US food group JM Smucker said “unprecedented competitive pricing” throughout the second quarter contributed to volume declines in its oils and baking segment.
The firm yesterday (18 November) booked an increase in quarterly profits and upped its earnings guidance for the full year.
However, in the US retail oils and baking segment, net sales and volume for the quarter declined 8% and 10% respectively as a result of the competitive and promotional environment. The firm’s Pillsbury brand experienced double-digit declines in volume for the quarter, partially due to a planned reduction in flour sales.
Tim Smucker, chairman and co-CEO, said: “[In] our oils and baking segment, unprecedented competitive pricing throughout the quarter contributed to sales in volume declines, compared to a strong second quarter last year.
“In many instances particularly in the baking business we chose to protect profits over market share,” he added. “We believe the current aggressive pricing will continue throughout the remainder of the fall bake period but are encouraged by the merchandising programmes we have in place for the fall bake period.”
Mark Belgya, CFO, added that, going forward, the firm predicts “significant increases” in the market prices for the majority of its key commodities, most notably in wheat, corn, oil and coffee.
“As a result, we now expect fiscal 2011 cost increases to approximate 7% of costs,” Belgya said. “While we are generally hedged on key commodities from late-third quarter to mid-fourth quarter in the fiscal year, we will continue to monitor the situation closely to determine appropriate future pricing actions.”
Nonetheless, Paul Wagstaff, president of oils and baking, said the firm has seen oils volumes start to “come back here in the recent four or five weeks” and that it anticipates that trend continuing through the balance of the year.
Asked about future merger and acquisition opportunities, Smucker said the M&A environment was “heating up a little bit”, adding that it was continuing to look at “a number of opportunities”.
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