J.M. Smucker CEO: We’re seeing ‘tremendous coffee growth’ despite elevated costs

J.M. Smucker Company CEO Mark Smucker joins Yahoo Finance Live’s Brian Sozzi and Brooke DiPalma to discuss company earnings, offering consumers great value amid rising rates and prices, consumer trends, and the outlook for profit growth in categories from coffee to pet food.

Video transcript

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BRAD SMITH: Consumers continue to eat away at those Uncrustables. It's me. JM Smucker beat on profit and posted revenue in line with expectations in the third quarter, while updating its EPS outlook. Let's welcome in the JM Smucker company CEO Mark Smucker, along with Yahoo Finance's Brian Sozzi and Brooke DiPalma. OK. So, Mark, just take us into the quarter, some of the key catalysts. What really stuck out to you?

MARK SMUCKER: Well, thanks for having me, guys. First of all, we had another fantastic quarter. All of our businesses grew to the tune of 9%, 10%, 11%. That's coffee, pet, as well as our jam and jelly and Uncrustables business. We had a really strong quarter, and we did raise the bottom end of our earnings guidance. And just great momentum across all of our brands and continuing to offer consumers great value and our investors growth.

BROOKE DIPALMA: Let's talk a little bit more about that coffee part of your portfolio. Sales there up 11%. What do you think keeps consumers drinking coffee at home? Is it ongoing work-from-home trends, or are customers perhaps not going out to coffee chains like Starbucks that have raised prices this past year?

MARK SMUCKER: It's a little bit of all of that, to be quite honest. 71% of cups consumed are actually consumed at home, and that has not fallen off as we've come out of the pandemic. And our portfolio is so well positioned because we have all of the value spectrum, from Folgers, premium coffee like Dunkin', and then our fastest growing coffee brand, Café Bustelo, which really is a Latino-based coffee, but is also really appeals to millennials. And so tremendous growth across the whole coffee portfolio.

BROOKE DIPALMA: And to quickly follow up on that, you did note in the call today that you continue to see elevated coffee costs. Where are you now in terms of passing along those price changes? I believe that you're lapping those price changes. And can consumers expect more price increases in the coming quarters?

MARK SMUCKER: You know, we have taken our coffee prices up as our physical costs dictates so. And keep in mind that as we manage through elevated costs, we use multiple levers. So not just price increases, list price, but also productivity programs as well as trade spend and so forth. So making sure that we're prudent about the costs that we pass through to our consumers.

BRIAN SOZZI: Mark, is this a perfect-- and it's Brian here. Good to see you again. Is this a perfect environment for the products that you sell? We have an economy slowing down. We have inflation high. People perhaps balking at going out to a restaurant because it costs too much money and trading down to your products. How do you see it?

MARK SMUCKER: You know, I think when you look across our portfolio, I already spoke to coffee, but even within pet snacks and our cat food business, we do offer a variety of value propositions. So whether that's premium-- if you think about the Milk-Bone brand, premium dental chews versus the base biscuit business, which are both very healthy. So we continue to have great performance. And we do benefit when consumers tend to stay home and eat at home. That clearly benefits our business.

BROOKE DIPALMA: Now, you recently did announce plans to sell part of your pet business for $1.2 billion. But my dog Zoey at home will be super happy to hear that you're investing in dog snacks there. What sort of innovation will bring you to that goal of $1 billion over the next several years?

MARK SMUCKER: Sure. You know, we-- what we've decided to divest is largely our dog food business and one of our cat food brands, 9Lives. And we are intending to sell those businesses to Post Holdings, which is a great home for them. But as you point out, Brooke, you know, we continue to expand our Milk-Bone brand. I just referenced the base biscuit business, but we have long-lasting chews, dental chews, and a number of premiumized biscuits that really appeal to consumers across all of the different snacking needs of their dogs.

BRAD SMITH: Mark, look, I'm a huge Uncrustables fan, but I draw the line somewhere. I love the jelly and peanut butter, of course, and all the different variations. But when it got to the meats, that was too much for me personally. I know I'm not the ideal-- or maybe I am the ideal target market. Sorry, a lot of introspection here. But at the end of the day, how is that taking in the market right now once you added in some of the meat options into the Uncrustables sub-brand, if you will?

MARK SMUCKER: Yeah, you know, as we launch some of those meat-based bites, what it does for us is validate that the Uncrustables platform can live outside of peanut butter and jelly. But that said, peanut butter and jelly is our bread and butter, and we are going to continue to push that. We just expanded our second facility in Colorado, which is producing more sandwiches, and then building a third plant in Alabama that is really going to meet the demand that we're seeing across the entire market. So no intend to stop growing core peanut butter and jelly.

BRIAN SOZZI: Well, that is always good to hear, Mark. Look, to us lay people, I do find it interesting that cat food sales continue to be so strong, and you're leaning into this. I mean, you have to be getting research on this. Why are cat food sales outperforming dog food sales?

MARK SMUCKER: You know, they're not outperforming. I think if you think about the number of pets in total, the number of pets did increase during the pandemic. Cats was no different. And we have put so much resources behind Meow Mix with our ReMix campaign. Multiple iterations of that has really brought Meow Mix, you know, "the brand that cats ask for by name," back to the forefront in consumers' minds. And that's really supported the business.

BROOKE DIPALMA: I want to quickly take a look at the full year fiscal 2023 outlook. You reaffirm free cash flow of 550 million. Now, you also noted in the call today that Smucker's still wants acquisitions to play an important role in the growth story here. Do you think that there's any category out there that you think is missing from the Smucker's portfolio right now?

MARK SMUCKER: You know, we've been very consistent in our discussion of acquisitions. They have played a huge part in our growth over many years, and we will continue to be interested in that inorganic growth. And that means fleshing out, building out around our existing categories. Particularly, coffee and dog snacks we're interested in. And then if we do enter new categories, we want to make sure that we're entering a growing category and that we're able to acquire a meaningful position, a leadership position, in that category at a reasonable price. So still part of our strategy. We'll continue to look. But nothing to report at this time.

BRAD SMITH: JM Smucker Company CEO Mark Smucker, as well as Yahoo Finance's Brian Sozzi and Brooke DiPalma. And thank you so much for the time. We appreciate it, as always, diving into some of those Uncrustable reports as well. Thanks so much.

MARK SMUCKER: Thank you, guys.