Strong coffee sales energize JM Smucker earnings despite sticky slowdown of recalled Jif products

23-Aug-2022 - Last updated on 25-Aug-2022 at 17:54 GMT

Source: JM Smucker

Despite an ongoing recall of Jif peanut butter, JM Smucker eked out better than expected net sales thanks to the success of its popular coffee brands, including Café Bustelo, Folgers and Dunkin, and its Uncrustables brand – all of which faced their own set of challenges in the company’s first quarter of fiscal year 2023.

The company reported yesterday that net sales for the quarter ending July 31 increased 1% over the same period last year to reach $15m, including a 9% unfavorable impact from Jif peanut butter related to an outbreak of salmonella linked to its Lexington, KY, manufacturing facility.

The recall also dragged down the company’s US retail consumer foods segment’s net sales, contributing a 32% unfavorable impact to a 29% drop in net sales compared to the pervious year, and the segment’s profits, which fell 54%, CFO Tucker Marshall told investors yesterday.

Despite these and other challenges related to inflation, supply chain challenges and other macro-trends, Marshall said the quarter “exceeded our expectations” with most of the increase coming from Smucker’s US retail coffee, pet food and Uncrustables business.

The increased contribution from all three businesses can be attributed largely to industry leading price increases necessary to offset inflation but which did push up elasticities slightly and squeeze some volume, but the company still managed to report sales growth across the board, CEO Mark Smucker said.

Coffee sales soar as Folger’s embraces its ‘bad reputation’

In coffee, net sales increased 10% and dollar share for the company’s brands grew more than any other branded manufacturer for the fifth consecutive quarter – outpacing the overall coffee category, Smucker said.

“Café Bustelo was the fastest growing brand in the at-home coffee category, with consumer take away up 24% in the quarter,” followed by the Dunkin brand, which saw net sales increase 12% as it expanded beyond hot coffee into cold brew, K-cup and pre-pack roast and ground formats, Smucker said.

Folger’s dollar sales also outpaced the category in the quarter with more than double the volume share of any other brand in the category, which reflects the company’s efforts to “reinvigorate the iconic brand” with a marketing campaign launched earlier this year, he said.

The campaign acknowledges Folger’s ‘bad reputation’ with a cheeky montage of diverse consumers buying the coffee and staring down judgmental onlookers while Joan Jett and the Blackhearts’ song of the same name blares in the background. The campaign also touts the company’ New Orleanian heritage as a way to show it is for everyone, not just the elite.

The brand refresh also “included innovation that optimizes the amount of coffee per cup while maintaining the same taste profile and rolling out new packaging, which is beginning to show up on shelf,” Smucker added.

Smucker said he is bullish on coffee in the back half of the fiscal year as competitors continue to raise their prices in the face of inflation – closing the gap that the company created when it led price changes last year.

His confidence also is based on Smucker’s coffee performance during the 2008 recession when it grew faster than average in the subsequent ten years.

“Our portfolio provides consumers of any income level options across the value spectrum, as market share for our brands is balanced across lower, middle and upper income groups,” he said. “Additionally, we are well positioned for the current macroeconomic environment, as the pet and coffee categories have performed well during recessionary periods.”

Uncrustables continues to grow, falls short of demand

On the food side, the frozen sandwich brand Uncrustables continues to inch closer to the company’s goal of it becoming a $1bn brand.

Sales grew 30%, driven by higher pricing but also a double-digit increase in volume boosted in part by a return of away-from-home sales that exceeded $160m in the quarter.

Demand for the brand continues to outpace production capabilities, but Smucker noted that the company completed the expansion of its Longmont, Colo., facility to increase production in the back half of the fiscal year and it broke ground on a facility in Alabama where it came make the sandwiches.

Sales of Smucker’s fruit spreads also grew even as the company rationalized stock-keeping-units by about 30% -- a move that Smucker said allows it to focus on core items.