J.M Smucker: Hostess, Uncrustables and Coffee Bolster Earnings Results

Though margin improvements have helped cushion some of the impact, recent pet brand divestments pushed overall net sales at J.M. Smucker Co. down 12% during Q2, according to the company’s latest earnings report.

The drop in sales was largely driven by recent pet brand divestments and offset by margin improvements within its coffee portfolio. The results were also bolstered by the integration of the Hostess business and continued strength of Uncrustables.

“Our second quarter results reflect the continued demand for our iconic brands, our focus on executing with excellence, and the talent of our employees,” said Mark Smucker, the company’s board chair, president and CEO. “We are confident in our ability to capitalize on synergies and growth opportunities across snacking, while also continuing to support our other growth platforms in coffee and pet.”

Comparable net sales increased 7% ($121 million) year-over-year, divested businesses excluded, while operating income also notched a slight bump – up 2% to $298.9 million. Volume/mix rose 4% in the quarter, which Smucker said was primarily driven by strong volume gains and a 22% net sales increase from Uncrustables.

The company also felt changes to the macro-environment within the coffee industry on its balance sheet. Smucker’s coffee segment net sales declined 3% as raw material, freight and packaging cost dropped and the company worked to pass those savings onto consumers. Those savings have helped improve the company’s quarterly margin, which increased from 31.8% to 37.4%.

“Our coffee portfolio…grew volume share more than any other branded manufacturer this quarter,” Smucker said in a prepared statement. “Our brands continued to outpace the category on a volume basis, which underscores the advantages of our broad product offerings across various formats and price points.”

The company’s Café Bustelo business saw net sales grow 10% while both its Folgers and Dunkin brands saw strong volume performance. According to the report, Smucker’s expects its competitive pricing strategy to contribute to low single digit volume growth throughout the rest of the fiscal year.

As for the recently acquired Hostess business, sales are expected to be about $650 million this fiscal year, an annualized total of about $1.3 billion, which is slightly below the original projections of $1.5 billion in annual sales.

Tucker Marshall, the company’s CFO, attributed that gap in performance to Smucker’s expectations that there will be a bit of seasonality around the products leading up to the holidays and as consumers embrace health-forward New Year’s resolutions. In addition, it doesn’t account for the one week period of “lost sales,” an estimated $25 million, during the transaction period.

“We’re very confident in the consumer environment around snacking, but specifically to Hostess where they have a lot of great capabilities is their cadence of innovation,” Smucker said in response to a shareholder question. “They have the ability to be very agile in terms of the way they approach different times of the year, sometimes with seasonal [items], abilities around net revenue optimization, and the way they merchandise products.”