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Why Is Smucker (SJM) Up 2.6% Since Its Last Earnings Report?
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A month has gone by since the last earnings report for The J. M. Smucker Company (SJM - Free Report) . Shares have added about 2.6 % in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is SJM 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.
Smucker Q3 Earnings Rise Y/Y, View Up on Tax Reforms
J. M. Smucker reported third-quarter fiscal 2018 results, wherein adjusted earnings of $2.50 per share surged 25% year over year and surpassed the Zacks Consensus Estimate of $2.16. Notably, earnings included a nearly 35 cents benefit from tax reforms.
Net sales in the quarter inched up 1% year over year to $1,903.3 million and also beat the consensus estimate of $1,888 million. Sales were fueled by growth across most core brands and categories. Further, favorable volume/mix (mainly in pet food and coffee segments) aided sales growth. However, this was somewhat negated by lower pricing at pet foods. Net sales received benefits of $5.8 million owing to favorable currency exchange.
Adjusted gross profit climbed 1% to $731.5 million, whereas adjusted gross margin contracted 10 basis points to 38.4%. Adjusted operating income for the quarter increased 4.4% to $399.8 million, though the adjusted operating margin contracted 40 basis points to 21%.
Segment Performance
U.S.Retail Coffee Market: The company's largest segment, U.S. Retail Coffee Market, reported 2% growth in sales to $550.5 million. This was backed by favorable volume/mix, primarily attributable to Dunkin' Donuts K-Cup pods and the Cafe Bustelo brand. This was somewhat countered by lower net price realization at the Folgers brand.
Segment profit jumped 6% to $182.1 million, due to improved volume/mix and lower input costs, somewhat negated by escalated marketing costs.
U.S. Retail Consumer Foods: Sales in the segment dipped 1% in the quarter to $511.6 million. Higher net price realization was more than offset by unfavorable volume/mix — mainly led by Crisco and Pillsbury brands, partly compensated by Smucker brand gains.
Segment profit increased 2% to $121.3 million as the impact of lower volume/mix was more than offset by higher pricing and operational efficiencies.
U.S. Retail Pet Foods: Net sales increased 2% to $561.9 million in the quarter owing to improved volume/mix, primarily related to the Nature's Recipe brand and the company’s pet snacks portfolio. This was partly countered by lower net price realization. Segment profit tumbled 7% to $118 million owing to higher marketing expenses and charges associated with obsolete inventory.
International and Away from Home: Effective May 1, 2017, the company's U.S. Foodservice business was renamed Away From Home.
Net sales grew 2% from the prior-year quarter to $279.3 million, reflecting favorable volume/mix driven by the Jif and Smucker's brands and positive impacts of currency rates. This was partly countered by lower net price realization. Segment profit surged 16% to reach $52.6 million thanks to favorable volume mix, positive currency impact and reduced marketing costs.
Financials
Smucker exited the quarter with cash and cash equivalents of $186.2 million, long-term debt of $4,688.5 million and total shareholders’ equity of $7,804 million. Cash flow from operations amounted to $469 million, and the company generated free cash flow of $388.7 million during the third quarter. During the first nine months of fiscal 2018, Smucker generated free cash flow of $693.3 million.
Concurrently, management stated that it contributed an additional amount of $20 million to its employee pension plan and announced a one-time bonus of $1,000 to approximately 5,000 employees — all courtesy of benefits from tax reforms.
Fiscal 2018 Outlook
Management remains pleased with its third quarter performance, wherein results gained from sales growth in core brands in all businesses; tax reforms and solid cost-management.
Net sales for the fiscal 2018 is still anticipated to decline slightly or remain flat compared with the prior year.
However, Smucker raised earnings and free cash flow outlook, mainly on the basis of gains from tax reforms, somewhat offset by an expected rise in freight expenses. Effective tax rate is now expected to be 28%, much lower than 32.5 forecasted earlier.
The company now envisions fiscal 2018 earnings in the range of $8.20-$8.30 per share, up from the previously guided range of $7.75-$7.90. The outlook doesn’t include any impact from the pending buyout of Wesson oil brand from Conagra Brands (CAG). Free cash flow is projected to be approximately $825 million, compared with $775 million expected earlier. Capital expenditures are still expected to be about $310 million in fiscal 2018.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been two revisions higher for the current quarter compared to one lower.
At this time, SJM has a subpar Growth Score of D, however its Momentum is doing a lot better with an A. Charting a somewhat similar path, 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.
Our style scores indicate that the stock is more suitable for momentum investors than value investors.
Outlook
Estimates have been broadly trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise SJM has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
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Why Is Smucker (SJM) Up 2.6% Since Its Last Earnings Report?
