Smucker Downgraded At Credit Suisse On Worse-Than-Expected Pet Food Business

Credit Suisse's Robert Moskow prefers to move to the sidelines on J M Smucker Co SJM, given that the company’s “key commodity inputs have bottomed and no longer provide material opportunities for margin benefits.”

Moskow downgraded the rating on the company from Outperform to Neutral while lowering the price target from $158 to $145.

Comps Hit Sales

The analyst mentioned that the expectation that J.M. Smucker would raise its cost savings targets to take care of its unwieldy overhead structure had played out.

Related Link: Investors Cheer J.M. Smucker Q1 Earnings, Outlook

However, Moskow noted that the hit sales would take due to tough comparisons, driven by the extensive new product launches in 2015, had been underestimated, as had been the level of reinvestment required to reenergize the pet food division.

The analyst stated that Nielsen tracking data indicated a 2.2 percent decline over the past four weeks, mostly driven by the pet food division, as compared to a 1.4 percent decline in the past 12 weeks and the 1.1 percent rise in the past 52 weeks.

Pet Foods Drives Declines

Moskow also pointed out that many of the “smaller new product launches in pet snacks failed to gain traction,” while “the declines in dry dog food continue to accelerate because the company did not have an entry in the premium segment of the grocery channel.”

Given these challenges, the analyst expects management to lower its profit guidance for the pet division once again, along with the long term sales growth guidance for pet food.

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