The J. M. Smucker Company’s (SJM - Free Report) top line has been gaining from improved performance of its brands. In fact, growth in several key brands boosted the company’s top-line performance during second-quarter fiscal 2018. Further, the company is on track with product innovation efforts. It has also been augmenting offerings through acquisitions and partnerships.
Driven by such factors, shares of the company have gained 8.7% in the past three months compared with the industry’s rally of 2.5%. However, the company has been struggling with the performance of its coffee segment, due to price volatility. Let’s analyze all aspects and see if Smucker’s strategic efforts can help offset the hurdles and drive growth.
Smucker’s Brand Strengthening Efforts Bode Well
Smucker boasts a strong brand portfolio, which include high-quality products that are moderately priced. We note that the Jif, Smucker's, Nature's Recipe and Uncrustable brands have been performing favorably over the past few quarters. Incidentally, the company has been constructing a frozen sandwich plant in Colorado to enhance the capacity of Uncrustable brand.
The growing popularity of certain brands has encouraged the company to undertake innovations. Recent launches include Natural Balance high-protein dog food offerings and Dunkin' Donuts Cold Brew Coffee. Notably, these launches contributed significantly toward sales growth during the second quarter. Additionally, the company plans to introduce Milk-Bone Puffs dog treats and Dunkin' Donuts coffee canisters by the end of fiscal 2018.
Additionally, Smucker’s rich brands line-up gains from key partnerships and acquisitions. The company’s agreement with Keurig Green Mountain Inc. and Dunkin’ Brands Group Inc. to manufacture and sell the K-Cup category of products has been yielding positive results since fiscal 2016. Further, the company’s focus on achieving expansion via acquisitions is evident from its planned buyout of Wesson oil brand from Conagra Brands. The deal is currently subject to regulatory approval.
Barriers in Smucker’s Way
Smucker has been struggling with volatility in the prices of green coffee. Coffee prices are vulnerable to adverse weather conditions, pest infestation, political decisions as well as worldwide supply and demand conditions. Notably, green coffee prices have been rising steadily for some time, thereby denting profits in the coffee segment.
Further, management expects a rise in freight costs, stemming from industry-wide headwinds to hurt performance in the forthcoming periods. Accordingly, the company lowered the high end of its fiscal 2018 earnings guidance in the last reported quarter.
We expect this Zacks Rank #3 (Hold) company’s concentration on strengthening core brands to drive the top line and offset the aforementioned hurdles. We are also encouraged with the company’s savings-boosting initiatives, which are likely to fuel investments and enhance performance in the long term.
Do Consumer Staples Stocks Grab Your Attention? Check These
Investors interested in the same sector may consider stocks such as Estee Lauder Companies Inc. (EL - Free Report) , Conagra Brands Inc. (CAG - Free Report) and Meredith Corp. (MDP - Free Report) . While Estee Lauder sports a Zacks rank #1 (Strong Buy), Conagra and Meredith carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here..
Estee Lauder came up with an average positive earnings surprise of 18% in the trailing four quarters. It has a long-term earnings growth rate of 12.5%.
Conagra Brands pulled off an average positive earnings surprise of 7% in the trailing four quarters. Also, it has a long-term earnings growth rate of 7%.
Meredith Corporation delivered an average positive earnings surprise of 7.1% in the trailing four quarters. It has a long-term earnings growth rate of 8%.
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