Dive Brief:
- J.M. Smucker reported a 25% increase in fourth quarter fiscal 2016 sales to $1.81 billion, which beat analysts' estimates. Growth was attributed to the contribution of its Q4 2015 Big Heart Pet Brands acquisition and a high single-digit boost to Smucker's U.S. retail coffee business.
- Quarterly net income per diluted share increased to $191 million, or $1.61 per share, compared to a net loss of $0.82 per diluted share last year, due to costs related to the Big Heart acquisition.
- The company expects a 1% decline in fiscal 2017 sales due to it U.S. canned milk divestment (analysts predict flat revenues). But Smucker also projected adjusted earnings of $7.60 to $7.75 per share, significantly higher than analysts’ estimates of $6.37 per share.
Dive Insight:
Smucker had a successful quarter and end to the fiscal year, but without Big Heart's contribution, the revenue jump wasn't quite as significant. Excluding Big Heart and the impacts of foreign currency exchange and the U.S. canned milk divestiture, quarterly net sales increased by 5%. Still, that beats out revenue reports from key competitors like Nestle (3.9% organic growth) and General Mills (4% decline on constant currency).
Smucker's U.S. retail coffee sales continued its turnaround with a 9% boost in the latest quarter, after a 1% sales gain in the previous quarter. Innovation has been key to this turnaround, particularly the debut of Dunkin Donut coffee K-Cups, since Smucker's misstep in raising coffee prices by 9% in 2014, which cost the company market share.
Last July, Smucker dropped prices back down by 6%, followed by another 6% price cut announced last month. The price reductions in part reflect lower coffee costs, which have settled since the 2014 drought in Brazil. But Reuters also reported that competition from supermarket brands likely pressured Smucker to take its price cuts down further to prevent losing more coffee market share.
Consumer foods, which includes the company's namesake fruit spreads, reported a 2% sales decrease for the quarter. But without the U.S. canned milk divestment, higher pricing for the Jif and Pillsbury brands led to a 5% revenue bump.
Smucker has been a valuable stock, with shares up 20% over the past 12 months after hitting a record high Wednesday and delivering relatively steady returns for investors in that time. But that stock growth has not been backed by fundamental changes to the business, besides the Big Heart acquisition. This means it could be risky for investors to continue holding onto Smucker shares, according to The Wall Street Journal. However, that assessment was also based on analysts' projections for 2017 earnings, which the company's profit predictions for the coming year surpassed.