Dive Brief:
- J.M. Smucker Co. saw net sales slide 8% to $1.91 billion in its fiscal second quarter 2017, according to the company's earnings report. That decline was more than analysts had anticipated, and the second consecutive quarter of lower sales.
- Net income per diluted share rose 3% to $177.3 million, or $1.52 per share, and adjusted EPS increased 7% to a record $2.05 per share. Smucker credited the increase to "incremental synergy realization, a lower tax rate, and fewer shares outstanding," according to the news release.
- Smucker maintained its full-year fiscal 2017 outlook for net sales and adjusted EPS and free cash flow.
Dive Insight:
Smucker's sales declined in part because of lower demand for pet food brands, like Kibbles 'n Bits and Meow Mix, as consumers turned to competing brands from Mars and Nestle. But in the earnings report news release, the company announced the upcoming rollout of premium pet food brand Nature's Recipe, which could offset declines in future quarters.
Most major food and beverage manufacturers don't sell pet food, so this has been somewhat of a unique challenge for Smucker's since it acquired Big Heart Pet Brands for $5.8 billion last year. Smucker's will need to work on turning around this segment's performance to improve investors' confidence and demonstrate that it wasn't a misguided investment.
Smucker's also reported a 13% net sales decrease in its U.S. consumer foods business, the company's largest segment, due in part to the performance of the Jif and Pillsbury brands. But Smucker's Uncrustables frozen sandwiches posted growth, which demonstrates the company's ability to identify, position and market on-trend products. The rest of its portfolio now needs to catch up to modern innovations.
While lower coffee prices buoyed the company's coffee segment volumes in the past, that wasn't the case this quarter. Sales for Smucker's U.S. coffee segment fell 6% due to the price cuts Smucker's initiated over the past year and a volume decline for the Folgers brand.
Smucker's lost customers after raising prices to offset higher coffee bean costs in 2014, but the company has attempted to lower them twice to lure consumers back. It may be too late for Smucker's if those consumers found other major or startup coffee brands that meet their needs for a lower price.