J.M. Smucker Co. shares sold off Wednesday after the food company cut its earnings and revenue outlook for the year and reported lower-than-expected second-quarter financial results.

Shares closed down $7.90, or 7.2 percent, to $101.28, on a day when the broader stock market closed significantly higher. The 30-stock Dow Jones Industrial Average ended up nearly 618 points, or 2.5 percent, and the broader S&P 500 rose nearly 62 points, or 2.3 percent.

While company executives said Orrville-based Smucker had a strong second quarter with revenue higher than a year ago, both earnings and revenue results came in below analyst estimates.

Smucker said in its news release that its lowered financial outlook is in part because competition has led to lower coffee and peanut butter pricing while also reflecting the sale of the company’s baking business at the end of August.

Smucker said it now expects to have adjusted earnings of $8 to $8.20 per share for the full year, down from previous guidance of $8.40 to $8.65 per share. Revenue is expected to be $7.9 billion, down from previous guidance of $8 billion. Free cash flow is projected to range from $700 million to $750 million, down from the previous projection of $770 million to $820 million.

Smucker reported net income of $188.5 million, or $1.66 per share, on revenue of slightly more than $2 billion for the quarter ending Oct. 31. That compares to net income of $194.6 million, or $1.71 per share, on revenue of $1.9 billion a year ago.

The company said it had adjusted net income of $2.17 per share.

Income taxes tied to the sale of the company’s baking business in part hurt second-quarter earnings, the company said.

"Our net sales increase was supported by the positive contribution from the acquired Rachael Ray Nutrish brand," Mark Smucker, chief executive officer, said in a news release. "We also realized strong sales gains across many of our growth brands, including Smucker's Uncrustables, Nature's Recipe, and Café Bustelo. We are focused on growing brands consumers love in the pet food, coffee, and snacking categories, as highlighted by the completion of the U.S. baking business divestiture during the quarter. 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."

J.M Smucker sold its U.S. baking business, which includes the Pillsbury and Hungry Jack, Martha White and White Lilly brands, for $375 million to subsidiaries of Connecticut buyout fund Brynwood Partners.

Second-quarter results met internal expectations and the company is well positioned to grow, Smucker told analysts in a conference call.

“We are following through on our commitment to increase marketing investments to support our innovation and growth brands,” Smucker said. He said the company increased spending on marketing by $20 million in the quarter compared to a year ago to strengthen its food and pet brands.

Smucker also noted that the company recently announced it was transforming its marketing model to be a “best in class” organization.

J.M. Smucker’s growth priorities are to be everywhere, including online, he said. The company thinks of brick-and-mortar retail and online retail as part of a single, large ecosystem, he said.

“The fastest growing part of this ecosystem is e-commerce,” Smucker said. “We have strategic advantages here as coffee and pet food are two of the fastest growing categories online.”

The company expects third-quarter earnings per share will be down about 20 percent compared to the third quarter a year ago, said Mark Belgya, chief financial officer. The drop will be caused primarily by higher marketing expenses, higher pet food costs, the divestiture of the baking business and higher interest expense, he said.

Over the past 52 weeks, Smucker shares have traded from a low of $96.13 to a high of $133.38.

Smucker people and pet brands include Smucker's, Folgers, Jif, Crisco, Dunkin Donuts, Cafe Bustelo, Rachael Ray Nutrish, Meow Mix, Milk-Bone, Nature's Recipe and more.

 

Jim Mackinnon covers business and county government. He can be reached at 330-996-3544 or jmackinnon@thebeaconjournal.com. Follow him @JimMackinnonABJ on Twitter or www.facebook.com/JimMackinnonABJ