Peanut butter offsets softness in Pillsbury at Smucker

by Eric Schroeder
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ORRVILLE, OHIO — Improvements in peanut butter profitability drove a 19% increase in operating income within the U.S. Retail Consumer Foods unit of J.M. Smucker Co. in the first quarter. Peanut butter along with the company’s other spreads products and Uncrustables frozen sandwiches were strong performers during the quarter. Their success helped offset softness within the Pillsbury brand.

“The primary soft spot in Consumer Foods during the quarter was the Pillsbury brand,” Vince Byrd, president and chief operating officer, said during an Aug. 20 conference call with analysts to discuss first-quarter results. “This reflects declines in the overall category and increased competitive activities primarily on flour and base cake items. As we enter the fall bake period we continue to focus our efforts on frostings and other higher margin products. We were also encouraged by the new Pillsbury audience to be launched and another solid year of holiday merchandising plans.”

Paul Smucker Wagstaff, president of U.S. Retail Consumer Foods, elaborated on the competitive dynamics of the categories in which the company’s Pillsbury brand competes.

“I would say that we are optimistic on our business as far as the new items that we are planning on launching,” he said. “We are trying to focus on some of the key trends that are occurring from a consumer perspective, things like simple ingredients. And we have some products that we are coming out on that front. Gluten-free items and our seasonal items continue to do very well. We clearly focus on our frosting category, which is where we are the No. 1, and also is profitable for us.”

Mr. Wagstaff said there were about 200 items launched in the baking category during the past year, adding to some of the complexity of the category and some of the additional competitiveness that has taken place in that section. He described several of those items as being “fad-related” and “not as relevant” as some introductions.

“We would hope that some of that would get sorted through, and we would focus on more of the longer-term trends that our items we think are going after,” he said.

The company’s proposed acquisition of Sahale Snacks, Inc., a Seattle-based maker of nut and fruit mixes, also drew the interest of analysts during the call.

Mr. Wagstaff described Smucker as being “very excited” about the opportunity to add Sahale to the company’s portfolio.

“The snacking category, as you all know, is growing very significantly, and they have a really unique portfolio of products that are very — they are great, obviously, tasting products, but also they are positioned well — a little premium,” he said. “And their distribution is not full … so there’s opportunity for us to gain distribution in other channels. And then also, the learnings that we get from them we can also apply to some of our other brands. And so, although it is very early in the process as we stand today, we do feel very comfortable that there’s going to be some great opportunity not only just with Sahale but some of our other brands. So we are excited with that.”

Mr. Byrd noted the acquisition is not too dissimilar to when Smucker acquired the Folgers business.

“It had a very strong presence in the dollar channel where we did not have much distribution,” Mr. Byrd said. “And if you look at Sahale, even where their merchandised in store and produce sections, etc., will be new for us. But we really think we’ll be able to leverage our go-to-market strategy in maybe more traditional channels to really help grow that business in the future.”

Operating profit within the U.S. Retail Consumer Foods segment totaled $113.2 million in the first quarter ended July 31, up from $95.5 million in the same period a year ago. Net sales in the segment fell 3% to $522.8 million from $536.4 million.

Mr. Byrd said Smucker’s Uncrustables frozen sandwiches achieved double-digit volume growth for the tenth consecutive quarter, and the company completed capacity expansion at its Scottsville plant during the quarter.

Overall, net income at J.M. Smucker totaled $116 million in the first quarter, equal to $1.14 per share on the common stock, down 8% from $126.6 million, or $1.19 per share, in the same period a year ago. Net sales were $1,323.8 million, down 2% from $1,350.9 million.
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