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The J.M. Smucker (SJM) Up More Than 15% in 3 Months: Here's Why

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The J.M. Smucker Co. (SJM - Free Report) is benefiting from pandemic-induced at-home consumption trends as consumers are looking for trusted brands. The revival of the Away from Home division is driving growth. In addition, the company is progressing well with its core priorities, including driving commercial excellence, reshaping portfolio and streamlining cost structure. Thanks to these upsides, the company’s stock has gained 19.4% in the past three months compared with the industry’s growth of 6.2%.

Let’s discuss further.

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Solid Demand Driving Growth

During second-quarter fiscal 2022, The J. M. Smucker Company’s earnings and sales increased year over year and surpassed the Zacks Consensus Estimate. The uptick in comparable net sales was driven by favorable volume/mix as well as increased net price realization in the U.S. Retail segments and the International and Away From Home units. In its fiscal second-quarter earnings call, management highlighted that it continues to experience increased pandemic-induced at-home consumption trends as consumers are looking out for trusted brands.

Strategic Growth Efforts

The J. M. Smucker is progressing well with core priorities. Strength in its core strategies is helping The J. M. Smucker navigate complex supply chain challenges. These are also helping the company improve in-store fundamentals and stock performance for the brands.

The J. M. Smucker is committed to increasing its focus and resources to reshape its portfolio to achieve sustainable growth across pet food and pet snacks, coffee and snacking categories. In December 2021, The J.M. Smucker announced the divestiture of its private-label dry pet food business, including its production unit in Frontenac, KS, to Diamond Pet Foods, Inc. The divestiture is in sync with the company’s strategy to direct investments and resources to the fast-growing pet food and pet snacks business. Recently, The J.M. Smucker signed an agreement to offload its natural and organic beverage as well as grains businesses to Nexus Capital Management LP. The transaction is likely to be concluded in third-quarter fiscal 2022.

The J. M. Smucker actively pursues strategic acquisitions in the United States and 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) and Sahale Snacks (branded nut and fruit snacks maker), among others.

Several other companies in the food space like Post Holdings, Inc. (POST - Free Report) , Hormel Foods Corporation (HRL - Free Report) and McCormick & Company, Incorporated (MKC - Free Report) are benefiting from acquisitions.

In fourth-quarter fiscal 2021, Post Holdings’ top line included $99.8 million in net sales from the acquisitions made in fiscal 2021. The buyouts include Private label ready-to-eat cereal business Egg Beaters liquid egg brand, Almark Foods business and related assets and Peter Pan nut butter brand.

Hormel Foods is strengthening its business through strategic acquisitions. In June 2021, HRL acquired the Planters snacking portfolio. Prior to this, the company acquired Texas-based pit-smoked meats company Sadler’s Smokehouse in March 2020. The buyout is in sync with Hormel Foods’ initiatives to strengthen its position in the foodservice space.

McCormick has strategically increased its presence through acquisitions, which have been strengthening its portfolio. In December 2020, McCormick bought a 100% stake in FONA International, LLC and some of its affiliates. FONA’s diverse portfolio helps McCormick bolster its value-add offerings and expand the flavor solutions segment into attractive categories. In November 2020, McCormick acquired the parent company of Cholula Hot Sauce — a premium Mexico-based hot sauce brand.

Hurdles on Way

The J. M. Smucker is encountering cost inflation as well as supply chain and transportation challenges along with isolated labor shortages. During second-quarter fiscal 2022, adjusted gross profit fell 7% to $730.9 million mainly due to increased costs for commodities, manufacturing, transportation and packaging. The J.M. Smucker expects to experience higher costs for the rest of fiscal 2022, mainly due to green coffee and transportation. The company also expects incremental manufacturing expenses, mainly for labor and business continuity plans.

That being said,the Zacks Rank #3 (Hold) company is focused on undertaking inflation-justified pricing actions, revenue growth management strategies as well as productivity initiatives to minimize the effect of these headwinds.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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