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Smucker (SJM) Up 4.1% Since Last Earnings Report: Can It Continue?
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A month has gone by since the last earnings report for Smucker (SJM - Free Report) . Shares have added about 4.1% 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.
The J.M. Smucker Rises on Q2 Earnings Beat & Raised View
The J. M. Smucker posted second-quarter fiscal 2023 results, wherein sales and earnings came ahead of the Zacks Consensus Estimate and the former increased year over year. Organic sales increased across all businesses, backed by the company’s portfolio strength and efforts to manage cost inflation and supply-chain headwinds. Based on a strong performance and continued business momentum, management pulled up its net sales and adjusted EPS views for fiscal 2023.
Quarter in Detail
Adjusted earnings of $2.40 per share declined 1% year over year. However, the metric surpassed the Zacks Consensus Estimate of $2.19.
Net sales amounted to $2,205 million, which beat the consensus mark of $2,161 million. The top line advanced 8% year over year. Excluding non-comparable net sales related to divestitures and currency movements, net sales increased 11%. The uptick in comparable net sales can be attributed to the positive net price realization in all the company’s segments. This was partly offset by a lower volume/mix, especially in the U.S. Retail Coffee segment.
The gross profit dipped 1%, and the adjusted gross profit increased by $0.1 million. The lower gross profit was a result of higher commodity and ingredient, packaging, transportation and manufacturing costs, among other factors. These were partly compensated by improved net price realization. Meanwhile, the adjusted operating income fell 2% due to the reduced gross profit and higher selling, distribution and administrative (SD&A) costs.
Segmental Performance
U.S. Retail Pet Foods: The segment’s sales jumped 9% to $765.2 million. Excluding non-comparable net sales associated with the private label dry pet food businesses’ divestiture, the metric rose 14%. The volume/mix had an adverse impact of 3%, made up by the net price realization, which had a favorable 16-percentage point impact on net sales. The segment’s profit jumped 21% to $120.1 million.
U.S. Retail Coffee: Net sales increased 10% to $709.8 million. The volume/mix had a 13-percentage point negative impact, and the net price realization boosted net sales by 23 percentage points. The segment’s profit moved down 10% to $187.7 million.
U.S. Retail Consumer Foods: Sales in the segment fell 2% to $432.2 million. Excluding the impact of the natural beverage and grain businesses’ divestiture, net sales ascended by 7%. The net price realization had a nine-percentage point positive impact on sales. The volume/mix reduced net sales by three percentage points. The segment’s profit tumbled 10% to $100.3 million.
International and Away From Home: Net sales advanced 14% to $297.9 million. Excluding the impact of the natural beverage and grain businesses’ divestiture, as well as the negative impacts of currency movements, net sales escalated by 17%. Excluding the impact of divestitures and currency headwinds, net sales rose 19% for the Away from Home division and 15% for the International division. The volume/mix had a one-percentage-point negative effect, and the net price realization had a positive impact of 18 percentage points on overall net sales. The segment’s profit climbed 3% to $41.5 million.
Financials
The J. M. Smucker exited the quarter with cash and cash equivalents of $27.1 million, long-term debt of $4,312.4 million and total shareholders’ equity of $8,217.3 million. Cash flow provided by operating activities amounted to $205 million for the three-month period ended Oct 31, 2022. Free cash flow was $102.9 million in the quarter. Net debt repayments amounted to $88.8 million for the quarter. Free cash flow and capital expenditures are likely to be $550 million each in fiscal 2023.
Fiscal 2023 Guidance
Management stated that the ongoing cost inflation, a volatile supply chain and a broader macroeconomic landscape continue to affect the company’s results and cause risks for fiscal 2023. The recent product recall is expected to impact financial results. However, The J.M. Smucker remains focused on actions like minimizing the impacts of cost inflation, product recall and other business hurdles. The company raised its net sales EPS guidance for fiscal 2023.
For fiscal 2023, SJM anticipates net sales to rise 5.5-6.5% now, up from the previous view of 4. Excluding non-comparable sales related to the private label dry pet food and natural beverage and grain businesses’ divestitures, net sales are anticipated to improve nearly 8% at the midpoint of the net sales guidance compared with the 6.5% expected before. The view reflects the positive impact of elevated net pricing to counter cost inflation in many categories, partly negated by an expected volume/mix effect of the price elasticity of demand and a 2% adverse impact related to the product recall. The adjusted EPS for fiscal 2023 is envisioned in the $8.35-$8.75 band, up from the earlier $8.20-$8.60 band. The guidance includes an 80-cent impact of the product recall. The bottom-line view reflects the positive impact of pricing and share buybacks (of the prior year), more than negated by inflated costs, an expected volume/mix effect of the price elasticity of demand, an adverse impact of the product recall and elevated SD&A expenses. The bottom-line view takes into account an adjusted gross profit margin of 33.5%. Also, the adjusted effective income tax rate is envisioned at 24.1%.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
The consensus estimate has shifted -8.09% due to these changes.
VGM Scores
Currently, Smucker has a poor Growth Score of F, a grade with the same score on the momentum front. 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 D. 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 #3 (Hold). We expect an in-line return from the stock in the next few months.