A month has gone by since the last earnings report for The J. M. Smucker Company (SJM - Free Report) . Shares have added about 2.6 % in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is SJM 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.
Smucker Q3 Earnings Rise Y/Y, View Up on Tax Reforms
J. M. Smucker reported third-quarter fiscal 2018 results, wherein adjusted earnings of $2.50 per share surged 25% year over year and surpassed the Zacks Consensus Estimate of $2.16. Notably, earnings included a nearly 35 cents benefit from tax reforms.
Net sales in the quarter inched up 1% year over year to $1,903.3 million and also beat the consensus estimate of $1,888 million. Sales were fueled by growth across most core brands and categories. Further, favorable volume/mix (mainly in pet food and coffee segments) aided sales growth. However, this was somewhat negated by lower pricing at pet foods. Net sales received benefits of $5.8 million owing to favorable currency exchange.
Adjusted gross profit climbed 1% to $731.5 million, whereas adjusted gross margin contracted 10 basis points to 38.4%. Adjusted operating income for the quarter increased 4.4% to $399.8 million, though the adjusted operating margin contracted 40 basis points to 21%.
Segment Performance
U.S.Retail Coffee Market: The company's largest segment, U.S. Retail Coffee Market, reported 2% growth in sales to $550.5 million. This was backed by favorable volume/mix, primarily attributable to Dunkin' Donuts K-Cup pods and the Cafe Bustelo brand. This was somewhat countered by lower net price realization at the Folgers brand.
Segment profit jumped 6% to $182.1 million, due to improved volume/mix and lower input costs, somewhat negated by escalated marketing costs.
U.S. Retail Consumer Foods: Sales in the segment dipped 1% in the quarter to $511.6 million. Higher net price realization was more than offset by unfavorable volume/mix — mainly led by Crisco and Pillsbury brands, partly compensated by Smucker brand gains.
Segment profit increased 2% to $121.3 million as the impact of lower volume/mix was more than offset by higher pricing and operational efficiencies.
U.S. Retail Pet Foods: Net sales increased 2% to $561.9 million in the quarter owing to improved volume/mix, primarily related to the Nature's Recipe brand and the company’s pet snacks portfolio. This was partly countered by lower net price realization. Segment profit tumbled 7% to $118 million owing to higher marketing expenses and charges associated with obsolete inventory.
International and Away from Home: Effective May 1, 2017, the company's U.S. Foodservice business was renamed Away From Home.
Net sales grew 2% from the prior-year quarter to $279.3 million, reflecting favorable volume/mix driven by the Jif and Smucker's brands and positive impacts of currency rates. This was partly countered by lower net price realization. Segment profit surged 16% to reach $52.6 million thanks to favorable volume mix, positive currency impact and reduced marketing costs.
Financials
Smucker exited the quarter with cash and cash equivalents of $186.2 million, long-term debt of $4,688.5 million and total shareholders’ equity of $7,804 million. Cash flow from operations amounted to $469 million, and the company generated free cash flow of $388.7 million during the third quarter. During the first nine months of fiscal 2018, Smucker generated free cash flow of $693.3 million.
Concurrently, management stated that it contributed an additional amount of $20 million to its employee pension plan and announced a one-time bonus of $1,000 to approximately 5,000 employees — all courtesy of benefits from tax reforms.
Fiscal 2018 Outlook
Management remains pleased with its third quarter performance, wherein results gained from sales growth in core brands in all businesses; tax reforms and solid cost-management.
Net sales for the fiscal 2018 is still anticipated to decline slightly or remain flat compared with the prior year.
However, Smucker raised earnings and free cash flow outlook, mainly on the basis of gains from tax reforms, somewhat offset by an expected rise in freight expenses. Effective tax rate is now expected to be 28%, much lower than 32.5 forecasted earlier.
The company now envisions fiscal 2018 earnings in the range of $8.20-$8.30 per share, up from the previously guided range of $7.75-$7.90. The outlook doesn’t include any impact from the pending buyout of Wesson oil brand from Conagra Brands (CAG). Free cash flow is projected to be approximately $825 million, compared with $775 million expected earlier. Capital expenditures are still expected to be about $310 million in fiscal 2018.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been two revisions higher for the current quarter compared to one lower.
The J. M. Smucker Company Price and Consensus
The J. M. Smucker Company Price and Consensus | The J. M. Smucker Company Quote
VGM Scores
At this time, SJM has a subpar Growth Score of D, however its Momentum is doing a lot better with an A. Charting a somewhat similar path, 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.
Our style scores indicate that the stock is more suitable for momentum investors than value investors.
Outlook
Estimates have been broadly trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise SJM has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.