J.M. Smucker (SJM) Focused on Core Priorities Amid High Costs
The J. M. Smucker Company SJM has been benefiting from its focus on core strategies, one being portfolio refinement. To this end, the company’s prudent acquisitions and divestitures have been helping it concentrate on areas with higher growth potential. These upsides, along with favorable net price realization, have been aiding SJM in countering rising costs.
Core Priorities Work Well
J. M. Smucker’s core priorities include driving commercial excellence, reshaping the portfolio, streamlining the cost structure and unleashing its organization to win. Strength in such strategies is helping The J. M. Smucker navigate complex supply-chain challenges. These also enable the company to improve in-store fundamentals and stock performance for the brands. SJM is committed to increasing its focus and resources to reshape its portfolio to achieve sustainable growth across pet food and pet snacks, coffee and snacking categories.
In a recent move, SJM inked a deal to divest its Bick's pickles, Habitant pickled beets, Woodman's horseradish and McLarens pickled onions brands to TreeHouse Foods, Inc. THS. The divestiture of these pickle brands will help J. M. Smucker concentrate on growing its foothold in categories like coffee, spreads, frozen handheld and pet in Canada, alongside enabling it to sustain its position in the baking category.
As for TreeHouse Foods, the buyout of these brands will aid the company in solidifying its position in the growing pickles space. This will also support THS’ expansion into Canada, paving the way for greater success.
In earlier moves, J. M. Smucker concluded the divestiture of certain pet food brands in the fourth quarter of fiscal 2023 to reshape the portfolio. This brought its pet business structure to include 60% pet snacks and 40% cat food. This move was aimed at helping the company direct more resources toward the fast-growing and higher-margin dog snacks category. J. M. Smucker anticipates increasing its dog snacks portfolio to $1 billion (in annual net sales) in the next few years.
Cost Woes, an Overall Challenge
J. M. Smucker has been dealing with rising costs. In its first-quarter earnings release, management stated that ongoing cost inflation, supply-chain bottlenecks and the broader macroeconomic landscape continue to affect the company’s results and cause risks for fiscal 2024.
Additionally, The J. M. Smucker’s bottom-line view for fiscal 2024 assumes elevated selling, distribution and administrative (SD&A) expenses. This includes pre-production costs associated with Uncrustables capacity expansion, elevated marketing expenditures and increased investments in liquid coffee.
Other food players have also been grappling with cost inflation. Sysco Corporation SYY has been encountering product cost inflation in the U.S. Foodservice unit for a while now. In the fourth quarter of fiscal 2023, SYY witnessed product cost inflation of 2.1% for the overall company, which was measured by estimated changes in product costs, mainly in the frozen, canned and dry categories. Apart from this, adjusted operating expenses rose 1.9%. Sysco anticipates its International segment to remain inflationary in fiscal 2024.
Flowers Foods, Inc. FLO continued to be impacted by input cost inflation, reduced production volumes, higher product returns and elevated maintenance costs in the second quarter of 2023. FLO expects inflation to persist in 2024. Also, FLO witnessed a rise in marketing expenses in the second quarter of 2023. The company’s adjusted SD&A expenses expanded 70 basis points to 38.2% of sales. Flowers Foods’ increased focus on marketing and innovation behind brands is likely to increase its cost burden in the near term.
Pricing Efforts Underway
The J. M. Smucker has been benefiting from positive net price realization, which was also witnessed in the first quarter of fiscal 2024, with higher net price realization contributing eight percentage points to comparable net sales growth. In fiscal 2024, the company anticipates comparable net sales to rise 8.5-9.5% on elevated net pricing and a favorable volume/mix.
Apart from this, management has been optimizing its supply chain, lowering discretionary costs and expanding network production efficiencies. For fiscal 2024, the adjusted EPS is envisioned in the $9.45-$9.85 band compared with $8.92 recorded in fiscal 2023. The bottom-line view reflects the positive impact of pricing and volume/mix, partly countered by elevated SD&A expenses.
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