We reaffirm our Neutral recommendation on
The J. M. Smucker Co.
). While the company has solid long-term fundamentals, the recent
weakness in K-cup sales and price declines mainly for coffee and
peanut butter is hurting growth. Smucker also slashed its sales
guidance for fiscal 2014.
Why the Reiteration?
Smucker posted weaker-than-expected second quarter fiscal 2014
results, reported on Nov 20. This was due to a 4% decrease in net
price realization, reflecting price declines taken earlier in
fiscal 2013, mainly on coffee and peanut butter. Also, volume
declines in private label foodservice roast, ground coffee and
cappuccino led to the sales decline in the quarter.
The performance of the K-Cup business was below the company's
expectations in the second quarter, as sales of one of its K-cup
brands, Millstone K-Cup, declined significantly in the quarter,
probably due to increased competitive activity. The company has
even lowered its K-Cup sales growth expectation to mid-single
digit percent range for fiscal 2014 compared to its prior
expectation of 15% growth.
Lowered K-Cups sales guidance and the expectation of
unfavorable foreign exchange led to the cut in sales guidance for
fiscal 2014. The company now expects fiscal 2014 net sales to
decline 2% year over year worse than its previous expectation of
We are however optimistic on the company's long-term
fundamentals. Strong organic sales growth, product innovation and
cost savings measures have remained the company's strong points.
The company's strategic acquisitions have also broadened its
presence across emerging markets.
Smucker's partnership with
Dunkin Brands Group, Inc.
) to produce Dunkin' Donuts packaged coffee brand and
Green Mountain Coffee Roasters Inc
), the makers of K-Cups. Smucker supplies its Folgers Gourmet
Selections and Millstone premium coffee brands in K-cup portion
packs, which can be run on Green Mountain's Keurig brewers. These
partnerships have been boosting the company's revenues since the
past many quarters.
We are also encouraged that the commodity costs declined in
the second quarter of 2014, primarily owing to lower green coffee
costs. However, the impact of pricing actions taken across
all categories more than offset the benefit. Smucker currently
holds a Zacks Rank #4 (Sell).
Post Holdings Inc
) is a better-ranked stock, with a Zacks Rank #1 (Strong
DUNKIN BRANDS (DNKN): Free Stock Analysis
GREEN MTN COFFE (GMCR): Free Stock Analysis
POST HOLDINGS (POST): Free Stock Analysis
SMUCKER JM (SJM): Free Stock Analysis Report
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