Shares of J. M. Smucker Co. (NYSE:SJM) fell to a nearly 3-month low on Thursday after its third-quarter earnings missed Street view and the company slashed its full-year earnings outlook as the generally weaker industry trends and pricing pressures weighed on its results and outlook.
The Orrville, Ohio-based company earned $116.84 million or $1.03 per share for the third quarter, lower than $132 million or $1.11 per share a year-ago. Excluding special items, the company's earnings declined 4 percent to $1.22 per share, lower than analysts' expectation of $1.41 per share. Net sales rose 12 percent to $1.47 billion but came in short of Wall Street analysts' consensus estimate of $1.54 billion.
For the full year, the company now expects adjusted earnings of $4.60 to $4.65 per share, down from earlier forecast of $4.90 to $5.00 per share. Street is looking for full-year 2012 earnings of $5.02 per share, according to analysts polled by Thomson Reuters.
Despite weak quarterly results and gloomy outlook, a pull back in green coffee prices may provide the much-needed boost to the company. In addition, the company's recent authorization to increase its share buyback by 5 million shares should provide support to the stock.
The cost environment is coming Smucker's way for key commodities, especially coffee. The spot market for Arabica slipped below $2, a decline of about 35 percent from last year's highs. Applying a six month lag to spot prices, coffee inflation looks to be about 20 percent deflationary in Smucker's fiscal 2013.
"An improving cost position in coffee should give Smucker the flexibility to drive better volumes," RBC Capital Markets analyst Edward Aaron wrote in a note to clients.
The company said, on the conference call, that it plans to hold its list prices on coffee until after this quarter, when its cost position should improve significantly, but will respond as needed with trade promotions in the interim.
In addition, the analyst said the market share problem in peanut butter should be fixed by tight supply conditions. The oils business is simply a matter of competitiveness, and the company believes its price points will be more competitive with private label during the Easter selling season.
"We see valuation as compelling with shares trading at under 7.5x our CY-13 EBITDA estimate," said Aaron, who has an "outperform" rating and $84 price target on J.M. Smucker shares.
Shares of J.M. Smucker, owner of popular brands such as JIF, Smucker's, Hungry Jack and Folgers Coffee, recouped its losses Friday and were up 2.5 percent, or $1.80, in Friday afternoon trading session to $73.40.