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Smucker Benefits From High Demand, Away From Home Sales Soft
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The J. M. Smucker Company (SJM - Free Report) is benefitting from its brand strength, courtesy of its prudent buyouts as well as focus on innovation. Also, the company’s digital platform bodes well. Apart from this, burgeoning demand amid coronavirus-led stock piling boosted Smucker’s sales — particularly in March and April. Companies like TreeHouse Foods (THS - Free Report) , Kellogg (K - Free Report) and Kraft Heinz (KHC - Free Report) also gained from increased at home consumption amid the pandemic.
However, increased social distancing and stay at-home trends have been marring Smucker’s Food Away From Home business. Also, the company is battling with escalated cost concerns though it has been committed toward saving efforts. Let’s delve and see how things are placed for this provider of consumer food and beverages as well as pet food products.
Impact of COVID-19
Smucker recently posted robust fourth-quarter fiscal 2020 results, with the top and bottom lines surpassing the Zacks Consensus Estimate and increasing year over year. Earnings benefited from higher sales, which in turn were backed by increased demand stemming from the coronavirus outbreak. Further, volume/mix improved in almost all brands and categories in U.S. Retail Coffee, U.S. Retail Pet Foods as well as U.S. Retail Consumer Foods segments. The company primarily gained from stay-at-home orders. In fact, fiscal fourth-quarter revenues included nearly $185 million of incremental sales relating to the pandemic compared with the company’s prior expectations.
While coronavirus-led increased stay-at-home trends boosted Smucker’s retail business, the same however dealt a blow to its away from home business. Increased social distancing severely hit demand for the away from home business due to closure of restaurants, schools, offices and lodging.
Consequently, the business suffered a 15% sales decline in the fourth quarter, with nearly 50% slump seen in April. This is likely to remain a concern, given the uncertainty surrounding the impact of coronavirus. Smucker expects net sales to decline 1-2% year over year in fiscal 2021. The top-line view includes the impact of lapping additional sales of $185 million in the fiscal fourth quarter due to stockpiling trends, as well as nearly $120 million of additional coronavirus-related sales decline.
Apart from this, Smucker’s SG&A expenses rose $4 million in the fourth quarter. Further, G&A expenses jumped $2 million as higher costs related to COVID-19 could only be partly offset by cost management efforts and gains from synergies. Incidentally, the company absorbed nearly $13 million as additional costs, thanks to pandemic-led costs like employee bonus, hardship awards for frontline workers as well as costs to ensure better safety measures, among others. COVID-19-related cost headwinds, volatile input costs, any supply-chain hiccup and the aforementioned sales-related hurdles are likely to show on fiscal 2021 bottom line.
Strategic Growth Endeavors to Aid
Smucker is benefitting from its focus on innovation as well as buyout and partnership gains. We note that the company’s acquisition of Ainsworth (completed in May 2018) has been aiding performance in the U.S. Retail Pet Foods category. Additionally, Smucker has formed key partnerships with quite a few coffee companies. Smucker’s agreement with Keurig Green Mountain (KGM) and Dunkin’ Brands Group, Inc, to manufacture and sell the K-Cup category of products, has been yielding positive results since fiscal 2016.
Moreover, the company is accelerating marketing support for growth brands. Incidentally, Smucker effectively launched advertising campaign for ten of its biggest brands in fiscal 2020. Further, the company is undertaking expansions for one of its fastest growing brand — Uncrustables. Apart from this, e-commerce is a fast-growing retail channel of the company. In the digital realm, the coffee and pet food categories have been steadily expanding. We note that during fourth-quarter fiscal 2020, e-commerce sales surged 66%, including a 60% jump in pet food sales and more than 90% in coffee sales. Management expects to keep witnessing continued strength in the e-commerce channel in the forthcoming periods.
