J.M. Smucker Earnings Call INSIGHTS: Competitive Coffee, EPS Perspective

On Friday, J.M. Smucker Co. (NYSE:SJM) reported its first quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Competitive Coffee

Eric Katzman – Deutsche Bank: I guess the first question actually is a balance sheet related. I noticed that Mark that you had well over $300 million of cash on the books is that, that seems more than you normally hold. Is that what you were referring to in terms of not having to tap a revolver to fund your working capital through the fall season?

Mark R. Belgya – SVP and CFO: That’s right, Eric. In June we had indicated that we thought we might actually have to tap here in the U.S. primarily to fund our normal (bullet) of inventory, but we came into the year probably with the little higher inventory level than we’ve seen in past years, so we were able to end the quarter positive and as you suggested $300 million. It is important to keep in mind of our cash, about $100 million of that is in Canada, so there is a little bit of an access that you got there we’re running much more favorable than we had expected.

Eric Katzman – Deutsche Bank: Then just maybe more fundamental question, can you just talk a bit about with coffee cost having come down quite a bit versus a lot of other commodities that are now moving up, what is the competitive landscape in coffee? Obviously Craft is going through some transitions the introducing Gevalia and Starbucks is trying to obviously gain share there’s all kinds of questions around K-Cups, so many you could go into more detail around the competitive landscape and then I just have one other follow-up on coffee.

Mark T. Smucker – President, U.S. Retail Coffee: Overall, you are correct. The category does remain competitive category and the competitors that are out there are good. They are effective. Having said that, we still feel very optimistic about our band, the activities that we’ve got in place, the fact that we’ve successfully manage some of these price points that we’re referenced in the script and feel that going forward we’re very well positioned for the fall period. I would also add that just from a volume perspective as we look forward, as we got into the quarter and looking at inventories. We also had some questions around are we reloading the customers and as we look forward and look at the shipments that we’ve had in the quarter we’re pretty confident that the trends that you see in the share numbers will continue.

Eric Katzman – Deutsche Bank: Then I guess can you comment I guess maybe Steve, but can you comment on how much holding on to the roast and ground no margin foodservice side of the Sara Lee acquisition limited your profits in the segment or on a consolidated basis and how that should affect things as we progress through the year and you exit those businesses?

Steven Oakland – President, International, Foodservice and Natural Foods: I don’t think it really limited the actual dollar numbers, it did affect the margins. Although some of that business is actually negative most of it’s probably more in the breakeven range. So I think what you’ll see as we get through the next six months or so is you’ll see our margins improve dramatically in our segment and that will be the impact, a little bit of dollar profit, but I don’t think it was material for the company. I think if we step back and look at the Sara Lee transaction. We bought that from a company that was getting ready to split up and it became evident to us in the end that, that transition with those customers just wasn’t going to happen the way we want to have it happen. And so having us manage it over this 12-month period we think the best thing for that business and for our relationship frankly with those customers going forward the systems are in place we closed quickly. We got it all on Smucker systems for May 1. So our team has a plan more than half that business will be gone over the next six months and we have a plan for the rest of it, primarily in the rest of the fiscal year. So we think it was right thing to do for the business and I don’t think it hurt us dollar wise it did hurt us margin wise.

Mark R. Belgya – SVP and CFO: Just to kind of comment on that. If you look at the segment profit for Steve’s segment, we’re basically in line with our expectations from a dollar perspective that we spoke to you in June. In fact clearly the effect of it right now with that being a lower margin business that is primarily what’s driving the International, Foodservice, and Natural Foods reduction period-over-period in margin percentage Steve indicated.

Richard K. Smucker – CEO: One last thing though we did have a great first quarter in retail coffee and so we won’t typically comment on that kind of detail on a quarterly basis, but we are really proud of the team given all the changes and there are some great new contracts signed, some big contracts presented. So the core of that business and why we brought is in good shape.

EPS Perspective

Christopher Growe – Stifel Nicolaus: I just wanted to ask a question first if I could about just to get some perspective on the EPS guidance and the way to look at that for the year, you obviously had a strong outperformance this quarter. My question just more relates to, you know, if there is any impediments coming up that you foresee that could take away from some of the upside potential that came through in this quarter?

Mark R. Belgya – SVP and CFO: Let me just give you a couple of points. The first is that, for those of you that have followed for quite some time. It is pretty rare for us to move on our guidance for the year after just one quarter and that really is primarily been due to the pending fall bake period. That is obviously very big to it. You add into that obviously the volatility of the economy, the consumer and the recent spikes in corn and wheat. So those are all I would say are more cautionary as opposed to concerns but those all factored into where we landed in our guidance.

Christopher Growe – Stifel Nicolaus: That’s helpful. That’s what I assume, just want to make sure that was clear. Then I did have one more follow-up question for you and that was you had talked last quarter about introducing some more or really pushing some more opening price point products, I just wanted to ask a general question across the business how mix performed. I know it was positive in coffee, I guess I wanted to understand and I guess lot of — from the K-Cups, beyond that, was there any detrimental mix in other categories because of that trend?

Paul Smucker Wagstaff – President, U.S. Retail Consumer Foods: On the consumer food side, no we really haven’t any other negative impact on mix. Mix was actually good for the quarter.

Vincent C. Byrd – President and COO: I would just add that the margins or profitability of those items are in line with our core items, so it’s not like we sacrifice profit when we focus on those items.