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Bear of the Day: J.M. Smucker Co. (SJM)

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The J.M. Smucker Company (SJM - Free Report) is one of the most well-known food companies in the U.S., known for its fruit spreads, retail packaged coffee, peanut butter, shortening and oils, ice cream toppings, sweetened condensed milk, and other natural foods products.

Its family of brands includes Smucker's, Folgers, Dunkin' Donuts, Jif, Crisco, Pillsbury, Eagle Brand, R.W. Knudsen Family, Hungry Jack, Café Bustelo, Café Pilon, truRoots, White Lily and Martha White in the United States, along with Robin Hood, Five Roses, Carnation and Bick's in Canada.

The company is currently sitting at a #5 (Strong Sell) on the Zacks Rank after a disappointing fourth quarter. Can this food giant turn things around?

Q4 Results

In late May, J.M. Smucker reported fourth quarter fiscal 2018 results.

The company reported adjusted earnings of $1.93 per share, falling short of the Zacks Consensus of $2.18 per share. EPS though grew 7% year-over-year.

Net sales of $1.78 billion also missed our consensus estimate and remained basically flat year-over-year. Unfavorable volume/mix hurt revenues in Q4, mainly due to weakness across the oil, peanut butter, and baking categories.

In the company’s U.S. Retail Consumer Foods segment, sales dipped 2%.

But, J.M. Smucker saw nice growth in its U.S. Retail Coffee Market segment; profit here jumped 4%.

As a result, SJM fell over 8% after the report was released.

Earnings Outlook

Estimates took a hit in the days following the report.

For the current quarter, five analysts cut their outlook in the last 60 days, and the consensus has dipped 18 cents from $2.05 to $1.87 per share. But, earnings could see growth of almost 24% for the period.

Nine analysts have revised their estimates downward for the current fiscal year, with growth of only 5.9% versus the last fiscal year. The Zacks Consensus has decreased from $9.18 to $8.43 per share.

Looking at the next fiscal year, the current consensus sits at $8.86 per share, falling nearly one dollar in the past 60 days.

Can SJM Turn Things Around?

Shares of J.M. Smucker are down roughly 6.2% compared to the S&P 500’s gain of about 13% over the same time period. Year-to-date, SJM stock has dropped almost 12%.

SJM is currently trading at a forward P/E of 13X.

Looking ahead, management is remaining focused on portfolio growth, and it has been undertaking strategic initiatives to cater to an evolving consumer demand. The company has also been considering the sale of its U.S. baking business, which reflects J.M. Smucker’s goal of portfolio optimization; the company hopes to shift its focus to the growing coffee, snacking and pet food categories.

However, increased marketing costs, rising freight and raw material costs, and increased interest expenses are likely to weigh SJM’s bottom line.

For investors wanting exposure to food stocks, and one with more near-term potential, they should consider Darling Ingredients Inc. (DAR - Free Report) , a company that provides cooking oil and bakery waste recycling and recovery solutions. It’s a #1 (Strong Buy) on the Zacks Rank right now, and earnings could grow 370% for the current fiscal year.

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