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Will Smucker's Lower Coffee Costs Offset the Sales Woes?
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The J.M. Smucker Co. (SJM - Free Report) has exhibited a bearish run on the index over the past one year. We note that in the said period the stock increased 4.2% in comparison to the Zacks categorized Food-Miscellaneous/Diversified industry, which showcased growth of 7.2%. In fact, if we see the performance of the company in the past six months, the stock has declined 11.9% in comparison to the industry, which slipped 1.4%. The decline in the stock is the result of soft sales for the last two quarters.
Let us delve deeper into the details.
Estimates have been declining since Smucker posted second-quarter fiscal 2017 results on Nov 17. While the bottom line surpassed estimates, sales missed the same for the second consecutive quarter. Sales also declined 8% year over year. Sales in Smucker's U.S. consumer foods business – its biggest - fell 13% in the quarter, partly hurt by the sale of its canned milk business and lower demand for some products under its Jif and Pillsbury brands. The company said that sales of Jif peanut butter were hurt by customers adjusting their inventory. Smucker's U.S. coffee sales - its second-biggest business - fell 6% due to lower prices and volumes of Folgers.
Currency headwinds and sluggish pet food business also hurt sales. Heightened competitive activity from more-premium brands and challenges in dry dog food against a deflationary macro environment is impacting the performance of the Kibbles 'n Bits brand. Also, retailers are increasingly looking at pet snacks as a new category separate from regular food, and are focusing more on to it. The company continues to expect softness in Pet Food sales in the near-term, though the company remains focused on improving the performance of the mainstream dog and cat brands. Further, the company's weak sales in the first half cast a shadow over its full-year forecast.
Though heightened competition in the pet food business in the near term remains a concern, strong organic sales growth, product innovation and constant efforts to expand through acquisitions are the company’s strong points. The company also remains focused on improving the performance of the mainstream dog and cat brands. Further, lower coffee prices owing to the continued decline in green coffee costs are aiding the company’s volumes. Lower pricing on Folgers roast and ground coffee has resulted in improved performance for the mainstream coffee business in fiscal 2016. Further, the company has delivered positive earnings surprises in each of the four trailing quarters, making for an average positive surprise of 19.2%. A low beta of 0.52, a dividend yield of 2.32% and a long-term earnings growth rate of 6.8% also makes the stock attractive.
Ingredion has an expected earnings growth rate of 11%. Further, it has delivered positive earnings surprises in the trailing four quarters, leading to an average earnings surprise of 10.5%.
Meanwhile, Lancaster Colony and Sysco have an expected earnings growth rate of 3% and 8.6%, respectively.
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Will Smucker's Lower Coffee Costs Offset the Sales Woes?
The J.M. Smucker Co. (SJM - Free Report) has exhibited a bearish run on the index over the past one year. We note that in the said period the stock increased 4.2% in comparison to the Zacks categorized Food-Miscellaneous/Diversified industry, which showcased growth of 7.2%. In fact, if we see the performance of the company in the past six months, the stock has declined 11.9% in comparison to the industry, which slipped 1.4%. The decline in the stock is the result of soft sales for the last two quarters.
Let us delve deeper into the details.
Estimates have been declining since Smucker posted second-quarter fiscal 2017 results on Nov 17. While the bottom line surpassed estimates, sales missed the same for the second consecutive quarter. Sales also declined 8% year over year. Sales in Smucker's U.S. consumer foods business – its biggest - fell 13% in the quarter, partly hurt by the sale of its canned milk business and lower demand for some products under its Jif and Pillsbury brands. The company said that sales of Jif peanut butter were hurt by customers adjusting their inventory. Smucker's U.S. coffee sales - its second-biggest business - fell 6% due to lower prices and volumes of Folgers.
Currency headwinds and sluggish pet food business also hurt sales. Heightened competitive activity from more-premium brands and challenges in dry dog food against a deflationary macro environment is impacting the performance of the Kibbles 'n Bits brand. Also, retailers are increasingly looking at pet snacks as a new category separate from regular food, and are focusing more on to it. The company continues to expect softness in Pet Food sales in the near-term, though the company remains focused on improving the performance of the mainstream dog and cat brands. Further, the company's weak sales in the first half cast a shadow over its full-year forecast.
Though heightened competition in the pet food business in the near term remains a concern, strong organic sales growth, product innovation and constant efforts to expand through acquisitions are the company’s strong points. The company also remains focused on improving the performance of the mainstream dog and cat brands. Further, lower coffee prices owing to the continued decline in green coffee costs are aiding the company’s volumes. Lower pricing on Folgers roast and ground coffee has resulted in improved performance for the mainstream coffee business in fiscal 2016. Further, the company has delivered positive earnings surprises in each of the four trailing quarters, making for an average positive surprise of 19.2%. A low beta of 0.52, a dividend yield of 2.32% and a long-term earnings growth rate of 6.8% also makes the stock attractive.
SMUCKER JM Price, Consensus and EPS Surprise
SMUCKER JM Price, Consensus and EPS Surprise | SMUCKER JM Quote
Stocks to Consider
Some better-ranked stocks in the broader consumer staples sector include Ingredion, Inc. (INGR - Free Report) , Lancaster Colony Corporation (LANC - Free Report) and Sysco Corporation (SYY - Free Report) . All of them carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Ingredion has an expected earnings growth rate of 11%. Further, it has delivered positive earnings surprises in the trailing four quarters, leading to an average earnings surprise of 10.5%.
Meanwhile, Lancaster Colony and Sysco have an expected earnings growth rate of 3% and 8.6%, respectively.
Zacks' Top 10 Stocks for 2017
In addition to the stocks discussed above, would you like to know about our 10 finest tickers for the entirety of 2017?
Who wouldn't? These 10 are painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Be among the very first to see them >>