February 26, 2020 / 12:31 PM / a month ago

Smucker profit beats estimates on coffee buzz; pet food struggles

(Reuters) - Jams and peanut butter maker J. M. Smucker Co (SJM.N) reported quarterly profit above market expectations on Wednesday, powered by its coffee business, even as its pet foods unit continued to struggle, sending the company’s shares up about 5%.

As more premium coffee brands and single-serve coffee pods flood the market, Smucker diversified its coffee portfolio by adding high-end options with gourmet flavors to win young customers.

That, along with lower green coffee costs, helped the unit report a 3% rise in quarterly profit.

Smucker has also been spending in advertising and marketing, with new ads for four of its coffee brands- Dunkin’ Donuts, Cafe Bustelo, 1850, Folgers.

“The results of the advertising campaigns have actually shown incremental sales growth... we know that the campaigns are working,” Chief Executive Officer Mark Smucker told Reuters.

The retail coffee business still reported flat sales for the reported quarter, as the company passed on the lower green coffee costs to consumers.

The pet food business, which Smucker bolstered with new premium products through expensive acquisitions, continued to struggle as it locks horns with General Mills’ (GIS.N) Blue Buffalo for market share, leading to a 5% drop in sales.

The decline was mostly due to a 13% fall in Natural Balance brand and a 4% drop for Nutrish.

“The challenge that we had on Nutrish was related to new competition and we moved on price. We have corrected those things,” Smucker said.

The company is now trying to reinvigorate sales of pet foods through improved pricing, innovation and new ads featuring TV personality Rachael Ray, the name behind its Nutrish pet food.

Those efforts come amid a saturating pet food market as big food brands such as Nestle (NESN.S), General Mills (GIS.N), Mars and Cargill have all purchased pet food brands as demand for premium products grow.

Bernstein analyst Alexia Howard said pet food sales trends were “particularly weak,” noting that Natural Balance was losing ground to Blue Buffalo brand and in the pet specialty channel.

Excluding one-time items, the company earned $2.35 per share, beating Wall Street estimates of $2.23 per share, according to IBES data from Refinitiv.

Net sales fell about 2% to $1.97 billion in the third quarter ended Jan. 31, meeting estimates. Net income rose 54.4% to $187.4 million.

Reporting by Nivedita Balu in Bengaluru; Editing by Shinjini Ganguli and Shailesh Kuber

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