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Smucker's (SJM) Retail Business Solid, Away From Home Soft

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Zacks Equity Research
·5 min read
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The J. M. Smucker Company SJM appears to be in a good shape. The company is gaining on elevated at-home consumption amid the pandemic, which has been spurring its retail businesses. Such upsides drove the company’s second-quarter fiscal 2021 results, wherein both top and bottom lines cruised past the Zacks Consensus Estimate and increased year over year.

Further, growing digital operations have been aiding the company, which raised its fiscal 2021 guidance when it reported second-quarter results. Notably, the Zacks Consensus Estimate for earnings in fiscal 2021 has increased from $8.64 to $8.73 over the past seven days.

However, increased social-distancing trends amid the pandemic have been hurting Smucker’s Away From Home business. Also, the company is seeing higher selling, distribution and administrative expenses, while its focus on cost savings bodes well.

Retail Business Gains on High Demand, View Raised

Smucker’s second-quarter results were backed by strength in its U.S. Retail Coffee and U.S. Retail Consumer Foods segments, owing to increased at-home consumption. Sales in the company’s coffee, consumer and international retail businesses together advanced 10% on higher at-home consumption. Adjusted earnings of $2.39 per share rose 6% year over year and beat the Zacks Consensus Estimate of $2.24. The year-over-year increase can be attributed to higher sales in the quarter. Net sales amounted to $2,034 million, which beat the consensus mark of $2,013 million and increased 4% year over year.

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

Further, the growing trend of online customers has been boosting the company’s e-commerce channel. During second-quarter fiscal 2020, overall e-commerce sales surged 45% and formed 11% of the company’s total U.S. retail sales. Management expects witnessing continued strength in the e-commerce channel in the forthcoming periods as consumers adapt to online shopping amid the pandemic. Moreover, the company is utilizing the digital platform to enhance consumer engagement.

Management raised its guidance for fiscal 2021 and remains focused on making additional brand investments. Smucker now expects net sales growth of 1-2% compared with the previous range of flat to 1% growth. The top-line view reflects escalated at-home consumption, aiding the U.S. Retail Coffee and U.S. Retail Consumer Foods segments. Adjusted earnings per share for fiscal 2021 are now anticipated in the range of $8.55-$8.85. Prior to this, management expected adjusted earnings per share in a band of $8.20-$8.60.

The Away From Home Business Troubled

During the second quarter of fiscal 2021, net sales in the International and Away From Home segment decreased 10% to $251.5 million, mainly due to a 24% decline in the company’s Away From Home division. Moreover, segment profit fell 22% due to adverse volume/mix and an unfavorable effect from higher net pricing and costs, partly countered by reduced SD&A expenses. Although Smucker raised its sales guidance for fiscal 2021, the view includes coronavirus-induced declines in the Away From Home segment as well as the lapping of $185 million worth of pandemic-related additional sales recorded in the fourth quarter of fiscal 2020.

Wrapping Up

Smucker’s focus on strengthening its portfolio through prudent buyouts and alliances has been aiding the performance for a while. In fact, the company is also focused on optimizing its portfolio through meaningful divestitures. To this end, it recently announced plans to sell its Crisco oils and shortening business to B&G Foods BGS. The deal is expected to conclude in third-quarter fiscal 2021. Earlier, Smucker had divested its U.S. canned milk and U.S. baking businesses. These moves highlight its focus on areas with higher growth potential.

Such upsides, together with strength in the retail business amid the pandemic, are likely to aid Smucker and keep its growth story going. Shares of this Zacks Rank #3 (Hold) company have rallied 12.5% in the past three months against the industry’s decline of 0.3%.

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Hain Celestial HAIN has a Zacks Rank #2 (Buy) and a trailing four-quarter earnings surprise of 24.6%, on average.

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The Hain Celestial Group, Inc. (HAIN) : Free Stock Analysis Report
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