Smucker gets boost from coffee

by Monica Watrous
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Folgers coffee canisters
Folgers coffee sales contributed to a sales increase for Smucker.

ORRVILLE, OHIO — Shoppers purchased more canisters of Folgers coffee in the recent quarter, contributing to an increase in sales for the J.M. Smucker Co. But an even bigger boost came from the newly acquired pet food business, inspiring executives’ confidence in the composition of the company’s portfolio.

Net income for the second quarter ended Oct. 31 was $176 million, equal to $1.47 per share on the common stock, up 11% from $158.3 million, or $1.55, for the prior-year period. Earnings performance reflected the benefit from Big Heart Pet Brands operations offset by merger and integration costs, higher interest expense and the impact of additional shares outstanding.

Net sales advanced 40% to $2,077.7 million over year-ago sales of $1,481.8 million, benefiting from the acquisition of Big Heart and growth within the coffee business. Net sales excluding acquisitions of Big Heart and Sahale Snacks and foreign currency exchange advanced 2% to $1,517.6 million.

Richard Smucker, J.M. Smucker
Richard Smucker, c.e.o. of Smucker

“First of all, we think we’re in a pretty good position with basically the three platforms of our business,” said Richard Smucker, chief executive officer, during a Nov. 19 earnings call with financial analysts. “Obviously coffee, which is center of the store, but it is still a hot area to be in and a growing business. And then if you look at the rest of our foods, peanut butter is a very low-cost, high-protein business… And then pet food of course is one of the fastest-growing segments.

“So we think our overall portfolio really positions us well to be in the consumer goods industry.”

During the second quarter, double-digit volume gains for Folgers roast and ground coffee and contributions from the recently launched Dunkin’ Donuts K-Cup pods helped lift U.S. Retail Coffee segment sales 10% to $586.1 million. Segment profit increased 7% to $161.7 million. Earlier in the year, the company reduced Folgers’ canister size by about 10% and lowered prices to match.

“While overall coffee results were strong, Folgers K-Cup and Dunkin’ Donuts bagged coffee both had soft performances in the quarter, reflecting aggressive competitive pricing,” Mr. Smucker said. “Our teams are focused on these dynamics, and we are well positioned to compete as we proceed through the fiscal year.”

Smucker's Uncrustables varieties
Smucker's Uncrustables brand saw growth in the quarter.

Net sales in the U.S. Retail Consumer Foods segment declined 3% to $644 million, reflecting lower prices for Pillsbury and Jif products partially offset by growth in the Smucker’s Uncrustables frozen sandwiches and Eagle Brand canned milk businesses. Segment profit was flat at $125.4 million, as lower prices and higher manufacturing overhead costs related to a new peanut butter plant in Memphis offset lower input costs for milk, peanuts and oils.

“In the baking aisle, our results were impacted by aggressive competitive pricing, which we expect to continue throughout the upcoming holidays,” Mr. Smucker said. “Our focus remains on providing the value-added innovation in these categories and competing responsibly.”

The U.S. Retail Pet Foods segment contributed net sales of $566.7 million, representing low single-digit per cent growth compared to the prior-year quarterly results under Big Heart’s previous ownership. Segment profit was $88.2 million, which represented a low double-digit per cent decrease compared with the year before.

Smucker’s International and Foodservice segment posted net sales of $280.9 million, a 1% decline over the prior year, and segment profit of $50 million, up 33% from the comparable quarter. The profit gains were driven by higher prices in Canada to offset sourcing costs and the impact of the weaker Canadian dollar.

For the first six months of fiscal 2016, net income was $312.4 million, or $2.61 per share, up 14% from $274.3 million, or $2.69 per share, the year before.

Net sales for the year-to-date period were $4,029.7 million, up 44% from $2,805.6 million the year before. Excluding acquisitions and foreign currency, net sales rose 4% to $2,915 million for the six-month period.

For the full year, executives expect net sales to increase 38%, reflecting a full-year contribution from Big Heart and an increase of approximately 3% on the company’s other businesses. The outlook includes the impact of Smucker’s recently announced divestiture of its canned milk business.
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