Smucker (SJM) Posts Upbeat Q2 Earnings & Sales, Shares Up

The J. M. Smucker Company (NYSE:SJM) posted second-quarter fiscal 2018 results, wherein earnings and revenues beat the Zacks Consensus Estimates. Shares of the company have increased approximately 5% during the pre-market trading session on Nov 16.

However, the company lowered the higher end of its earnings guidance for fiscal 2018, thanks to anticipated higher freight expenses and industry-wide headwinds for the remaining part of the fiscal year.

We also note that in the past month the stock has gained 1.8%, as against the industry’s decline of 0.1%.

Quarter in Details

Adjusted earnings in the second quarter were $2.02 per share, which surpassed the Zacks Consensus Estimate of $1.89. However, earnings declined 1.5% year over year.

Net sales in the quarter increased 0.5% year over year to $1,923.6 million and also beat the consensus estimate of $1,895 billion. Sales during the quarter were favorably impacted by increased net pricing for peanut butter and Smuker’s brand. Lower volume/mix stemming from the decline in oil and baking category products were offset by gains from the pet food segment. Net sales received benefits of $5.4 million owing to favorable currency exchange.

Adjusted gross profit fell 1.5% to $746.2 million. Adjusted operating income for the reported quarter also declined 3.3% to $383.2 million. Gross margin and adjusted operating margin contracted 80 basis points to 38.8% and 19.9%, respectively.

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

J.M. Smucker Company (The) Price, Consensus and EPS Surprise | J.M. Smucker Company (The) Quote

Segment Performance

U.S.Retail Coffee Market: The company's largest segment, U.S. Retail Coffee Market, reported a 0.2% growth in sales to $552.7 million. This was mainly due to a modest rise in net price realization. Also, lower volume/mix from the Folgers brand was majorly offset by gains reaped from the Dunkin' Donuts and Café Bustelo brands.

Segment profit declined 18.2% to $152.6 million, due to higher costs of green and unfavorable volume/mix impacts.

U.S.Retail Consumer Foods: Sales in the segment declined 4.6% in the quarter to $531.5 million. Higher net price realization, driven by the Jif and Smucker's brands, added 4% to sales. This was offset by 9% lower volume/mix from the Crisco and Pillsbury brands.

Segment profit increased 10% to $130.9 million as the impact of lower volume/mix was offset by higher pricing and reduced marketing expense.

U.S.Retail Pet Foods: Net sales increased 4% to $521.7 million in the quarter owing to improved volume/mix, primarily related to the Nature's Recipe and Meow Mix brands. Segment profit improved 7% to $122.9 million on the back of positive synergies and cost-saving efforts. These were partially offset by higher marketing expenses.

International and Away from Home: Effective May 1, 2017, the company's U.S. Foodservice business was renamed Away From Home.

Net sales increased 5% from the prior-year quarter to $287.3 million, reflecting favorable volume/mix driven by the Jif and Smucker's brands and positive impacts of currency rates. Segment profit increased 4% to reach $53.7 million owing to favorable volume mix and currency rates. These were partially offset by expenses related to the construction of the Smucker's Uncrustables production facility in Longmont, Colorado.

Financials

Smucker exited the quarter with cash and cash equivalents of $180.3 million, long-term debt of $4.30 billion and total shareholders’ equity of $7 billion. Cash flow from operations amounted to $130.3 million. The company generated free cash flow of $69.9 million during the quarter.

Fiscal 2018 Outlook

Following the second-quarter results, Smucker lowered the high end of its earnings guidance. The company envisions fiscal 2018 earnings in the range of $7.75-$7.90 per share, compared with the previous range of $7.75-$7.95. The company anticipates earnings for the fiscal year to be affected by unfavorable industry conditions and higher freight costs. Net sales for the fiscal year is anticipated to decline slightly or remain flat compared with the prior year.

However, management continues to expect capital expenditure of about $310 million in fiscal 2018, and also anticipates to generate free cash flow of about $775 million.

Zacks Rank & Key Picks

Smucker carries a Zacks Rank #3 (Hold). Investors interested in the same sector may also consider stocks such as McCormick & Company, Inc (NYSE:MKC), MGP Ingredients, Inc. (MGPI) and US Foods Holding Corp. (USFD). All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.

McCormick delivered an average positive earnings surprise of 4.1% in the trailing four quarters. It has a long-term earnings growth rate of 9.4%.

MGP Ingredients delivered an average positive earnings surprise of 9.9% in the trailing four quarters. It has a long-term earnings growth rate of 15%.

US Foods Holding delivered an average positive earnings surprise of 5.9% in the trailing four quarters. It has a long-term earnings growth rate of 15%.

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