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How Did J.M. Smucker Fare in Fiscal 3Q16?

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Revenue rose, missed estimates

The J.M. Smucker Company (SJM) reported tremendous growth in revenue in the first three quarters of fiscal 2016—driven by acquisitions and product innovations. For 3Q16, the revenue was ~$1.97 billion—a rise of 37% on a year-over-year basis. However, it missed analysts’ estimates of $2.04 billion by 3.6%.

The U.S. Retail Coffee segment contributed $575 million and the U.S. Retail Pet Foods segment contributed $571 million to the total revenue. Big Heart Pet Brands was acquired in fiscal 2015. It contributed $580.3 million to net sales. Favorable volume and mix added one percentage point to net sales. This included contributions from Dunkin’ Donuts K-Cup pods and Smucker’s Uncrustables frozen sandwiches. Net sales fell by $18 million excluding the impact of Big Heart Pet Brands, currency translation, and the US canned milk divestiture.

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Enhanced gross profit

The addition of Big Heart added to the gross profit rise of $249 million, or 46%, in 3Q16. Product innovations such as Dunkin’ Donuts K-Cup pods, introduced in May 2015, also helped increase gross profits. Favorable commodity costs, mainly green coffee, balanced the impact of lower net pricing on gross profits.

Earnings rose in 3Q16

The adjusted EPS (earnings per share) was ~$1.76—growth of 14% in 3Q16. It included a $0.14 per share gain from the US canned milk divestiture. The EPS also surpassed analysts’ estimates of $1.62 by a huge margin of 26%. The EPS continued the trend of beating estimates. Earnings included a benefit from the Big Heart Pet Brands acquisition and the gain from the US canned milk divestiture. They were partly offset by higher interest expenses and the impact of additional shares outstanding.

Peers’ performance

J.M. Smucker’s peers in the industry include General Mills (GIS), Snyder’s Lance (LNCE), and Pinnacle Foods (PF). They reported revenue of $4.0 billion, $463 million, and $754 million, respectively, for their last reported quarter. The Guggenheim S&P 500 Equal Weight Consumer Staples ETF (RHS) and the iShares Morningstar Mid Value ETF (JKI) invest 4% of their portfolios in J.M. Smucker.

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