The J.M. Smucker Company's shares jumped after reporting strong Q2 earnings on Tuesday. J.M. Smucker CEO Mark Smucker joins Yahoo Finance Live to break down how the business is faring as coronavirus cases rise.
Video Transcript
- Another solid quarter Jif maker JM Smucker this morning, as people continue to stock up on food during the COVID-19 pandemic. Joining us now to discuss is JM Smucker CEO, Mark Smucker. Yahoo Finance's Julia La Roche is here, as well. Good morning to you both. Mark, let me start with you here. Really, blow out quarter for you guys in the consumer foods business. You have margins up almost 700 basis points. Are you seeing consumers just rebuild their pantries as we're seeing COVID-19 continuing to rage across the country?
MARK SMUCKER: Yeah, Brian, I think we've seen, quite frankly, very consistent demand a little bit of an uptick recently with the most recent wave. But we have been very focused on ensuring that our supply chain is robust, that we're collaborating with our consumers. And maybe most importantly, ensuring that we are communicating with our consumers. So ensuring that we can make these brands sticky. That as we've gained new households and we've seen an improved repeat purchase, that we can ensure that those consumers stay within our brand franchise.
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JULIA LA ROCHE: Mark, it's Julia La Roche. I want to kind of double click on what Brian was just asking you. Of course, when you look at Smucker, it's so much more than just peanut butter and jelly. It's the coffee business, the pet foods. And I was hoping maybe we could kind of dig in on that and talk to us about some of the trends you're seeing with the consumer. Are we seeing more folks stock up on pet food? Are they feeding their dogs more? Are they purchasing more coffee, not going out as much? Kind of what-- like, to understand some of the more micro trends you're seeing.
MARK SMUCKER: Yes, Julia, many new consumer habits have formed during the pandemic. We're seeing consumers obviously get much more comfortable brewing coffee at home. We've grown our entire coffee portfolio. Notably, K Cups are growing very rapidly. And K Cup business is actually more than two times the growth of the category, so that encompasses all of our brands. So consumers are comfortable there. The convenience factor of Uncrustables, of frozen sandwiches.
And even pets, since we are at home more, we're treating our pets better. We're giving them more treats. Now they eat at home every day. So pet food, the general demand, is still growing, maybe not as fast as human food. But overall, there are positive trends in every single one of those categories.
- Mark, I was surprised-- to that point, I was surprised to see that the US pet food sales, they were flat. Margins are under a little bit pressure. And you did have strength in cat food and dog snacks. But what are you seeing in the core dog and cat food market? Is it just price competition right now?
MARK SMUCKER: Well, first of all, our pet strategy rests on three legs of the stool. That's we're the leader in snacks, pet snacks. Our cat food business is very strong. And then dog food. Our dog food business, basically, we did expect a little bit of softness there, so that was to be expected. But the rest of our category is incredibly strong. And as you pointed out, margins down slightly. That's because we're reinvesting. So on Nutrish brand, our marketing was up 30% in the quarter. And we will continue those trends through the back half of our year.
JULIA LA ROCHE: Mark, if you say Milk Bone, my dog will come running into my shot. So let's talk about the supply chain-- you did bring that up-- now that we're into a different wave here. What changed? How did you shore up the supply chain? And take us into that playbook. I think a lot of folks are interested in that.
MARK SMUCKER: Yeah, we've been focused on our supply chain from the very beginning of this pandemic. Obviously, this is a second, in some cases, a third wave. I think the industry as a whole is better prepared, was better prepared for the second wave. And so as we monitor our supply chain, we're focused on every link. So 24/7, we are focused on keeping our employees safe, making sure that they can do their job. But also, every link in the chain, making sure that we are monitoring that to avoid any disruption.
So I think the second wave maybe not as big as the first, but by maintaining that focus, collaborating with our customers, so that we can ensure delivering the products to where they need to be at the right time.
- Mark, a couple numbers that stood out to me. You projected that by the end of year, fiscal year, you might have generated close to $1 billion in free cash flow. And that comes off your recent sell, what, of the Crisco business for 500 million. Lots of cash here. How acquisitive do you plan to be in terms of acquisitions going forward?
MARK SMUCKER: Well, as we shared, we have a very disciplined cash deployment strategy, which involves obviously, returning dollars to our shareholders in the form of dividends, share repurchase. We have been focused also on paying down debt. And then although we don't expect any large scale transformative M&A, we continue to keep our lines in the water and monitor for opportunities as they come forth. So it is a balanced approach across all four of those dimensions.
- Just building off that, how should investors think about your approach to M&A? Is it something where a Kraft Heinz is reportedly looking to divest Maxwell House, and you maybe get that asset, and build up on Folgers? Or you might enter a new category?
MARK SMUCKER: Well, you mentioned the Crisco divestiture. That is an example of one of our strategic pillars leading in the best categories. So the categories that are growing are the ones that we want to focus on. And we think of acquisitions in three forms-- a bolt-on, an enabling, or a transformative. So obviously, pet and coffee were transformative, An enabling acquisition years ago was the Uncrustables business, which we took from $1 million to over $350 million. And then bolt-on are those ones that tuck in nicely to our existing categories. So we think about it in those three aspects.
JULIA LA ROCHE: And Mark, before we let you go, I should also bring up e-commerce, up 45%. Pretty impressive numbers. Let's talk about that, how sticky you think that might be. And also, kind of tying in with your own marketing spend, I know you all did resume that, and how you're bringing on more customers to those more digital platforms.
MARK SMUCKER: Sure. Let me start with marketing. We are increasing our marketing spend. Now that supply is a bit more consistent, we can resume lot of that. And it crosses all categories in terms of mass media, of course TV. But also, targeted-- is really to maintain those new consumers to our brands and focus there, as well. And so that's all critical to the landscape and making sure that we support each and every one of those.