August 24, 2017 / 11:28 AM / a year ago

Smucker first-quarter profit hit by sliding coffee sales; stock tumbles

(Reuters) - J.M. Smucker Co (SJM.N) trimmed its earnings forecast for the year as it reported lower-than-expected profits for the first quarter of its fiscal year on Thursday, citing weak volumes for its Folgers coffee brand.

Smucker shares slid as much as 7.6 percent in morning trade.

Sales in Smucker’s U.S. coffee business fell 8 percent in the first quarter while operating profits tumbled 29 percent as retailers placed fewer orders due to the rising cost of coffee.

That was primarily driven by high prices relative to the company’s private label competitors, executives said on a conference call with investors. Smucker’s price hike earlier this year dented demand, and the company lowered prices for July.

Coffee prices were “out of line,” said Steve Oakland, who heads Smucker’s coffee and U.S. food and beverage businesses. “When we adjusted (prices) the volume came back.”

The company expects better margins further into the year, largely in the coffee business.

While pet food sales, Smucker’s biggest business, inched up 0.5 percent, profits declined by one-fifth due to higher marketing expenses to launch its Nature’s Recipe brand at mass retailers.

Smucker, which also makes Jiffy peanut butter and the namesake fruit spreads, has been facing intense competition in pet foods as bigger and deeper-pocketed rivals, such as Mars’ Pedigree and Whiskas, and Nestle’s (NESN.S) Purina, built their portfolios.

Smucker lowered its full-year profit forecast to $7.75-$7.85 per share from $7.85-$8.05.

Like other food companies, Ohio-based Smucker has been introducing new brands to try to keep up with changing consumer demands, including healthier and simpler foods.

“(The) growth of those brands isn’t necessarily offsetting some of the declines in the larger brands,” said President and Chief Executive Officer Mark Smucker on the call.

Net income fell 25 percent to $126.8 million, or $1.12 per share, in the three months ended July 31. Excluding items, the company earned $1.51 per share.

Net sales fell to $1.75 billion from $1.82 billion.

Analysts, on average, expected a profit of $1.62 per share on revenue of $1.81 billion according to Thomson Reuters I/B/E/S.

The stock was off 7.4 percent to $110.19 after falling as low as $109.77.

Reporting by Uday Sampath Kumar in Bengaluru and Chris Prentice in New York; Editing by Savio D'Souza and Jeffrey Benkoe

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