J.M. Smucker Co. Earnings Call Nuggets: Consumer Analysis and U.S. Retail Volume

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

Consumer Analysis

Eric Katzman – Deutsche Bank: I guess, Richard, maybe or Vince, you could comment, just more broadly on kind of the consumer and the environment, it seems like a lot of food companies focused in the U.S. were getting a little bit more optimistic as the spring unfolded and then it seems like some of the retailers out there along with some of your competitors have kind of noticed a bit more I guess, weakness sequentially as kind of the years unfolded. Maybe you could answer that and I’ll have a follow-up just on the Company?

Richard K. Smucker – CEO: Yeah Eric, this is Richard. That’s a good question. The way we look at it, I think we’ve mentioned this before, we kind of put the consumers into three buckets. The top one-third, the middle one-third and the bottom one-third and I think we still see that the top one-third’s doing fine, the middle one-third is doing fine, although sometimes they don’t know it, don’t feel it, but the bottom one-third of the consumer is still very challenged and we’ve seen that, the way we’ve responded to that is to make sure we have the right pricing in each level to provide them with the right products and pricing for each group, but I guess, consumer confidence is still up, as far as you look at the Michigan consumer confidence trends, but I have to admit, on some of our retailers were seeing that lower one-third being challenged and we think that’s going to continue throughout the year, but I think we’re well positioned because of the product lines that we offer and the product categories that we’re in to do pretty well in this environment.

Vincent C. Byrd – President and COO: I would only support exactly what you said and I think that’s probably what’s leading little bit to our cautious optimism about the back half of the year. We feel we are in a very good place as we head into the holiday bake period, but you can’t ignore the results of some of our key customers and some of our peers within the consumer industry. So certainly we believe we are in good place as Richard mentioned but you just can’t ignore the – some of the trends that we are seeing…

Eric Katzman – Deutsche Bank: Then just as a I guess kind of follow-up to that you’ve been pretty consistent across I don’t know maybe 70% of the business that’s a little more pass through oriented I guess you mentioned you’ve kind of locked in through the calendar year. But it seems as if there is some deflationary pressure out there. Do you see retailers pressuring you to lower pricing further particularly in coffee? I’ll pass it on.

Vincent C. Byrd – President and COO: Yes, there has been pressure from time-to-time on making sure that we passed those costs on. I think we are consistent in our approach of being as transparent as we can in some cases over the past 18 months we’ve leaned forward into some of our pricing which is evident by say peanut butter. But also as we said in the scripted remarks we need to keep in mind that we can pass those pricing on through other mechanisms other than just maybe list price decreases or increases or decreases that the teams have other levers whether it’d be through trade strategies or marketing activities.

 

U.S. Retail Volume

Andrew Lazar – Barclays Capital: This may relate to the answer part of Eric’s first question. But, yes, the U.S. Retail volume with both coffee and consumer volume was up, a healthy 4% in the quarter, you’re holding your full year volume guidance for U.S. Retail at up, I guess up 2% essentially. I’m trying to get a sense of is something specifically expected to change and back half of the year that you kind of see already in your business or is it just related to can’t ignore some of the broader industry factors that you talked about?

Vincent C. Byrd – President and COO: Andrew, this is Vince. Let me just start and I’ll turn it to Mark and Paul. But basically in the first quarter, we did get the benefit of a couple of things, first of all, innovation in new products contributed significantly to our growth which of course with some of that would be pipeline build. Secondly, we have a very solid quarter on oil and flour business, which we’re excited about but on the other hand that typically doesn’t occur quarter-after-quarter. But as I said earlier, we don’t see anything in our business given where we are in our pricing and our promotional strategies to be pessimistic. It’s just again the nature of being somewhat conservative given what we see in the marketplace. So, I’ll ask Paul or Mark if they have anything that we would like to add to that?

Andrew Lazar – Barclays Capital: And then, there aren’t I guess U.S. food companies getting sort of the kind of positive mix impacts that you have been getting quarter in and quarter out this quarter mix was a 2% positive contributor and then trying to get a sense of sustainability of that, maybe we can talk about the couple of key buckets right that mix is coming from and which ones you think are kind of structural going forward. So, one bucket is obviously the faster growth of the K-Cup piece. One would be some of, SKU rationalization or business rationalization, maybe you’re doing in specific segments and then what’s going on in sort of the core business, whether it be new higher margin products or what have you, but trying to get a sense, if you can sort of dimensionalize those for us to give us a sense of sustainability of mix going forward.

Mark R. Belgya – SVP and CFO: This is Mark Belgya. A couple of comments on mix. Yeah, we have – really, last probably two or three years have benefited. A lot of that was driven by coffee and as you mentioned particularly K-Cup. This quarter, I think we continue to benefit from peanut butter as well, even with the impact of higher peanut cost, it’s still a good margin business and obviously the volume was very strong. I think the other thing too and this probably is more of a comment in the baking area, and we talked about this over the years, it’s that, as we have grown Pillsbury from sort of a traditional cake business to more of a seasonal, they tend to be a higher rank, higher margin business. So, as we’ve grown that and really that probably applies even to new products across the board, they do tend to be a little stronger, because they’re delivering on whether it’s convenience or good for you type attributes, which just obviously present a better mix opportunity than just, what I would say, are more traditional products.

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