- Smucker announced a 37% increase in third quarter net sales to $1.97 billion, due in large part to its acquisition of Big Heart Pet Brands during fiscal 2015.
- Net income per diluted share fell 2% due to merger and integration costs, higher interest expense, and the impact of additional shares outstanding not being offset by gains from Big Heart and the company's divestiture of its U.S. canned milk business.
- CEO Richard Smucker attributed the quarter's performance to releasing on-trend products, including Dunkin' Donuts K-Cup pods, and lowering prices on Folgers products.
Strategic pricing and innovation are key for Smucker's coffee segment, as it has been one of the main contributors to the company's revenue growth in the past few years, particularly since its acquisition of Folgers in 2008.
In the second quarter, coffee accounted for about 28% of Smucker's total sales. More importantly, coffee produces a higher profit margin than other segments, so expansion in this segment also means better potential for earnings growth. Current declines in coffee costs are boosting that margin further, for now. But whether Dunkin' Donuts K-Cup pods are going to be the revenue driver Smucker was hoping for in this market is uncertain, judging by Keurig's recent performance.
Lowering prices might impact coffee's margins, but the move was necessary after consumer backlash from Smucker raising coffee prices by about 9% in 2014. Last July, Smucker announced it would taper back prices for many of its Folgers and Dunkin Donuts products by 6%.