J.M. Smucker is developing a credibility problem with investors.
The maker of jams, Jif peanut butter and pet-food brands like Meow Mix on Friday reported weak sales, though earnings per share beat estimates on lower expenses. More significantly, it also lowered its outlook for the full fiscal year ending in April for the second consecutive time, citing heavy competition in pet food.
The company originally said it expected sales growth of 1% to 2% for the fiscal year. When it last reported in August, it revised this to flat sales or a 1% decline. Now Smucker says it expects sales to fall 3%. It also lowered guidance for earnings per share and free cash flow.
Shares fell in premarket trading but were trading up nearly 4% midafternoon Friday. That could be because the company said on a conference call that part of the guidance reduction was due to a deliberate "de-risking" of the forecast, implying there is now room for it to clear that lower hurdle.
Recent experience, however, suggests investors should take statements on these calls with several grains of salt. Quizzed by analysts about the state of the pet business, Chief Executive Mark Smucker said Friday, "I would go back to the prior quarter where we acknowledge that we did not adequately anticipate the level of competitive pressure."
On the prior conference call in August Mr. Smucker described the increased competition as limited, and predicted it would be transitory. "I would start by saying that we did not fully anticipate how broad and aggressive some of the pricing actions would be on trial sizes in premium dog food. This is specific to premium dog food and relatively specific to trial sizes," he said then. "We viewed this trial size dynamic as temporary and somewhat unsustainable," he added.
This rosy view seemed unlikely to be true even at the time , given what was already known: That General Mills was aggressively growing its Blue Buffalo brand into mass-market channels like Walmart, and that Amazon had introduced its own premium brand.
A company spokesman said Friday that Smucker sees long-term growth potential in pet food.
Smucker shares are down around 2% over the past year compared to a 17% rise in the S&P 500. It is good that the company is now describing its own forecasts as "de-risked." Its shares won't be until management restores trust with investors.