Smucker trims revenue forecast as price cuts fail to spur sales

Reuters

(Adds executive, analyst comments, details; updates shareprice)

By Aditi Shrivastava

Nov 20 (Reuters) - J.M. Smucker Co, the maker ofFolgers coffee and Jif peanut butter, reportedweaker-than-expected quarterly revenue as lower commodity costsand product selling prices failed to translate into salesgrowth.

The company also said it now expected full-year revenue tofall about 2 percent. Smucker had earlier forecast a drop of 1percent.

The company's shares fell as much as 8.4 percent to $99.47on Wednesday.

Smucker said it cut full-year sales forecast mainly due tolower sales of coffee that it sells in K-cups.

A K-cup is a plastic pod that Green Mountain Coffee RoastersInc licenses to coffee and beverage makers. These cups,which hold beverages such as coffee, are placed in GreenMountain's Keurig brewing system.

"The lower guidance is driven in large part by a reducedoutlook for K-cups, second-quarter sales coming in short ofexpectations, and the impact of foreign exchange," Mark Smucker,president of Smucker's retail coffee business, told analysts ona post-earnings conference call.

Other than Smucker, Green Mountain licenses K-cups toStarbucks Corp, Eight O'Clock, Kraft Foods Group Inc's Maxwell House, Gevalia and many private labelcompanies.

Smucker, which was among the first to offer coffee inK-cups, has been hit by increased use of this packaging byrivals.

MorningStar analyst Ken Perkins said Smucker's K-cup coffeesales growth was slower than expected and the company was hurtby competition more than anticipated.

Smucker's sales fell 4 percent to $1.56 billion in thesecond quarter ended Oct. 31 even though prices of green coffeeand peanuts dropped.

"The impact of pricing actions taken across all categoriesmore than offset the benefit of these lower commodity costsresulting in a slightly unfavorable impact on gross profit," thecompany said.

Smucker had reduced list prices for most of its packagedcoffee sold in the United States by an average 6 percent inFebruary. Apart from its Folgers brand, the company alsosupplies coffee to Dunkin' Donuts, owned by Dunkin' Brands GroupInc.

Smucker said its U.S. retail coffee sales fell 4 percent indollar terms due to the price cuts. However, volume sales rose 1percent for the Folgers brand and 11 percent for Dunkin' Donutspackaged coffee.

Sales in the company's U.S. retail consumer foods business,its largest business by revenue, also fell 1 percent in thequarter due to price cuts. Jif peanut butter volume rose 2percent while the volume of Crisco oils increased 4 percent.

Volumes declined in the company's private label business,whose offerings include ground coffee and canned milk.

"The quality of earnings was poor...," said KeyBanc analystAkshay Jagdale, noting a "weak consumer environment."

Analysts on average had expected sales to fall to $1.61billion from $1.63 billion a year earlier, according to ThomsonReuters I/B/E/S.

Net income rose 3 percent to $153.4 million, or $1.46 pershare. Excluding items, the company earned $1.52 per share,missing the average analyst estimate of $1.60.

Gross margins rose to 35.4 percent from 33.3 percent.

Shares of Orrville, Ohio-based Smucker were down 6 percentat $101.93 on Wednesday afternoon on the New York StockExchange. The stock has risen more than 25 percent this year toTuesday's close. (Additional reporting by Siddharth Cavale in Bangalore; Editingby Maju Samuel, Ted Kerr and Kirti Pandey)

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