Smucker expects strong 2012 sales despite price hikes

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BANGALORE (Global Markets) - J M Smucker Co (SJM.N), the maker of Folgers coffee and Jif peanut butter, forecast strong sales for the year, as the American love for java withstood multiple price increases brought on by soaring green coffee costs.

Smucker, which licenses the Dunkin' Donuts brand and also sells Millstone coffee, has raised prices of its packaged coffee by more than a third since last May. Arabica coffee futures in New York have roughly doubled in the same time.

The diversified food maker, however, has not moved as intensely as chief rival Kraft Foods' (KFT.N) Maxwell House, which has raised prices by roughly 56 percent since May 2010. Price increases by Starbucks (SBUX.O) have been smaller and less frequent.

Over the past two quarters, Smucker -- which derives nearly half of its sales from coffee -- also increased prices of its frosting, flours and oils products.

Orrville, Ohio-based Smucker expects higher prices and its recent acquisition of espresso coffee firm Rowland Coffee Roasters to result in a net sales rise of 20 percent in fiscal 2012. This implies sales of about $5.8 billion for the year, well above analysts' estimate of $5.16 billion.

However, Smucker, which has a market value of over $9 billion, forecast a 25 percent rise in 2012 cost of products.

As a result, despite the strong sales forecast, the company expects a fiscal 2012 profit largely within analysts' estimates.

"While the EPS guidance range for fiscal 2012 is wider than usual, a number of discrete items, such as lapping of a charge, buybacks and (Rowland) deal accretion is enough to get the company to the high end of the range with modest core business growth," Barclays Capital analyst Andrew Lazar said in a client note.

Demand rose for the company's popular brands Folgers, Jif and Pillsbury in the fourth quarter, helping the company beat analysts' estimates. Overall volumes were up 2 percent in the quarter.

"Investors might have expected a bigger beat given very strong sell-through trends on coffee in the quarter, but guidance (especially on the top-line) should be viewed positively," RBC Capital Markets analyst Edward Aaron said.

Higher costs of inputs such as green coffee and transportation expenses pulled down Smucker's quarterly gross margins to 35.5 percent from 40.2 percent in the year-ago period.

The company reported a fourth-quarter profit of $94.9 million, or 82 cents a share, compared with $120.6 million, or $1.01 a share, a year ago.

Excluding items, it earned $1.00 a share, compared with analysts' average estimate of 99 cents a share, according to Thomson Global Markets I/B/E/S.

Shares of the company, which have risen about 16 percent this year, were up 2 percent at $77.61 on Thursday afternoon on the New York Stock Exchange.

(Reporting by Mihir Dalal in Bangalore; Editing by Saumyadeb Chakrabarty)