JM Smucker revealed an appetite for takeovers in coffee, as it trumpeted its recession-beating credentials in the sector, even while acknowledging a dent to margins stemming from the inflationary environment.
Mark Smucker, chief executive at the pet food-to-peanut butter group, which unveiled a 4% decline in quarterly profits at its coffee division, said that “we still feel very good about our total coffee business, and we will continue to invest in it”.
Besides noting a boost to marketing spending on its Folgers coffee brand, he said that the group was “interested in acquisitions that would add to our existing portfolio in our existing categories that would potentially round out our portfolio in coffee”.
Deals and more deals
Smucker has not been active in coffee deals for a decade, since its 2012 purchase of Sara Lee’s North American foodservice coffee and hot beverage business followed on from the $360m purchase of Rowland Coffee Roasters brands such as Bustelo in 2011.
The group bought Folgers in 2008 for $2.95m.
However, the industry has maintained a steady pace of consolidation, with JAB Holding a notable acquirer, of the likes of Douwe Egberts and Keurig Green Mountain, while Nestle has purchased the Stabucks retail business, and Coca Cola expanded in the sector by buying Costa Coffee for $5.1bn in 2018.
More recent, and smaller, deals include the purchase by JDE Peet’s – the listed JAB coffee division – to acquire Australia’s Campos Coffee, Coca Cola’s purchase of a stake in Italy-based Casa Del Caffè Vergnano, and Miko’s takeover of Belgian-based peer SAS.
JM Smucker’s confidence in coffee comes in the face of mounting concerns of economic slowdown at a time when consumers face a test too from raised inflation, which Mr Smucker acknowledged was “pressuring many Americans”.
However, the group was “well positioned for the current macroeconomic environment”, he said, stating that both its coffee and pet food divisions “have performed well during recessionary periods.
“Both categories grew faster during the 2008 recession than the average of the subsequent 10 years.”
He also noted that the group’s coffee division has “significantly less” exposure to stores’ own-label offerings, which consumers often trade down to when money is tight.
Furthermore, in the US, “at-home consumption now [represents] over 70% of all coffee drinking occasions, compared to two-thirds pre-pandemic”, a bonus for a group not focused on coffee stores.
The comments followed the release of results showing a 4% decline to $145.9m in profits at JM Smucker’s US retail coffee business for the May-to-July quarter.
While coffee revenues rose by 10% to $579.9m, that reflected a mixture of price hikes, and subsequent volume declines, which sank margins by 3.5 points, to 24.4%.
However, the group forecast margins recovering ahead as competitors follow with their own price increases, driving volume back to the Smucker brands.
Smucker, while unveiling group earnings down 29% for the quarter at $109.8m, lifted to $8.20-8.60 per share, from $7.85-8.25 per share, its forecast for full-year earnings.