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Smucker (SJM) Stock Down 8% on Q4 Earnings & Sales Miss

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The J. M. Smucker Company (SJM - Free Report) reported fourth-quarter fiscal 2018 results, wherein the top and the bottom lines fell short of the Zacks Consensus Estimate owing to industry hurdles. Shares of the company lost 7.9% during the pre-market trading session.

In fact, the company’s shares have dropped 9% in the past six months compared with the industry’s 10.6% decline.



Quarter in Details

Adjusted earnings of $1.93 per share jumped 7% year over year, though it fell short of the Zacks Consensus Estimate of $2.18.

The J. M. Smucker Company Price, Consensus and EPS Surprise
 

The J. M. Smucker Company Price, Consensus and EPS Surprise | The J. M. Smucker Company Quote

Net sales of this Zacks Rank #3 (Hold) company remained almost flat year over year at $1,781.3 million, while it missed the consensus estimate of $1,807 million. Unfavorable volume/mix hurt net sales by nearly one percentage point, mainly due to weakness across oils, peanut butter and baking categories, somewhat compensated by strength in coffee. However, sales were positively impacted by improved net price realization and favorable currency movements. Markedly, net sales received benefits of $4.6 million owing to favorable currency exchange.

Adjusted gross profit climbed 1% to $674.8 million, whereas adjusted gross margin expanded 40 basis points to 37.9%. Adjusted operating income for the quarter increased roughly 3% to $348.3 million, with the adjusted operating margin improving 60 basis points to 19.6%. Adjusted operating income growth was backed by a decline in SD&A costs.

Segment Performance

U.S. Retail Coffee Market: The company's U.S. Retail Coffee Market segment sales came in at $508.2 million, which increased $2.3 million from the prior-year period. This was backed by favorable volume/mix, primarily attributable to Dunkin' Donuts and Folgers brand. This was somewhat countered by lower net price realization at the Folgers brand.

Segment profit jumped 4% to $156 million, due to improved volume/mix and lower input costs, somewhat negated by escalated marketing costs and reduced pricing.  

U.S. Retail Consumer Foods:  Sales in the segment dipped 2% to $465.3 million. Higher net price realization was more than offset by unfavorable volume/mix, mainly led by Crisco, Jif and Pillsbury brands, partly compensated by Smucker brand gains.

Segment profit increased 5% to $114.1 million, as the impact of lower volume/mix was more than offset by improved pricing and costs.

U.S. Retail Pet Foods: Net sales dipped $0.9 million to $533.6 million owing to lower volume/mix, mainly due to certain voluntary product recalls. This was partly countered by better net price realization. Segment profit tumbled 13% to $102.1 million owing to unfavorable volume/mix, pricing and costs. Charges associated with product recalls also hurt segment profit.

International and Away from Home: Effective May 1, 2017, the company's U.S. Foodservice business was renamed Away From Home.

Net sales grew 2% from the prior-year quarter to $274.2 million, courtesy of favorable volume/mix and positive impacts of currency rates.  This was partly countered by lower net price realization. Segment profit rose 2% to $49.6 million, thanks to positive currency impact, reduced marketing costs as well as a net benefit from reduced pricing and expenses.

Financials

Smucker exited the quarter with cash and cash equivalents of $192.6 million, long-term debt of $4,688.5 million and total shareholders’ equity of $7,891.1 million. Cash flow from operations amounted to $314.4 million for the quarter, when the company generated free cash flow of $202.8 million during the quarter. During fiscal 2018, Smucker generated free cash flow of $896.1 million.

Fiscal 2019 Outlook

Management remains focused on placing its portfolio for growth. The company has been undertaking innovations to cater to the evolving consumer demand. Evidently, Smucker introduced 1850 premium coffee and Jif PowerUps, recently. Also, Smucker’s buyout of Ainsworth has solidified its pet foods portfolio. Moreover, management is considering the sale of its U.S. baking business, which highlights its strategy of portfolio optimization and shifts focus to the growing coffee, snacking, and pet food categories. Smucker also remains on track with its cost-containment plans, which helped it make investments in its core growth brands including Dunkin' Donuts, Smucker's Uncrustables and Nature's Recipe.

All said, the company expects net sales for fiscal 2019 to advance 13% year over year to reach $8.3 billion.

The company envisions fiscal 2019 earnings in the range of $8.40-$8.65 per share, up from $7.96 recorded in fiscal 2017. The upside is likely to be backed by gains from Ainsworth buyout, cost-saving efforts and benefits from U.S. tax reforms. Evidently, effective tax rate for fiscal 2019 is expected to be roughly 24.5%, lower than the fiscal 2018 rate of 29.6%.

However, increased marketing costs, rising freight and raw material costs, and increased interest expenses are likely to weigh on bottom line. Incidentally, the company expects marketing costs to rise considerably, particularly to support the launches of 1850 coffee and Jif PowerUps.

Free cash flow is projected to be approximately $800-$850 million. Capital expenditures are expected to be $350-$370 million in fiscal 2019.

Don’t Miss These Food Stocks

MEDIFAST INC (MED - Free Report) , a Zacks Rank #1 (Strong Buy) company, has delivered positive earnings surprises in the past three quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Chefs' Warehouse, Inc. (CHEF - Free Report) , with long-term earnings per share growth rate of 22%, flaunts a Zacks Rank #2 (Buy).

Conagra Brands (CAG - Free Report) , with long-term earnings per share growth rate of 8%, carries a Zacks Rank #2.

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