Could J.M. Smucker’s Q3 Results Stall Its Stock’s Uptrend?



Stock performance

J.M. Smucker (SJM) stock has recovered this year, gaining 14.4% as of yesterday. Its low valuation, incremental benefits from recent acquisitions, divestiture of non-core businesses, and better-than-expected earnings outlook for fiscal 2020 have driven its stock higher. Likewise, other major food stocks have risen this year: Mondelēz (MDLZ), General Mills (GIS), Conagra Brands (CAG), and Kraft Heinz (KHC) are up 19.9%, 20.6%, 12.5%, and 12.1%, respectively.

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What’s expected?

J.M. Smucker is set to announce its fiscal 2019 third-quarter results on February 26. We expect its results to disappoint, with its sales being impacted by greater competition, the divestiture of its baking business, and lower pricing. However, incremental sales from its Ainsworth acquisition are expected to drive its top-line growth.

J.M. Smucker’s bottom line is expected to fall by a double-digit percentage rate in the quarter. Management expects its EPS to fall ~20%, reflecting a planned increase in marketing costs, higher interest expenses, and a higher tax rate. Near-term sales and margin headwinds could stall J.M. Smucker stock’s uptrend.


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