ORRVILLE, OHIO — The J.M. Smucker Co. finished fiscal 2016 on a high note. Net income in the year ended April 30 rose 100% to $688.7 million, equal to $5.77 per share on the common stock. Sales for the year rose 37% to $7,811.2 million.
Key drivers behind the performance were the acquisition and integration of Big Heart Pet Brands in 2015 and a dramatic turnaround in its U.S. Retail Coffee business unit. In late October 2015, Steve Oakland, president of U.S. food and beverage for the company, said during the company’s annual investor day in New York that Smucker’s U.S. Retail Coffee segment had peaked in fiscal 2014 with an operating profit of $640 million. He forecast then that it would take the company until fiscal 2019 to achieve that level of profitability again in the coffee business. In fiscal 2016, the coffee segment generated $645.9 million in profit on sales of $2,239.2 million.
|Mark Smucker, president and c.e.o. of Smucker|
“Net sales were up 8% and segment profit increased 18% to $646 million, representing a full recovery of the segment profit decline in the prior year,” said Mark Smucker, president and chief executive officer, during a conference call with financial analysts on June 9. “This outperformance was driven by several factors, including the successful launch of Dunkin’ Donuts K-cups, the implementation of the planned Folgers canister downsize, a moderation in competitive activities, and the net benefit of lower commodity costs and pricing.
“Providing lower pricing on Folgers roast and ground coffee resulted in improved performance for our mainstream coffee business in 2016. Tonnage for our mainstream brands was up 3%, while units shipped were up even more, given the canister downsize early in the fiscal year. In addition, our dollar share within the mainstream segment of the coffee category increased nearly 2 share points to 55% for the latest 52 week period.”
On the commodity front, Mr. Smucker said the company had experienced a 9 month to 12 month decline in prices.
“So, you have seen this very consistent sustained lower coffee cost and that has allowed us to behave properly, or responsibly if you will, because we have had consistency in our underlying cost structure,” he said.
Looking ahead to fiscal 2017, Mr. Smucker said the momentum in coffee should continue. In May, the company lowered list prices in its coffee portfolio 6%, reflecting lower green coffee costs.
“Dunkin’ K-Cups achieved nearly $220 million in retail sales for the latest 52-week scan period, and gained a 6% dollar share of the K-Cup market, giving us an overall share of nearly 15% in the K-Cup segment,” Mr. Smucker said. “In its first year on the market, the Dunkin’ Donuts original s.k.u. (stock-keeping unit) has become the No. 1 K-Cup item in the channels in which we participate. As consumer repeat rates remain strong, and with opportunities to introduce additional varieties, we anticipate further growth in 2017.”
He added that the company sees opportunity to grow its Folgers K-Cup line of products. To drive the improved performance Mr. Smucker said the company will invest in innovation and brand building.
“We will invest to do that,” he said. “And we need to make sure as the K-Cup segment shakes out, and it will shake out, … that velocities on our core legacy items are strong. So I’m saying we feel comfortable we can repeat the record results in red can.”
For the year, sales within Smucker’s U.S. Retail Consumer Foods business fell to $2,269.7 million from $2,330.8 million the previous year. Segment profit for the year was flat at $459.9 million.
“ … net sales declined 3% for the year, mostly due to lapping sales from the divested canned milk business,” Mr. Smucker said. “Looking briefly at the key brands, we are pleased with the overall performance of our spreads business, as both Jif peanut butter and Smucker’s fruit spreads grew volume share over the latest 52-week period. In addition, Smucker’s Uncrustables frozen sandwiches had another strong year, with volume up 26%, including a 17th consecutive quarter of double-digit volume growth in this most recent fourth quarter.”
He added that the baking category remains challenged due to changing consumer preferences and aggressive competitive pricing.
“Our focus remains on providing value-added innovation, such as our recent gluten-free and simple ingredient offerings,” Mr. Smucker said. “We are also excited to announce a licensing arrangement with the Girl Scouts of America. Under this agreement, we are launching new Pillsbury items featuring iconic Girl Scout cookie flavors.”
Looking ahead to fiscal 2017, Mark Belgya, chief financial officer, forecast net sales to rise 1% compared to fiscal 2016.
“Favorable volume mix across each of the segments, including the benefit of new products is expected to be mostly offset by lower pricing in U.S. Retail Coffee and FX in Canada,” he said.
He added that coffee business profits in 2017 are projected to be comparable to fiscal 2016. Consumer Foods are expected to be up mid-single-digits.