J.M. Smucker 1st-quarter net income rises

AP News
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Posted: Aug 18, 2011 6:14 PM
J.M. Smucker 1st-quarter net income rises

Price hikes helped J.M. Smucker Co.'s first-quarter profit rise 8 percent, but the company is still struggling to balance its higher costs against what it charges customers.

Most major food and beverage companies have raised their prices in the past two years to offset soaring costs for ingredients, packaging and fuel.

J.M. Smucker's earnings report Thursday showed that those moves can come at a cost. And its shares fell more than 7 percent during a broader market rout.

Its revenue rose 14 percent to $1.19 billion but fell short of analysts' average forecast for $1.26 billion, and its sales volume dropped as shoppers resisted higher prices.

The company said its net income for the quarter rose to $111.5 million, or 98 cents per share, from $102.9 million, or 86 cents per share last year. Excluding one-time items, it earned $1.12 per share.

That beat analyst expectations of $1.08 per share, according to FactSet.

The company, which is based in Orville, Ohio, and makes Folgers, Dunkin' Donuts and Millstone coffee, Jif peanut butter and its namesake jams, has raised prices on a number of items recently but most notably on coffee.

It hiked its coffee prices four times starting in May 2010 and then said this week that it would pare prices back. Shoppers have resisted the higher prices, and the company's sales volume for coffee, excluding recent acquisitions, fell 8 percent for the quarter.

Company leaders said Thursday that while they had anticipated softer sales volume due to higher prices, the magnitude of the decline was greater than anticipated.

The company's 6 percent coffee price cut, which reflects a recent drop in bean prices is not enough to offset all the hikes, but the company hopes it will win back some shoppers and make Smucker's prices more attractive in time for the winter holidays.

"As we navigate our way through uncharted economic waters, we continue to believe that our strategy of focusing on leading brands, combined with excellent implementation in the marketplace, will continue to yield long-term, sustainable growth," CEO Richard Smucker said during a conference call with investors.

During the period, the company's revenue from coffee rose 27 percent, its revenue from consumer foods increased 2 percent and its international food and natural food business increased 12 percent. But the company struggled with higher commodity costs including higher prices for flour and milk.

Higher prices are wearing on consumers, many of whom are trying to stretch their grocery dollars further by trading down to lower-priced brands or forgoing some items altogether.

Shoppers also are paying more for gas and clothes. The Consumer Price Index released on Thursday rose the most in July that it has since spring.

That means competition for consumers' limited dollars will be even stiffer in the near future for all consumer product companies.

Leaders at J.M. Smucker remained optimistic about the company's long-term potential as it gained market share in many categories and its new products did well during the period. They affirmed a forecast for full-year adjusted earnings of $5 to $5.15 per share. Analysts expect $5.13 per share on average, according to FactSet.

But the company said its coffee price cut would lower its revenue growth several percentage points for the year from the 20 percent increase it forecast in June.

Smucker's shares fell $5.54 to $70.02. The Dow Jones industrials closed down more than 400 points, or 3.7 percent.

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AP Business Reporter Mae Anderson contributed reporting from New York.