The J. M. Smucker Company (SJM)

F1Q2011 Earnings Call Transcript

August 20, 2010 8:30 pm ET

Executives

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Mark Belgya – SVP and CFO

Richard Smucker – Executive Chairman and Co-CEO

Tim Smucker – Chairman and Co-CEO

Vince Byrd – President, U.S. Retail - Coffee

Paul Wagstaff – President, U.S. Retail - Oils and Baking

Steve Oakland – President, U.S. Retail - Smucker’s Jif and Hungry Jack

Analysts

Eric Katzman – Deutsche Bank

Alexia Howard – Sanford Bernstein

Ian Zaffino – Oppenheimer

Jane Gelfand – Barclays Capital

Ed Aaron – RBC Capital Markets

Farha Aslam – Stephens

Scott Mushkin – Jefferies & Co

Ken Goldman – JPMorgan

Jon Andersen – William Blair

Chuck Cerankosky – Northcoast Research

Robert Dickerson – Consumer Edge Research

Lucas Kline – Putnam Investments

Presentation

Operator

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Good morning and welcome to The J. M. Smucker Company’s first quarter 2011 earnings conference call. At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode. At the request of the company, we will open the conference up for questions and answers after the presentation. Please limit yourself to two initial questions during the Q&A session and re-queue if you have additional questions.

I will now like to turn the conference over to the Chief Financial Officer, Mr. Mark Belgya. Please go ahead, sir.

Mark Belgya

Good morning, everyone, and welcome to our first quarter earnings conference call. Thank you for joining us.

On the call from the company are Tim Smucker, Chairman of the Board and Co-CEO; Richard Smucker, Executive Chairman and co-CEO; Vince Byrd, President of our Coffee Business; Steven Oakland, President of Smucker’s Jif and Hungry Jack; Mark Smucker, President of our Special Markets; and Paul Wagstaff, President Oils and Baking,

After this brief introduction, I will turn the call over to Richard for opening comments. I will then review the financial results for the quarter and Tim will provide closing remarks. After conclusion of these comments we will be available to answer your questions.

If you have not seen our press release, it is available on our Web site at smuckers.com. A replay of this call is available on the Web site. If you have any follow-up questions or comments after today’s call, please feel free to contact me or Sonal Robinson, Vice President of Investor Relations.

I would like to remind you that in both the prepared comments and during the question-and-answer period that follows, we may make forward-looking statements that reflect the company’s current expectations about future plans and performance.

These forward-looking statements rely on a number of assumptions and estimates and actual results may differ materially due to risks and uncertainties. I invite you to read the full disclosure statement in the press release concerning such forward-looking statements.

Also, I want to point out that company uses non-GAAP results for the purpose of evaluating performance internally. Additional discussion on non-GAAP information is also detailed in our press release and on our Web site.

I’ll now turn the call over to Richard.

Richard Smucker

Thank you, Mark. Good morning everyone and thank you for joining us. Let me begin by reviewing our results for the quarter, which continued our consistent and positive trends.

First, our sales for the quarter were comparable to last year. Several key categories realized volume growth including Coffee and Peanut Butter, which contributed to a favorable sales mix.

Second, Coffee, our largest segment had a solid quarter and came in stronger than we originally expected during our year-end call.

Third, non-GAAP earnings increased for the quarter with earnings per share up 13% led by increases in operating profit and reductions in our effective income tax rate.

Fourth, our continued investment in the brand, new product offerings, the pricing actions taken to-date, and our planned promotional activities have positioned us well for the back-to-school and fall big holiday periods.

Finally, the significant investments we are making in our business, including the project to streamline our coffee and fruit spread supply chain will allow us to continue delivering long-term growth and shareholder value.

Our quarter results occurred during a challenging economic environment demonstrating the strength of our brand and the importance of a consistent focus on our strategy. Our focus is long-term yet we have a culture where teams adapt quickly and adjust tactics as necessary. While aggressive pricing can be seen in a number of the categories in which we participate, we will respond rationally and with a long-term view of the health of our brand and our categories.

Now let me provide some commentary on each of our four business segments. In our coffee segment sales were up over a very strong first quarter last year and momentum in this business continues. We are supporting the coffee brands with all elements of marketing, including advertising, consumer promotions, and public relations.

Seven new commercials will air this year, including advertisements supporting Dunkin’ Donuts Coffee, Folgers Black Silk, and the recently re-launched Folgers Special Roast. Our K-Cups offerings continued to meet with great customer acceptance and will be in stores in the second quarter.

Folgers Gourmet Selections and Millstone K-Cups will be supported by a strong marketing program, including advertising. Dunkin’ Turbo Coffee, which launched late last year continues to gain distribution increasing to a 12-week ACV of 55%, and the new Dunkin’ Donuts seasonal items are on track to be launched this fall.

Finally, as previously announced, in response to Green Coffee cost, which reached a 12-year historical high during the quarter, we took a price increase averaging 9% earlier this month on most of our U.S. retail coffee products.

Turning to our Consumer segment, net sales and volume were essentially even with last year, excluding divestitures. It is important to note that we achieved these results despite strong performance last year. Also, certain key promotional activities that occurred in the first quarter of the prior year have been shifted to later quarters this year.

In the peanut butter category, we will be airing new advertising to support the launch of Jif To Go. Also, consistent with our ongoing focus on price transparency, we took a 5% price decrease on our peanut butter products in the first quarter, reflecting a decline in peanut cost.

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