CEO Mark Smucker told analysts last week that the company’s adjusted earnings per share in the first quarter came in 3% below internal projections “primarily due to softer than anticipated results in our coffee segment as volume for Folgers’ roasted and ground coffee fell short of expectations.”
In response, the company adjusted everyday and promoted price points on Folger’s coffee to “improve our competitive positioning,” he said. “As a result, volume trends improved as we proceeded through the quarter and continuing into August.”
In addition, the company is introducing larger coffee canisters – another move which Smucker said is necessary to protect the company’s short term competitive position.
Longer term, the company anticipates cost savings initiatives will help it gain ground as will upcoming innovation in the coffee and snacking segment, according to the CEO.
An example of the caliber of innovation the company is bringing to the table is the recent launch of Dunkin’ Donuts Cold Brew and naturally flavored Folgers Simply gourmet coffee.
“While line extensions and close-end innovation such as these will play a role in our path to growth, we will also launch new platforms that extend the strength of our iconic brands to meet consumer needs,” Smucker said.
Despite his confidence in the company’s coffee category, analysts suggest the company faces an uphill battle to hit its end of year targets.
“Smucker’s will need to produce flat to slightly positive revenue growth for the remainder of the fiscal year in order to meet its full-year top-line guidance,” according to analysts with Bernstein.
In a note, they add: “In the coffee segment in particular, coffee pricing down with input costs up next quarter underlines how challenging pricing dynamics are right now. Smucker's expected coffee profits to be down meaningfully again next quarter as they adjust pricing and promotion spending. The questions now is whether the company can pull off an improvement in coffee performance as input cost pressures improve in the second half, especially with the challenging retailer and competitive environment currently.”
Ecommerce represents challenges and opportunities
Coffee isn’t Smucker’s only challenge or shot at redemption.
The company also faces increased competition in the ecommerce space, but also hope, according to the CEO.
He explained that “there’s plenty of upside in the next few years” for ecommerce given the channel currently accounts for just 2% of the company’s sales.
To take full advantage of the channel, the company recently “completed the redesign of our organizational structure this quarter with centralized resource focusing on marketing, innovation and supply chain initiatives across all our brands and businesses,” Smucker said.
While that may be, the company – like many others – will need to show flexibility in the channel as Amazon’s pending acquisition of Whole Foods goes forward as it likely will heavily reshape ecommerce for food and beverage.