* Q3 adj EPS 88 cents beats Street by 1 cent
* Increased pricing, Folgers acquisition help Q3 results
* Cuts 2009 outlook
* Peanut-butter scare taints outlook * Shares fall 8 pct (Recasts, adds details from conference call, more background, analyst comments, updates share movement)
By Mihir Dalal
Feb 25 (Reuters) - Peanut-butter and jelly maker J.M. Smucker Co (SJM.N) posted a third-quarter profit that edged past market estimates, helped by higher prices and its Folgers acquisition, but cut its 2009 outlook on expected weak peanut-butter sales and increased ammortisation costs, sending its shares down 8 percent.
"The new guidance that they provided for this fiscal year was disappointing. I was especially surprised by the increased amortization expenses," said S&P equity analyst Tom Graves, adding that the rise in amortization costs was the reason behind the fall in the company's stock.
Increased non-cash amortization expenses are expected to rise by 17 cents a share in 2009, a company executive said on a conference call with analysts.
The company also expects marketing expenses to increase due to the Folgers acquisition.
"Even though it's a non-cash expense, on a earnings-per-share basis, it's a pretty big impact," said Graves. Given that the company had closed the acquisition in early November it should have figured out the additional expenses earlier, he added.
Graves cut his price target on J.M. Smucker by $4 to $49, but maintained his "strong buy" rating. He also cut his 2009 earnings estimate to $3.23 a share from $3.47, and 2010 estimate to $3.36 from $3.70a share, citing the increased amortization expenses.
J.M. Smucker said a recent controversy over peanut butter led to a slight volume decline in its peanut-butter segment. The company expects this to continue in the fourth quarter, although none of its products were recalled.
Last week, Peanut Corp of America sought bankruptcy protection after a salmonella outbreak traced to its Blakely, Georgia plant led to one of the biggest product recalls in U.S. history. The outbreak has sickened more than 640 people in 44 states and may have killed nine people.
Despite U.S. Food and Drug Administration assurances that major peanut butter brands in stores are safe, J.M. Smucker ran ads in major newspapers assuring consumers that it "does not buy peanuts or any ingredients from Peanut Corp of America." It also offered a coupon for 35 cents off to entice consumers.
"Even companies that make peanut butter and did not have products recalled, are still being hurt by people being afraid," said Graves.
Makers of major peanut butter brands have seen sales fall nearly 25 percent since the recall of salmonella-tainted peanut butter and peanut products made by Peanut Corporation of America began last month.
"I expect most of the costs, especially the marketing costs, related to the peanut-butter situation to show up in the next quarter," said Graves adding that J.M. Smucker might have to incur even more marketing expenses by running advertisments.
The company's food spread and peanut-butter volume fell 3 percent in the third quarter, Chief Financial Officer Richard Smucker said on the call.
J.M. Smucker expects the softness in its peanut-butter segment to impact 2009 earnings by 5 cents a share to 7 cents a share, a company executive said on the call.
Third-quarter net income at the company came in at $77.9 million, or 68 cents a share. Excluding items, the company posted 88 cents a share for the quarter ended Jan. 31.
The company, known for its namesake jellies and jams, expects earnings of $3.15 to $3.30 a share, excluding items, on revenue of $3.6 billion to $3.7 billion in 2009.
J.M. Smucker had previously expected earnings of $3.45 to $3.5 a share on net sales of $3.8 billion to $4.0 billion.
The company, which competes with Nestle NESN.VX and Unilever Plc (ULVR.L) (UNc.AS), said it remained committed to its long-term strategic objectives of annual sales growth of 6 percent, and earnings-per-share growth of more than 8 percent.
Shares of the Orrville, Ohio-based company fell to a low of $37.86, before paring some losses to trade down $2.18 at $38.96 Wednesday afternoon on the New York Stock Exchange.
For related alerts, double-click [ID:nWNAB6621] (Reporting by Mihir Dalal in Bangalore; Editing by Pratish Narayanan, Jarshad Kakkrakandy)