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What's in the Cards for J.M. Smucker (SJM) in Q1 Earnings?

Zacks Equity Research

The J. M. Smucker Company SJM is set to report fiscal first-quarter 2018 results before the opening bell on Aug 24. The question lingering in investors’ minds is, whether this food products manufacturerwill be able to post a positive earnings surprise in the to-be-reported quarter. The company delivered an average earnings beat of 4.00% in the trailing four quarters.

However, fourth-quarter fiscal 2017 results of Smucker failed to impress investors. While earnings during the quarter fell 19% year over year due to lower revenues and decline in gross profits, sales dipped 1% due to lower net price realization.

The dismal quarterly performance was also reflected in the share price performance of the company. If we look into the company’s last six months performance, we will notice that shares of Smucker underperformed the industry. In the said time frame, shares of the company have declined 13.4%, compared with the industry’s fall of 6.2%. Notably, the industry is part of the bottom 28% of the Zacks Classified industries (185 out of the 265). The broader Consumer Staples sector, which is at top 25% of the Zacks Classified sectors (4 out of 16), has increased 2.5% in the said time frame.

Let’s see how things are shaping up prior to this announcement.

Which Way are Estimates Treading?

Let’s look at earnings estimate revisions in order to get a clear picture of what analysts are thinking about the company right before the earnings release. The current Zacks Consensus Estimate for the quarter under review has declined 3.0% over the last 30 days and is currently pegged at $1.61 per share, which is also down 13.4% from $1.86 per share delivered in the year-ago quarter. Analysts polled by Zacks expect revenues of $1.82 billion, almost in line with the prior-year period.

Estee Lauder Companies, Inc. (The) Price, Consensus and EPS Surprise


Estee Lauder Companies, Inc. (The) Price, Consensus and EPS Surprise | Estee Lauder Companies, Inc. (The) Quote

Factors to Consider

Of late, the U.S. Retail Coffee segment, which is Smucker’s biggest revenue generating segment, is going through a rough patch. Owing to escalating coffee costs, Folgers brand has been witnessing reduced volumes. Not only this, Smucker’s Pet Food business has also been facing several challenges. Heightened competition from premium brands and challenges in dry dog food against a deflationary macro environment is weighing on Kibbles 'n Bits brand’s performance. Sourcing challenges have also posed a concern in this segment.

The introduction of Nature's Recipe premium pet food in second-quarter fiscal 2017 is anticipated to stabilize Kibbles 'n Bits brand, as well as benefit the entire dog food portfolio. The acquisition of Big Heart Pet Brand and the launch of Dunkin Donuts K-cup pods are also fueling sales. Notably, Dunkin Donuts is part of Dunkin' Brands Group, Inc. DNKN.

Smucker also remains hopeful that its cost-reduction initiatives, combined with the restructuring and innovation related efforts, would improve the company’s performance in the near term. However, the company expects earnings to decline due to softness in the coffee and pet foods segments, moving ahead. Smucker’s international business performance also remains under pressure due to currency headwinds.

Earnings Whispers?

Our proven model does not conclusively show that Smucker is likely to beat earnings estimates this quarter. This is because a stock needs to have both a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP for this to happen. You may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Smucker has an Earnings ESP of -1.01% as the Most Accurate estimate of $1.60 is below the Zacks Consensus Estimate of $1.61 per share. The company currently carries a Zacks Rank #3, which increases the predictive power of ESP. However, its -1.01% ESP makes surprise prediction difficult.

Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.

Stocks with Favorable Combination

Here are some companies in the consumer staple sector you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

SunOpta, Inc. STKL has an Earnings ESP of +33.3% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Estée Lauder Companies, Inc. EL has an Earnings ESP of +2.03% and a Zacks Rank #3.

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Estee Lauder Companies, Inc. (The) (EL) : Free Stock Analysis Report
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