J.M. Smucker (SJM, Financial) expects the typical ground coffee and roast to be extremely relevant to customers, becoming the major segment and attracting huge volume in the category. Although the current coffee pricing is greater at about $0.05 per cup, still core coffee is expected to offer a robust value proposition for customers.
Increasing volumes
In the previous quarter, the Folgers brand volume has increased straight in line for eight of the previous nine quarters. Smucker sees significant new opportunities for innovation in the core segment past flavors and new roasts.
Smucker, being the well-established coffee brand, is estimated to benefit hugely from its mainstream coffee segment despite the price rise.
The Dunkin Donuts brand resonates very well with customers and is witnessing accelerated rising volume in eight of the previous 10 quarters, expanding the market share for Dunkin Donuts in this exclusive segment with time.
The Folgers K-Cup and the lately introduced Café Bustelo K-Cups are estimated to significantly improve the Smucker brand visibility.
Gaining traction
The Dunkin Donuts brand is expected to gain significant customer traction with time, propelled by the innovative product introductions such as the already popular Folgers K-Cup and the lately launched Café Bustelo K-Cup.
In the consumer food segment, Smucker witnessed volume expansion in Crisco Oils, Uncrustable Frozen Sandwiches and Jif Peanut Butter in the quarter with significant year-over-year increase in the segment profit enabled by peanut butter.
Smucker expects significant segment profit and sales growth for its global natural food and food service segments in the second half of the year.
The increased demand for various product offerings of Smucker are believed to solidify the company’s balance sheet by significantly reducing the debt levels and enhancing the free cash flows leveraged for further company expansion.
The overall market conditions are starting to get better as highlighted by the U.S. retail sales comprising of all sectors increased 0.3% in October. Energy costs are declining both in natural gas and oil allowing consumers with greater disposable income. Hence, the recovering economy is based upon reinforcing consumer sector and expanding consumer confidence.
Going forward, Smucker is keenly and continuously focused on innovation primarily product innovation centred on the developing consumer trends.
Smucker’s Dunkin Donuts brand remained nearly insulated from the increased pricing with volume falling 3% as compared to an 11% volume expansion last year. The K-Cups volume trends continued to improve by 15% over the previous year allowed by 23% expansion of the Folgers brand. The net sales for K-Cup enhanced 12% during the quarter.
Smucker reported 2% volume increase for the Jif brand with robust expansion of Jif Natural Peanut Butter. Its Jif To-go product deliveries also improved considerably by 21% enabled by its lately introduced Jif To-go Dippers. However, the fruit spread volume of Smucker declined 3% during the second quarter allowed by lowered demand for its sugar free and lower sugar offerings. However, the company famous for its Jif peanut butter and fruit spreads derives a majority of its revenue from its U.S. coffee business, including brands such as Dunkin' Donuts and Folgers.
The sight reduction in the sales volume for the Dunkin Donuts brand, K-Cups' volume decline and falling fruit spread sales volume is expected to be balanced by the volume expansion in some of its key product introductions such as the Jif brand.
Solid continued sales trend was registered for Smucker’s Uncrustable frozen sandwiches, reporting volume increase of 22% over last year. It also illustrated an 11% successive quarter of double digit growth in retail channels. The entire Food Service Uncrustable business coupled with companywide Uncrustable volume increased 16% during the quarter.
In consumer foods segment, Smucker acquired Sahale Snacks in the quarter and is progressing excellently on integrating the brand which is believed to provide significant growth opportunities in the snacking vertical.
The noteworthy increase in the sales volume for the Uncrustable business along with the new business opportunity coming in with the acquisition of Sahale Snacks is forecasted to drive enhanced profitability for Smucker, going forward.
Conclusion
At present, Smucker is facing a tough situation in the coffee segment with declining sales; still the management is positive about the sales restoration for the segment in the second half of the fiscal year. So, investors look worried for their investments in the stock which is depicting a bumpy ride as the management’s expectation could not considered being perfectly right. Therefore, investors must wait and look out for the third quarter results which should allow them to take an informed investment decision.
