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J.M. Smucker (SJM) bungled its last quarter, missing analyst estimates badly. The company came in $1.22, $0.19 under consensus. Revenue was light as well with $1.47 billion in sales, below $1.54 billion expected. If that wasn't bad enough, Smucker guided fiscal-year earnings lower to $4.60 to $4.65 from $4.90 to $5.00. The company had priced its products, particularly coffee, way too high in response to rising commodity costs. The result: Unexpected sales volume declines. Gross margins declined from 37% to 33% largely on pricy green coffee beans.

Smucker got appropriately spanked: Shares tumbled over 10% on the miss.

Since the report, Smucker has recovered half its losses.

Which way from here?

SJM investors can gauge input costs by looking at coffee futures. The company has a lag time of about 20 weeks. In other words, Smucker purchases beans 4 to 5 months earlier. That's a good part of why the company missed. Coffee beans were sky-high then.

Expensive Arabaica? That's last quarter's story. Coffee bean prices have plummeted almost as fast they went up. Input costs have dropped dramatically, especially coffee, Smucker's most important cost. The rest of 2012 looks far more optimistic now that the price of coffee has come down.

With decreasing bean prices, expect Smucker to get back on track.

Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation.

Source: Dropping Coffee Bean Prices: Good News For Smucker