Smucker's revenue misses on weak Folgers coffee, pet food sales

(Reuters) - J.M. Smucker Co SJM.N said full-year sales may fall more than it had previously anticipated as its Folgers coffee and pet snacks businesses face pressure from rising competition and commodity costs.

Smucker’s shares fell as much as 6 percent to $130.01 in morning trading on Friday.

Green coffee prices are expected to rise through early 2017 as drought has hit coffee output from top grower Brazil for three straight years.

Last month, Smucker raised prices by an average 6 percent to make up for the rise in the commodity’s cost.

Smucker’s U.S. coffee sales fell 7 percent in the third quarter ended Jan. 31, while profit dropped 12 percent.

The company said it was facing a “tough cost situation” in its Folgers K Cups business, owing to its old supply chain arrangement.

“We think there is an opportunity as our contracts roll off to improve that dramatically,” Steven Oakland, who heads, Smucker’s coffee and U.S. food and beverage businesses, said on a conference call.

The company said it expected Folgers sales to remain soft in the fourth quarter as well.

The company's pet foods business, its biggest in terms of sales, has been under pressure from rivals Mars Petcare and Nestle's NESN.S Purina, which are using promotions and discounts to lure customers.

Sales in that business, which accounted for 29 percent of its total revenue, fell 4 percent in the quarter.

The company said shortage of a key ingredient for its Natural Balance premium pet food, which hurt sales in the third quarter, is expected to continue into the current quarter.

Smucker’s net income fell 27 percent to $134.6 million, or $1.16 per share, in the latest quarter partly due to a charge related to certain trademarks within its pet foods business.

Excluding items, the company earned $2 per share, in line with the analysts’ average estimate, according to Thomson Reuters I/B/E/S.

The company’s net sales fell 5 percent to $1.88 billion, their third straight quarterly decline, missing analysts’ estimate.

Smucker’s said it expected adjusted sales to fall 3 percent for the year ending April, compared with its previous estimate of flat to down 1 percent.

The company also trimmed the top end of its adjusted earnings range by 5 cents, bringing it to $7.60-$7.70 per share.

Shares of the company were down 4.6 percent at $131.51 on the New York Stock Exchange. Up to Thursday’s close, the stock had gained 8 percent in the last 12 months.

Reporting by Sruthi Ramakrishnan in Bengaluru; Editing by Saumyadeb Chakrabarty and Anil D’Silva