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Sturdy Brands & Savings to Fuel Smucker's (SJM) Q2 Earnings

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The J. M. Smucker Company (SJM - Free Report) is slated to release second-quarter fiscal 2019 results on Nov 28. This consumer food and beverage marketer as well as manufacturer has mixed record of earnings surprises in the trailing four quarters. Let’s see what’s in store for Smucker this time around.

Efforts to Strengthen Brand Portfolio Bodes Well

Smucker offers a number of popular brands such as Nature's Recipe, Dunkin' Donuts, Uncrustables, Jif, Meow Mix and 9Lives among others. Smucker's Uncrustable brand have been particularly doing well with net sales improvement of 15% in fiscal 2018, marking its fourth consecutive year of double-digit growth. To augment the capacity of Uncrustable brand, the company is constructing a frozen sandwich plant in Colorado, which is expected to increase net sales to more than $500 million in the next five years. Smucker is also focused on brand building through product innovation. The company’s recent launches include 1850 premium coffee and Jif PowerUps snacks.

Smucker has also formed key partnerships with quite a few coffee companies, which have enhanced its performance. In fact, agreement with Keurig Green Mountain and Dunkin’ Brands Group, Inc, to manufacture and sell the K-Cup category of products has been yielding. Additionally, Smucker actively pursues strategic acquisitions in the United States as well as overseas. The company acquired Ainsworth (in May 2018) which is likely to strengthen the pet’s snacks portfolio. Apart from Smucker, General Mills (GIS - Free Report) has been striving to expand in the pet foods category, evident from the acquisition of Blue Buffalo Pet Products, Inc in April. Coming back to Smucker, other notable buyouts include Big Heart Pet Brand, Sahale Snacks, Enray Inc as well as coffee brands and business operations of Rowland Coffee among others. Undoubtedly, such efforts have added iconic brands to the company’s portfolio and strengthened its market share.

Can Saving Efforts Cushion Cost Hurdles?

Rising freight expenses are a persistent hurdle for Smucker. Sadly, management expects freight headwinds to linger in fiscal 2019, which is a threat to margins. Apart from Smucker, other food companies such as United Natural Foods (UNFI - Free Report) and McCormick & Company (MKC - Free Report) have also been grappling with rising freight expenses. Additionally, lower net price realization is limiting performance in some business categories.

Nevertheless, the company is expected to easily tide over such hurdles on the back of robust cost-saving efforts. Based on efficient cost-management programs and gains from the K-Cup partnership, Smucker achieved savings of $100 million in fiscal 2018. Moreover, the company expects to realize savings worth $80 million in fiscal 2019 from improved K-Cup manufacturing cost, while the remaining $70 million from its targeted savings of $250 million will be realized in 2020.

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

 

 

Estimates Look Positive

We expect Smucker’s well-chalked efforts to boost portfolio strength and manage costs to help deliver sturdy results in the impending quarter. Moreover, the Zacks Consensus Estimate for net sales for the second quarter is pegged at $2,049 million, depicting a rise of 6.5% from the year-ago quarter’s figure.

Additionally, the current consensus mark for earnings is pegged at $2.35, which shows a 16.3% jump from the year-ago quarter’s tally. However, estimates have inched down by a penny in the past 30 days.

Will Smucker Miss Earnings Prediction?

Our proven model doesn’t show that Smucker is likely to beat bottom-line estimates this quarter. For this to happen, a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

While Smucker carries a Zacks Rank #3, its Earnings ESP of -1.78% makes surprise prediction difficult. You can see the complete list of today’s Zacks #1 Rank stocks here.

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