Add J.M. Smucker (NYSE:SJM) to the list of companies ready to bid goodbye to a treacherous 2018 -- at least where share price is concerned. The "SJM" symbol has relinquished 25% of its value year to date.

A competitive environment for consumer packaged-goods companies has certainly impacted J.M. Smucker, but on the organization's fiscal second-quarter 2019 earnings conference call on Nov. 28, management provided some nuance around rather flat earnings. Below, we'll review three comments that put current earnings into perspective and hint at a recovery in the coming months.

1. Top-line weakness isn't hurting profitability

We now expect net sales to approximate $7.9 billion, in line with consensus estimates. This reflects continued lower net price realization on coffee and peanut butter and the impact of delayed distribution for pet innovation.

-- CFO Mark Belgya 

Across J.M. Smucker's chief lines of business, second-quarter revenue was impacted by lower net price realization. Excluding a $184.2 million contribution from the company's acquisition of Ainsworth Pet Nutrition in May, net sales declined by 1% to $2 billion. As Belgya points out above, part of the company's reduction of full-year fiscal 2019 revenue estimates from $8 billion to $7.9 billion is a result of diminished pricing realization.

However, lower pricing is resulting primarily as J.M. Smucker and its competitors pass on lower commodity costs (particularly in coffee) to customers. Thus, the diminished pricing power -- while the result of a competitive environment in which most manufacturers feel compelled to pass on cost savings -- impacted Smucker's gross margin only "slightly" during the quarter.  

2. The company alleviated future margin pressure this quarter

Because the third quarter is our heaviest baking period, we're losing a significant amount of profits from last year that obviously aren't going to repeat this year ... 

-- Belgya

J.M. Smucker sold its U.S. baking business to private equity firm Brynwood Partners for $375 million on Aug. 31. The portfolio included many classic brands with high consumer recognition, including Jim Dandy, Pillsbury, Martha White, and Hungry Jack. However, the baking business is a slow-growth, low-margin enterprise, and the organization is trying to transition into faster-growing revenue streams, such as premium pet foods.

Thus, while Belgya acknowledges the loss of baking business profits in the third quarter, in the long run, the sale should enhance the company's overall profit margins.

coffee beans and roaster

Image source: Getty Images.

3. Coffee sales are vigorous

Focusing on our growth brands in coffee, our Dunkin' Donuts K-Cup was recently recognized as a 2018 Nielsen Breakthrough Innovation, with year-one sales exceeding $200 million. In addition to the No. 1 selling K-Cup [stock-keeping unit], the Dunkin' brand continues to be the No. 1 premium bag SKU offering and the No. 1 selling cold brew kit. 1850 brand coffee continues to perform as launch results confirm we are engaging with our target consumer.

-- CEO Mark Smucker

The company's second-largest segment, U.S. retail coffee, achieved favorable volume and mix growth of 1% during the quarter, but the difficult pricing environment diminished total segment year-over-year sales growth by 2 percentage points, to $545 million.

The volume improvement was balanced among product lines during the last three months. In addition to the company's success as the manufacturing and distribution partner of Dunkin' Brands' packaged coffee products, Mark Smucker refers above to the recent launch of a premium Folgers brand, 1850 coffee.

Coffee will likely serve as a bright spot for J.M. Smucker once "green" coffee commodity costs stabilize. The weak pricing realization appears to be masking incipient growth in this business segment. Management allocated $20 million more in marketing expense this quarter against the prior year, noting that the overage was primarily devoted to coffee products and the Ainsworth pet brands.

The company's strategic plan calls for it to allocate a higher level of marketing resources for growth brands across all businesses; together, these brands comprise roughly $2 billion in annual sales. Within this category, evolving opportunities in coffee like the 1850 label and Dunkin' Donuts coffee could help J.M. Smucker regain its sales momentum in calendar 2019.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.