ORRVILLE, OHIO — The J.M. Smucker Co. is finding its footing. A weaker-than-expected second quarter prompted management to lower its year-end guidance. But promising trends in U.S. Retail Coffee and U.S. Retail Consumer Foods give management optimism for accelerated growth as the fiscal year progresses and are expected to offset current challenges in the company’s U.S. Retail Pet Foods division.
Net income for the quarter ended Oct. 31 totaled $211.2 million, equal to $1.85 per share on the common stock, and an improvement over the same period of the previous year when the company earned $188.5 million, equal to $1.66 per share.
Sales for the quarter fell 3% to $1,957.8 million when compared to the same period of the year prior.
In the U.S. Retail Pet Foods division, the company’s largest business unit, sales fell 2% to $709.9 million. A decline in private label sales impacted performance, according to the company. Pet Food segment profit rose 11% to $137 million, driven by net pricing and reduced marketing expense.
“We remain excited about the prospects for both short- and long-term growth for our portfolio of pet food and pet mix brands,” said Mark T. Smucker, president and chief executive officer, Nov. 22 during a conference call with securities analysts. “Recent softness for the portfolio is isolated to premium dog food. There has been an increase in competitive activity from a proliferation of brands entering the category, which are investing significantly to generate consumer trial.”
Mr. Smucker added there is new leadership in the Pet Foods unit. In the interim, the business is now being led by Robert D. Ferguson, who came to the company when it acquired Big Heart Pet Brands. Jeff Watters, the former president and c.e.o. of Ainsworth Pet Nutrition, is serving as a strategic adviser.
Coffee sales held steady during the quarter at $543.4 million. Segment profit rose 5% to $182.5 million due to favorable volume/mix, according to the company.
“In coffee, we continue to increase household penetration in the quarter as sales for the Dunkin’, Café Bustelo and 1850 brands all grew,” Mr. Smucker said. “Also, we grew volume in all formats, including mainstream, premium, K-Cup and instant, while net sales were comparable to the prior year due to increased trade spend as lower green coffee costs are being passed through to consumers.”
Specifically, coffee sales trends improved during the quarter led by double-digit growth for all of Smucker’s K-Cup brands.
“Consumer takeaway for our portfolio of K-Cups continues to perform well ahead of total segment growth,” Mr. Smucker said. “Further, the Dunkin’ brand continues its momentum and now owns the No. 3 market share position across the total coffee category in the latest scan data for 4-, 13- and 52-week periods. This, combined with the leading market share position in the mainstream segment for the Folgers brand, positions our coffee portfolio to firmly maintain the No. 1 dollar and volume market share across the total coffee category by a wide margin.”
U.S. Retail Consumer Foods sales fell 8% during the quarter to $426.1 million. The divestment of Smucker’s U.S. baking business was one factor in the sales decline.
“Comparable net sales decreased 1% driven by lower net sales for the Jif and Crisco brands, offset by an increase of 9% for the Smucker’s brand with growth across Uncrustables, toppings and fruit spreads,” said Mark Belgya, chief financial officer. “Excluding prior-year profits and the gain on the sale of the divested baking business, Consumer Foods segment profit declined 8% due to the net impact of lower price not fully offset by lower costs on peanut butter, partially offset by favorable volume mix and lower SG&A costs from reduced marketing and selling expenses.”
Mr. Smucker added, “Snacking remains a key focus area, driven by Smucker’s Uncrustables sandwiches. We expect continued acceleration for Uncrustables and forecast growth to exceed 25% in the second half of the fiscal year. We expect the momentum to continue and we remain on track to grow this business to over $500 million in net sales within the next few years.”
The company expects its full-year sales to be down 3% compared to fiscal 2019 and is the reason for the revised guidance. Adjusted earnings per share are expected to be in the range of $8.10 to $8.30 vs. the previously guided range of $8.35 to $8.55.
“Changes from our previous sales guidance primarily reflect the second-quarter sales results, which were below our expectations, expected declines in the back half of the year for premium dog food, notably the Nutrish and Natural Balance brands and a general derisk of the back half, recognizing competitive activity and strong fourth quarter comps for coffee and peanut butter,” Mr. Belgya said.