J.M. Smucker (SJM 108.00, -2.91, -2.6%) announced an agreement to sell its U.S. baking business to Brynwood Partners VII L.P. and Brynwood Partners VIII L.P., subsidiaries of Brynwood Partners for $375 million in a deal which is expected to close in the second quarter of fiscal year 2019.
Today’s deal comes just three months after SJM announced the purchase of Ainsworth Pet Nutrition, LLC. Ainsworth’s main attraction was its Rachael Ray Nutrish pet food brand, which according to the company represented nearly two thirds of total sales. At the time of the acquisition announcement on April 4, SJM also announced plans to divest its U.S. baking business, plans which evidently did not take long to attract a buyer.
Today’s deal primarily encompasses products sold in U.S. retail channels under the Pillsbury, Martha White, Hungry Jack, White Lily, and Jim Dandy brands, along with all relevant trademarks and licensing agreements, and the company's manufacturing facility in Toledo, Ohio.
This business generated net sales of about $370 million for the company's fiscal year ended April 30, 2018, which were primarily reported in its U.S. Retail Consumer Foods segment. The transaction does not include the company's baking business in Canada.
The company expects the deal to be dilutive to its adjusted earnings per share by $0.25-0.30 on a full-year basis, reflecting foregone profit related to the U.S. baking business, before factoring in any potential benefit from the use of proceeds from the sale.
It’s worth noting that the company’s latest full year guidance stands at $8.40-8.65, which was already below market expectations at the time it was issued on June 7. The company also sees FY19 revenue growth of 13% to $8.3 billion.
However, SJM expects the net impact of the divestiture to be only slightly dilutive to its fiscal 2019 adjusted earnings per share, as foregone profit for the remainder of the fiscal year is expected to be mostly offset by an anticipated one-time gain on divestiture. This expectation also excludes any potential benefit from the use of proceeds from the sale.
The company will further discuss the transaction's anticipated impact on its fiscal 2019 outlook when it releases its fiscal 2019 first quarter results in August.