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Smucker Income Falls On Higher Ingredient Costs

Fri, 11/18/2011 - 3:54am

J.M. Smucker Co.'s fiscal second-quarter net income fell 15 percent as the food maker struggled with higher costs for ingredients. The company's profit missed expectations.

It's an ongoing battle for most food and beverage companies as they face a tricky balance between covering costs and not alienating consumers with higher prices.

J.M. Smucker, which makes Folger's coffee, Jif peanut butter and its namesake spreads, said its costs for milk, oil, peanuts and other commodities increased 30 percent during the quarter. The company has raised prices to offset these pressures, including a 30 percent hike in peanut butter that went into effect this month.

While those price hikes helped boost revenue 18 percent during the August-October period, the company's sales volume fell 1 percent.

The company expects certain costs, particularly for green coffee and peanuts, to remain high. But many commodity costs are beginning to ease. Further price increases are planned through April, but the company said it expects that the bulk of price hikes are complete.

"We are effectively managing this period of significant cost inflation," CEO Richard Smucker said.

J.M. Smucker, based in Orville, Ohio, reported that it earned $127.2 million, or $1.12 per share, from August through October. That compares with $149.7 million, or $1.25 per share, in the same quarter last year.

Excluding one-time items, net income totaled $1.29 per share. That fell short of analyst expectations of $1.39 per share, according to FactSet.

Revenue rose to $1.51 billion from $1.28 billion last year. Analysts expected $1.5 billion.

Shoppers bought more Pillsbury baking mixes and Jif peanut butter, but sales of non-branded drinks, Crisco oils, Folgers coffee and Pillsbury flour fell.

The company also said that it expects its plans to buy a chunk of Sara Lee Corp.'s North American coffee and tea foodservice operations for $350 million will be complete in January. The two companies announced the deal in October, which included an agreement for a long-term partnership to work on a new coffee drink.

J.M. Smucker also lowered its full year guidance on Thursday due to costs related to issuing $750 million in long-term debt in October.

It now expects earnings, excluding restructuring, merger and integration costs and other one-time items, to be $4.90 to $5, from a prior range of $5 to $5.15 per share. Analysts expect net income of $5.11 per share.

The news came as J.M. Smucker said it is recalling 3,000 16-ounce jars of its Smucker's Natural Peanut Butter Chunky from stores in several states because of possible salmonella contamination.

Another 16,000 jars included in the recall never left warehouses.

Shares of the company fell 20 cents to $72.98 in late morning trading.

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