Growth in Smucker Co’s coffee & snack business ‘validates’ winning strategy, according to CEO

29-Aug-2018 - Last updated on 29-Aug-2018 at 13:28 GMT

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Peanut butter and jelly maker JM Smucker Co.’s decision to realign its portfolio to focus on coffee, snacking and pet food is paying off with a “strong first quarter performance,” including increased net sales and profits, according to company executives.

Earlier this month the company reported during its first quarter earnings call that net sales are up 9% to $153.6 million and gross profit is up 2% to $16.1 million – mostly due to the acquisition of Ainsworth Pet Nutrition.

Without the acquisition, net sales were actually down 1% to $9.2 million – but the company’s CEO Mark Smucker remains confident in the company’s coffee and snacking businesses as well as its strategy to bolster other elements of its consumer food business.

He explained that double-digit sales growth during the quarter in Smucker’s Uncrustables, Dunkin’ Donuts, Café Bustelo, Nature’s Recipe and Sahale Snacks together contributed to three percentage points of topline growth – representing an increase in nearly every key area of the portfolio where the company invested.

This “validates that we can continue to win in today’s marketplace,” he said.

Invigorating growth in coffee

Using the success of Smucker’s coffee business as a “proof point,” for this validation, Smucker explained that sales of the company’s premium packaged coffee business grew 13% while its K-Cup portfolio increased 17% across all brands in the first quarter.

The company’s Dunkin’ Donuts coffee brand can take most of the credit for this growth with sales up 13% in the quarter compared to 10% growth in the same period last year, Smucker said. Although he added that the company’s new 1850 Premium Coffee brand also contributed growth following its launch in April.

“The brand has already hit our target ACV of 70% and is currently generating nearly $1 million weekly retail sales and growing,” he said.

Not everything about the coffee segment is perfect though. Folgers Roast and Ground business continued to struggle, but the company has “key merchandising activities planned for the upcoming months,” as well as “longer-term initiatives to reinvigorate coffee rituals for this iconic brand” that are in progress, Smucker said.

Snacking successes and struggles

In the company’s consumer foods segment, net sales were down a disappointing 1% compared to the prior year, but within this space snacks showed strong growth – led by Smucker’s Uncrustables and Sahale Snacks, which grew 33% and 40% respectively, Vice Chair and Chief Financial Officer Mark Belgya said during the earnings call.

Smucker added that he expects sales of Uncrustables to remain strong especially as construction on the company’s new sandwich facility remains on track for completing in fiscal 2020.

“The facility will double production capacity coinciding with the launch of our first-ever national marketing campaign for Uncrustables,” Smucker added.

Jif offers a mixed bag

Part of the 12% drag on the consumer food segments profit in the quarter compared to the same time last year were higher commodity costs, most notably for peanuts, which impacted the Jif brand, he noted. In addition, he said, Jif experienced some problems related to the timing of merchandizing at a key club customer, but should be back on track soon, he noted.

With this in mind, the company remains confident in the core business potential of Jif – especially with the roll-out of Jif PowerUps – a new line of snack bars and peanut butter clusters that launched in May and are “already off to an excellent start,” according to Smucker.

In particular, Jif PowerUps already reached about 60% ACV by the end of the first quarter and the initial response is “really, really positive,” according to Tina Floyd, senior vice president and general manager for Consumer Foods.

She explained while it is still early days for the launch, “we are getting great results form a unit per store per week metrics and we are just now starting to turn on our campaign, which includes social and digital,” as well as TV, which started earlier this month.

Despite this initial success, Floyd said the company is “staying pretty close” to the brand and is “listening to our consumers.” Plus, she noted, the push around the brand is not restricted to the back-to-school timeframe, which should give it longer legs.

Zero-based balanced budget ahead of cycle

In addition to realigning the company’s portfolio to reflect better modern consumer demand, the JM Smucker Co. also is implementing a new cost containment program, nicknamed Right Spend, “to strengthen cost discipline throughout the organization and deliver a portion of our $80 million incremental cost savings goal for the year,” Smucker said.

Belgya added that the zero-based budgeting program is “tracking ahead of one-fourth of that 80,” meaning that the program has helped the company reach a positive in its budget.

Full year expectations lower than previously anticipated

Despite strong quarterly results from Smucker’s portfolio realignment, the company expects lower net sales for the year than original anticipated.

The company is now forecasting net sales of approximately $8 billion rather than $8.3 billion as previously stated – a reduction that reflects the anticipated impact of divesting its US baking business as well lower than expected net sales in the first quarter.

While not on its original target, Smucker says he is still “pleased with the start of the fiscal year, and while we recognize there is still much to be done, we are confident in our ability to execute on our roadmap as we proceed down the path of transforming our company to ensure sustainable, long-term growth.”