Here's How The J.M. Smucker (SJM) Looks as We Near 2024
The J. M. Smucker Company’s SJM path ahead looks promising. Sustained demand, favorable net price realization and effective cost control contribute to an optimistic view. While the recent divestitures are likely to affect near-term sales, the company’s commitment to streamlining its portfolio will help it focus on areas with higher growth potential.
Strategic Portfolio Reshaping
The J.M. Smucker has been focused on reshaping its portfolio through prudent acquisitions and divestitures. The company divested Sahale Snacks and announced the sale of its Canadian condiment business in the second quarter of fiscal 2024. It concluded the divestiture of the Private Label Dry Pet Food business and the Natural Beverage and Grains business in the third quarter of fiscal 2022. These moves help the company focus its resources and portfolio on pet food, snacking and coffee categories.
The J. M. Smucker actively pursues strategic acquisitions in the United States as well as overseas. The company acquired the premier snacking company, Hostess Brands, in November 2023, which is expected to contribute sales worth roughly $300 million in the third quarter. Going forward, Hostess Brands is likely to form around 15% of the company’s total sales.
Management expects long-term annual net sales growth of about 4% for the Sweet Baked Snacks business. The combined capabilities of Hostess Brands and The J.M. Smucker products are likely to result in strengthened distribution, supporting the company’s long-term growth expectations.
Additionally, management envisions annual cost synergies of around $100 million, with half of this expected to materialize in fiscal year 2025 and the full annualized amount to be achieved by the end of fiscal 2026. The Sweet Baked Snacks business is expected to positively impact adjusted earnings per share in the upcoming fiscal year.
Pricing Power
The J. M. Smucker’s strength is underscored by its adept utilization of positive net price realization. During the second quarter, net price realization contributed three percentage points to comparable net sales growth. For fiscal 2024, the company anticipates comparable net sales to rise 8.5-9% on elevated net pricing and a favorable volume/mix. For the third quarter, comparable net sales are likely to increase at a mid-single-digit rate.
Navigating Cost Challenges
The J. M. Smucker appears troubled by elevated selling, distribution and administrative (SD&A) costs. Management’s bottom-line view for fiscal 2024 assumes elevated SD&A expenses. This includes costs related to Hostess Brands’ acquisition, along with pre-production costs associated with Uncrustables capacity expansion, elevated marketing expenditures and increased investments in liquid coffee.
However, core priorities, such as driving commercial excellence, reshaping the portfolio and optimizing cost structures, keep this Zacks Rank #3 (Hold) company well-placed for growth. Shares of SJM have advanced 4.6% in the past three months compared with the industry’s growth of 5.8%.
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