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SJM Beat Q1 2019 Earnings Estimate, Stock Fell 6.6%

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Aug. 22 2018, Published 8:06 a.m. ET

What dragged shares down

J.M. Smucker (SJM) reported mixed first fiscal quarter of 2019 (period ending on July 31) results on August 21. The company’s net sales marked a YoY (year-over-year) improvement due to the Ainsworth acquisition. However, the top line fell short of analysts’ expectation.

The company’s bottom line had solid YoY growth and beat analysts’ estimate. J.M. Smucker’s weak organic sales didn’t impress investors. J.M. Smucker’s organic sales decreased on a YoY basis, which reflected lower net price realization. J.M. Smucker shares fell 6.6% and closed at $108.20.

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Second-quarter profitability

J.M. Smucker reported adjusted earnings of $1.78 per share, which increased 17.9% on a YoY basis and beat analysts’ estimate of $1.76. A substantial decline in the tax rate drove the company’s bottom line.

Weak organic sales, lower margins, and higher interest expenses due to increased debt related to funding the Ainsworth acquisition remained a drag. J.M. Smucker’s adjusted gross margin decreased by 40 basis points to 36.8%, while the adjusted operating margin contracted by 60 basis points to 16.7%. The benefits from the decline in green coffee costs were offset by lower net pricing and higher packaging and transportation costs.

Besides J.M. Smucker, other packaged food manufacturers also reported healthy growth in their bottom line despite significant pressure on the margins. Kellogg (K), Conagra Brands (CAG), and Mondelēz (MDLZ) reported strong double-digit EPS growth in the past few quarters, which reflects lower taxes and a focus on cost-savings.

J.M. Smucker shares have fallen 12.9% on a YTD (year-to-date) basis. The shares have underperformed the S&P 500 Index, which has grown 7.1% during the same period.

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