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Smucker's (SJM) Stock Down on Q1 Earnings Miss & View Cut

Zacks Equity Research

The J. M. Smucker Company SJM started fiscal 2020 on a dismal note as both earnings and sales declined year over year and lagged the Zacks Consensus Estimate in the first quarter. Results were mainly hurt by unfavorable shipment timings, intense competition in the premium dog food business, and lower pricing at coffee and peanut butter businesses.

Moreover, the divestiture of the U.S. baking business weighed on the results, whereas gains from the Ainsworth buyout offered some cushion. Though the company is on track to improve and strengthen its business, management curtailed sales and earnings guidance for fiscal 2020. Consequently, shares of the company were down more than 5% during the pre-market trading session.

Quarter in Detail

Adjusted earnings of $1.58 per share declined nearly 11% year over year and missed the Zacks Consensus Estimate of $1.75.

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


Net sales of the company amounted to $1,778.9 million, which missed the consensus mark of $1,885 million. Moreover, the top line dropped roughly 6% year over year, mainly due to the divestiture of the U.S. baking business, partly compensated by the Ainsworth buyout. Notably, the Ainsworth acquisition contributed $25.4 million during the quarter.

Excluding items that affected comparability, the top line declined 4% due to reduced volume/mix and lower net price realization, which dragged sales by 3 and 1 percentage points, respectively.

Adjusted gross profit fell 4.2% to $670.6 million, while the adjusted gross margin expanded 90 basis points to 37.7%. Adjusted operating income decreased 8.3% to $290.7 million, and adjusted operating margin contracted 40 basis points to 16.3%.

Segment Performance

U.S. Retail Pet Foods: The company's U.S. Retail Coffee Market segment sales came in at $669.9 million, which dipped marginally from the prior-year quarter’s figure. Excluding Ainsworth’s contribution, net sales declined due to lower sales of private label products. This, in turn, was accountable to the company’s exit from low-margin products and weak trends at some retailers. Improved net price realization was offset by lower volume/mix.

U.S. Retail Consumer Foods: Sales in the segment declined 17% to $402.2 million, thanks to the divestiture of the baking business. Excluding the non-comparable results, sales in the segment fell 3% due to reduced net pricing, somewhat compensated by improved volume/mix.

U.S. Retail Coffee Market: Net sales dropped about 5% to $465.7 million, due to lower net price realization and unfavorable volume/mix.

International and Away From Home: Net sales fell 7% from the prior-year quarter to $241.1 million, thanks to lower net price realization, adverse volume/mix and impacts from the divestiture of the U.S. baking business.

Financials

Smucker exited the quarter with cash and cash equivalents of $48.8 million, long-term debt (less current portion) of $4,685.3 million and total shareholders’ equity of $8,007.7 million. Cash flow from operations amounted to $221.5 million in the quarter and free cash flow totaled $148.5 million.

Fiscal 2020 Outlook

Smucker now expects net sales to be down 1% to flat compared with the previous guidance of an increase of 1-2%. The top-line view includes a loss of $105.9 million stemming from the divestiture of the U.S. baking business and non-comparable sales associated with Ainsworth. On a comparable basis, sales are now projected to be flat to up 1% compared with the earlier guidance of growth of more than 2%.

Adjusted earnings are now anticipated to be $8.35-$8.55 per share, down from $8.45-$8.65 projected earlier. Smucker’s adjusted earnings came in at $8.29 per share in fiscal 2019. The bottom line is likely to be affected by reduced contributions from sales, while slightly lower SD&A costs are likely to offer some cushion. Gross margin is anticipated to be roughly 38.5% in fiscal 2020.

Free cash flow is still projected to be $875-$925 million and capital expenditures to be $300-$320 million.

Price Performance

This Zacks Rank #3 (Hold) stock has gained 11.7% in the past three months against the industry’s decline of 2%.

Check These Better-Ranked Food Stocks

General Mills GIS, with a Zacks Rank #2 (Buy), has a long-term EPS growth rate of 7%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

MEDIFAST MED, also with a Zacks Rank #2, has delivered positive earnings surprise in the trailing three quarters.

J&J Snack Foods JJSF, with a Zacks Rank #2, has an impressive earnings surprise record.

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