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Will J.M. Smucker (SJM) Q1 Earnings Beat on Acquisitions?

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We expect The J. M. Smucker Company (SJM - Free Report) to beat expectations when it reports fiscal first-quarter 2016 results before the opening bell on Aug 27.

Last quarter, this food products manufacturer delivered a negative surprise of 1.01%. Let’s see how things are shaping up for this announcement.

Why a Likely Positive Surprise?

Our proven model shows that Smucker is likely to beat earnings this quarter because it has the right combination of two key ingredients.

Positive Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +2.46%. This is meaningful and a leading indicator of a likely positive earnings surprise.

Zacks Rank: Smucker carries a Zacks Rank #3 (Hold), which when combined with +2.46% ESP makes us confident about an earnings beat.

Note that stocks with a Zacks Rank #1, #2 or #3 have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and #5) should never be considered going into an earnings announcement. 

What is Driving the Better-Than-Expected Earnings?

Strong organic sales growth, product innovation and constant efforts to expand through acquisitions have remained the company’s strong points. We expect recent acquisitions to pull up the top line to some extent in the soon-to-be-reported quarter.

The company completed the acquisition of pet food maker Big Heart Pet Brand in Mar 2015, which has placed Smucker in the fastest growing pet food and snacks category in the U.S. The acquisition will be accretive to fiscal 2016 earnings and revenues. The acquisition of Seattle, WA-based Sahale Snacks, Inc. in Sep 2014 is also expected to contribute to fiscal first quarter 2016 sales.

However, lower coffee volumes owing to higher coffee prices and weakness in K-cup sales remain concerns for Smucker. Though Smucker announced a cut in coffee prices in July, which will ultimately ease volume declines, the company expects the impact of reduced coffee costs to be evident from the second quarter of fiscal 2016. Therefore, it remains cautious about higher coffee costs in the first quarter. The performance of the K-Cup business is also expected to be sluggish in the first quarter of fiscal 2016.

Currency impact continues to remain a headwind through fiscal 2016 due to further weakening of the Canadian dollar.

Other Stocks to Consider

Other stocks in the consumer staples sector that have both a positive earnings ESP and a favorable Zacks Rank are:

Cal-Maine Foods, Inc. (CALM - Free Report) with an Earnings ESP of +2.56% and a Zacks Rank #1 (Strong Buy)

Campbell Soup Company (CPB - Free Report) with an Earnings ESP of +4.76% and a Zacks Rank #2 (Buy)

Monster Beverage Corporation (MNST - Free Report) with an Earnings ESP of +1.18% and a Zacks Rank #3

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