Smucker Investors Hope for a Stronger Q2, but Pet Food Sales Look Ruff

Shares of J.M. Smucker (SJM) rose modestly mid-Wednesday afternoon, up 1.15% to $130.27, as the company prepares to release its latest batch of quarterly earnings, with management hoping to reassure investors that they were not barking up the wrong tree with a major pet food acquisition.

Smucker reports its earnings for the second quarter of fiscal 2017, ended in October, on Thursday morning before the opening bell. Analysts expect the Orville, OH-based company to report earnings of $1.93 per share on revenue of $1.995 billion.

Previously a jam specialist, Smucker made an M&A splash last year, paying $5.8 billion for private equity-backed Big Heart Pet Brands. While the acquisition was intended to prop up Smucker shares amid lagging sales across the U.S. packaged foods space, Big Heart has proved disappointing. After Smucker's last earnings release in August, when sluggish pet food sales forced the company to reduce its revenue guidance, shares tumbled almost 10% in a single day. The stock has not recouped its losses, currently trading about 17% below the August highs.  

"Though we remain comfortable that in the long run, SJM's strong cash flow generation and presence in healthy categories (pet food, coffee) will lead to better-than-average shareholder returns, the near-term outlook is cloudier," JP Morgan analyst Ken Goldman wrote recently.

According to Goldman Sachs analyst Jason English's analysis of Nielsen data, Smucker's pet food sales continued to decline, with volume falling 1.9% and sales down 3.5% in the month ending Nov. 5, well above declines across the category as a whole. Smucker's dog and cat food brands lost share to competitors including privately held Mars and Nestlé's (NSRGY) Purina.

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