Smucker's cuts earnings outlook as lower Folgers sales weigh on business
- Challenges in its Folgers roast and ground coffee brand contributed to declines of sales and income in J.M. Smucker's most recent quarter, according to the company's earnings report. Sales were down 4% from the year ago period to $1.7 billion from $1.8 billion. Income dropped by a fifth, to nearly $234 million from nearly $294 million a year ago.
- Sales in the company's consumer foods division — which includes Crisco, Pillsbury and Smucker's brands — were also down by 8%. The manufacturer's other major division, pet foods, saw an uptick of $2.2 million in sales, but lower prices sent profits down by 20%. The company lowered the midpoint of its full-year fiscal 2018 adjusted earnings per share guidance range to $7.75-$7.95 from $7.85-$8.05.
- "While our first quarter results fell slightly short of our projections, primarily driven by lower than anticipated volume for Folgers roast and ground coffee, we have taken actions to improve our competitive positioning for Folgers," Mark Smucker, the company's chief executive officer, said in the earnings report. "As a result, volume trends are improving. In addition, we remain pleased with the performance of the remainder of our coffee portfolio and look forward to the launch of new coffee products later this fiscal year."
This quarter represents the fifth straight where Smucker has lost money in the coffee business. The Ohio manufacturer that built its reputation with its namesake jams and jellies owns several coffee brands, including Cafe Bustelo and Dunkin Donuts — both of which performed better this quarter than the one before. The challenge during the period came in its legacy brand Folgers.
The coffee brand has been a coffee institution for more than 150 years. But as consumers have become more interested in specialty coffees, the brand has gone by the wayside. And the decline isn't just something unique to Folgers. According to IRI, retail coffee sales have grown at a CAGR of 4.6% from 2012 to 2016 — but most of that has come from single-cup brew sales. Sales of instant coffee and whole beans has sharply declined by 11%, with ground coffee down 9%.
Consumer demand for convenience also has shifted the market toward packaged RTD cold coffees. Packaged Facts projected this segment growing 10% year-over-year, and it expected sales to reach $18 billion by 2020. Most major beverage producers and coffee manufacturers now produce single-serve bottled cold-brew and RTD coffee blends to take advantage of this market — which Folgers has not yet entered.
Legacy coffee brands have had an uphill climb as the breakfast beverage has become more craft-focused. Kraft Heinz's Maxwell House brand, which has been a coffee aisle staple for generations, recently debuted a caffeine-enhanced variety called Max Boost, which caters to millennials.
Time will tell if this offering brings the brand success in a world of niche coffee roasters and craft-produced beans. However, new ideas like this — as well as an entry into cold-brew RTD drinks — could certainly help Folgers improve its staid brand image among younger consumers. A bit of a wake-up call is needed for the brand, especially in the shadow of a potential deficit in coffee production that has the potential of increasing prices. Barclays analyst Andrew Lazar agreed, writing, "We believe SJM is having to get more competitive in this segment."
Other portions of Smuckers business bode well for the future. These results don't reflect the company's $285 million purchase of Wesson cooking oil from Conagra, which is expected to give the manufacturer an annual net sales boost of $230 million. Once this is added in, the well-trusted oil brand may be enough to give the consumer foods division the extra push it needs to grow both sales and profits.
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