August 20, 2014 / 4:30 PM / in 3 years

Promotions take bite out of Smucker's coffee profit

NEW YORK, Aug 20 (Reuters) - U.S. retail coffee profits for J.M. Smucker, the maker of Folgers and the biggest U.S. roaster, fell by 4 percent in its May-July quarter on a combination of pricing and promotions, the company said on Wednesday.

“Lower price realization resulted in the decline in net sales for the segment and for the company,” said Richard Smucker, chief executive of Smucker on a call with analysts to discuss first-quarter 2015 results.

Price realization is the combination of list price and promotions.

The Orrville, Ohio-based company, which also makes Jiff peanut butter and Smucker’s jam, reported net sales of $1.32 billion, down 2 percent from $1.35 billion a year ago, primarily due to the coffee segment’s performance.

“Pricing on committed promotional programs, along with continued price investment to remain competitive on shelf, temporarily delayed the impact,” of a 9 percent price increase, said Vince Byrd, Smucker president and chief operating officer.

“We expect full reflection of the price increase in the second quarter.”

The weaker coffee profits come as green coffee prices remain highly volatile. An unprecedented drought in top grower Brazil caused arabica futures prices to nearly double within three months to a 26-month high in April. In June, Smucker raised its list prices for most of its U.S. packaged coffee by about 9 percent, triggering other large roasters to make similar moves.

Arabica prices are now down around 15 percent from the April high while robusta coffee, a bean that some roasters add to their brewed blends as a lower costing alternative, is down 11 percent from a one-year high reached in March.

Smucker’s U.S. retail coffee net sales fell by 2 percent to $502.7 million in the quarter ended July 31 while its segment profit fell by 4 percent to $137.6 million. That took place as its U.S. coffee volume rose by 2 percent in the quarter, the ninth straight quarter of year-over-year volume growth, driven by the its flagship Folgers brand, as well as Cafe Bustelo and Dunkin’ Donuts, company executives said.

Also during the quarter, Smucker discontinued the Life Is Good coffee brand because of low brand awareness in regions other than the U.S. East and West Coasts. (Reporting by Marcy Nicholson)

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