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Smucker (SJM) Appears Buoyant on Coronavirus-Induced Demand

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The J. M. Smucker Company (SJM - Free Report) is benefiting from solid growth endeavors, including strategic buyouts and partnerships as well as focus on e-commerce business. This along with strength of its brands and robust cost-saving efforts bodes well for the company.

Apart from these, Smucker is witnessing higher consumer demand for its products stemming from increased at-home consumption amid coronavirus outbreak. Impressively, the trend was reflected in the company’s first-quarter fiscal 2021 results, wherein the top and bottom line surpassed the Zacks Consensus Estimate and increased year over year.

Encouragingly, management raised its fiscal 2021 outlook. Smucker expects net sales growth to range from flat to 1% increase. Adjusted earnings per share for fiscal 2021 are anticipated in the range of $8.20-$8.60. Also, analysts look optimistic regarding the stock’s performance. Evidently, the Zacks Consensus Estimate for fiscal 2021 earnings improved 5.9% to $8.67 per share in the past seven days.

We note that, shares of the company have gained 18.2% so far this year compared with the industry’s growth of 1.2%.

Factors Narrating Smucker’s Growth Story

Smucker actively pursues strategic acquisitions in the United States as well as overseas. 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. Other noteworthy acquisitions of the company include; Big Heart Pet Brand (pet food maker), Sahale Snacks (branded nut and fruit snacks maker), Enray Inc. (manufacturer of organic, gluten-free ancient grain products) and coffee brands and business operations of Rowland Coffee, among others. These acquisitions have added iconic brands to the company’s portfolio and strengthened its presence.

Additionally, Smucker formed key partnerships with quite a few coffee companies. Its agreement with Keurig Green Mountain (KGM) and Dunkin’ Brands Group, Inc, to manufacture and sell the K-Cup category of products bodes well.

Growing trend of online customers has urged Smucker to take notice of its e-commerce channel to boost sales. In fact, e-commerce is a fast-growing retail channel of the company. In the digital realm, pet business has been steadily expanding. During the fiscal first quarter, overall e-commerce sales have surged 70% year over year. Management expects to witness continued strength in the e-commerce channel in the forthcoming periods as consumers adapt to online shopping amid the pandemic. Moreover, the company is utilizing the digital platform to enhance consumer engagement.

Apart from these, Smucker is accelerating marketing support for growth brands like Folgers. Notably, the brand increased 13% in the US Retail Coffee segment in the fiscal first quarter. Also, the company has effectively launched advertising campaign for 10 of its biggest brands in fiscal 2020. Further, it is on track with making expansions for one of its fastest growing brand Uncrustables.

Will Hurdles be Countered?

While coronavirus-led increased stay-at-home trends have boosted Smucker’s retail business, the same dealt a blow to its International and Away From Home. Segmental net sales declined 9% year over year in the fiscal first quarter. Also, the company is battling with escalated cost concerns and lower price realizations.

Nevertheless, robust cost-saving efforts along with the aforementioned upsides are likely to keep driving this Zacks Rank #3 (Hold) company.

Notably, Smucker resorts to cost savings to fuel investments and enhance operating performance. Impressively, adjusted gross profit increased 13% and adjusted gross margin expanded 80 basis points (bps) in the fiscal first quarter. Also, adjusted operating income increased 39%, while adjusted operating margin expanded 420 bps.

3 Solid Food Stocks

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Conagra Brands (CAG - Free Report) has a long-term earnings growth rate of 7% and a Zacks Rank #2.

B&G Foods (BGS - Free Report) , with a Zacks Rank #2, has a trailing four-quarter earnings surprise of 6.9%, on average.

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