J.M. Smucker Co. (
are dropping hard on Valentine's Day after a poor earnings
Smucker stock is down over 7% in early trading on Friday,
continuing the weakness seen in other food company stocks this
Dean Foods (
Con Agra (
were all lower after disappointing earnings reports.
Front and center for the collapse were rising commodity prices
that were difficult if not impossible to pass through to
Who said there was no inflation?
J. M. Smucker reported adjusted earnings of $1.66 per share,
missing estimates by 2 cents per share. Revenues also missed
expectations. Sales of $1.465 billion were less than the average
estimate of $1.53 billion.
Looking forward, the maker of jam, peanut butter and other
food products reduced guidance for its fiscal year ending April
30, 2014. Management now expects profit to fall in a range of
$5.55 to $5.60 per share. That was less than the previous range
of $5.72 to $5.82.
Sales guidance was also lowered, marking the second
straight quarter of reductions.
Lower price realization on coffee and peanut butter products
are to be blamed and demonstrate the problems for food companies
are rising, but consumer prices are falling.
The collapse in the food segment is particularly troubling
given the defensive nature of these stocks. Many investors flock
to these companies at times of uncertainty, hoping for stable
To the extent operating results are volatile as they have
been, that stability ends up being a pipe dream.
In addition many investors buy these stocks for their
dividends. In the absence of suitable income returns elsewhere,
prices have been bid up on these high-dividend players.
J. M. Smucker stock is a good example.
The company pays a very healthy 2.5%
. For the last couple of years, a bet on Smucker paid off.
Shares have risen steadily from the low $70s to a peak of
nearly $115 reached early last fall. Since then, owning Smucker
shares has been a disaster, mainly due to valuation and now poor
operating results, compared to expectations.
Based on valuation alone, this is one horrible and risky
investment, in my opinion.
Analysts expect Smucker to grow profits by 8% from the current
fiscal year to the next. Given current operating pressure, the
result is likely to be less than that.
At current prices, shares of J. M. Smucker stock trade for 15
times current fiscal year estimated earnings.
Too many people assume that defensive stocks plus dividends
makes for smooth sailing. In this environment nothing could be
further from the truth.
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