JM Smucker sees strong Q2 on coffee price hedging

BANGALORE (Reuters) - J.M. Smucker Co SJM.N, the maker of Jif peanut butter and Folgers coffee, saw a strong first quarter on higher volumes in its key brands and expects the momentum to continue into the second quarter helped by its hedging against rising coffee prices.

The Orrville, Ohio-based company’s shares rose as much as 3 percent Friday, while the broader S&P 500 index fell over 1 percent. They were trading at $59.62 in Friday morning trade on the New York Stock Exchange.

The company, which rivals with Kraft's KFT.N Maxwell House and Yuban, said it is protected against exposure to coffee price fluctuations for the second quarter and even after factoring the potential for competitive promotions, the scope for margin increases remain.

“Certain key promotional activities (for consumer segment) that occurred in the first quarter of the prior year have been shifted to later quarters this year,” Chief Financial Officer Richard Smucker said on a call with analysts.

The company said it would air new advertising ahead of the re-launch of its peanut butter brand and would invest in new commercials continuing the “classic boys” campaign for jams.

Smucker, whose coffee brands include Folgers and Dunkin’ Donuts, said the coffee segment, which accounts for about 38 percent of its revenue, surpassed its expectations with a 7 percent increase in sales for the quarter, but the margin took a beating due to higher green coffee costs.

Earlier this month, the company hiked the list price for most of its Folgers, Dunkin’ Donuts, Millstone and Folgers Gourmet Selections coffees sold in the U.S. retail market due to sustained increases in green coffee costs.

Coffee futures have rallied about 40 percent since the beginning of March.

Smuckers, which acquired Folgers brand in 2008 and signed a deal to sell coffee packs for Green Mountain Coffee Roasters Inc's GMCR.O brewers earlier this year, also sees accelerated generation of cash in the second half of the year.

In the first half, the company would use cash to build up inventories for the Fall Bake and holiday season and the additional build-up of coffee inventory ahead of the Atlantic hurricane period.

For 2011, the company, which reaffirmed its earnings outlook for the fiscal, expects net sales to grow slightly more than the 3 percent it earlier forecast.


For the first quarter ended July 31, the company saw volume gains in Folgers and Dunkin’ Donuts brand coffee, Jif peanut butter, Hungry Jack pancake mixes and syrups, and beverages in natural foods.

However, these gains were offset by volume declines in Pillsbury flour and baking mixes and Crisco oils, which suffer in a competitive and promotional environment.

Profit margin at its U.S. retail consumer market rose about 3 percentage points and special markets at 4 percentage points.

Reporting by Shobhana Chadha in Bangalore; Editing by Don Sebastian