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Why Is Smucker (SJM) Up 11.7% Since Last Earnings Report?

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It has been about a month since the last earnings report for Smucker (SJM). Shares have added about 11.7% 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 drivers.

The J. M. Smucker Raises View on Q3 Earnings & Sales Beat

The J. M. Smucker posted solid results for third-quarter fiscal 2021, wherein adjusted earnings of $2.45 per share rose 4% year over year and beat the Zacks Consensus Estimate of $2.22. The year-over-year increase can be attributed to higher sales.

Net sales amounted to $2,076.7 million, which beat the consensus mark of $2,018 million. Moreover, the top line increased 5% year over year. Excluding non-comparable sales of the divested Crisco and Natural Balance businesses alongside removing the impact of favorable currency movements, net sales advanced 7%. This was backed by improved volume/mix in all U.S. Retail segments, partly countered by lower volume/mix for the Away From Home segment. Net price realization was neutral in the quarter under review.

Adjusted gross profit increased nearly 3% year over year to $775.6 million, while the adjusted gross margin contracted 80 basis points (bps) to 37.3%. Adjusted operating income grew roughly 2% to $403.9 million, though the adjusted operating margin fell 70 bps to 19.4%. Notably, selling, distribution and administrative expenses grew 4% to $371.7 million.

U.S. Retail Pet Foods: Segment sales grew 6% to $768.7 million owing to improved volume/mix, somewhat countered by reduced net price realization as well as the absence of sales from the divested Natural Balance business. Volume/mix was backed by growth in cat food and dog snacks, while dog food remained neutral. Segment profit fell 7% due to lower pricing and elevated costs.

U.S. Retail Coffee Market: Net sales rose 12% to $625.9 million. Volume/mix improved on Dunkin', Folgers and Cafe Bustelo brands, which were backed by higher at-home coffee consumption. This was partly offset by unfavorable net price realization. Segment profit was up 11%, thanks to improved volume/mix, partly offset by reduced net pricing and elevated marketing costs.

U.S. Retail Consumer Foods: Sales in the segment increased 6% from the prior-year quarter’s $447.6 million. Excluding the impact of the divested Crisco business, net sales advanced 16%, driven by an improved volume/mix. Volume/mix was fueled by higher at-home consumption of Smucker's Uncrustables frozen sandwiches, Jif peanut butter and Smucker's fruit spreads. Moreover, elevated net pricing had a positive impact on net sales. Segment profit surged 32% on the back of improved volume/mix and higher pricing, partially negated by increased input costs, escalated marketing expenses and the absence of profit from the divested Crisco business.

International and Away From Home: Net sales decreased 13% to $234.6 million. Excluding the impact of the Crisco divestment, net sales decreased 11% mainly due to a 27% decline in the company’s Away From Home division. This was partly made up by 9% sales growth in the International division. Volume/mix for the overall International and Away From Home segments lowered sales by 11 percentage points and net price realization had a 1 percentage point adverse impact. Foreign currency movements were favorable. Segment profit fell 50% due to adverse volume/mix, reduced pricing and escalated costs.

Financials & Guidance

The J. M. Smucker exited the quarter with cash and cash equivalents of $501.5 million, long-term debt (less current portion) of $3,915.3 million and total shareholders’ equity of $8,211.6 million. Cash flow from operating activities amounted to $486.3 million in the quarter and free cash flow was nearly $416.6 million. Free cash flow is now expected to be $1.1 billion in fiscal 2021. Earlier, the company envisioned the metric in a band of $975-$1,025 million. Further, management expects capital expenditures of $300 million. The company’s net debt repayments amounted to $314.1 million in the third quarter. Apart from this, The J. M. Smucker repurchased 4.5 million shares worth $521.9 million in the same time period.

The J. M. Smucker now expects net sales growth of 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. However, the view includes coronavirus-induced declines in the Away From Home segment; the lapping of $185 million worth of pandemic-related additional sales recorded in the fourth quarter of fiscal 2020 and non-comparable sales worth $166 million in the year-ago period of the divested businesses.

Adjusted earnings per share for fiscal 2021 are now anticipated in the range of $8.70-$8.90. Prior to this, management expected adjusted earnings per share in a band of $8.35-$8.65. Gross margin is anticipated to be nearly 38%, while SD&A costs are projected to increase 3-4%. Management expects the pandemic to continue impacting its results in fiscal 2021.

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.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -7.18% due to these changes.

VGM Scores

Currently, Smucker has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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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