Operating income increased $15.5 million, or 9 percent, in the first quarter of 2012, compared to 2011, and includes a decrease of $5.2 million in special projects costs. Excluding the impact of special project costs in both periods, operating income increased $10.3 million, or 5 percent, and declined from 18.7 percent of net sales in 2011 to 17.3 percent in 2012.
The U.S. retail coffee segment net sales increased 27 percent in the first quarter of 2012, compared to the first quarter of 2011, primarily reflecting price increases taken over the last 12 months. Following four price increases taken since May 2010, overall segment volume decreased 8 percent for the first quarter of 2012, excluding Rowland Coffee, compared to a strong first quarter of 2011.
Volume declines for the Folgers® brand were in line with the overall segment while Dunkin' Donuts® packaged coffee experienced a low double-digit percent decline. The acquisition of Rowland Coffee early in the quarter contributed approximately $20.1 million to segment net sales, representing 5 percentage points of the segment net sales increase. Contributing to favorable sales mix, the continued rollout of Folgers Gourmet Selections® and Millstone® K-Cups®, launched in the second quarter of 2011, added an additional 6 percentage points of the net sales increase, while contributing only 1 percentage point to volume.
U.S. retail coffee segment profit increased $27.8 million, or 25 percent, in the first quarter of 2012, compared to the first quarter of 2011, primarily due to the impact of previous price increases that more than offset higher green coffee costs recognized during the quarter. The benefit of $6.0 million of additional unrealized mark-to-market adjustments on commodity contracts in the first quarter of 2012, compared to 2011, further lessened the impact of higher recognized costs.
A portion of the segment profit increase during the first quarter of 2012 is timing related, as the benefit of price realization in the quarter preceded higher green coffee costs that are anticipated to be recognized in future quarters. The company expects sequentially higher green coffee costs to primarily impact its second quarter.
In response to recent moderation in green coffee markets and in advance of its key fall bake and holiday promotional period, the company announced a 6 percent price decline on the majority of its coffee products earlier this week.
The U.S. retail consumer foods segment net sales increased 2 percent and volume decreased 3 percent in the first quarter of 2012, compared to 2011. Jif® peanut butter net sales and volume declined 3 percent and 4 percent, respectively, in the first quarter of 2012, compared to 2011, primarily due to temporary item rationalizations and a reduction of promotional activity.
Net sales of Smucker's® fruit spreads increased 1 percent and volume was flat during the same period. Driven primarily by Pillsbury® mixes, net sales of baking products increased 14 percent over the same period, as the impact of price increases and sales mix more than offset flat volume in the overall baking category. Crisco® shortening and oils net sales increased 4 percent as a result of price increases, as volume declined 6 percent in the first quarter of 2012, compared to 2011. Canned milk net sales declined 4 percent and volume declined 10 percent during the current quarter.
The U.S. retail consumer foods segment profit decreased 15 percent in the first quarter of 2012, compared to the first quarter of 2011. Higher raw material costs were recognized in the quarter, most significantly for flour, oils, and milk. While price increases were taken in most of these categories, they did not fully offset the higher recognized costs, most notably in milk. The net unfavorable impact of a $5.8 million change in unrealized mark-to-market adjustments on commodity contracts in the first quarter of 2012, compared to the first quarter of 2011, also contributed to the segment profit decline. Segment profit margin was 17.2 percent in the first quarter of 2012, compared to 20.8 percent in 2011.
Net sales in the international, foodservice, and natural foods segment increased 12 percent in the first quarter of 2012, compared to 2011. Excluding the impact of the Rowland Coffee acquisition and foreign exchange, segment net sales increased 7 percent over the same period. Price increases and favorable mix more than offset a 1 percent decline in volume. Volume gains in Santa Cruz Organic® beverages and Bick's® pickles were offset by declines in flour.