financial Overview
2008 Financial Results($ in millions, except per share data)
Third Quarter Ended 1/31/08
Nine Months Ended 1/31/08
$% increase (decrease) $
% increase (decrease)
Net Sales $ 665 27% $ 1,935 17%Net Sales (excluding divestitures) $ 665 27% $ 1,935 23%
Operating Income $ 69 7% $ 221 18%Margin % 10.4% 11.4%
Net Income $ 42 5% $ 133 16%E.P.S. $0.75 6% $ 2.33 16%
E.P.S. (non-GAAP) $0.79 10% $ 2.42 13%
Cash Flow from Operations $ 138 32% $ 178 (16%)
2008 3Q Financial Highlights
• Smucker, Jif, Crisco and Pillsbury brands led sales growth
• Acquired Eagle and Carnation brands contributed one-half of top-line growth
• Record level cost for soybean oil and wheat
• Pricing to offset higher raw material costs has not maintained profit margins
• Reduced selling, distribution and administrative expenses from 20.8% to 18.5%
U. S. Retail Market Segment FY 2008 3Q Results
• Sales growth of 28%
• Eagle contributed $57 million
• Consumer up 13%
• Oils and Baking up 46% (13% excluding Eagle)
Special Markets Segment FY 2008 3Q Results
• Sales growth of 26%
• Canada up 49%
• Foodservice up 20% (8% excluding Eagle)
• Improved segment margin
• FY 2008 3Q = 15.4%
• FY 2007 3Q = 13.3%
Margin Challenges
• Commodity cost increases
• Pricing actions lag cost increases
• Categories and brands differ in ability to price
• Customers and consumers response to price increases
• Ability to improve profit margins in short term
43
Commodity Price Changes
Commodity June 2002 March 31, 2008 % Change
Crude Oil $ 27.00 Barrel $ 102.00 Barrel 280 %
Wheat $ 3.00 Bushel $ 9.30 Bushel 210 %
Soybean Oil $ 0.18 lb. $ 0.52 lb. 190 %
Natural Gas $ 3.25 mm Btu $ 10.10 mm Btu 210 %
Corn $ 2.25 Bushel $ 5.67 Bushel 150 %
Sugar $ 0.06 lb. $ .12 lb. 100 %
Milk Class III $ 10.50 CWT $ 18.00 CWT 71 %
Margin Opportunities
• Leveraging brands
• Bolt-on acquisitions
• New product expansion
• Supply chain initiatives
– Smucker Quality Management System (SQMS)
– Strategic sourcing
– Realignment of manufacturing network
$0
$50
$100
$150
$200
$250
$300
FY2002 FY2003 FY2004 FY2005 FY2006 FY2007
Cash Flow From Operations
$273MM
$199MM
$150MM$137MM
$168MM
$70MM
* $178MM for nine months ended January 31, 2008
Share Repurchase $86 MM
CapEx$54 MM
Acquisitions$167 MM
Dividends$51 MM CashCash
Uses of Cash Nine Months Ended January 31, 2008
Dividends and Share Repurchase
($ in Millions)
$0$20$40$60$80
$100$120$140$160
FY04 FY05 FY06 FY07 FY089ME
Dividends Share Buyback
Note: The Company has increased dividends paid in 27 outof the past 30 years. Average increase was 10.7%.
Summary of Capital Structure
6.77% Senior Notes due 6/09 $ 75,0007.94% Series C Senior Notes due 9/10 10,0004.78% Senior Notes due 6/14 100,0006.60% Senior Notes due 11/09 200,000
5.55% Senior Notes due 4/22 400,000
Total Debt $ 785,000
Equity @ 1/31/08 1,850,600
Total Capitalization $ 2,635,600
Debt to Capitalization 30%Debt to EBITDA 2.15X
$0
$20
$40
$60
$80
$100
$120
FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 (E)0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
CapEx % of Net Sales
Capital Expenditures ($ in millions)
$23MM
$48MM
$98MM
$88MM
$64MM$57MM
$70MM
Depreciation $24MM $35MM $36MM $53MM $62MM $57MM $65MM (E)
Why Invest in The J. M. Smucker Company?
• Clear vision
• Strong portfolio of brands
• Long-term growth opportunities
• Strong balance sheet and cash flow
• Continuity of management