Smucker's sales surge on pet food, coffee

by Monica Watrous
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J.M. Smucker Co. executives attributed a 47% increase in net sales to the addition of Big Heart Pet Brands and the retail introduction of Dunkin’ Donuts K-Cups.

ORRVILLE, OHIO — Kibble and K-Cups contributed to a strong first quarter for The J.M. Smucker Co. Executives attributed a 47% increase in net sales to the addition of Big Heart Pet Brands and the retail introduction of Dunkin’ Donuts K-Cups.

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

“Dunkin’ Donuts K-Cups got off to a great start,” said Richard Smucker, chief executive officer, during an Aug. 27 earnings call with financial analysts. “During the quarter, we shipped over 100 million cups and had strong merchandising support, including nearly 40,000 retail displays.”

For the quarter ended July 31, Smucker’s net income was $136.4 million, equal to $1.14 per share on the common stock, up 18% from $116 million, or $1.14 per share, for the prior year period. Net sales were $1,952 million, compared with year-ago sales of $1,323.8 million. Smucker acquired Big Heart Pet Brands in fiscal 2015. Excluding acquisitions and the impact of foreign exchange, sales grew 6%, the company said.

The U.S. Retail Coffee segment posted net sales of $565 million for the quarter, marking a 12% increase over the first quarter of fiscal 2015. Performance was driven by the introduction of Dunkin’ Donuts K-Cup pods during the quarter, with contributions from the Folgers brand as higher prices and reduced promotional activities offset lower volume. Segment profit increased 13% to $155.1 million.

The company’s Folgers sales volume fell 9% as a result of higher price points implemented last year. To improve demand, the company recently announced a 6% price decrease on the products, due to anticipated declines in green coffee costs.

“With this change and our transition to a reduced canister size for our large can Folgers offering, which is proceeding as planned, consumers are now beginning to see lower price points on shelf,” Mr. Smucker said.

Smucker's' U.S. Retail Coffee performance was driven by the introduction of Dunkin’ Donuts K-Cup pods during the quarter, with contributions from the Folgers brand.

Net sales for the U.S. Retail Consumer Foods business were flat at $582.2 million, as a price decline on the Jif peanut butter brand offset favorable volume and mix and contributions from the Sahale business, which Smucker acquired last year. Segment profit declined 1% to $117.5 million, reflecting lower prices and higher manufacturing overhead costs associated with a new peanut butter plant in Memphis, Tenn., that more than offset lower commodity costs for peanuts, milk and oils.

“Smucker’s, Jif and Uncrustables brands had strong value performance for the first quarter, including the 14th consecutive quarter of double-digit volume growth for the Smucker’s Uncrustables frozen sandwiches,” Mr. Smucker said. “In the baking aisle, aggressive, competitive activity impacted our results. We expect these dynamics to continue through the upcoming holidays. However, with a combination of targeted innovation, pricing and merchandising, our brands are well-positioned to responsibly compete during the fall bake season.”

Smucker’s Crisco oils and Pillsbury baking mixes fell by single-double digits in the quarter, he said.

Smucker's Uncrustables experienced double-digit volume growth.

The U.S. Retail Pet Foods segment had sales of $549.9 million, representing a mid-single digit per cent increase compared to Big Heart’s results for the comparable quarter, which were reported under previous ownership. Segment profit was $90 million, driven by favorable volume and mix and lower marketing and commodity costs, which more than offset lower prices and higher amortization expense related to the acquisition.

Sales for the International and Foodservice segment increased 7% to $254.9 million, including contributions from Big Heart and Sahale, plus favorable volume and mix and higher prices that were offset by the impact of foreign currency translation. Segment profit was flat at $30.5 million, reflecting an increase in food service profit and the addition of Big Heart, which were offset by higher costs in Canada.

For the full year, executives expect net sales of $8 billion, up 40% over fiscal 2015, and adjusted earnings per share of $5.65 to $5.80. The company also reconfirmed its synergy target related to the Big Heart acquisition of $200 million by the end of 2018, which the company intends to invest in innovation and marketing.
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