william blair growth stock conference june 24, 2004 william blair growth stock conference june 24,...

William Blair Growth Stock ConferenceJune 24, 2004


The J. M. Smucker CompanyThe J. M. Smucker Company

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Forward Looking InformationForward Looking Information

This presentation contains certain forward-This presentation contains certain forward-looking statements that are subject to risks looking statements that are subject to risks and uncertainties that could cause actual and uncertainties that could cause actual results to differ materially. These include results to differ materially. These include statements regarding estimates of future statements regarding estimates of future earnings and cash flows and ability to close earnings and cash flows and ability to close the transaction by the end of June 2004. the transaction by the end of June 2004. Other risks and uncertainties that may Other risks and uncertainties that may materially affect the Company are detailed materially affect the Company are detailed from time to time in reports filed by the from time to time in reports filed by the Company with the Securities and Exchange Company with the Securities and Exchange Commission, including Forms 10-Q, 10-K Commission, including Forms 10-Q, 10-K and 8-K.and 8-K.

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AgendaAgenda

• Strategy OverviewStrategy Overview

• Multifoods Acquisition Multifoods Acquisition

• State of the BusinessState of the Business

• 2005 Outlook 2005 Outlook

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July 2002July 2002

$670MM

$1.3B

Defining MomentsDefining Moments

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New Brands Added to the Smucker FamilyNew Brands Added to the Smucker Family

Multifoods Acquisition Multifoods Acquisition

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• Founded in 1897Founded in 1897

• Headquartered in Orrville, OhioHeadquartered in Orrville, Ohio

• Initial public offering in 1959 Initial public offering in 1959 (NYSE: SJM)(NYSE: SJM)

• Family run for four generationsFamily run for four generations

• Commitment to integrity, trust and Commitment to integrity, trust and qualityquality

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Our Basic BeliefsOur Basic Beliefs

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StrategyStrategy

• We will own and market #1 food brands, We will own and market #1 food brands, found in the center of the store, with key found in the center of the store, with key emphasis on North Americaemphasis on North America

• We will achieve balanced future growth We will achieve balanced future growth through:through:

• Increased market share of our core Increased market share of our core brandsbrands

• New products that provide convenience, New products that provide convenience, are “good and good for you,” and make are “good and good for you,” and make the consumer smilethe consumer smile

• Acquisitions of other leading food brandsAcquisitions of other leading food brands

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Growth StrategyGrowth Strategy

AcquisitionsAcquisitions4%4%

Total Total 8%8%

Sales GrowthSales Growth

New ProductsNew Products1%1%

Market ShareMarket Share3%3%

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Growth StrategyGrowth Strategy

Acquisition OpportunitiesAcquisition Opportunities

• Seek leading brand positions - retail & Seek leading brand positions - retail & table-top foodservicetable-top foodservice

• North American geographic emphasisNorth American geographic emphasis

• Leverage sales, marketing and Leverage sales, marketing and distribution infrastructuredistribution infrastructure

• Enabling acquisitions Enabling acquisitions

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March 2004March 2004

$670MM

$1.3B

$2.3B

Impact of Multifoods AcquisitionImpact of Multifoods Acquisition

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Brand Portfolio OverviewBrand Portfolio Overview

• 107 years old

• $320 million net sales

• Leading brand in the category

• 107 years old



• 46 years old



• 46 years old



• 93 years old



• 93 years old



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• 129 years old


• Baking mega-brand ($1.4 Billion in retail sales)

• 129 years old


• Baking mega-brand ($1.4 Billion in retail sales)

• 68 years old


• Strong multi-category brand

• 68 years old


• Strong multi-category brand

• 105 years old


• Strong southern heritage

• 105 years old


• Strong southern heritage

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• 60 years old

• #1 Canadian icon brand of pickles and condiments

• 60 years old

• #1 Canadian icon brand of pickles and condiments

• 95 years old

• Baking mega-brand

• 95 years old

• Baking mega-brand

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What are the similarities What are the similarities between the brands?between the brands?

