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Why Shares of J.M. Smucker Slumped Today

By Timothy Green – Nov 28, 2018 at 12:57PM

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Weak pricing hurt the food company's results and led to a guidance cut.

What happened

Shares of J.M. Smucker (SJM -0.04%) fell on Wednesday after the packaged food company reported disappointing second-quarter results. On top of missing analyst estimates for both revenue and earnings, J.M. Smucker reduced its guidance for the full year. The stock was down about 5.9% at 12:10 p.m. EST.

So what

J.M. Smucker reported second-quarter revenue of $2.02 billion, up 5% year over year but about $30 million below the average analyst estimate. Acquisitions were responsible for all of this growth. On a comparable basis, sales declined by 1% due to lower prices on coffee, peanut butter, pet food, and pet snacks.

A sign with the Smucker's logo.

Image source: J.M. Smucker.

Non-GAAP earnings per share came in at $2.17, up 7% year over year but $0.11 shy of analyst expectations. The acquisition of pet food company Ainsworth boosted gross profit, but those gains were partially offset by the sale of the U.S. baking business.

Taxes related to the U.S. baking business hurt the company's bottom line, explained CEO Mark Smucker: "While the income taxes related to the sale of the baking business impacted our earnings per share, we were pleased with the business results for the quarter. Ongoing execution of our strategy for both growth and core brands is essential to delivering long-term shareholder value."

Now what

J.M. Smucker lowered its full-year guidance for both sales and earnings due to the sale of the U.S. baking business as well as lower pricing and competitive activity in its coffee and peanut butter businesses. The company now expects full-year revenue of $7.9 billion, down from previous guidance of $8.0 billion. Non-GAAP earnings per share is expected to be between $8.00 and $8.20, down from a previous range of $8.40 to $8.65.

Investors didn't take kindly to weak organic sales and a guidance cut. Shares of J.M. Smucker are down nearly 17% year to date after Wednesday's rout. The stock now trades for less than 13 times earnings guidance, so it's one for value investors to watch.

Timothy Green has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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