ORRVILLE, OHIO — Disruptive weather patterns in Brazil, the Pacific Northwest and Texas pushed coffee, fruit and packaging costs higher for the J.M. Smucker Co. and impacted first-quarter earnings.
“In the quarter, we successfully implemented net pricing actions to fully recover the cost increases heading into the fiscal year on a go-forward basis,” said Mark T. Smucker in prepared remarks released Aug. 26. “However, macroeconomic factors have continued to evolve, creating incremental supply chain uncertainty around the availability of labor and transportation, and multiple extreme weather events have impacted key commodities important to our business.”
In Brazil, frost affected the coffee harvest and limited the amount of coffee beans available to roasters. Mr. Smucker said his company is one of the largest coffee roasters in the world and will be able to meet its needs, but at higher prices.
Adding to inflationary pressures was the freeze in Texas this past winter, according to Tucker H. Marshall, chief financial officer. Suppliers of packaging materials in the region are continuing to recover from the event.
“So, as a result of this persistent inflation, we continue to manage through very effectively not only through our supply chain and relationships with our suppliers and the great work by our teams, but we've got to acknowledge this inflation in our P&L and we need to recover it,” Mr. Marshall said. “And we are going to recover it through additional pricing actions this fiscal year that we anticipate in the second and third quarters.”
J.M. Smucker net income for the quarter ended July 31 fell 35% to $154 million, equal to $1.42 per share on the common stock.
Quarterly sales fell 6% to $1.86 billion.
In addition to inflation, other items affecting earnings were divestitures of the Crisco and Natural Balance businesses as well as contribution from volume/mix.
In US Retail Pet Food, the company’s largest business unit, sales fell 6% during the quarter to $648 million. Contributing to the decrease was the divestiture of Natural Balance.
Business unit profit fell 36% to $80 million primarily due to higher commodity and transportation costs.
US Retail Coffee sales fell 5% during the quarter to $543 million, and segment profit fell 17% to $151 million.
“Net sales were slightly behind expectations, decreasing 5% versus the prior year, primarily due to lapping retailer inventory restocking,” Mr. Smucker said. “Our portfolio of brands outperformed the category, gaining 1.1 points of dollar share in the quarter.
“On a 2-year CAGR basis, net sales grew 8%, as consumers have sustained at-home coffee habits formed during the pandemic. At-home coffee currently represents around 75% of all coffee drinking occasions, compared to two-thirds pre-pandemic.”
In the US Retail Consumer Foods business unit, sales fell 11% to $436 million, and segment profit fell 10% to 118.7 million. Excluding noncomparable sales for the divested Crisco business, net sales rose 4% versus the prior year, according to the company.
“We grew share across all our key brands Jif, Smucker’s and Smucker’s Uncrustables,” Mr. Smucker said.
Total Uncrustables sales, including in the Away From Home business unit, exceeded $120 million in the quarter.
“The expansion of our facility in Longmont, Colo., is advancing and will provide capacity to exceed our $500 million annual sales target in fiscal 2023,” Mr. Smucker said.
Jif peanut butter sales rose 9% during the quarter, and the business gained over 5 share points, according to Mr. Smucker.
“Points of distribution have increased 6% compared to a year ago, reflecting the lapping of out-of-stocks in the prior year and incremental distribution in recent shelf resets,” he said. “In addition to core offerings, Jif Squeeze and Jif No Added Sugar innovation that has been in market for the past year are both contributing to growth and were the No. 1 and No. 2 innovation items launched in the category.”
International and Away From Home sales rose 6% to $231 million, and segment profit was up 6% to $33 million. Mr. Smucker said market share gains of Uncrustables was a significant contributor during the quarter.
Management revised its outlook for fiscal 2022 and now expects sales to decline 2% when compared to the year prior. The company had guided adjusted earnings per share to be between $8.70 and $9.10 per share but are now guiding a range of $8.25 to $8.65.
“Given the timing of cost increases and recovery through both initial higher net pricing actions effective at the end of the first quarter, and additional net pricing actions later this fiscal year, earnings are expected to decline in the second and third quarters,” Mr. Marshall said. “The decline in the second quarter is anticipated to be approximately 15%. The fourth quarter is expected to grow more than 20%, reflecting higher net pricing catching up to higher costs and the lapping of around $40 million of incremental marketing spend in the prior year.”