• Icon Brands with strong traditionsIcon Brands with strong traditions

• Leadership positions with their Leadership positions with their respective categoriesrespective categories

• Strong net sales performanceStrong net sales performance

• Collectively, they represent a platform Collectively, they represent a platform for continued growthfor continued growth

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Transaction OverviewTransaction Overview

• Supports our vision:Supports our vision:

– North American focusNorth American focus

– Icon brands Icon brands

– Center of the storeCenter of the store

• Expected to be significantly accretive over a three-year Expected to be significantly accretive over a three-year periodperiod

• Supports sales & earnings growth objectivesSupports sales & earnings growth objectives

• Provides platform for future growthProvides platform for future growth

• Benefits all constituents: shareholders, customers, Benefits all constituents: shareholders, customers, consumers & employeesconsumers & employees

Multifoods AcquisitionMultifoods Acquisition

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Smucker Current Smucker “New” Smucker FY2002 Categories Categories

Market Opportunity ($ in Billions)Market Opportunity ($ in Billions)

Note: “New” categories represent a $6.5 billion opportunity.

$1.0$1.0

$3.0$3.0

$6.5$6.5


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Transaction DetailsTransaction Details

• Purchase price of approximately $840mmPurchase price of approximately $840mm

– $25 per share for Multifoods stock$25 per share for Multifoods stock

• 80% SJM stock80% SJM stock

• 20% cash20% cash

– Assumption of approximately $340mm in debtAssumption of approximately $340mm in debt

• Number of SJM shares to be issued, approximately 8 Number of SJM shares to be issued, approximately 8 million.million.

• Estimated synergies of $40-60mm, including synergies Estimated synergies of $40-60mm, including synergies the purchase price represents an EBITDA multiple of 6-the purchase price represents an EBITDA multiple of 6-7 times7 times

• Smucker assumes a $100mm NOL carryforwardSmucker assumes a $100mm NOL carryforward


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Multifoods Acquisition - SynergiesMultifoods Acquisition - Synergies

*Synergies*Synergies

$40 – 60mm expected over a 3-year period$40 – 60mm expected over a 3-year period

• Efficiencies in combining the two companiesEfficiencies in combining the two companies

• Supply chain opportunitiesSupply chain opportunities

• Leverage current selling, marketing & distribution networkLeverage current selling, marketing & distribution network

Smucker BrandsSmucker Brands IMCIMCUS FoodserviceUS Foodservice

IMCIMCCanadian FoodsCanadian Foods

IMCIMCUS ConsumerUS Consumer

Operations Sales & Marketing Supply Chain Corporate/Admin.

Synergies*

JMS Infrastructure

Allowing JMS to:

1) Reinvest in the new brands 3) Increase profile in the baking aisle2) Improve margins 4) Reduce debt

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Smucker BrandsSmucker Brands IMCIMCUS FoodserviceUS Foodservice

IMCIMCCanadian FoodsCanadian Foods

IMCIMCUS ConsumerUS Consumer

Operations Sales & Marketing Supply Chain Corporate/Admin.

Synergies*

JMS Infrastructure

Sales & Marketing Supply Chain Corporate/Admin.

10% 45% 45%

$40-60 mm

Multifoods Acquisition - SynergiesMultifoods Acquisition - Synergies

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Transaction Details - DebtTransaction Details - Debt

• Debt Balance (pro forma)Debt Balance (pro forma)

• Long-TermLong-Term

– $135mm existing Smucker debt$135mm existing Smucker debt

– $200mm Multifoods notes$200mm Multifoods notes

– $100mm new debt$100mm new debt

• Short-TermShort-Term

– $90mm new bank debt$90mm new bank debt

Total $525mm debt upon closeTotal $525mm debt upon close


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Noteworthy Changes to Smucker’s FinancialsNoteworthy Changes to Smucker’s Financials

DebtDebt

Long-term ($ in millions)Long-term ($ in millions)


