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The J.M. Smucker (SJM) Q4 Earnings Top Estimates, Sales Down

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The J. M. Smucker Company SJM posted results for fourth-quarter fiscal 2021, with the top and the bottom line beating the Zacks Consensus Estimate. However, net sales and earnings declined year over year. Weakness in U.S. Retail Pet Foods, U.S. Retail Consumer Foods and International and Away From Home led to the downside.

Quarter in Detail

Adjusted earnings of $1.89 per share fell 26% year over year. Nevertheless, the metric surpassed the Zacks Consensus Estimate of $1.68.

Net sales amounted to $1,920.2 million, which beat the consensus mark of $1,874 million. However, the top line declined 8% year over year. Excluding non-comparable sales of the divested Crisco and Natural Balance businesses along with removing the impact of favorable currency movements, net sales fell 3%. The downside can be attributed to lapping of consumer stock-up purchasing amid the pandemic in the year-ago quarter. This was somewhat offset by escalated at-home consumption trend. Notably, decline in comparable net sales was mainly caused by a 4 percentage point decline in volume/mix in the company’s U.S. Retail Pet Food segment and International operating unit. Nevertheless, favorable net price realization to the tune of 1 percentage point mostly driven by the U.S. Retail Consumer Foods and U.S. Retail Pet Food units offered some respite.

The J. M. Smucker Company Price, Consensus and EPS Surprise
The J. M. Smucker Company Price, Consensus and EPS Surprise

The J. M. Smucker Company Price, Consensus and EPS Surprise
The J. M. Smucker Company price-consensus-eps-surprise-chart | The J. M. Smucker Company Quote

Adjusted gross profit declined 10% to $727 million. Further, adjusted gross profit margin declined to 37.9% from 38.5% reported in the year-ago quarter. Adjusted operating income declined 28% to $311.6 million. Adjusted operating margin came in at 16.2%, down from 20.6% reported in the year-ago quarter. Notably, total selling, distribution and administrative expenses increased to $411.1 million from $373.4 million posted in the prior-year quarter.

Segment Performance

U.S. Retail Pet Foods: Segment sales fell 12% to $674.6 million. Excluding non-comparable net sales associated with the Natural Balance business divestiture, the metric declined 6%. Further, volume/mix declined net sales by 6 percentage points mainly due to softness in the Rachael Ray Nutrish, Kibbles 'n Bits, Nature's Recipe and Meow Mix brands. Nonetheless, net price realization increased net sales by 1 percentage point. Segment profit slumped 32% to $101.7 million due to unfavorable volume/mix, higher investments in marketing and increased expenses. This was somewhat countered by improved pricing.

U.S. Retail Coffee: Net sales rose $1.5 million to $583.1 million. Notably, both volume/mix and net price realization remained neutral. Well, favorable volume/mix in the Dunkin’ and Cafe Bustelo brands were offset by softness in the Folgers brand.Segment profit fell 9% to $173.7 million, mainly due to higher marketing investments.

U.S. Retail Consumer Foods: Sales in the segment fell 13% to $419.8 million. Excluding the impact of the divested Crisco business, net sales inched up 1%. Net price realization contributed 4 percentage points to sales stemming mainly from impacts of a peanut butter list price increase carried out in the second quarter. That being said, volume/mix declined net sales by 3 percentage points thanks to soft demand for Smucker's fruit spreads and Jif peanut butter. These were somewhat countered by growth in Smucker's Uncrustables frozen sandwiches. Segment profit slumped 29% to $94.8 million mainly due to higher marketing investments and costs among other reasons.

International and Away From Home: Net sales decreased 7% to $242.7 million. Excluding the impact of the Crisco divestment, net sales fell 5% mainly due to 15% decline in the company’s International operating division. This was partly made up by 7% sales growth in Away From Home division. Combined volume/mix for businesses decreased net sales by 9 percentage points while net price realization was neutral. Further, foreign currency movements were favorable by 3 percentage points. Segment profit declined 30% to 29.2 million due to adverse volume/mix.

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Zacks Investment Research

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The J. M. Smucker exited the quarter with cash and cash equivalents of $334.3 million, long-term debt (less current portion) of $3,516.8 million and total shareholders’ equity of $8,124.8 million. Cash flow from operating activities amounted to $291 million for three months end Apr 30, 2021. Free cash flow was $183 million in the quarter. Free cash flow is expected to be nearly $900 million in fiscal 2022. Further, management expects capital expenditures of $380 million in fiscal 2022.

The company’s net debt repayments amounted to $84 million in the fourth quarter. Apart from this, The J. M. Smucker repurchased 1.3 million shares worth $150 million in the same time period.

Fiscal 2022 Guidance

The J. M. Smucker expects net sales decline of 2-3% year over year. The projection included impact of $355.6 million associated with Crisco and Natural Balance divestiture. On a comparable basis, net sales are anticipated to increase nearly 2% at the mid-point of the net sales guidance range. This takes into account improved net pricing in various categories and persistent double-digit net sales growth in the Smucker's Uncrustables brand coupled with rebound in away from home channels. These are likely to be somewhat offset by softness in at-home consumption trends.

Adjusted earnings per share for fiscal 2022 are anticipated in the range of $8.70-$9.10 reflecting lower net sales. Notably, adjusted earnings per share came in at $9.12 per share in fiscal 2021. Adjusted gross margin is anticipated to be nearly 37-37.5%, while SD&A costs are projected to fall nearly 4%.

Management expects the pandemic to continue impacting its results in fiscal 2022. Apart from this, volatile consumer behavior, retailer inventory levels, any manufacturing or supply-chain hurdles, and macroeconomic factors can affect The J. M. Smucker’s performance this year.

Shares of this Zacks Rank #3 (Hold) company have gained 17% in the past three months compared with the industry’s growth of 11.4%.

Some Solid Food Bets

Medifast, Inc. MED, currently sporting a Zacks Rank #1 (Strong Buy), has a trailing four-quarter earnings surprise of 12.7%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

Darling Ingredients Inc. DAR, currently carrying a Zacks Rank #2 (Buy), has a trailing four-quarter earnings surprise of 29.8%, on average.

Nomad Foods Limited NOMD, currently carrying a Zacks Rank #2, has a trailing four-quarter earnings surprise of 10.3%, on average.

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