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The J.M. Smucker (SJM) Firm on Retail Demand, Robust Portfolio

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The J. M. Smucker Company (SJM - Free Report) appears to be on firm footing, courtesy of its solid portfolio optimization efforts including buyouts, divestitures and partnerships. Further, strong digital business and gains from innovation is working well for the Zacks Rank #2 (Buy) stock that has gained 13.3% in the past three months compared with the industry’s growth of 6.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Apart from this, the manufacturer and marketer of food and beverage products is gaining on increased at-home consumption amid the pandemic, which is aiding the company’s retail businesses. This was evident when The J. M. Smucker posted robust third-quarter fiscal 2021 results, with the top and the bottom line increasing year over year and surpassing their respective Zacks Consensus Estimate. Further, management raised its guidance for fiscal 2021 and is focused on making additional brand investments. Notably, the Zacks Consensus Estimate for fiscal 2021 has moved up from $8.72 to $8.86 per share in the past 60 days. Let’s take a closer look.

What’s Behind The J. M. Smucker’s Growth Story?

The J. M. Smucker has been committed to its core strategy, which includes driving commercial excellence, simplifying cost structure, unleashing organization to win and reshaping portfolio. With regard to reshaping the portfolio, the company recently concluded the divestiture of Natural Balance premium pet food business to Nexus Capital Management LP. Also, Smucker sold its Crisco oils and shortening business to B&G Foods (BGS - Free Report) on Dec 2. Earlier, Smucker had divested its U.S. canned milk and U.S. baking businesses. Such moves will help the company focus its resources and portfolio on pet food, snacking and coffee categories.

Also, The J. M. Smucker actively pursues strategic acquisitions both in the United States as well as overseas. We note that the company’s acquisition of Ainsworth (completed in May 2018) has been driving 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 in the United States.

Additionally, The J. M. Smucker formed key partnerships with quite a few coffee companies. Moving on these lines, the company unveiled an alliance with JDE Peet’s last week, per which the latter will offer support to the former’s Away From Home liquid coffee business. This is likely to come on the back of foodservice equipment innovation, product development and production. In connection with this, The J.M. Smucker also announced intentions to pursue and conclude the divestiture of its production facility in Suffolk, Virginia, in the spring of calendar 2022. Apart from this, The J.M. Smucker’s agreement with Keurig Green Mountain (KGM) and Dunkin’ Brands Group, Inc, to manufacture and sell the K-Cup category of products, is yielding results since fiscal 2016. In the third quarter of fiscal 2021, sales of K-Cup jumped 27%, forming 30% of the U.S. Retail Coffee segment sales.

Moving on, e-commerce is a fast-growing retail channel for The J.M. Smucker. On its third-quarter fiscal 2021 earnings call, management stated that e-commerce sales surged 50% or more over the last three quarters. Total e-commerce sales contributed more than 10% to the company’s total sales. Management earlier noted that it expects witnessing continued strength in the e-commerce channel in the forthcoming periods as consumers adapt to online shopping amid the pandemic.

The J. M. Smucker Company Price, Consensus and EPS Surprise


The J. M. Smucker Company Price, Consensus and EPS Surprise

The J. M. Smucker Company price-consensus-eps-surprise-chart | The J. M. Smucker Company Quote


Q3 Results & Fiscal 2021 View

The J. M. Smucker’s solid third-quarter fiscal 2021 results were backed by strength in the company’s U.S. as well as International retail businesses, thanks to the pandemic-led increased at-home consumption and gains from its ongoing consumer-centric strategy. Adjusted earnings of $2.45 per share rose 4% year over year and beat the Zacks Consensus Estimate of $2.22. The year-over-year upside can be attributed to higher sales. Net sales amounted to $2,076.7 million, which beat the consensus mark of $2,018 million and increased 5% year over year.

The J. M. Smucker now expects net sales growth of 2% in fiscal 2021 compared with the previous range of flat to 1% growth. The top-line view reflects escalated at-home consumption, which is boosting the U.S. Retail Coffee and the U.S. Retail Consumer Foods segments. On its third-quarter earnings call, management stated that it expects nearly half of the U.S. workforce to keep working remotely on a part or full-time basis after the pandemic compared with 30% before the pandemic. This, in turn, is likely to drive higher at-home breakfast and lunch practices that will boost The J.M. Smucker’s Coffee and Consumer Foods business. Also, these trends are expected to benefit the pet category, where consumption is anticipated to rise 5% over the next few years. Several other companies like United Natural (UNFI - Free Report) and Kellogg (K - Free Report) are gaining on increased demand trends amid the pandemic.

Meanwhile, The J.M. Sucker’s adjusted earnings per share for fiscal 2021 are now anticipated in the range of $8.70-$8.90. Prior to this, management expected adjusted earnings per share in the band of $8.35-$8.65. Certainly, solid pandemic-led retail demand and brand strength is likely to help The J.M. Smucker counter softness in the Away From Home channel as well as cost-related challenges. All said, the company is likely to keep adding new leaves to its splendid growth story.

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