Issue DatePrincipal Amount

Annual Interest

June 18, 1999 - 6.77% 75,000 5,078

August 23, 2000 (Traunche A) - 7.7% 17,000 1,309

August 23, 2000 (Traunche B) - 7.87% 33,000 2,597

August 23, 2000 (Traunche C) - 7.94% 10,000 794

May 27, 2004 - 4.78% 100,000 4,421

June 18, 2004 (assumed from IMC) - 6.602% 200,000 13,204

Total Long-term Debt 435,000 27,403

Short-term

$ 90-100 mm short-term revolver at approximately 1.50-2.00%

Total Debt: $525-535 mm

* Note: With interest rate swaps, effective rate on debt is approximately 5.25%

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• Attention to detailAttention to detail

• Sense of urgencySense of urgency

• Right people in the right seatsRight people in the right seats

• EmpowermentEmpowerment (being responsible for (being responsible for

everything around you)everything around you)

Keys to a Successful Acquisition Keys to a Successful Acquisition

Implementation and ExecutionImplementation and Execution

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100 Day Plan 100 Day Plan

Key Milestones from Day-OneKey Milestones from Day-One

• U.S. Order to Cash integration – 8/1U.S. Order to Cash integration – 8/1

• Canada to broker network – 8/16Canada to broker network – 8/16

• U.S. Accounts payable to Oracle – 9/1U.S. Accounts payable to Oracle – 9/1

• Distribution network analysis complete – 9/1Distribution network analysis complete – 9/1

• Canada office consolidation into one location – Canada office consolidation into one location – Target OctoberTarget October

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• Smooth transition Smooth transition with customerswith customers

• Timely integrationTimely integration

• Blending cultures - Blending cultures - (“People” basic (“People” basic belief)belief)

• Achieve synergiesAchieve synergies

• Invest in the brandsInvest in the brands

• Customer interfacing Customer interfacing plans developedplans developed

• Integration underwayIntegration underway

• Clear and consistent Clear and consistent communication; fair communication; fair approach to people approach to people aspectsaspects

• Synergies refined and Synergies refined and plan implementation in plan implementation in processprocess

• Marketing plans Marketing plans developeddeveloped

Plan(s) Action(s)

Keys to a Successful Acquisition Keys to a Successful Acquisition

Status

• In-ProcessIn-Process



• CompleteComplete


Category SalesCategory SalesShare of MarketShare of MarketCategoryCategory

$998$998

Peanut Peanut ButterButter

$727$727

Fruit SpreadsFruit Spreads

$1,919$1,919

BakingBaking

$1,043$1,043

OilsOils

$1,008$1,008

Starch Sides & Starch Sides & Dry Breakfast Dry Breakfast (Pancake Mix & (Pancake Mix &

Syrups)Syrups)

14.0%

43.9%

19.3%

41.6%

17.1%

21.0%

30.8%

18.0%

25.2%

10.3%

JMS Brands Leading Branded Manufacturer

State of the Business State of the Business Continued momentum in our base business.

Smucker43.9%

Private Label22.3%

Welch14.0%

Polaner5.1%

Other14.7%

Market Share

Smucker Natural

7.8%

Skippy19.3%

Other6.0%

Jif33.8%

Peter Pan14.7%

Private Label18.4%

Crisco21.0%

Private Label35.3%

Mazzola12.8%

Other13.8%

Wesson17.1%

• Dollar sales for the fruit spreads category were up 0.1%

• Smucker grew 5.2%

• Dollar sales for the peanut butter category were up 4.4%

• Jif grew 6.1%

• Dollar sales for the oils category were up 11.9%

• Crisco grew 10.7%

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2004 Financial Overview2004 Financial Overview

(1) Net income for the fiscal year 2004 excluded charges of $17.1 million or $0.21 per share related to the Company’s merger, integration and restructuring plan. Net income for the fiscal year 2003 excluded merger, integration and restructuring costs of $13.0 million or $0.17 per share.

Sales

Operating Income

Operating Margin

Income

E.P.S.

