All three business segments had revenue growth in Q1 and total net sales increased by 15 percent. Most of the growth was due to acquisitions and product innovation. Volume increased by 2 percent, led by coffee and peanut butter. Overall the higher and lower price points are doing well. The middle price points are getting squeezed, although the middle is coming back a bit.
In the coffee segment, sales increased but earnings declined due to a record first quarter a year ago as a result of favorable pricing conditions. K-Cups sales continue to be strong. The K-Cup business is more seasonal than other coffee products, especially around the pre- and post-holiday season. J.M. Smuckers expects K-Cup sales to increase by 60 percent in 2013. Pricing and promotion helped the Folgers and Dunkin Donuts coffee sales grow during the quarter. J.M. Smuckers is nearing completion of the expansion of its 2 facilities in New Orleans, and the project is on time and on budget.
In the Consumer Foods segment, volume was flat, although net sales increased by 15 percent. The peanut butter and Smuckers Uncrustable products had strong growth. Part of the Uncrustables growth was due to capacity restraints last year. Reinstatement of the back-to-school promotion improved peanut butter sales. Hazelnut butter and other alternative nut butters have grown in the last few years. In this segment, J.M. Smuckers continues to work on pricing strategies to remain competitive, including a 10 percent price decline in its branded milk business. Finally, J.M. Smuckers has begun production in its new manufacturing facility in Orville, Ohio last month.
In the International, Foodservice and Natural Foods segment, sales increased by 40 percent, mostly due to the foodservice business acquired from Sara Lee. J.M. Smuckers will be launching new products in this segment, including a whole wheat Uncrustables for its school business and additional K-Cup products in Canada. J.M. Smuckers continues to exit the private label roast and ground business it acquired in the Sara Lee foodservice business. The performance of core liquid coffee offerings is still strong.
J.M. Smuckers is optimistic for the next quarter and into the holiday season. It sees improving trends and does not believe it will need to adjust its pricing any further through the end of the calendar year. It could adjust promotions as necessary.
In terms of acquisitions, J.M. Smuckers has a wish list of brands that it feels would go well with its brand and it believes some of those brands will become available in the next 24 months.
Overview of markets
Consumers are still feeling pressured by the economy and J.M. Smuckers does not expect consumer confidence to abruptly improve. However, volume trends are improving, which have been helped by moderating food inflation. There has been a bit of consumer optimism return.
The impact of the drought will not be realized for several months.
Financials
Sales increased by 15 percent in Q1. Half of the increase was due to the foodservice acquisition from Sara Lee. For fiscal year 2013, J.M. Smuckers expects sales to increase by 7 percent.
Gross profits increased by 6 percent. Much of this was due to unrealized gains on commodity contracts, which may reverse later in the year. Commodity costs were higher in Q1, but J.M. Smuckers expects lower green coffee costs in Q2.
Earnings per share increased by 4 percent to $1.17/share versus $1.14 a year ago. J.M. Smuckers expects earnings per share in fiscal year 2013 to be in the higher end of the $5.00 to $5.10 range.
The Board of Directors authorized an 8 percent dividend increase for the dividend payable in September.
The transcript of the earnings conference call can be located on Seeking Alpha at the following link:
http://seekingalpha.com/article/814331-the-j-m-smucker-management-discusses-q1-2013-results-earnings-call-transcript?part=single
Copyright 2012 Jaygo's Earnings Conference Calls
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