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Smucker (SJM) Up 0.6% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Smucker (SJM - Free Report) . Shares have added about 0.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Smucker due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

The J.M. Smucker Q2 Earnings Beat Estimates, Sales Up

The J. M. Smucker Company posted stellar second-quarter fiscal 2022 results, with the top and the bottom line beating the Zacks Consensus Estimate. Earnings and sales increased year over year. Management raised its fiscal 2022 net sales and adjusted earnings per share (EPS) guidance.

Quarter in Detail

Adjusted earnings of $2.43 per share increased 2% year over year. The metric surpassed the Zacks Consensus Estimate of $2.04.

Net sales amounted to $2,050 million, which beat the consensus mark of $1,971.6 million. The top line inched up 1% year over year. Excluding non-comparable sales related to divestitures (of Crisco and Natural Balance businesses) as well as favorable currency movements, net sales increased 8%. The rise in comparable net sales was driven by favorable volume/mix as well as increased net price realization in the U.S. Retail segments as well asthe International and Away From Home unit.

Adjusted gross profit fell 7% to $730.9 million. Adjusted gross profit margin declined to 35.7% from 38.7% reported in the year-ago quarter. Adjusted operating income dropped 5% to $387.9 million. Adjusted operating margin came in at 18.9%, down from 20.1% reported in the year-ago quarter.

Segment Performance

U.S. Retail Pet Foods: Segment sales fell 1% to $701.6 million. Excluding non-comparable net sales associated with the Natural Balance business divestiture, the metric climbed 7%. Volume/mix had a 2-percentage point positive impact, and net price realization contributed 4 percentage points to net sales. Segment profit slumped 20% to $99.6 million.

U.S. Retail Coffee: Net sales increased 8% to $645.1 million. Volume/mix and net price realization had a 5 and 3 percentage point positive impact on sales, respectively. Segment profit rose 3% to $207.8 million.

U.S. Retail Consumer Foods: Sales in the segment fell 8% to $441.2 million. Excluding the impact of the divested Crisco business, net sales jumped 9%. Net price realization contributed 3 percentage points to sales advancement. Volume/mix improved net sales by 6 percentage point. Segment profit declined 18% to $111 million.

International and Away From Home: Net sales advanced 4% to $262.1 million. Excluding the impact of the Crisco divestment, as well as positive impacts from currency movements, net sales escalated 6%. Comparable net sales growth of 25% in the Away from Home operating segment was somewhat offset by 10% decline in the International operating segment. Both volume/mix net price realization had positive impacts on segment net sales. Segment profit increased 2% to $40.4 million.

Financials

The J. M. Smucker exited the quarter with cash and cash equivalents of $155.3 million, long-term debt (less current portion) of $4,308.8 million and total shareholders’ equity of $8,286.4 million. The company’s net debt proceeds amounted to $1.4 million during the reported quarter. Cash flow from operating activities amounted to $165.1 million for the three-month period ended Oct 31, 2021. Free cash flow was $105.9 million in the quarter. Free cash flow is now expected to be $700 million in fiscal 2022 compared with the $800 million projected earlier. Management expects capital expenditures of $400 million in fiscal 2022.

Fiscal 2022 Guidance

The company is troubled by pandemic-related disruptions as well as cost inflation and supply-chain volatility. These factors also cause uncertainty for management’s fiscal 2022 guidance, which may be affected by any manufacturing or supply-chain headwind; volatile consumer mobility and buying behavior; retailer inventory levels and macroeconomic factors. Management is focused on minimizing the effect of cost inflation and any labor or business hurdle. The company revised its fiscal 2022 guidance, considering the current scenario.

The J. M. Smucker now anticipates net sales in the range of 0.5% growth to 0.5% decline year over year. The company had earlier anticipated the metric to decline 1.5-2.5% year over year. Net sales guidance includes an impact of $355.6 million associated with the Crisco and Natural Balance divestiture. The increase in net sales guidance reflects better-than-expected demand for the second quarter and the rest of the year. Also, incremental net pricing actions undertaken to counter higher costs led to upward revision in net sales guidance. On a comparable basis, net sales are anticipated to increase almost 4.5% at the mid-point of the net sales guidance, reflecting a deceleration in at-home consumption trends. Higher net pricing in various categories, ongoing double-digit net sales growth for the Smucker's Uncrustables brand as well as recovery in the away-from-home channels are upsides to the projection.

Adjusted EPS for fiscal 2022 are envisioned in the range of $8.35-$8.75 now, up from the $8.25-$8.65 expected before. Adjusted EPS came in at $9.12 per share in fiscal 2021. The bottom-line view reflects updated net sales guidance, adjusted gross margin of 35%-35.5% and a nearly 7% fall in SD&A costs.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -7.42% due to these changes.

VGM Scores

At this time, Smucker has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Smucker has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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