- The J.M. Smucker Company posted a sales increase of 9% compared to a year ago — to $1.9 billion — buoyed by its recent acquisition of Ainsworth Pet Nutrition, according to its quarterly earnings.
- While sales increased in many of the company's segments, increased freight costs tore into those profits. The higher costs especially hurt the retail consumer foods section, which includes the company's signature fruit spreads and Jif peanut butter. Higher shipping took away $12.8 million in potential profit, and contributed to a 12% loss margin.
- CEO Mark Smucker touted the company's progress in the report. "Our strong first quarter earnings reflect the execution of our strategy, aligning our portfolio for growth in pet food, coffee, and snacking," he said. "During the first quarter, we completed the Ainsworth acquisition, which drove much of our year-over-year sales growth, and we are making significant progress toward integrating the business. We also announced a planned divestiture of our U.S. baking business, which is expected to close at the end of this month."
In these times where growth is difficult, Smucker is finding that pets are indeed the company's best friend. The $1.7 billion acquisition of Ainsworth Pet Nutrition earlier this year is immediately paying off — and keeping the Ohio-based company best known for its jellies and jams in the black. Minus the gains from the purchase of pet brands like Rachel Ray's Nutrish dog food, Smucker's sales were actually down 1%, slumping $9.2 million when compared to last year.
Most of the company's financial gains directly stem from the Ainsworth acquisition. Without it, pet food sales were down 2%, mostly stemming from the discontinuation of the Gravy Train brand and declines in the premium Natural Balance dog food line. However, the report says, the company saw gains in its other pet food brands, including Milk Bone, Meow Mix and Nature's Recipe.
The coffee segment also perked up with a 2% sales increase — and 20% in profit — compared to a year ago. Premium blends, including its new 1850 coffee, drove the uptick. The new coffee targets millennials and updates the staid Folger's brand, which has been consistently declining over the last several years. Other top-tier coffee varieties, including Dunkin' Donuts and Cafe Bustelo also helped sales.
The company's namesake spreads were again a dim spot on the report. Jams and jellies were not specifically called out, but the retail foods segment saw a 1% sales decrease. While Uncrustables performed well, Jif did not.
While it's apparent the Ainsworth acquisition was a savvy business decision, the company has more pending moves that may further help its bottom line. Like many companies, Smucker is in the process of getting rid of product lines that detract from its core business. It's currently working to sell its baking brands, which include Pillsbury, Martha White, Hungry Jack, White Lily and Jim Dandy. The $375 million sale to private equity firm Brynwood Partners is expected to close this month, Smucker noted in the release. The baking arm had been foundering for years as consumers have been more interested in better-for-you foods. Once the sale is final, Smucker will have an influx of cash — as well as more opportunity to concentrate on pet food, coffee and spreads.
The company also has a new innovation pipeline. Its recent agreement with Rev1 Ventures connects the CPG company with startups working with ingredient and process technology, snacking, commodity and supply chain. Smucker, which has a foundation of legacy brands, has been successful in spinning them forward through innovations ranging from Uncrustable peanut butter and jelly sandwiches to Jif Power Up snacks. The 1850 coffee varieties also showed how the company leveraged the old standard Folgers and made it new by playing up the brand's connections to the California Gold Rush — and putting it in K-cups.
There is definitely room for Smucker to grow in the future, both through improving its current product lines and potential acquisitions. Its spreads may be the first for a makeover. According to Mordor Intelligence, the U.S. jams and jellies market is only projected to grow at a rate of 1.7% through 2023 — particularly because spreads have a high sugar content and the number of consumers who use the products is continuously declining as the population ages. Some new ideas could change the way consumers see the brand and use the spreads.
Smart acquisitions — like Ainsworth Pet Nutrition — can also help the company continue its growth. A purchase this beneficial doesn't come along too often, and the CPG giant was wise to have made the deal. As the coffee market continues to heat up, it potentially opens up other areas for Smucker to make new deals that take advantage of excitement in one of its core product lines.