J.M. Smucker (SJM) shares were abnormally weak Thursday after the jelly and coffee company offered bland fourth-quarter sales — hit by lower pricing — and pedestrian revenue expectations for fiscal 2014.
The stock, up 14.2% year to date compared with the 10% gain for the S&P 500, was recently down 4.9% at $97.38. That's a notable move for a steady stock such as Smucker. In its available history going back to 1984 on FactSet, its average pullback on all of its down days has been 1.17%. It only has two double-digit percentage losses in that time.
For Orrville, Ohio-based Smucker, the decline came after its latest earnings report showed revenue of right under $1.34 billion, just shy of the consensus estimate by $8 million and down 1% from the prior year. On the bottom line, the company did easily exceed the average forecast. There, it posted $1.29 a share before items, compared with the $1.16 that had been projected by Wall Street and 19 cents ahead of last year.
While the slight miss on the top line isn't entirely unusual, marking the seventh time in the past 20 quarters that Smucker has had at least a minor shortfall, the company also sees flat revenue for next year. That part is unusual, and it wasn't being well-received.
Smucker investors have become accustomed to growth from the consumer staples seller's stock price. In addition to consistently raising its dividend annually (the yield is currently 2.1%), the shares have been brilliant, advancing 192% since the recession bottom for the market in March 2009. Acquisitions in recent years — Folgers, a Sara Lee unit, for example — have been key to more than doubling sales from $2.5 billion in fiscal 2008.
A dimmer outlook
For the year ahead, Smucker's revenue prediction means the outlook is dimmer than normal. The company has forecast sales growth for at least the prior four years, though in fiscal 2014, it expects sales to be "comparable" to this year's nearly $5.90 billion. That's slightly below the $5.96 billion estimate from FactSet, with lower prices put in place this year partly responsible. Earnings will likely be $5.65 to $5.75 a share. Analysts are at the high end, looking for $5.74.
Though hardly disastrous, stockholders weren't in a forgiving mood, at least for the day. Smucker's forward price-to-earnings ratio remains essentially in line with ConAgra (CAG), Mondelez (MDLZ) and B&G Foods (BGS), but the valuation might be getting stretched a bit. For instance, the next 12 months multiple of 17.7 is ahead of the 14.1 average of the past five years.
In terms of overall demand, consumers generally did keep up their buying in the fourth quarter. Volume of products sold rose 2% year over year, with gains seen in Jif peanut butter, Folgers coffee and Pillsbury frosting. Flour brands, the Sara Lee foodservice business and Crisco shortening had decreases. Smucker said 5% lower prices were to blame for the fourth-quarter revenue stagnation, driven by cuts in coffee and peanut butter. Commodity costs fell, mainly because of green coffee beans, and that led to an easing-off of the prices charged on the shelf.
Of its three main business lines, Smucker failed to hit projections carried on FactSet at two of them, including the largest part of the company. The U.S. retail coffee division had sales of $535.5 million, whereas analysts were looking for $552.1 million. Coffee, which accounted for 42% of Smucker's fiscal-year sales, has missed predictions in five of the past six quarters, though investors previously haven't been in the habit of passing overly harsh judgment.
Retail consumer foods, the unit that covers Jif and Smucker's fruit spreads for sandwiches, had quarterly sales of $485.7 million, outpacing estimates by more than $30 million. Like coffee, the international, foodservice and natural foods segment fell short of the consensus, coming in at $318.4 million in revenue vs. the $354 million that was expected. That was only the second time in the past six quarters this particular division disappointed.
You tell us: Is today's decline just a case of hurt feelings, and will Smucker soon resume its climb? Or has the stock come so far that it's in need of a pullback?