Smucker manages through tight peanut crop

by Josh Sosland
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ORVILLE, OHIO — A 4% decline in Jif peanut butter sales volume during the first quarter ended July 31 reflected tightness resulting from a poor peanut crop in 2010, according to the J.M. Smucker Co. In an Aug. 18 conference call with investment analysts, Smucker executives commented on steps taken to manage the difficult situation in the peanut market.

Smucker said the volume decline versus the first quarter in fiscal 2011 was “primarily due to temporary item rationalizations and a reduction of promotional activity.”

The difficulty in the peanut butter market factored into a tough quarter for the U.S. Retail Consumer Foods segment of Smucker. Operating profits in the first quarter were $79 million for the segment, down 15% from $93.4 million in the first quarter last year. Net sales were $459.5 million, up 2%. The segment’s profit margin narrowed to 17.2% from 20.8%.

Commenting on the pressure on profits, Smucker pointed to higher raw material costs, “most significantly” for flour, shortening and milk.

In the Aug. 18 conference call, Vince Byrd, president and chief operating officer, said the rationalization left Smucker well positioned for fall back-to-school promotions. Still, he predicted significantly higher peanut costs for the 2011 peanut crop year.

Asked by an analyst to elaborate on what transpired in peanut butter, Paul Wagstaff, president of the retail foods business, said actions were taken in response to the poor 2010 peanut crop.

“We temporarily discontinued eight of our items to focus on our core 18-oz and crunchy and creamy products, to make sure that we had those products on shelf during the summer first quarter,” he said. “In line with that, what we decided to do is basically reduce our first-quarter promotional activities. We made sure that we had enough inventory build in our warehouse, which we do have right now. And that basically led to some lower volume in peanut butter as well as in our jam and jelly business, because we couldn’t cross-promote with peanut butter.

“So, where we are now is we have inventory levels that are solid.”

The company said the peanut crop problems had a negative spillover effect on the Smucker fruit spreads business.

Mr. Wagstaff did not offer a forecast of the 2011 crop or prospective supply adequacy in the year ahead.

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