Smucker net income in the period was $154.6 million, or $1.36 per share on the common stock, up 16% from $133 million, or $1.17 per share, in the first quarter of fiscal 2019. Net sales were $1,778.9 million, down 6% from $1,902.66 million.
Adjusted earnings per share in the quarter were down 11% from the previous year. Comparable net sales, adjusted for the divestiture of the company’s baking products business and the acquisition of the Ainsworth Pet Nutrition business, were down 4%.
Breaking down the sales decline, lower volume accounted for 3 percentage points with lower pricing accounting for the balance. Prices during the quarter were down for coffee and peanut butter. Pet foods and snacks were up.
Following the challenging first quarter, Smucker adjusted its full-year outlook for fiscal 2020. Guidance for adjusted earnings per share was lowered to $8.35 to $8.55, down 10c, and the company’s sales were forecast to be flat to down 1%, versus previous guidance of up 1% to 2%.
Contributing to the shortfall were the timing of shipments and deflationary pricing in the coffee and peanut butter categories, as well as competitive activity in the premium dog food category, said Mark T. Smucker, chief executive officer.
“Given the momentum we generated in the past two quarters, the miss relative to our expectations in this first quarter is unacceptable, particularly as it relates to our top-line sales,” he said in a conference call with analysts Aug. 27.
Steps he said the company was taking included, “improving the consumer value proposition at shelf, the continued launch of new advertising across multiple brands and driving awareness and trial in premium dog food.”
Additionally, he said Smucker has initiated a reprioritization of company-wide initiatives, cutting certain discretionary expenses.
Mr. Smucker expressed excitement about a new marketing campaign he said would set a new standard for the consumer packaged foods industry.
“We’re at the very beginning of this new brand support hitting the market,” he said. “We are excited about the brand refresh underway and recently launched new advertising for the Jif and Smucker’s brands. We will continue to launch new campaigns across nine of our key brands in the upcoming months. These new breakthrough campaigns are bold, strengthen our brands’ relevance in today’s culture and set a new bar for C.P.G. creative effectiveness, which we fully expect to support top-line growth.”
In trading on the New York Stock Exchange Aug. 27 after the earnings announcement, Smucker shares fell sharply, closing at $103.69, down $9.24, or 9%.
In the company’s U.S. Retail Consumer Foods segment, operating profit in the first quarter was $81 million, down 17% from the first quarter last year. Net sales were $402.2 million, also down 17%. Excluding non-comparable results, sales were down 3%.
Excluding the effects of the divestiture of the company’s baking products business, segment profits would have fallen 8%. Factors in the drop were lower pricing, lower input costs and increased expenses associated with the construction and start-up of the new Uncrustables production plant in Longmont, Colo.
A price cut on Jif peanut butter contributed to a 4-percentage-point drop in segment sales, offset partly by a 1-percentage-point favorable volume/mix contribution, mostly due to strong sales of Uncrustables.
Also encouraging has been the strength of the Jif Power-Ups platform. Mr. Smucker said the innovation has helped boost household penetration for the Jif brand by over 2 million households over the past year “as a result of our new on-trend snack offerings.”
Segment profit for the U.S. Retail Coffee business was $128.9 million, down 13% from the first quarter last year. Sales were $465.7 million, down 5%. Reduced volume/mix and the effects of lower pricing and green coffee costs cut into profits.
The sales decrease included lower net price realization of 3 percentage points. Net pricing reflected planned promotional activity resulting from significantly lower green coffee costs, the company said.
Mr. Smucker said the company has maintained or grown share in the coffee market and said the sales drop represents a “temporary dynamic.”
“While we expected a sales deceleration from the fourth quarter, the decline was greater than anticipated,” he said.
Operating profit in the U.S. Retail Pet Foods business was $120.1 million, up 20% from the same quarter in fiscal 2019. Sales were flat at $669.9 million. Excluding the contribution of Ainsworth, acquired last year, sales were down $26.7 million. A decline in private label sales included planned exits and soft trends. Accounting for about half the profit increase was a $10.9 million negative fair value purchase adjustment in the prior year. Ainsworth also contributed.