Smucker Hit by Lower Prices for Its Coffee and Peanut Butter
August 27 2019 - 12:30PM
Dow Jones News
By Micah Maidenberg
J.M. Smucker Co. reported weaker sales in its latest quarter, as
the food manufacturer passed along to retailers savings from lower
costs for raw materials like coffee beans and peanuts.
The Orrville, Ohio-based company also faced heightened
competition in its pet-food business and said its Rachael Ray
Nutrish pet-food brand underperformed expectations in the quarter,
which ended July 31.
Shares of the company fell about 9% in Tuesday morning trading
after it said that net sales declined 6% to $1.78 billion, missing
the consensus estimate of $1.87 billion, according to FactSet.
Smucker also lowered its sales forecast for the rest of its current
fiscal year.
Smucker's struggles in the quarter stand in contrast to a number
of its peers. Companies including Oreo-maker Mondelez International
Inc. and Kellogg Co. have bolstered results and offset rising costs
by convincing retailers in the U.S. and Canada to pay higher prices
for their products.
Yet Chief Executive Mark Smucker said in an interview that the
company is charging retailers less for some of its products because
of falling prices for commodities it relies on heavily.
"It is an issue of deflation. Peanut costs and coffee costs,
from a commodities perspective, are at some of the lowest prices
that they've been in in decades. We're reflecting that," he said.
The company is focused on boosting sales of coffee products and
peanut butters by spending on marketing, Mr. Smucker added.
The company said the prices it charges retailers declined 3% in
its coffee business amid what Smucker said were significantly lower
costs for green-coffee beans it uses in brands like Folgers and
Cafe Bustelo. This spring, prices for arabica beans hit their
lowest price in more than a decade.
Smucker also said that prices dropped 4% in its consumer-foods
business, driven lower by a cut in what it charges retailers for
its Jif peanut butter. The company has said it cut the price due to
competition, including from retailers' store brands, and because of
lower peanut prices.
The company's pet-food business faced significant competition in
the quarter, as other pet-food makers lowered prices for higher-end
products to draw in consumers.
"We did not fully anticipate how broad and aggressive some of
the pricing actions would be on trial sizes," for premium dog food
products, Mr. Smucker said.
Smucker has bet big on pet food, purchasing last year the
producer of Nutrish pet-food brand for $1.7 billion. But General
Mills Inc., which bought the maker of Blue Buffalo pet food in a
deal also completed last year, has been expanding distribution of
those products.
The Nutrish brand underperformed expectations in the latest
quarter, executives said. The company now plans to tweak its offers
on Nutrish products and support it with advertising.
The food company on Tuesday also lowered its forecast for its
current fiscal year. It now expects net sales for the year to be
flat or fall 1% compared with the prior year. Previously, Smucker
predicted sales would grow between 1% and 2%.
The company reported a profit of $154.6 million, or $1.36 a
share, for the quarter that ended July 31, compared with $133
million, or $1.17 a share, a year earlier.
After adjustments, Smucker's profit of $1.58 a share fell short
of expectations of $1.74 a share.
Write to Micah Maidenberg at micah.maidenberg@wsj.com
(END) Dow Jones Newswires
August 27, 2019 12:15 ET (16:15 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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