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Hangover from coffee rally hurts JM Smucker results

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A hangover from the coffee market rally tripped up JM Smucker, as the pet food-to-doughnut giant revealed a dent to sales from an attempt to pass on to customers higher bean prices.

JM Smucker, which owns brands such as Dunkin' Donuts and Pilsbury besides coffee labels Folgers and Keurig, unveiled a loss of $90.3m for the February-to-April quarter, compared with earnings of $118.5m a year before.

The slide into the red reflected $173.3m spent on a bond repurchase.

However, even excluding one-off factors, earnings per share of $0.98 were well below the $1.22 per share achieved a year before, and marginally short of Wall Street expectations.

While revenues rose by 16.4% to $1.45bn, this reflected acquisitions such as Big Heart, completed in March, and the purchase of Sahale Snacks in September.

Prices up, volumes down

Smucker highlighted the dent to its US retail coffee division, its biggest earner, from higher bean costs, a hangover from last year, when drought in Brazil sent New York futures soaring above 125 cents a pound in October.

With rains returned to Brazil, futures have since fallen back to stand at 134.30 cents a pound on Thursday.

Attempts to pass on in higher coffee prices the raised cost of beans had prompted a 15% drop in sales volumes, "primarily driver by the Folgers brand" – more than offsetting the benefit of the price rises.

"The Folgers brand volume decline was attributed to consumer response to higher promoted price points on shelf for its roast and ground coffee offerings," besides "competitive activity and reduced promotional effectiveness", Smucker said.

"The Dunkin' Donuts packaged coffee volume declined 18% in the quarter as it was also impacted by similar factors."

Earnings outlook

Divisional sales for the quarter by value fell by 2.8% to $486.6m, and operating profits by 18.9% to $109.9m, "driven by lower sales volume".

The group added that "net coffee pricing did not offset higher green coffee costs".

And while the group's peanut butter division had enjoyed a drop in peanut costs, a reflection of strong US production, the benefit was more than offset by lower product prices.

The group added that its underlying earnings for the financial year which started last month were likely to come in at about $5.65-5.80 per share, on net sales of about $8.0bn.

Analysts have forecast earnings of $5.84 per share and revenues of $7.97bn.

JM Smucker shares stood 3.3% lower at $3.29 in morning deals in New York.


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