The J. M. Smucker Company ( SJM Quick Quote SJM - Free Report) is well-positioned because of its strong business momentum and the strong demand for its top brands. The company is gaining from its strategic pricing efforts and its focus on core business strategies. The impact of the same was seen in the third quarter of fiscal 2023 wherein both sales and earnings came ahead of the Zacks Consensus Estimate. Pricing Efforts: Key Factor
The J. M. Smucker has been benefiting from positive net price realization, which was also witnessed in the third quarter of fiscal 2023, with higher net price realization contributing 15 percentage points to top-line growth. Net sales growth, during the quarter, was primarily supported by favorable net price realization in the company segments.
Net price realization had a positive 16 percentage point impact on net sales in the U.S. Retail Pet Foods segment. Retail Coffee's net price realization increased net sales by 19 percentage points in the United States. The metric boosted sales in the U.S. retail consumer food sector by 6% and comparable sales in the International and Away From Home unit by 15%. Management’s updated sales guidance for fiscal 2023 reflects the positive impacts of elevated net pricing to counter cost inflation in many categories. Image Source: Zacks Investment Research What Else is Driving Growth?
The J. M. Smucker is progressing well with core priorities, which include driving commercial excellence, reshaping its portfolio, streamlining cost structure and unleashing its organization to win. The strength of such strategies is helping SJM navigate complex supply chain challenges. These are also helping the company improve in-store fundamentals and stock performance for the brands.
SJM is implementing inflation-justified pricing actions across all businesses. The company is committed toward increasing its focus and resources to reshape portfolio to achieve sustainable growth across pet food and pet snacks, coffee as well as snacking categories. Further, in a move to streamline costs, management has been optimizing its supply chain, lowering discretionary costs and expanding network production efficiencies. Additionally, the company announced the divestiture of several pet food brands in order to restructure its portfolio. Following the divestiture, the company's product mix will change from roughly two-thirds pet food and one-third pet snacks to approximately 60% pet snacks and 40% cat food. The J. M. Smucker Company is selling a few of its brands that account for about 20% of overall net sales but only a low-to-mid single digit percentage of overall profit. Management anticipates that this decision will significantly increase the company's profit margin and product mix. It will also position the company well to allocate resources and increase investments into the quickly expanding and highly profitable dog snack market. Wrapping Up
The ongoing cost inflation, a volatile supply chain and a broader macroeconomic landscape are expected to continue to affect the company’s results and cause risks for fiscal 2023. The impact of the same was seen in the fiscal third quarter wherein the company's adjusted earnings per share declined 5% year over year. Also, in the said period, SJM's cost of goods sold and selling, distribution and administrative costs increased from the previous year's period.
Nonetheless, the benefits mentioned above will most likely assist The J. M. Smucker in overcoming such obstacles. Shares of this Zacks Rank #3 (Hold) company have increased 10.6% in the past six months compared with the industry’s growth of 11.1%. 3 Key Picks
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