In the prevailing competitive environment, companies need to keep up its pace against other industry players in order to survive. The competition is tough, as a highly promotional environment makes customers’ minds unpredictable. Therefore, each company is trying to make an impact and boost its sales through different measures.
J.M. Smucker (SJM, Financial) is a snack food provider, which provides various food options to busy customers. Despite its number of efforts, its recent quarter was a lackluster one wherein the numbers were not up to the Street’s estimates. Let us check on what’s happening.
The reasons for under-performance
Revenue stood at $1.32 billion, a drop of 2% over last year and lower than the estimate of $1.36 billion. A key reason for this decline was price reductions on many products of the retailer. Therefore, net price realization was lower than last year, as commodity costs decreased. Also, J.M. Smucker exited its private label hot beverage business, which led to lower revenue from International, Foodservice and Natural Foods segment.
One of the best performing categories was the U.S. Retail Coffee segment. The volumes in this segment rose 2%. Both Folgers coffee brand and Dunkin Donuts jumped 2% and 3%, respectively. The star performer in this segment was Cafe Bustelo, which was acquired by the retailer in 2011. Revenue from Cafe Bustelo jumped 24% and is expected to continue to grow in the future. Further, sales volume of K-Cups climbed 8% over the prior year. These were some of the bright spots in the company’s results.
U.S. Consumer Foods segment fell 3%, mainly due to weakness in the Pillsbury brand. Pillsbury baking products’ volume dropped 10% and revenue from the same plunged 11%, over last year. However, this was partially set off by strength in the Crisco and Jif brands.
Adjusted earnings jumped 11% to $1.34 per share. However, it was unable to meet the estimate of $1.37 per share. This was mainly because of changes in the green coffee costs. In fact, coffee costs have risen recently. But the company’s increase in product prices will be able to set off the effects of the rise in cost.
In the broader picture
Despite all the problems, J.M. Smucker did manage to register growth in both the top and bottom line. This is mainly because of its efforts to grow its business through acquisition. Its acquisition of Cafe Bustelo in 2011 and Enray in 2013 contributed well to its top line. However, its buyout efforts do not stop here. It is about to acquire Sahale Snacks in the coming months, which will add $50 million to its top line, on an annual basis. Also, it will expand its product portfolio to include premium nut and fruit products.
Further, the retailer continues to innovate. It has been bringing in new products which provide customers more reasons to buy. In fact, it plans to introduce 100 new products during this year, which will boost its revenue. Moreover, it is also focused on building new business channels, such as e-business channels.
Summary
These efforts look good enough for the snack maker’s bright future. J.M. Smucker is indeed doing a good job of managing its costs as well as its revenue. Increasing coffee costs are also being taken care of by increasing the product prices. With new products on the cards, another acquisition and focus on e-commerce, this company is definitely worth a look.
