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Why Is Smucker (SJM) Up 3.7% Since Last Earnings Report?

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It has been about a month since the last earnings report for Smucker (SJM - Free Report) . Shares have added about 3.7% 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 the most recent earnings report in order to get a better handle on the important catalysts.

The J.M. Smucker Q4 Earnings Top Estimates, Sales Rise

The J. M. Smucker posted fourth-quarter fiscal 2022 results. After Apr 30, 2022, SJM initiated a voluntary recall of certain Jif peanut butter products made at its Lexington, KY facility and sold mainly in the United States. The move was a result of potential salmonella contamination.

Adjusted earnings of $2.23 per share declined 1% year over year. However, the metric surpassed the Zacks Consensus Estimate of $1.88.

Net sales amounted to $2,033.8 million, which beat the consensus mark of $1,981 million. The top line advanced 6% year over year. This included an adverse impact of 1% related to the expected customer returns associated with the Jif peanut butter product recall. Excluding non-comparable net sales related to divestitures and currency movements, net sales increased 9%. The uptick in comparable net sales can be attributed to positive net price realization in each company segment. This was partly offset by a lower contribution from a volume/mix.

The adjusted gross profit fell 10% to $655.2 million. The adjusted gross margin contracted from 37.9% to 32.2%, bearing some impacts of escalated costs, mainly stemming from higher commodity and ingredient, packaging and manufacturing costs. The adjusted operating income rose nearly 13% to $350.9 million due to lower selling, distribution and administrative (SD&A) costs. The adjusted operating margin increased 110 basis points to 17.3%.

Segment Details

U.S. Retail Pet Foods: Segment sales jumped 6% to $718.1 million. Excluding non-comparable net sales associated with the private label dry pet food businesses divestiture, the metric rose 10%. The volume/mix remained neutral and the net price realization had a favorable 10-percentage point impact on net sales. The segment’s profit jumped 19% to $120.7 million.

U.S. Retail Coffee: Net sales increased 11% to $647.2 million. The volume/mix had a 6-percentage point negative impact and the net price realization boosted net sales by 17 percentage points. The segment’s profit moved down 5% to $164.2 million.

U.S. Retail Consumer Foods: Sales in the segment fell 5% to $397.3 million, which includes a 5% adverse impact of the abovementioned product recall. Excluding the impact of the natural beverage and grains businesses divestiture, net sales jumped 3%. The net price realization contributed 1 percentage point to sales. The volume/mix aided net sales by 2 percentage points. The segment’s profit remained flat at $95 million.

International and Away From Home: Net sales advanced 12% to $271.2 million. Excluding the impact of the natural beverage and grains businesses divestiture, as well as the negative impacts of currency movements, net sales escalated 13%. The volume/mix and the net price realization had positive impacts of 7 percentage points and 6 percentage points, respectively, on the segment’s net sales. The segment’s profit increased 18% to $34.5 million.

Fiscal 2023 Guidance

Management stated that pandemic-related impacts, together with cost inflation and a volatile supply chain, continue to affect the company’s results and cause risks for fiscal 2023. The recent product recall, in particular, is expected to impact financial results. While the outlook remains unsure, The J.M. Smucker remains focused on actions like minimizing the impacts of cost inflation, product recall and other business disruptions.

For fiscal 2023, SJM anticipates net sales to rise 3.5%-4.5% year over year. Excluding non-comparable sales related to the private label dry pet food and natural beverage and grains businesses divestitures, net sales are anticipated to improve nearly 6% at the midpoint of the net sales guidance. The view reflects the positive impacts of elevated net pricing to counter cost inflation in many categories, partly negated by an expected volume/mix effect of the price elasticity of demand as well as a 2% adverse impact related to the product recall.

Adjusted earnings per share (EPS) for fiscal 2023 are envisioned in the range of $7.85-$8.25, including a 90 cents impact from the product recall. The bottom-line view reflects the positive impacts of pricing and share buybacks (of the prior year), more than negated by inflated costs, an expected volume/mix effect of the price elasticity of demand, an adverse impact of the product recall and elevated SD&A expenses. The bottom-line view takes into account an adjusted gross profit margin of 33-34%, including a 1% negative impact of the product recall. Also, the adjusted effective income tax rate is envisioned to be 24.2%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

The consensus estimate has shifted -21.55% due to these changes.

VGM Scores

Currently, Smucker has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. 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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