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The J.M. Smucker (SJM) to Sell Few Businesses to Optimize Portfolio

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The J.M. Smucker Co. (SJM - Free Report) is committed to its strategy to channel investments and resources toward core brands to drive growth. Keeping along these lines, the company signed an agreement to offload its natural and organic beverage as well as grains businesses to Nexus Capital Management  LP. The transaction was priced at nearly $110 million on a cash basis.

The deal consists of R.W. Knudsen and TruRoots assets as well as trademarks along with licensing agreement for Santa Cruz Organic beverages. The J.M. Smucker will also sell its production and distribution facilities in Chico, CA and Havre de Grace, MD. That said, the company will retain Santa Cruz Organic nut butter, fruit spreads, syrups or applesauce. In total, the natural beverage and grains businesses contributed nearly $140 million to The J.M. Smucker’s fiscal 2021 net sales. Management anticipates the divestiture to dilute its annual adjusted earnings per share by nearly 15. The transaction is likely to be concluded in third-quarter fiscal 2022.

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The aforementioned divestitures will help the company to direct its resources toward core brands like Uncrustables sandwiches, Jif and Smuckers to build market leadership and continue to support overall growth. To this end, management recently announced plans to construct its third production facility and distribution center for the manufacturing of Smucker's Uncrustables sandwiches. Through this increased capacity and persistent consumer demand, it expects to grow the brand to generate nearly $1 billion in yearly net sales in the next five years. As part of its efforts to optimize operations for the Consumer Foods business, The J.M. Smucker is planning to shut and seek the sale of its Ripon, Wisconsin manufacturing unit in 2022. In addition, the company is looking to consolidate its production at the Orrville, OH unit.

What’s More?

Earlier this month, The J.M. Smucker announced the divestiture of its private label dry pet food business, including its production unit in Frontenac, Kansas, to Diamond Pet Foods, Inc. The transaction was priced at nearly $33 million on a cash basis. The divestiture is in sync with the company’s strategy to focus investments and resources on the fast-growing pet food and pet snacks business.

Incidentally, Smucker had updated its fiscal 2022 guidance to reflect the impacts of the absence of net sales of the divested business. Management now expects fiscal 2022 net sales to be down 1% to flat year over year. The updated guidance includes impact of the Crisco, Natural Balance and private label dry pet food businesses divesture. Earlier, The J. M. Smucker had anticipated the metric in the range of 0.5% growth to 0.5% decline year over year. On a comparable basis, net sales are anticipated to increase almost 4.5% at the mid-point of the net sales guidance. The company had reiterated its fiscal 2022 adjusted earnings per share (EPS) guidance in the range of $8.35-$8.75 and free cash flow view of $700 million.

Shares of this Zacks Rank #2 (Buy) company have gained 9.8% in the past three months against the industry’s decline of 1.8%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

3 Staple Picks

Some other top-ranked stocks in the Consumer Staples sector are MGP Ingredients (MGPI - Free Report) , The Hain Celestial Group (HAIN - Free Report) and Inter Parfums, Inc. (IPAR - Free Report) .

MGP Ingredients, the producer and supplier of distilled spirits and specialty wheat proteins and starch food ingredients, currently sports a Zacks Rank #1. Shares of the company have gained 37.8% in the past three months.

The Zacks Consensus Estimate for MGP Ingredients’ current financial-year sales and EPS suggests growth of 55.5% and 61.4%, respectively, from the year-ago period’s figures. MGPI has a trailing four-quarter earnings surprise of 117.6%, on average.

Inter Parfums, develops, manufactures and distributes prestige perfumes and cosmetics. It currently sports a Zacks Rank #1. IPAR has a trailing four-quarter earnings surprise of 10.8%, on average.

The Zacks Consensus Estimate for Inter Parfums’ current financial-year sales and EPS suggests growth of 55.5% and 100%, respectively, from the year-ago period’s figures.Shares of the company have moved up 37.1% in the past three months.

The Hain Celestial, which provides various natural and organic foods as well as personal care products in North America and Europe, carries a Zacks Rank #2 at present. HAIN has a trailing four-quarter earnings surprise of 9.7%, on average. Shares of the company have moved up 6.9% in the past three months.

The Zacks Consensus Estimate for The Hain Celestial’s current financial-year EPS suggests growth of 14.5% from the year-ago period’s reported number.