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Smucker (SJM) Up 4.1% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Smucker (SJM - Free Report) . Shares have added about 4.1% 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.
The J.M. Smucker Rises on Q2 Earnings Beat & Raised View
The J. M. Smucker posted second-quarter fiscal 2023 results, wherein sales and earnings came ahead of the Zacks Consensus Estimate and the former increased year over year. Organic sales increased across all businesses, backed by the company’s portfolio strength and efforts to manage cost inflation and supply-chain headwinds. Based on a strong performance and continued business momentum, management pulled up its net sales and adjusted EPS views for fiscal 2023.
Quarter in Detail
Adjusted earnings of $2.40 per share declined 1% year over year. However, the metric surpassed the Zacks Consensus Estimate of $2.19.
Net sales amounted to $2,205 million, which beat the consensus mark of $2,161 million. The top line advanced 8% year over year. Excluding non-comparable net sales related to divestitures and currency movements, net sales increased 11%. The uptick in comparable net sales can be attributed to the positive net price realization in all the company’s segments. This was partly offset by a lower volume/mix, especially in the U.S. Retail Coffee segment.
The gross profit dipped 1%, and the adjusted gross profit increased by $0.1 million. The lower gross profit was a result of higher commodity and ingredient, packaging, transportation and manufacturing costs, among other factors. These were partly compensated by improved net price realization. Meanwhile, the adjusted operating income fell 2% due to the reduced gross profit and higher selling, distribution and administrative (SD&A) costs.
Segmental Performance
U.S. Retail Pet Foods: The segment’s sales jumped 9% to $765.2 million. Excluding non-comparable net sales associated with the private label dry pet food businesses’ divestiture, the metric rose 14%. The volume/mix had an adverse impact of 3%, made up by the net price realization, which had a favorable 16-percentage point impact on net sales. The segment’s profit jumped 21% to $120.1 million.
U.S. Retail Coffee: Net sales increased 10% to $709.8 million. The volume/mix had a 13-percentage point negative impact, and the net price realization boosted net sales by 23 percentage points. The segment’s profit moved down 10% to $187.7 million.
U.S. Retail Consumer Foods: Sales in the segment fell 2% to $432.2 million. Excluding the impact of the natural beverage and grain businesses’ divestiture, net sales ascended by 7%. The net price realization had a nine-percentage point positive impact on sales. The volume/mix reduced net sales by three percentage points. The segment’s profit tumbled 10% to $100.3 million.
International and Away From Home: Net sales advanced 14% to $297.9 million. Excluding the impact of the natural beverage and grain businesses’ divestiture, as well as the negative impacts of currency movements, net sales escalated by 17%. Excluding the impact of divestitures and currency headwinds, net sales rose 19% for the Away from Home division and 15% for the International division. The volume/mix had a one-percentage-point negative effect, and the net price realization had a positive impact of 18 percentage points on overall net sales. The segment’s profit climbed 3% to $41.5 million.
Financials
The J. M. Smucker exited the quarter with cash and cash equivalents of $27.1 million, long-term debt of $4,312.4 million and total shareholders’ equity of $8,217.3 million. Cash flow provided by operating activities amounted to $205 million for the three-month period ended Oct 31, 2022. Free cash flow was $102.9 million in the quarter. Net debt repayments amounted to $88.8 million for the quarter. Free cash flow and capital expenditures are likely to be $550 million each in fiscal 2023.
Fiscal 2023 Guidance
Management stated that the ongoing cost inflation, a volatile supply chain and a broader macroeconomic landscape continue to affect the company’s results and cause risks for fiscal 2023. The recent product recall is expected to impact financial results. However, The J.M. Smucker remains focused on actions like minimizing the impacts of cost inflation, product recall and other business hurdles. The company raised its net sales EPS guidance for fiscal 2023.
For fiscal 2023, SJM anticipates net sales to rise 5.5-6.5% now, up from the previous view of 4. Excluding non-comparable sales related to the private label dry pet food and natural beverage and grain businesses’ divestitures, net sales are anticipated to improve nearly 8% at the midpoint of the net sales guidance compared with the 6.5% expected before. The view reflects the positive impact of elevated net pricing to counter cost inflation in many categories, partly negated by an expected volume/mix effect of the price elasticity of demand and a 2% adverse impact related to the product recall. The adjusted EPS for fiscal 2023 is envisioned in the $8.35-$8.75 band, up from the earlier $8.20-$8.60 band. The guidance includes an 80-cent impact of the product recall. The bottom-line view reflects the positive impact of pricing and share buybacks (of the prior year), more than negated by inflated costs, an expected volume/mix effect of the price elasticity of demand, an adverse impact of the product recall and elevated SD&A expenses. The bottom-line view takes into account an adjusted gross profit margin of 33.5%. Also, the adjusted effective income tax rate is envisioned at 24.1%.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
The consensus estimate has shifted -8.09% due to these changes.
VGM Scores
Currently, Smucker has a poor Growth Score of F, a grade with the same score on the momentum front. 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 D. 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 #3 (Hold). We expect an in-line return from the stock in the next few months.