We are maintaining our Neutral recommendation on
The JM Smucker Company
). The company has experienced greater than expected volume decline
in major categories like Crisco shortening and oils, Folgers
coffee, and Jif peanut butter in the quarter. However, the company
recorded sales growth in the quarter fuelled by product innovations
in the coffee and consumer foods segment.
Profit Dips in the Third Quarter
Third-quarter of fiscal 2012 adjusted earnings of $1.22 per
share lagged the Zacks Consensus Estimate of $1.41 and the
prior-year quarter's earnings of $1.27 per share.
The sluggish result in the quarter was led by
greater-than-anticipated decline in the overall sales volume,
despite robust sales growth.
The company's margins are getting hurt because of high input
cost. The company announced in its conference call that it expects
cost increases in excess of $500 million for fiscal 2012. Although
coffee prices have become stable recently, they still remain at a
record high. Smucker's profitability largely depends on the price
of green coffee.
Fiscal 2012 Guidance Curtailed
Following the soft third-quarter results, the company has
lowered its earnings guidance for fiscal 2012.
During the third quarter of fiscal 2012 earnings conference
call, Smucker announced that it expects fiscal 2012 earnings to be
in the range of $4.60 to $4.65 per share, down from the company's
previous estimate of $4.90 to $5.00. Our fiscal 2012 earnings
estimate has gone down from $4.96 to $4.69 per share.
Moreover, the company experienced volume declines in major
categories in the last three quarters of fiscal 2012. After
suffering volume declines of 1% and 3% in the second and first
quarters of fiscal 2012, respectively, the company suffered a
higher than expected volume decline of 10% in the third quarter.
This contraction was fuelled by a decline in mainstream categories
like coffee, peanut butter and oils in the last quarter.
The Fall Blake and Holiday season also could not boost volume
during the quarter. The company attributed price hikes and hoarding
by consumers prior to the price increase to be responsible for the
lower-than-expected result during the holiday season. Smucker also
anticipates softer volume in the fourth quarter of fiscal 2012 and
lowered its earnings and sales guidance for fiscal 2012.
Nevertheless, Smucker offers moderately priced, exclusive
quality products that make meals enjoyable and healthy. The company
has established a strong brand portfolio.
The company has launched several new products to enrich its
portfolio even further. Recent product launches include Folgers
Gourmet Selections and Millstone single-serve K-cup portion packs,
which provided the company a strong position in the fast-growing
single-serve coffee segment. Pillsbury offered sugar-free
frostings, brownie mixes, and cake mixes during fiscal 2011.
Further, the company's strategic acquisitions might help it gain
control over the domestic market as well as tap the fast growing
emerging markets. Moreover, in March this year the company entered
the fast-growing Chinese market and took control of this region's
oat category food business by acquiring a non-controlling minority
interest in privately-owned Seamild in China.
Currently, Smucker carries a Zacks #2 Rank (short term Buy
SMUCKER JM (SJM): Free Stock Analysis Report
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