J.M. Smucker Co. Earnings Call Insights: Supply & Demand Details, Pillsbury Business

J.M. Smucker Co. (NYSE:SJM) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

Supply & Demand Details

Andrew Lazar – Barclays Capital: You mentioned in the press release that for the year, prices were down more than the benefit from lower input cost. I’m assuming this is primarily because of the mismatch between price and cost in peanut butter, and that price and cost were more aligned, or even maybe a net positive, specifically for coffee in the year. Is that a fair statement?

Mark R. Belgya – SVP and CFO: That is exactly correct.

NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

Andrew Lazar – Barclays Capital: You talked about over last couple of quarters some of the pricing actions that you were taking for various different reasons in some of the businesses. It certainly seems like the volume response anyway that you’re getting would be one that bears out the reason for having done some of that. So as you go into ’14, what’s the thinking around some of those activities around either promotional price points and things where you made some tactical decisions? Do you keep going with those? Do you expand maybe the scope of some of that? Given you’ve got more reasonable input cost flexibility, just because you’re seeing certainly the positive impact on volume?

Vincent C. Byrd – President and COO: I think, overall as a category or categorically we would say yes, we’ll continue to emphasize managing our price caps. It obviously takes into account our position on the commodity in question. But yes, we will continue that activity.

Richard K. Smucker – CEO: That being said, as you know, we don’t just sell on price, and so we are very price-sensitive to get promotions that are unreasonable.

Vincent C. Byrd – President and COO: I think it’s more – let me just expand. I think it’s more about applying the learnings that we have on our pricing gaps and our elasticities that we were doing a better job of managing.

Pillsbury Business

Eric Katzman – Deutsche Bank: I guess, the first question on the Pillsbury business, is it something in the competitive set that’s making you I guess as you put it, materially change your promotional strategy there?

Paul Smucker Wagstaff – President, U.S. Retail Consumer Foods: Actually, when we look at the overall Pillsbury business in the baking aisle, we felt that the change in promotional strategy was driven by not so much competitive, but what we felt would be an opportunity to improve margins overall and still take some of those margins and reinvest in innovation which we’ve been able to do and grow that business pretty significantly. So – but we think it’s the right strategy, and so far it’s been working.

NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

Eric Katzman – Deutsche Bank: Then I guess, on the foodservice coffee, the liquid part of it, can you just – you’ve had the business for a little over a year I guess or close to it and you are finally going to be scaling back to that core business. Maybe you could just kind of give a bit of detail on how big the business is today and how big you think it can be and what – how far you’re willing to go in terms of being, let’s say, like a distributor which I guess is kind of what this Cumberland business got what that is for you.

Steven Oakland – President, International, Foodservice and Natural Foods: Let me take you through a couple of pieces of that. As you know, when we finally closed the Sara Lee deal, we ended up with a lot of noise in that business. And this private label volume and the customer relationships, and so, yes, that’s been frustrating to get that all right and get through that. But behind that, the liquid coffee business, the core liquid coffee business both in United States, Canada and Mexico has grown during that period. And it’s grown with the Douwe Egberts brand on it. And although well recognized and a great brand in much of Europe and other parts of the world, it is unrecognized in North America. So, we’re very excited about putting the Folgers brand on it, and that allows us to take that product, the high-volume coffee outlets where it will be front-of-house, where the consumer will see the piece of equipment. So, we think that opens up a whole new realm of opportunities for us. So that will happen in the next month or so and we’ll start shipping that product, and the response to-date has been great, so excited about that. Number two, the Cumberland arrangement, and I think if we step back and look at what we did to foodservice. We did the foodservice what we did to the Smucker Company years ago with the Jif and Crisco opportunity. We really increased our scale and our relevance to the customer. So, being in the coffee business, it’s a key category to every foodservice operator, and so you take out all of the noise we’ve done, we created a direct sales opportunity. We have national sales and service. So, we’ve got much deeper coverage. So things like the Cumberland quite frankly, is the first benefit you’ll see of that new scale. Cumberland came to us, they’re a wonderful family company. It’s probably more of a sales and marketing agreement. We think it’ll have good margins long-term for both parties. What’s more, closely aligned to us in tabletop Sugar In The Raw, tabletop Sweet’N Low. And they’ve got a great new product line that we think we can take to market over time. So, we’re excited about that and that’s a first look at the benefit of Sara Lee on the Foodservice business…

Mark R. Belgya – SVP and CFO: Let me add. When we announced the deal, and over the last couple of quarters, we’ve talked about the dollar impact on the sale side of — the portion of the business that we do not want to keep, and that number has kind of have been between $75 million and $100 million. It’s probably closer to $110 million. Most of that will come through this year, primarily through the first three quarters. It’s probably about $75 million to $80 million would be the current year impact.

Vincent C. Byrd – President and COO: Let me just expand on Paul’s answer relative to the Pillsbury. It’s a great example of what Richard was speaking to in the first question. We actually reduced our trade spend because of learnings that we had relative to our frequency and depth. Even though it affected some of our share, it was a conscious decision because it improved our bottom line and allow us to invest back in the brand.

NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

Eric Katzman – Deutsche Bank: Just last question on the guidance and the waiting. How much of it Mark would you say is due to the timing in peanut butter and costs and the roll-off of the inventory I guess versus the exiting of the rest of this Sara Lee stuff and ramping up of Cumberland, et cetera? Like how do we – like bucket-wise the guidance, the weighting and the difference between $5.65 versus $5.75 on the earnings?

Mark R. Belgya – SVP and CFO: Yeah. I guess what I would say, Eric, is that it clearly is heavily impacted by the cost of the peanuts. We will certainly move into lower-cost peanuts as we progress through the year as compared to the price decline we took. So, that is going to be a heavy back end. In terms of the exited business in foodservice, that’s a little bit more ratably over to Q2 and Q3.

A Closer Look: J.M. Smucker Co Earnings Cheat Sheet>>