JM Smucker’s optimism, analysts’ skepticism about 2023 reflect ongoing uncertainty
“The pandemic and its related implications, along with ongoing cost inflation and volatility in supply chains continue to impact financial results and cause uncertainty and risk for the fiscal year 2023. Any manufacturing or supply chain disruption, as well as changes in consumer purchasing behavior, retailer inventory levels and broader macroeconomic conditions could materially impact actual results for the fiscal year,” the company acknowledged in a statement reporting results from its fourth quarter ending April 30.
And yet, CEO Mark Smucker told investment analysts yesterday that he anticipates continued top-line growth with comparable net sales up to 6%, inclusive of a 2% impact from manufacturing “downtime” and returns of Jif peanut butter products related to a recent recall.
This also reflects price increases related to inflation, including some that are still rolling out and will not be fully realized until part way through fiscal 2023.
While these calculations incorporate many known factors, the past three years have shown how quickly the landscape can change and unexpected shifts can have a dramatic impact – prompting some investment analysts on the call to characterize the company’s organic sales guidance as “aggressive” and “aspirational.”
‘Our confidence is grounded in the strength of our brands’
Acknowledging these concerns, Smucker reaffirmed the projections.
“Our confidence is grounded in the strength of our brands, from Uncrustables where there remains unmet demand across the country, to our coffee business where each of our brands has momentum, to our pet business which is seeing accelerated demand for dog snacks and continued momentum in cat food,” he said.
Net sales of Uncrustables grew about $130m in the company’s fourth quarter and total brand sales for the full year exceeded $500m, a year head of its original target, according to the company. And while Uncrustables' growth moderated in the fourth quarter due to capacity constraints related to temporary labor and supply chain challenges, Smucker said he expects the brand to return to double-digit growth in the first quarter of fiscal 2023, and accelerate in the back half of the year as additional capacity comes online with the completion of a new facility.
CFO Tucker Marshall echoed Smucker’s sentiments that recent setbacks for the brands are transitory, noting that over the past four years it has grown on after 19%.
“Bottom line, the brand is super healthy, it’s going to continue to grow … we do believe that we will become a billion dollar brand,” Smucker said.
Coffee profits dip in US, but sales up
As for the company’s coffee segment, Marshall said the company is anticipating “top line growth” throughout the year that is primarily driven by pricing related to inflation, which will also help margins improve as the fiscal year progresses.
The company also was encouraged by US retail coffee’s 11% net sales increase in fiscal 2022 over the prior year with growth across all brands and formats, led by an 11% increase in Folgers, 9% in Dunkin and 19% in Café Bustelo. The K-cup portfolio also increased 8% and accounted for about 30% of the segment’s net sales in the past year.
Still, the US retail coffee segment saw a 5% dip in profit, mostly related to unfavorable volume and mix, which could give some pause when looking ahead.
To build on the segment’s growth, the company plans to reinvigorate its iconic Folgers brand with new packaging near the end of the calendar year, Smucker said. He also noted that the company sees plenty of space to expand in coffee through acquisitions, including bolt-on opportunities, if they are a good fit.
Market share gains reflect strategic execution
Beyond these two segments, Smucker also noted that 86% of the company’s portfolio is growing or maintaining share, which he noted “does not just happen.” He explained, “It really is a combination of fantastic investment in our business execution by our employees, and execution of our strategy by which we have refined our portfolio. And so all of those factors have contributed to those fantastic results, and we just think … that our strategy is truly working.”
Still, some analysts on the quarterly call questioned the company’s optimism about consumer spending given some indicators show select groups are starting to trade down or pull back on how much they spend.
Smucker responded that the company has not seen any meaningful trade down in its categories yet and that it plays in segments that are more resilient and “a bit less discretionary.”
He also noted he is confident that at-home consumption will remain elevated and as such expects the brands to continue to grow.
He added: “We feel that we’re very well positioned in this environment and just will continue to execute on our strategy.”