ORRVILLE, OHIO – The J.M. Smucker Co. sees a ripe opportunity in clean-label trends. Softer sales of its sugar-free spreads have prompted the company to address a shift away from artificially sweetened products.

“… there is a segment of consumers who are shifting away from artificially sweetened products that is  impacting what we refer to as our better-for-you line of fruit spreads,” said Vince Byrd, president and chief operating officer, during a Feb. 14 earnings call with financial analysts. “Reflecting this trend, we are focused on ensuring we have the right product offerings to meet the needs of our consumers.”

An example is Smucker’s Fruit-Fulls, a line of fruit pouches that appeals to consumer trends of on-the-go snacking and simple label. The applesauce-based product line includes four blended fruit flavors and is set to ship beginning early next fiscal year.

“We have done some really good research on how the consumers see the Smucker brand, and they do see it as a fruit product,” said Paul Smucker Wagstaff, president of U.S. Retail Consumer Foods. “We do have, obviously with our jams and jellies a sweetened product; some is with sugar, some is corn syrup and some is artificial sweeteners. But again, we feel that this product that we are launching is – the only ingredient on the label is just fruit. … There is nothing else included.”

Clean-label trends also inspired the recent launch of Smucker’s Natural Fruit Spreads, made without artificial sweeteners, preservatives or colors. Early results of the product line have been encouraging, the company said.

Innovation figures largely into Smucker’s growth strategy. In the current fiscal year, the company has launched 100 new products, including a Dunkin’ Donuts Bakery Coffee line, Jif Whips spreads, and new varieties of Pillsbury baking items.

“When you look at our organic growth rate of which innovation is a key driver, our target for a long time was 1%, and we exceeded that,” said Mark Belgya, senior vice-president and chief financial officer. “Even last year, I believe, if I remember the numbers, the way we define new products, which are products that came out over a three-year window, it made up 10% of our total sales last year.”

A series of short-term challenges, including shortfalls in peanut butter and fruit spreads, foreign currency headwinds and competitive pricing, contributed to a disappointing third quarter for the company. Smucker now expects a soft fourth quarter but remains optimistic about fiscal 2015, based on its innovation plans, strong brand support and a more stable raw material cost environment.

Coffee is a core category

Coffee, which represents Smucker’s largest business, is expected to drive growth in the coming year with a series of initiatives that include commencing distribution of K-Cup products in dollar stores and on-line, introducing new K-Cup varieties, increasing marketing support for the segment and expanding a relationship with Green Mountain Coffee Roasters, Inc.

“This includes participating in their latest innovation, the next-generation brewer platform expected to launch later in the calendar year,” Mr. Byrd said. “In addition, during the quarter, Green Mountain began marketing and selling Folgers Gourmet Selection K-Cups in the food service channel under a distribution agreement, further extending the brand’s footprint.”

For the third quarter ended Jan. 31, net income was a record $166.7 million, equal to $1.59 per share on the common stock, up 8% from $154.2 million, or $1.42 per share, in the prior-year period. Earnings benefited from the company’s share repurchase activities over the past year.

Net sales declined 6% to $1,465.5 million from $1,559.6 million, reflecting volume, planned product rationalization and competitive pricing, as well as recent trade activities.

The U.S. Retail Coffee segment profit rose 4% during the quarter, due to increased volume, lower green coffee costs and decreased marketing expenses that partially offset an unfavorable mix. Sales for the segment dropped 8% in the quarter, caused by lower price realization and mix.

Profit for the U.S. Retail Consumer Foods segment dipped 1%, due to increased manufacturing overhead, marketing expenses and other costs. Sales for the segment decreased 4%, affected by lower net price realization. Strong sales of Smucker’s Uncrustables frozen sandwiches offset weakness in fruit spreads and Jif products. Pillsbury sales decreased as competitors in the category drove deeper promotional pricing, but strong performance of Crisco products helped offset softness elsewhere.

In the International, Foodservice and Natural Foods segment, profit declined 10%, reflecting a trade spending accrual adjustment, lost profit on the exited food service business and increased marketing expenses. Segment sales declined 6%, driven by exited portions of Smucker’s hot beverage business and Uncrustables frozen sandwiches for food service, as well as an unfavorable sales mix.