June 7, 2018 / 11:13 AM / 3 months ago

J.M. Smucker's forecast hit by high freight, marketing costs

(Reuters) - J.M. Smucker Co (SJM.N) on Thursday forecast full-year profit well below estimates as the Folgers coffee maker spends heavily on marketing to battle competition while struggling with high costs, sending its shares down as much as 10 percent.

Smucker, like other U.S. food companies, has been fighting higher freight costs by raising prices of some of its consumer foods products. That, however, hurt sales of food brands such as Jif peanut butter and Crisco cooking oil in the company’s fourth quarter.

Intense competition from several private label brands has also weighed on Smucker. The company has been spending to introduce new brands to keep up with rivals and consumer demand for healthier and simpler foods.

“There’s a lot of headwinds out there ... but we feel that we’re radically investing and our guidance range is capturing sort of all our thoughts around where costs are created, where pricing may be headed, where tariffs might be headed,” Chief Financial Officer Mark Belgy said on a post earning call.

The company forecast adjusted profit of $8.40 to $8.65 per share for the full year, well short of analysts’ average estimate of $9.22.

The disappointing outlook knocked back stocks of some other packaged food companies, including General Mills (GIS.N) and Kraft Heinz (KHC.O), that have also flagged concerns about rising costs.

Morgan Stanley analyst Pamela Kaufman said weak results and forecast underscore Smucker’s topline challenges and heightened reinvestment needs in light of aggressive competition and market share losses in key categories.

The company failed to take advantage of low coffee prices as it had to spend more on promotional activity to tackle competition.

Sales at Smucker’s Folgers coffee brand fell 2 percent in the quarter, and the company expects marketing expenses to rise significantly.

Despite lower coffee costs, overall commodity costs are expected to rise due to higher prices of peanuts, protein and packaging, Smucker said.

Smucker’s newest business - pet foods - also posted a decline in sales. The company has been ramping up its pet food offerings to take a bigger shares of the lucrative market.

Net income rose to $185.9 million in the quarter ended April 30, from $110.4 million, a year earlier.

The company said it earned $1.93 per share on an adjusted basis that included a 10 cent impact from some charges. Analysts on average had estimated a profit of $2.18 per share, according to Thomson Reuters I/B/E/S.

Net sales fell marginally to $1.78 billion, also missing the estimate of $1.80 billion.

Reporting by Aishwarya Venugopal in Bengaluru, additional reporting by Chris Prentice in New York; Editing by Saumyadeb Chakrabarty

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