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UPDATE 2-Smucker trims revenue forecast as price cuts fail to spur sales

Aditi Shrivastava
Wednesday, 20 Nov 2013 | 12:11 PM ET

(Adds executive, analyst comments, details; updates 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 lower commodity costs and product selling prices failed to translate into sales growth.

The company also said it now expected full-year revenue to fall about 2 percent. Smucker had earlier forecast a drop of 1 percent.

The company's shares fell as much as 8.4 percent to $99.47 on Wednesday.

Smucker said it cut full-year sales forecast mainly due to lower sales of coffee that it sells in K-cups.

A K-cup is a plastic pod that Green Mountain Coffee Roasters Inc licenses to coffee and beverage makers. These cups, which hold beverages such as coffee, are placed in Green Mountain's Keurig brewing system.

"The lower guidance is driven in large part by a reduced outlook for K-cups, second-quarter sales coming in short of expectations, and the impact of foreign exchange," Mark Smucker, president of Smucker's retail coffee business, told analysts on a post-earnings conference call.

Other than Smucker, Green Mountain licenses K-cups to Starbucks Corp, Eight O'Clock, Kraft Foods Group Inc's Maxwell House, Gevalia and many private label companies.

Smucker, which was among the first to offer coffee in K-cups, has been hit by increased use of this packaging by rivals.

MorningStar analyst Ken Perkins said Smucker's K-cup coffee sales growth was slower than expected and the company was hurt by competition more than anticipated.

Smucker's sales fell 4 percent to $1.56 billion in the second quarter ended Oct. 31 even though prices of 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," the company said.

Smucker had 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, its 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.

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

Analysts on average had expected sales to fall to $1.61 billion from $1.63 billion a year earlier, according to Thomson Reuters I/B/E/S.

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.

Gross margins rose to 35.4 percent from 33.3 percent.

Shares of Orrville, Ohio-based Smucker were down 6 percent at $101.93 on Wednesday afternoon on the New York Stock Exchange. The stock has risen more than 25 percent this year to Tuesday's close.

(Additional reporting by Siddharth Cavale in Bangalore; Editing by Maju Samuel, Ted Kerr and Kirti Pandey)