Smucker (SJM) Q4 Earnings Likely to Rise Y/Y: Here’s Why

The J. M. Smucker Company SJM is slated to release fourth-quarter fiscal 2018 results on Jun 7. This consumer food and beverage marketer and manufacturer delivered a positive earnings surprise of 15.7% in the last reported quarter and has topped the Zacks Consensus Estimate by an average of 5.1% in the trailing four quarters. Let’s see what’s in store for Smucker this time around.

Factors Driving Smucker

Smucker is likely to continue gaining from its focus on innovations, prudent acquisitions and solid cost-savings activities. The company has long been committed toward brand building through product innovation. Its recent launches include Dunkin' Donuts Cold Brew Coffee and Meow Mix Servings cat food. These launches contributed significantly toward sales growth during the third quarter of fiscal 2018. In fact, management stated that products launched over the past three years delivered net sales growth of nearly 7% during the third quarter.

Buyouts have been a driving factor for Smucker as well. To this end, the company’s agreement with Keurig Green Mountain and Dunkin’ Brands Group, Inc, to manufacture and sell the K-Cup category of products, has been yielding positive results since fiscal 2016. Other evidences in this regard include Smucker’s acquisition of Big Heart Pet Brand, Sahale Snacks, Enray Inc. along with coffee brands and business operations of Rowland Coffee among others. These acquisitions have added iconic brands to the company’s portfolio and strengthened its presence in the United States. Apart from Smucker, other food companies, such as TreeHouse Foods THS, United Natural Foods UNFI and Pinnacle Foods PF, have been consistently expanding their business and competitive power through strategic acquisitions.

Escalated Costs to be Offset?

Moving back to Smucker, the company continues to bear the brunt of higher freight expenses, which hurt its margins in the third quarter. In fact, management stated that the freight costs were greater than anticipated, owing to difficult transportation landscape in the United States. The company expects these headwinds to linger in the fourth quarter, which along with charges related to inventory obsolesce compelled it to lower its gross margin view for fiscal 2018.

Nevertheless, Smucker’s cost savings efforts to enhance its operating performance bode well. Earlier in fiscal 2018, the company generated synergies of nearly $200 million from its pet food synergy program. Based on such cost-management programs, various other efforts to enhance cost discipline and expected gains from the recent K-Cup partnership, Smucker intends to achieve cost savings of $100 million in fiscal 2018, giving out positive signals for the quarter to be reported.

We expect these endeavors along with focus on buyouts and innovations to help Smucker offset the cost hurdles. In fact, these factors also aided Smucker in the last reported quarter, wherein both the top and bottom line improved year over year and surpassed the Zacks Consensus Estimate. While earnings were fueled by solid sales and benefits from tax reforms, revenues were backed by growth across most core brands and categories. Further, favorable volume/mix (mainly in pet food and coffee segments) and favorable currency translations aided sales growth. For the quarter under review, analysts polled by Zacks expect sales at the company’s U.S. Retail Coffee segment to increase 1.8% year over year to approximately $515 million.

Q4 Estimates in Numbers

Further, analysts polled by Zacks expect total revenues of $1,809 million, up 1.4% from the year-ago period reported figure. The current consensus mark for earnings is pegged at $2.21, which shows a 22.8% jump from the year-ago period. The estimate has remained stable in the past 30 days.

What the Zacks Model Unveils

To top it, our proven model shows that Smuckeris likely to beat bottom-line estimates this quarter. For this to happen, a stock needs to have both 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.

Smucker’s Zacks Rank #3, along with its Earnings ESP of +0.24% makes us reasonably confident of an earnings beat. You can see the complete list of today’s Zacks #1 Rank stocks here.

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