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Why J.M. Smucker's Fiscal 2Q18 Results Could Be Disappointing

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Part 2
Why J.M. Smucker's Fiscal 2Q18 Results Could Be Disappointing PART 2 OF 5

Why J.M. Smucker’s Fiscal 2Q18 Earnings Could Fall

What analyst estimates say

J.M. Smucker (SJM) is expected to announce its fiscal 2Q18 results[period ended October 31, 2017] on Thursday, November 16, 2017. Analysts expect J.M. Smucker to post earnings of $1.90 per share, down 7.3% on a YoY (year-over-year) basis. A projected decline in volumes coupled with higher costs is likely to affect the company’s bottom line performance in fiscal 2Q18. Notably, J.M. Smucker’s EPS has witnessed a YoY decline in the past three quarters.

Why J.M. Smucker’s Fiscal 2Q18 Earnings Could Fall

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On the contrary, the majority of the company’s peers managed to report a YoY increase in their bottom line results thanks to the higher productivity and cost savings coupled with the improvement in sales. For instance, Kellogg’s (K) 3Q17 EPS surprised investors and rose 9.4% YoY. Increased savings and improvement in the top-line performance helped the company to surpass analyst estimates.

Meanwhile, Mondelēz’s (MDLZ) 3Q17 earnings jumped 14.0% YoY, reflecting improved volumes and lower overhead costs. Also, Hershey’s (HSY) bottom line rose 3.1% in 3Q17 driven by higher sales. Furthermore, Conagra (CAG) reported YoY improvement in its bottom line during the last reported quarter as volume deleverage was more than offset by higher cost savings.

However, higher promotional spending and rising input costs continue to hurt the profitability of packaged food manufacturers in the US (SPY).

What could affect SJM’s bottom line?

The company’s management lowered its fiscal 2018 EPS guidance during the last quarter’s conference call, reflecting a decline in profits in the US Retail Coffee segment. J.M. Smucker estimates its fiscal 2018 adjusted EPS to be $7.75–$7.95. Moreover, for fiscal 2Q18, the company’s EPS could fall by high single digits on account of adverse pricing in the coffee segment.

The company’s coffee segment is witnessing volume declines. Also, increased green coffee costs are hurting the profitability. Plus, higher promotional and marketing spending could further hurt EPS.

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