J.M. Smucker (SJM, Financial) reported not so impressive results for the first-quarter 2015 that failed to beat the street forecasts due to weakening of sales for its retail and consumer food business in the United States. Also, Smucker results were upset on account of pressurized advertising activities and lower price realization for a few of its high-performance brands such as Café Bustelo and Dunkin’ Donuts brands in its retail-coffee business in the United States.
Impressive performance
However, Smucker saw an uptick of 2% in the overall volume, on the top of 4% growth it had last year for these brands in its coffee division during the quarter. The company also witnessed healthy volume in its consumer food category for many groups such as Jif peanut butter, Smucker’s fruit spreads and Crisco oils that should help the company compensate its margins in the second quarter 2015.
The company posted revenue of $1.32 billion, a dip of about 2.22% as compared to revenue of $1.35 billion in the year earlier quarter, missing the Wall Street estimates of $1.37 billion in revenue in the first quarter 2015. Net income of $116 million or earnings of $1.14 per share tumbled almost 8.00% from $126.6 or earnings of $1.19 per share, in the same quarter a year ago. The analysts on the whole were expecting earnings of $ 1.37 per share for the quarter. However, the company informed adjusted earnings growth of nearly 11% to $1.31 per diluted share as against adjusted earnings of $1.21 per diluted share, last year in the same quarter.
The way ahead
Looking ahead, Smucker remains quite positive to deliver another year of resilient growth for its earnings as it anticipates its earnings to be in the range of $5.95 to $6.05 for the full year. This strong outlook is reinforced based on the number of key initiatives the company is undertaking this year that should accelerate its growth such as effective management of the price to costs affairs, strong pipelines of new state-of-the-art products, robust plans for marketing and merchandising, continuing fruitful investment in order to enhance its supply chain and last but not the least effective disposition of its strong cash flow.
Smucker remains well on track to acquire the Sahale snack business. Smucker anticipates the innovative and first-class product profile of nuts and fruits snacks of Sahale snack business to add growth to its consumer foods business in the second half of the year as the acquisition is said to be completed by the end of this quarter.
Meanwhile, the company is experiencing solid trend in the snack business with ground-breaking efforts that should complement growth for the company. Smucker has additionally rolled over various new snacking items such as the Jif To Go dippers that should contribute increasing its margins this quarter as well.
Segments are gaining momentum
In addition, its Retail Coffee segment in the United States looks pretty strong owing to improved prices for most of the brands that should create a competitive edge over its peers such as ConAgra Foods (CAG, Financial) and Mondelez International (MDLZ, Financial) going forward. Smucker had declared a 9% increase in the list price for the majority of its brands in June 2014. Also, its Café Bustelo brand is gaining tremendous traction in the market due to inauguration of Cafe Bustelo brand at K-Cups.
Smucker was pleased to observe positive traction for the K-Cup that continues to perform well in the market with a new distribution channel in place for its K-Cup business. Besides, the volumes for Café Bustelo is growing at a double-digit growth rate this year so far and Smucker expects this brand as well as full reflection of the increased price to deliver strong growth in the coming quarters that will certainly boost its margins for the full year.
Furthermore, Smucker has done away with the expansion of its manufacturing facility for the Scottsville plant of late that should enhance its capacity going forward and fuel growth for its growing brands in the consumer food division. In addition, certain brands such as Jif brand, Smucker’s fruit brand, Smucker’s Uncrustables frozen sandwich, Crisco brand in the bake corridor continue to perform well and the company expects these brands to augment its margins in the remaining quarters and for the full year.
Smucker is also looking forward to its newly launched Smucker’s Fruit-Fulls that should positively enhance growth for its natural fruit spreads. The company has witnessed strong positive response for the brand in the reported quarter. With the back-to-school season around the corner, the company looks committed to making an early impression with its marketing and merchandising plans that should drive its sales in the season.
Apart from these, Smucker also expects its International Food Service and Natural Food to perform well in the upcoming quarters. The company is aggressively practicing marketing and merchandising activities in Canada and China with diversification of its segment in the regions should drive growth in the coming years.
Conclusion
Smucker looks set to make a comeback, and investors should look beyond the company's latest results.
