The growing spread of coronavirus has led to increased social distancing, causing most people to stay indoors and step out just for essentials. As consumers are unable to gauge the severity and duration of this deadly spread, they have been stockpiling goods, especially staple items to avoid going out often. This, in turn, has been spiking up demand for products of The J. M. Smucker Company SJM, which raised its guidance for fiscal 2020 and also provided an update on its operations and supply chain amid the pandemic.
We note that Smucker witnessed heavy demand in March. Although the magnitude of the rising demand has moderated, it is still high. Markedly, the increased demand from customers in the fourth quarter caused the company to pull up its forecasts for fiscal 2020.
Fiscal 2020 Revised Forecasts
The company now anticipates net sales to decrease 1% compared with the previous guidance of a decline 3%. This can be accountable to increased demand in all U.S. and Canadian retail networks, somewhat negated by softness in products sold at away-from-home channels (which forms less than 10% of Smucker’s top line).
Certainly, elevated production and lower selling, distribution and administrative costs are likely to result in operating leverage. This may be partly countered by escalated costs associated with employee compensation and benefits, freight, and community support efforts. Nonetheless, operating leverage and higher contribution from sales led to a perked up bottom-line view. Smucker now envisions adjusted earnings per share to surpass the higher end of its previously-projected band of $8.10-$8.30. The Zacks Consensus Estimate for earnings is currently pegged at $8.25.
Free cash flow is anticipated to exceed $850 million, as guided earlier. Also, capital expenditures are expected to come below the old estimate of $300-$320 million. Clearly, Smucker remains focused on maintaining sufficient financial liquidity to manage the business. That being said, the company stated that its old commentary related to the financial directions for fiscal 2021 is no longer valid, given the uncertainty around the near term as well as the long-term impacts of COVID-19.
Smucker Focuses on Continued Production & Employee Protection
Smucker remains committed toward meeting consumers’ rising demand in the crisis situation. The company is continuing to work with customers and suppliers closely and has also taken measures to continue business operations, expand the availability of products and minimize supply-chain hurdles as much as possible. Toward this end, Smucker is expanding production across all manufacturing facilities and increasing the availability of appointments in its distribution centers.
Also, the company has taken concrete actions to ensure the safety and protection of its workers. To this end, it has implemented increased sanitization and temperature screening and offered incremental support like financial hardship rewards to front-line workers. Notably, all of Smucker’s manufacturing and distribution centers have been operating and it has been observing the scenario closely, especially at its coffee facilities in Louisiana where there are increased cases of COVID-19. Further, the company has taken steps to ensure continued supply to its retail partners amid the burgeoning demand.
Notably, stocking up essentials has been leading to higher traffic at retail behemoths like Walmart WMT, Kroger KR and Costco COST, to name a few, who are refilling their shelves faster than usual. Coming back to Smucker, this Zacks Rank #3 (Hold) company looks well placed to deliver a strong performance amid the panic struck by coronavirus. Shares of the company have gained 16.8% year to date against the industry’s decline of 12.2%.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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