News Column

Single-Serve Coffee Helps Drive Smucker's Profits

Feb. 16, 2013

Jim Mackinnon, The Akron Beacon Journal

Feb. 16--J.M. Smucker Co. has lowered its expectations slightly on projected revenue for 2013 while anticipating improved earnings for the year.

Strong sales of single-serve K-Cup coffee and contributions from the recently acquired Sara Lee coffee-service business boosted the food company's third-quarter sales and earnings compared to a year ago. The company's top executive said Smucker had record performance in the quarter and for the first nine months of fiscal 2013.

During a teleconference discussion Friday on Smucker finances, an industry analyst asked company executives about the potential of someone buying Smucker in light of the announced sale of H.J. Heinz Co. to a group that includes billionaire Warren Buffett and talk of other food companies in play.

The Orrville maker of peanut butter, jams and coffee on Friday reported net income of $154.2 million, or $1.42 per share, on revenue of $1.56 billion. Net income rose 32 percent from $116.8 million, or $1.03 a share, on revenue of nearly $1.5 billion a year ago. Earnings per share were 38 percent higher than a year ago.

Analysts projected Smucker would report adjusted earnings of $1.40 a share on revenue of $1.56 billion.

Shares of Smucker rose 24 cents, or 0.3 percent, to $92.40. Shares are up 7.8 percent, including dividends, since Jan. 1 and are up 21.2 percent from a year ago.

"As we look ahead, we are cautiously optimistic as to the economic environment," Richard K. Smucker, chief executive officer, said in a statement to industry analysts. "We're encouraged by stronger food and beverage industry demand. ... We are further encouraged by our ongoing investments in our brands and our businesses. We expect to introduce approximately 90 new products this year."

Smucker expects revenue to increase 6 percent over the last fiscal year. The company previously forecast sales to rise 7 percent. Smucker said it expects adjusted full-year earnings of $5.17 to $5.22 per share; it previously forecast comparable earnings of $5.12 to $5.22 per share.

"We now anticipate annual net sales to increase over 6 percent compared to 2012," said Mark Belgya, senior vice president and chief financial officer. "Volume for the fourth quarter is expected to be flat with the prior year."

The company is "cautiously optimistic" that it can achieve the high end of its projected earning range, he said.

For the first nine months of the fiscal year, Smucker said it earned $413.9 million, or $3.78 a share, on revenue of $4.56 billion. That compares to net income of $355.6 million, or $3.12 a share, on revenue of $4.17 billion for the first nine months of fiscal 2012.

Smucker was helped in part by growth in its K-Cup business, named for the single-serve coffee containers used in Keurig coffee machines.

Sales of K-Cups increased $30.4 million, or by 51 percent, over the third quarter of 2012, the company said. Coffee sales elsewhere were flat to down slightly, the company said.

"For the full year, we continue to expect K-Cup sales will approach $300 million, an increase of almost 70 percent over fiscal 2012," said Vincent Byrd, president and chief operating officer.

An analyst with financial service giant JPMorgan said during Friday's teleconference that "there's been a lot of talk in the last 24 hours obviously about companies getting purchased in the food space." On Thursday, Warren Buffett's Berkshire Hathaway announced it, along with an investment firm partner, was buying H.J. Heinz Co. for $23.3 billion, the largest deal ever in the food industry.

The analyst asked what percent of "actual votes" Smucker insiders hold "in the event that a potential acquirer was looking at Smucker."

Richard Smucker declined to give a specific amount. "All I can say is, it's significant," he said.

Smucker brands include its namesake Smucker's jams, jellies and peanut butter, Folgers and Dunkin' Donuts coffee, Jif peanut butter, Crisco and Pillsbury. Smucker in early 2012 closed on the $350 million purchase of Sara Lee's coffee food-service business that sells to large institutions.

Jim Mackinnon can be reached at 330-996-3544 or jmackinnon@thebeaconjournal.com.

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