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Why More Disappointments Could Be in the Cards for J.M. Smucker


Nov. 20 2020, Updated 5:09 p.m. ET

Deteriorating fundamentals

J.M. Smucker (SJM) stock is down about 17.2% on a YTD (year-to-date) basis, and the trend could continue as deteriorating fundamentals will likely restrict the stock’s recovery at least in the near term. J.M. Smucker continues to disappoint investors on the sales and profitability front. The company posted a sales decline in the past several quarters. Meanwhile, its EPS saw a YoY (year-over-year) decline in the past three quarters.

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J.M. Smucker is witnessing sluggish demand for its products as weak consumer uptake continues to remain a drag. Meanwhile, all of its business segments are reporting sales declines as lower volumes on account of distribution losses and increased competition from private label players continue to dent its top-line growth. Meanwhile, an unfavorable mix and pricing have further restricted sales growth.

Also, the company’s profitability is taking a hit as continued volume declines, an unfavorable mix, and higher input costs negatively impacted its margins and thus its EPS.

Tepid outlook

J.M. Smucker’s top line is projected to decline in coming quarters as industry-wide softness is likely to take a toll on its sales growth rate. Earlier, the company’s management lowered its sales guidance following the sluggish fiscal 1Q18 results. All of the company’s segments are projected to report a YoY decline in sales. The company’s US Retail Coffee segment is expected to take a hit from an anticipated decline in volumes and adverse pricing. Meanwhile, J.M. Smucker’s US Retail Consumer Foods segment’s top line is expected to decline due to distribution losses at the key club channel. Also, the company’s US Retail Pet Foods segment is estimated to report lower sales as increased competition, primarily in the cat food category, could affect its sales.

Plus, J.M. Smucker’s profitability is likely to take a hit from lower segment profits. Management expects a 20% YoY decline in the operating profit of its coffee segment, which in turn would affect its bottom-line growth.

Meanwhile, lower volumes, an unfavorable mix, price pressure, and increased green coffee prices could hurt the company’s profitability and more than offset the benefits of cost reductions.


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