($ in Millions)

Year-End 2004

Percent Change

$1,417.0

178.7

12.6%

122.0

$2.42

$1,311.7

164.5

12.5%

104.4

$2.19

8.0%

8.6%

0.1%

16.9%

11%

Year-End2003

(1) (1)

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New ItemsNew Items

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Key InitiativesKey Initiatives

New plant in Scottsville, Kentucky opened May 2004New plant in Scottsville, Kentucky opened May 2004

• Achieved national distribution in retail by the end of August 2003Achieved national distribution in retail by the end of August 2003

• Continued rollout of grilled cheese in foodservice and retailContinued rollout of grilled cheese in foodservice and retail

• Capacity constraints will be alleviated by “back to school” periodCapacity constraints will be alleviated by “back to school” period

• 3-6 month processing in Fargo and Watsonville to ensure success3-6 month processing in Fargo and Watsonville to ensure success

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Key Initiatives - Restructuring ProjectKey Initiatives - Restructuring Project

• Incur $18 million Incur $18 million restructuring charge over 3-restructuring charge over 3-year periodyear period

• Close three production Close three production facilitiesfacilities

• Reduce number of SKU’s Reduce number of SKU’s by 1000by 1000

• Consolidate Consolidate UncrustablesUncrustables into Scottsville facilityinto Scottsville facility

• $12 million incurred in 2004, $12 million incurred in 2004, approximately $3.5mm in 2005approximately $3.5mm in 2005

• On target to close facilities in On target to close facilities in the next 3-6 monthsthe next 3-6 months

• Approximately 85% of SKUs Approximately 85% of SKUs eliminatedeliminated

• Facility opened in Scottsville in Facility opened in Scottsville in May 2004, with overlap of 3-6 May 2004, with overlap of 3-6 monthsmonths

PlanPlan StatusStatus

Restructuring plan benefit estimated to be $10mm per annumRestructuring plan benefit estimated to be $10mm per annum

BenefitBenefit

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Other Current IssuesOther Current Issues

• ObesityObesity – we support the GMA’s position, and we – we support the GMA’s position, and we continue to stay attuned to our consumers’ needscontinue to stay attuned to our consumers’ needs

• Trans-fatTrans-fat – we are reviewing all of our products as it – we are reviewing all of our products as it relates to this issue, we will consider 1) reformulation, 2) relates to this issue, we will consider 1) reformulation, 2) notification of trans-fat content in our products, and 3) the notification of trans-fat content in our products, and 3) the introduction of introduction of newnew productsproducts

• Electronic CommerceElectronic Commerce – we are taking the lead on EC – we are taking the lead on EC technology implementation within the industrytechnology implementation within the industry

• Low – Carb CrazeLow – Carb Craze – – we offer a number of low-carb we offer a number of low-carb alternatives, andalternatives, and we continue to evaluate consumers’ we continue to evaluate consumers’ needsneeds

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FY 2005 Outlook - considerationsFY 2005 Outlook - considerations

Factors to ConsiderFactors to Consider

• JMS expects to meet 8% strategic goalJMS expects to meet 8% strategic goal

• FY04 financials will be restated to exclude the FY04 financials will be restated to exclude the impact of HJF, $0.04 per shareimpact of HJF, $0.04 per share

• Watsonville gain of $0.02 will be nonrecurringWatsonville gain of $0.02 will be nonrecurring

• Significant opportunities to spend behind the Significant opportunities to spend behind the new brands – to develop brand awareness with new brands – to develop brand awareness with consumersconsumers

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Noteworthy Financial Changes Noteworthy Financial Changes

Expected Free Cash Flow Components for 2005Expected Free Cash Flow Components for 2005

Depreciation/AmortizationDepreciation/Amortization $70 $70

DividendsDividends ( $54 )( $54 )

CapExCapEx ( $80 – 85 )( $80 – 85 )

Merger related costsMerger related costs ( $90 )( $90 )

NOLNOL $7 $7


The J. M. Smucker Company


The J. M. Smucker Company


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