ORRVILLE, OHIO — As lower green coffee costs translated into lower input costs for the J.M. Smucker Co., consumers turned to higher end coffee brands in the second quarter ended Oct. 31. The trend was good news for the Cafe Bustelo brand and K-Cups, but it meant a sales decrease for the Folgers brand.
|Mark Smucker, president and c.e.o. of J.M. Smucker Co.|
“Remember, when you see commodity cost, coffee cost as low as they have been and you get price compression in the category, our opening-price-point s.k.u.s (stock-keeping units) don’t do as well because people trade up to classic roast,” said Mark Smucker, president and chief executive officer of Orrville-based J.M. Smucker Co., in a Nov. 17 earnings call.
The U.S. Retail Coffee segment of the J.M. Smucker Co. recorded sales of $551.8 million in the quarter, down 6% from $586.1 million in the previous year’s second quarter. The company attributed a lower net price realization primarily to the impact of a 6% list price decline taken across most of the coffee portfolio at the beginning of the fiscal year. Volume/mix reduced net sales by 1%.
Segment profit in U.S. Retail Coffee increased 3% to $186.5 million from $180.4 million as lower commodity and manufacturing overhead costs more than offset the impact of lower net pricing, volume/mix and increased marketing expense.
The Cafe Bustelo brand achieved double-digit growth in the quarter for both its roast and ground and K-Cup offerings, Mr. Smucker said. Volume rose 6% for Dunkin’ Donuts branded bagged coffee as lower prices supported by favorable input costs improved the brand’s competitive positions, he said.
Volume for Folgers roasted ground coffee decreased by 5%, which reflected a decline in opening-price-point value offerings, Mr. Smucker said. However, volume increased for Folgers K-Cup.
Companywide in the second quarter, net sales dropped 8% to $1,913.9 million from $2,077.7 million. The divested U.S. canned milk business accounted for $67.7 million of the decrease. Excluding the divested business, net sales decreased 5%, which reflected a 3-percentage point decline from volume/mix driven by the U.S. Retail Pet Foods segment and the Folgers and Jif brands. Net price realization was lower, which Smucker mostly attributed to coffee.
Net income of $177.3 million, or $1.52 per share on the common stock, was up 1% from $176 million, or $1.47 per share, in the previous year’s second quarter.
Within U.S. Retail Consumer Foods, net sales fell 13% to $557.3 million from $644 million as the result of the divested U.S. canned milk business and volume/mix, which reduced net sales by 4% driven by the Jif and Pillsbury brands. Segment profit decreased by 7% to $118.9 million, down from $127.3 million.
“Within our Consumer Foods segment, the second-quarter performance of peanut butter was weaker than last year with a high single-digit volume decline for the Jif brand,” Mr. Smucker said. “This was partially attributable to the timing of shipments as consumption and market share trends remain comparable to the prior year. With upcoming merchandising support and additional marketing investments, we anticipate peanut butter sales to improve in the back half of the year.”
In relation to the Pillsbury brand, competitive activities continue to influence the overall baking category, he said.
Mr. Smucker said volume rebounded in the second quarter for Uncrustables frozen sandwiches after a soft first quarter related to the timing of customer shipments.
The U.S. Retail Pet Foods segment reported sales of $531 million in the second quarter, down 6% from $566.7 million, and segment profit of $114.5 million, nearly flat when compared to $115 million in the previous year’s second quarter. Net sales for the International and Foodservice segment were down 3% to $273.8 million from $280.9 million while segment profit was down 7% to $51.7 million from $55.6 million.For the six months ended Oct. 31, J.M. Smucker Co. posted net sales of $3,729.7 million, down 7% from $4,029.7 million, and net income of $347.3 million, or $2.98 per share, which was up 11% from $312.4 million, or $2.61 per share.