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Smucker Benefits From High Demand, Away From Home Sales Soft
The J. M. Smucker Company (SJM - Free Report) is benefitting from its brand strength, courtesy of its prudent buyouts as well as focus on innovation. Also, the company’s digital platform bodes well. Apart from this, burgeoning demand amid coronavirus-led stock piling boosted Smucker’s sales — particularly in March and April. Companies like TreeHouse Foods (THS - Free Report) , Kellogg (K - Free Report) and Kraft Heinz (KHC - Free Report) also gained from increased at home consumption amid the pandemic.
However, increased social distancing and stay at-home trends have been marring Smucker’s Food Away From Home business. Also, the company is battling with escalated cost concerns though it has been committed toward saving efforts. Let’s delve and see how things are placed for this provider of consumer food and beverages as well as pet food products.
Impact of COVID-19
Smucker recently posted robust fourth-quarter fiscal 2020 results, with the top and bottom lines surpassing the Zacks Consensus Estimate and increasing year over year. Earnings benefited from higher sales, which in turn were backed by increased demand stemming from the coronavirus outbreak. Further, volume/mix improved in almost all brands and categories in U.S. Retail Coffee, U.S. Retail Pet Foods as well as U.S. Retail Consumer Foods segments. The company primarily gained from stay-at-home orders. In fact, fiscal fourth-quarter revenues included nearly $185 million of incremental sales relating to the pandemic compared with the company’s prior expectations.
While coronavirus-led increased stay-at-home trends boosted Smucker’s retail business, the same however dealt a blow to its away from home business. Increased social distancing severely hit demand for the away from home business due to closure of restaurants, schools, offices and lodging.
Consequently, the business suffered a 15% sales decline in the fourth quarter, with nearly 50% slump seen in April. This is likely to remain a concern, given the uncertainty surrounding the impact of coronavirus. Smucker expects net sales to decline 1-2% year over year in fiscal 2021. The top-line view includes the impact of lapping additional sales of $185 million in the fiscal fourth quarter due to stockpiling trends, as well as nearly $120 million of additional coronavirus-related sales decline.
Apart from this, Smucker’s SG&A expenses rose $4 million in the fourth quarter. Further, G&A expenses jumped $2 million as higher costs related to COVID-19 could only be partly offset by cost management efforts and gains from synergies. Incidentally, the company absorbed nearly $13 million as additional costs, thanks to pandemic-led costs like employee bonus, hardship awards for frontline workers as well as costs to ensure better safety measures, among others. COVID-19-related cost headwinds, volatile input costs, any supply-chain hiccup and the aforementioned sales-related hurdles are likely to show on fiscal 2021 bottom line.
Strategic Growth Endeavors to Aid
Smucker is benefitting from its focus on innovation as well as buyout and partnership gains. We note that the company’s acquisition of Ainsworth (completed in May 2018) has been aiding performance in the U.S. Retail Pet Foods category. Additionally, Smucker has formed key partnerships with quite a few coffee companies. Smucker’s agreement with Keurig Green Mountain (KGM) and Dunkin’ Brands Group, Inc, to manufacture and sell the K-Cup category of products, has been yielding positive results since fiscal 2016.
Moreover, the company is accelerating marketing support for growth brands. Incidentally, Smucker effectively launched advertising campaign for ten of its biggest brands in fiscal 2020. Further, the company is undertaking expansions for one of its fastest growing brand — Uncrustables. Apart from this, e-commerce is a fast-growing retail channel of the company. In the digital realm, the coffee and pet food categories have been steadily expanding. We note that during fourth-quarter fiscal 2020, e-commerce sales surged 66%, including a 60% jump in pet food sales and more than 90% in coffee sales. Management expects to keep witnessing continued strength in the e-commerce channel in the forthcoming periods.
These upsides along with efficient saving efforts should aid this Zacks Rank #3 (Hold) company in the forthcoming periods. Shares of the company have inched up 0.6% year to date, against the industry’s decline of 11.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2021.
Click here for the 6 trades >>