Dive Brief:
- J.M. Smucker posted a 7% decline in net revenue to $1.82 billion in its fiscal Q1 2017 earnings report Tuesday. It was the company's first revenue decline in six quarters and missed analysts' estimates of $1.89 billion.
- Net income for the quarter increased to $170 million, or $1.46 per share, from $136.4 million, or $1.14 per share, the year prior.
- The company expects full-year net sales, excluding the financial impact of its U.S. canned milk business divestment, to come in flat or dip 1%, compared to its previous forecast of a 1% sales increase.
Dive Insight:
Smucker attributed the quarter's sales decline to decreased demand for its pet food brands as competition intensifies from brands like Nestle's Purina and Mars's Petcare. Last year, Smucker diversified its portfolio by diving into the pet food business with its $3.2 billion acquisition of Big Heart Pet Brands, which now comprises almost one-third of the company's total revenue.
But sales also fell 8% for Smucker's U.S. retail consumer foods segment, 2% excluding the impact of the canned milk divestiture. The company said the decline was due to lower net price realization for the Crisco, Pillsbury and Jif brands. These struggles echo those that other center store grocery competitors are seeing, such as General Mills and Kraft Heinz.
In May, Smucker cut prices for the majority of its coffee products sold in the U.S. after coffee costs dropped, though Reuters posited that increased competition may have been a driving factor in the decision. Smucker had already lowered prices for most Folgers and Dunkin' Donuts products in July 2015. The company was attempting to recover from the sales hit its coffee brands took after Smucker raised coffee prices by 9% in 2014 to maintain profitability amid coffee bean supply issues in Brazil.
Following the July 2015 price cuts, Smucker's U.S. coffee sales increased by 12%, the first improvement in 11 quarters, due in part to the price adjustment. But after Smucker's latest round of price cuts this past May, the company may have lowered prices so much that total revenue took a hit.
Following the earnings report's release, Smucker's stock fell 4.1% to $149.80 in premarket trading.