It has been about a month since the last earnings report for Smucker (SJM). Shares have added about 6.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Smucker due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Smucker Q3 Earnings & Sales Beat Estimates
Smucker reported third-quarter fiscal 2019 results, wherein both top and bottom lines beat the Zacks Consensus Estimate and the former improved year over year. Moreover, management reiterated its earnings outlook range. Markedly, the company envisions fiscal 2019 adjusted earnings per share in the range of $8.00-$8.20.
Quarter in Detail
Adjusted earnings of $2.26 per share tumbled 9.6% year over year, though it came ahead of the Zacks Consensus Estimate of $2.03.
Net sales of the company came in at $2,011.9 million, which beat the consensus mark of $1,984 million. Moreover, the top line increased nearly 6% year over year, mainly driven by the Ainsworth buyout and gains from the company’s growth brands. Notably, the Ainsworth acquisition contributed $199.2 million during the quarter. These upsides were partially offset by impacts from non-comparable net sales in the year-ago quarter, stemming from the divestiture of the U.S. baking business.
Excluding items that impact comparability, the top line rose 1% due to favorable volume/mix. Net price realization remained neutral in the quarter.
Adjusted gross profit jumped 6.2% to $776.7 million and adjusted gross margin expanded 20 basis points (bps) to 38.6%. Adjusted operating income climbed 1.3% to $406.2 million, though the adjusted operating margin contracted 90 bps to 20.2%.
U.S. Retail Coffee Market: The company's U.S. Retail Coffee Market segment sales came in at $561.6 million, which grew 2% from the prior-year quarter’s figure. This was backed by favorable volume/mix, stemming from brands such as 1850 and Dunkin' Donuts. This was somewhat countered by reduced net price realization.
Profit in the segment rose 1% to $183.7 million thanks to improved volume/mix and lower input costs. These compensated for escalated marketing costs and reduced net price realization.
U.S. Retail Consumer Foods: Sales in the segment declined 17% to $422.7 million, largely bearing the brunt of the divestiture of the baking business. On excluding the noncomparable results, sales in the segment went up by 4%, courtesy of improved volume/mix.
Profit in the segment plunged 21% to $95.9 million, mainly due to the divestiture of the U.S. baking business. Excluding this, profit dropped 6% on account of elevated input costs, increased marketing costs and costs associated with the making of Smucker's Uncrustables production facility.
U.S. Retail Pet Foods: Net sales surged 35% to $759 million, owing to contributions from the Ainsworth buyout. Excluding the impacts from this buyout, sales in the segment went down, owing to discontinuation of Gravy Train products. Volume/mix remained unfavorable, whereas pricing improved at the segment.
Segment profit jumped 26% to $147.9 million, supported by gains from Ainsworth. Excluding this buyout, profit in the segment remained flat as increased costs were negated by greater pricing.
International and Away from Home: Net sales fell 6% from the prior-year quarter’s figure to $268.6 million, owing to lower net price realization, currency headwinds, adverse volume/mix and impacts from the divestiture of the U.S. baking business. Segment profit dipped 2% to $52.5 million, owing to lower sales, currency woes and impacts from U.S. baking business sale, somewhat made up by lower marketing expenses, and benefits from reduced pricing and costs.
Smucker exited the quarter with cash and cash equivalents of $206.5 million, long-term debt (less current portion) of $5,285.8 million and total shareholders’ equity of $8,021.6 million. Cash flow from operations amounted to $421.1 million in the quarter and free cash flow totaled $333 million.
Fiscal 2019 Outlook
Management remained pleased with the progress of its customer-focused strategy. Further, the company’s core brands like Smucker's Uncrustables, Nature's Recipe and Sahale Snacks, among others, delivered solid sales growth in the quarter. These factors along with effective cost-containment measures and efforts to keep pace with consumers evolving preferences bode well for the company.
The company reiterated its outlook for fiscal 2019. Accordingly, the company expects net sales for fiscal 2019 to be $7.9 billion.
Additionally, free cash flow is still projected in the range of $700-$750 million and capital expenditures are continued to be projected in the range of $350-$370 million in fiscal 2019.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
At this time, Smucker has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Smucker has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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