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Smucker (SJM) Looks Appetizing on Coronavirus-Induced Demand

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The J. M. Smucker Company (SJM - Free Report) is benefiting from its focus on e-commerce business along with its lucrative buyouts. Also, the company’s robust cost-saving efforts are yielding. Apart from these, it is witnessing rising demand owing to higher at-home consumption amid the coronavirus outbreak.

Let’s delve deeper.

Burgeoning Demand & Impressive Outlook

Burgeoning demand amid coronavirus pandemic bolstered Smucker’s first-quarter fiscal 2021 results with the top and the bottom line advancing year over year as well as beating the Zacks Consensus Estimate. Notably, adjusted earnings per share (EPS) surged 50% driven by higher sales volumes, increased profit margins as well as reduced selling, distribution and administrative expenses. Sales rose almost 11% on the back of favorable volume/mix in all retail businesses stemming from higher at-home consumption amid COVID-19.

We note that several other food companies like Flowers Foods (FLO - Free Report) , General Mills (GIS - Free Report) and Conagra Brands (CAG - Free Report) are also gaining on higher coronavirus-induced demand.

Meanwhile Smucker’s impressive first-quarter results encouraged it to raise its fiscal 2021 net sales and adjusted EPS outlook. The company expects net sales growth in the range of flat to 1% growth. Earlier it anticipated the metric to decline 1-2% year over year. The top-line view reflects escalated at-home consumption as well as re-stocking of retailer inventory in the fiscal first quarter. Adjusted EPS for fiscal 2021 is anticipated in the range of $8.20-$8.60. Prior to this, management expected adjusted EPS in the band of $7.90-$8.30.

Other Factors Driving Smucker’s Performance

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 consistent 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.

Further, Smucker actively pursues strategic acquisitions to boost growth. Notably, the company’s acquisition of Ainsworth (completed in May 2018) is driving performance in the U.S. Retail Pet Foods category. Other noteworthy acquisitions of the company include; Big Heart Pet Brand (pet food maker) and Sahale Snacks (branded nut and fruit snacks maker) among others. These acquisitions have added iconic brands to the company’s portfolio and strengthened its presence.

Also, 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 are noteworthy.

Will Hurdles be Countered?

While coronavirus-led increased stay-at-home trends 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. Apart from this, lower net price realization coupled with escalated costs is a concern. Also, Smucker is vulnerable to unfavorable foreign currency translations owing to its exposure to international markets.

Nonetheless, the aforementioned upsides along with robust cost-saving efforts are likely to help Smucker keep its growth story going.

Notably, the company 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.

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