- J.M Smucker's fourth quarter earnings missed Wall Street expectations, with sales falling to $1.781 billion from $1.784 billion, according to a company release. Net income rose to $185.9 million, or $1.64 per share, from $110.4 million, or 96 cents per share, in the year-ago period. Company shares fell 9% in premarket trading Thursday morning.
- The company attributed these lackluster results to weak demand for its peanut butter, baking products and oils. Price increases for the Jif peanut butter brand and Crisco cooking oil also dragged performance, the company said. The declines were partially offset by the Folgers and Dunkin' Donuts coffee brands, which performed well thanks to lower coffee prices.
- CEO Mark Smucker pointed to bright spots including recent product launches and innovation, such as its 1850 premium coffee brand and Jif Power Up snacks, and the acquisition of the Rachael Ray Nutrish dog food brand. "While fourth quarter adjusted earnings per share was below our projections due to industry-wide headwinds and certain discrete items, the actions we are taking to align our portfolio for growth set up our business to win," Smucker said in the release.
As trendy, health-focused upstarts and powerful private label brands continue to squeeze the food industry, Smucker has poured money into R&D to try and maintain a competitive edge. Much of this spending has gone toward the struggling Folgers coffee brand, which has dragged company performance in the past. Earlier this year, Smucker debuted 1850, a new line of premium coffees geared toward millennials and longtime Folgers customers that plays up the brand's connection to the California Gold Rush.
These efforts seem to be paying off, as Smucker's U.S. retail coffee sales rose by $2.3 million for the period. This improved performance was also buoyed by lower coffee prices.
The company's U.S. consumer foods division, which includes brands such as Pillsbury, Jif, Crisco and Smucker's, didn't fare as well, falling 2%.
Pillsbury has been floundering for years now and bruised Smucker's net sales last quarter. It's possible that growing consumer interest in better-for-you, clean label fare has driven customers away from Funfetti cake mix and frosting.
Smucker announced in March that it's considering selling its stagnant baking brands, putting Pillsbury, Robin Hood flour and cereal and Martha White Baking mixes on the chopping block. These brands, which represented 5% of the company's revenue in 2017 — down from 10% in 2014 — could fetch an estimated $700 million. Given Pillsbury's track record, it may be safer to cut the brand and the rest of the company's stale baking assets to focus on healthier segments.
Smucker could use the capital gained from this sale to continue revamping its coffee, peanut butter and snack brands to better align with consumer interests and eating behaviors. It would also give it the flexibility to pursue on-trend brand acquisitions, such as its recent $1.7 billion purchase of Ainsworth Pet Nutrition. The deal gives Smucker, which also owns Nature's Recipe dog food, Big Heart Pet Brands, Milk-Bone dog treats and Meow Mix cat food a stronger foothold in the fast-growing pet food segment.
The company expects the Ainsworth Pet Nutrition to contribute $800 million in net sales and $25 million in annual cost synergies in the first full year once the deal closes. So far, this acquisition seems to be a savvy way to get Smucker back to growth, though the segment slipped slightly in the fourth quarter.
Whether Smucker continues to invest in pet food innovations and acquisitions remains to be seen, but given the payoff from the investment in coffee and clean-label peanut snacks, it seems clear that the company will need to continue pouring cash into its once-beloved brands to get them in fighting shape.