JM Smucker booked higher full-year earnings last week despite a drop in revenue from its food brands. With coffee and pet food outpacing Smucker’s packaged food business, can the company lift the performance of its spreads-to-snacks brands?
Last week, JM Smucker, the US group, booked a near-37% increase in full-year sales, lifted by its recently-acquired Big Heart pet food business and Folgers coffee sales. However, revenue from Smucker’s food brands, which include Jif peanut butter, Robin Hood baked goods and Sahale snacks, was down in the 12-month period.
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Smucker’s consumer food sales fell to US$2.27bn in the year to 30 April from $2.33bn in the prior year. The top-line performance on food was worse in the fourth quarter, reflecting the sale of Smucker’s US canned milk business to Eagle Family Foods Group in November. The company said segment revenue was down 2% in the quarter, falling to $473.7m.
Speaking to analysts during a conference call, president and CEO Mark Smucker also revealed the group had been hit by category issues in the baked goods sector. “In the baked aisle, the overall category remains challenged throughout much of this past year, reflecting changing consumer preferences and aggressive competitive pricing,” he noted.
Smucker turning to innovation
As the company works to improve the performance of its struggling bakery brands, which include Brodie and Monarch flour, Smucker said it will concentrate its efforts on innovation as well as using its relationship with Girl Scouts of America.
Mr Smucker explained: “Our focus remains on providing value-added innovation such as our recent gluten-free and simple ingredient offerings. We are also excited to announce a licensing arrangement with the Girls Scouts of America. Under this agreement, we are launching new Pillsbury items, featuring iconic Girls Scout cookie flavours.”
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By GlobalDataElsewhere in its packaged foods portfolio, Smucker management was more upbeat on the group’s performance and prospects.
“Looking briefly at the key brands, we are pleased with the overall performance of our spreads business, as both Jif peanut butter and Smucker’s fruit spreads grew volume share over the latest 52-week period. In addition, Smucker’s Uncrustables frozen sandwiches had another strong year with volume up 26%, including a seventeenth consecutive quarter of double-digit volume growth in this most recent fourth quarter,” Mr Smucker detailed.
The executive attributed this momentum to the company’s efforts around innovation, which will serve as the foundation for Smucker’s plans to try and grow in food over the coming 12 months. “On-trend innovation continues to be a focus area for the iconic Jif and Smucker’s brands. In fiscal 2017, we look to build on recent successful launches such as Smucker’s Fruit and Honey Fruit Spreads and Jif snack bars. This includes the upcoming introduction of new snack bar varieties and plans to expand in to other snacking platforms.”
The company also expects its Jif, Smucker’s and Uncrustabes sales to benefit from the firm’s sponsorship of the 2016 US Olympic and Paralympic teams, which will be an “integral” part of the firm’s marketing efforts over the next 12 months.
Further investment in China
While the company is working to revitalise its food sales in the US through marketing and innovation investment, it is also taking tentative steps to expand its fledgling business in China, CFO Mark Belgya revealed.
“We are investing in innovation and growth, and also in China,” he said. “In terms of sort of the financial impact, I would say, [investment in China is] about $0.03 to $0.05 [per share] for the current year in fiscal ’17.”
However, chief executive Mr Smucker was coy on the group’s long-term strategy in the Chinese market, insisting it was “a little bit early” to be “giving too many details in that area”. But the Asian country is clearly on the firm’s radar.
“We’ve talked about the fact that we have had a minority investment in an oatmeal business there and that business has continued to grow year-over-year and so we have been pleased with that minority investment as it relates to other things, I think it’s still little bit early for us to give any specifics,” he noted.
Smucker looking for cost savings
While Smucker is investing in its brands in an effort to improve sales, the company also revealed it is targeting $50m in additional annual cost savings over the “next few years”.
“Related projects include further optimising our manufacturing footprint as over the next 18 months, we will close a coffee facility in Harahan, Louisiana, and two least natural foods facilities located in Livermore, California, with production being consolidated into existing operations,” Mr Smucker said.
The Livermore units were acquired as part of JM Smucker’s purchase of organic and gluten-free products manufacturer Enray in 2013. Details of the closures in California were first released in April, when it said the closures were expected to be completed by the end of January next year.
Examining the synergy target, JP Morgan analyst Ken Goldman said the $50m in additional efficiencies were “a little bit of a smaller amount than what I had expected”. He added it was also “a little bit smaller, at least on a percentage of sales, from what [Smucker’s] packaged good peers have come up with”.
Mr Smucker insisted the firm already runs a tight ship. “If you think about our performance historically has been very good and we have had historically a very strong cost discipline in multiple areas of our business,” he said. “Our productivity measures versus our peers are probably better in many cases and we are generally leaner I would say than some of our peers.”
