ORRVILLE, OHIO — Sales of Folgers coffee fell short of projections in the recent quarter, contributing to a decline in revenue and profit for The J.M. Smucker Co. Financial results also included a non-cash impairment charge in the current year and a prior-year gain on the company’s divestiture of its U.S. canned milk business.
Net income for the third quarter ended Jan. 31 was $134.6 million, equal to $1.16 per share on the common stock, which was down 27% from $185.3 million, or $1.55 per share, in the prior-year period. Net sales totaled $1,878.8 million, down 5% from $1,973.9 million. Excluding the U.S. canned milk business divested in the prior year, adjusted earnings per share increased 5% and net sales declined 3%, driven by pricing actions across a number of categories and lower coffee volume.
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| Mark Smucker, c.e.o. of The J.M. Smucker Co. |
“Despite the top-line weakness in our business we expect full-year earnings per share to be generally in line with guidance issued at the outset of the year,” said Mark Smucker, chief executive officer, during a Feb. 17 earnings call with financial analysts. “Accelerating synergies and a concentrated effort to manage discretionary spending across the company allowed us to continue to deliver bottom-line growth.”
During the quarter, U.S. Retail Coffee segment profit declined 12% to $172.2 million, while segment net sales were $537.6 million, down 7% from the prior-year period. Three factors led to the shortfall in the company’s Folgers coffee business, Mr. Smucker said.
“First, a change in the size and timing of our list price increase,” he said, citing a 6% increase across most of the company’s coffee portfolio announced in early January to offset higher green coffee costs. “Second, aggressive competitive price points in both mainstream coffee and K-Cups, which we chose not to match. And third, a delay of expected shipments to certain customers with January fiscal year end.
“Some of the stepped-up competitive pricing has carried into the fourth quarter influencing our coffee forecast for the year. However, based on shipments to date in February and plans for incremental merchandising activity, we expect a sequential improvement in Folgers top-line trends for the fourth quarter.”
Meanwhile, Smucker’s premium coffee brands, Dunkin’ Donuts and Café Bustelo, each delivered double-digit per cent volume mix growth in the quarter.
“And we are pleased to say we have a robust pipeline,” said Steve Oakland, vice-chair and president, U.S. Food and Beverage. “We are right in the middle right now of launching an at-home Dunkin’ cold brew kit.”
He added, “Our premium brands are positioned well. As they grow they will be big enough over time to offset some of the decline in the mainstream roast and ground segment.”
U.S. Retail Consumer Foods segment profit was $119.2 million, down 8% on a reported basis and up 26% excluding the impact of the U.S. canned milk divestiture. Segment net sales were $517.3 million, down 9% on a reported basis and down 2% excluding the divestiture.
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| Mark Belgya, vice-chair and c.f.o. of The J.M. Smucker Co. |
“Looking at the key brands, Jif and Pillsbury sales were comparable to the prior year,” said Mark Belgya, vice-chair and chief financial officer. “Sales for the Smucker brands were down 4% reflecting the volume impact of our recent price increase of fruit spreads, while Crisco declined 3% on lower volume. Lastly, sales declined significantly in the quarter for our truRoots brand due to reduced distribution. However, this was partially offset by growth in our private label grains business.”
U.S. Retail Pet Foods segment profit increased 2% to $126.3 million, helped by lower marketing expense and incremental synergy realization that offset lower volumes. Net sales were $550.9 million, down 4%.
“While growth for the pet business is trailing initial expectations, we are confident in the plans we have in place to improve performance and remain optimistic about the long-term growth potential of this business,” Mr. Smucker said.
In the International and Foodservice segment, profit fell 7% to $45.5 million, reflecting a write-off in the current year associated with the disposal of assets and a profit in the prior year related to the divested canned milk business. Segment net sales advanced 6% to $273 million.
