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UPDATE 1-Smucker revenue disappoints as price cuts fail to spur sales

Wednesday, 20 Nov 2013 | 9:35 AM ET

(Adds details, background, share price)

Nov 20 (Reuters) - J.M. Smucker Co, the maker of Folgers coffee and Jif peanut butter, reported weaker-than-expected quarterly revenue as cheaper commodity costs and lower product selling prices failed to translate into growth in sales.

Smucker's shares fell as much as 8.4 percent to $99.47 in early trading on Wednesday.

The company's sales fell 4 percent in the second quarter ended Oct. 31 even though prices for commodities such as green coffee and peanuts dropped.

"The impact of pricing actions taken across all categories more than offset the benefit of these lower commodity costs resulting in a slightly unfavorable impact on gross profit, Smucker said.

The company also said it expected full-year sales to fall about 2 percent. It earlier forecast a drop of 1 percent.

"The quality of earnings were poor...", said KeyBanc analyst Akshay Jagdale, noting a "weak consumer environment."

Smucker reduced list prices for most of its packaged coffee sold in the United States by an average 6 percent in February. Apart from its Folgers brand, the company also supplies coffee to Dunkin' Donuts, owned by Dunkin' Brands Group Inc.

Smucker said its U.S. retail coffee sales fell 4 percent in dollar terms due to the price cuts. However, volume sales rose 1 percent for the Folgers brand and 11 percent for Dunkin' Donuts packaged coffee.

Sales in the company's U.S. retail consumer foods business, the company's largest business by revenue, also fell 1 percent in the quarter due to price cuts. Jif peanut butter volume rose 2 percent while the volume of Crisco oils increased 4 percent.

Volumes declined in the company's private label business, whose offerings include ground coffee and canned milk.

Total net sales fell to $1.56 billion in the quarter from $1.63 billion a year earlier.

Analysts on average were expecting sales to fall to $1.61 billion from $1.63 billion in the same quarter last year.

Net income rose 3 percent to $153.4 million, or $1.46 per share. Excluding items, the company earned $1.52 per share, missing the average analyst estimate of $1.60, according to Thomson Reuters I/B/E/S.

Gross margins rose to 35.4 percent from 33.3.

Orrville, Ohio-based Smucker's shares closed at $108.59 on the New York Stock Exchange on Tuesday. They have risen more than 25 percent since the start of the year.

(Reporting by Aditi Shrivastava in Bangalore; Editing by Maju Samuel and Ted Kerr)