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What to Expect from the J.M. Smucker Company’s Q4 Results

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Sales to grow, earnings to remain pressured

The J.M. Smucker Company (SJM) will announce its fiscal 2019 fourth-quarter earnings results on June 6. We expect the company to continue to post strong sales growth in the quarter led by incremental sales from its Ainsworth acquisition. Meanwhile, improved volumes and a favorable mix should further support its sales growth rate.

Improved sales in its base business, a favorable mix, and lower costs in its Coffee segment are expected to support J.M. Smucker’s gross margin rate. However, higher cost pressure in its Pet segment and a planned shift in its marketing expenses are expected to hurt its operating margins and, in turn, its EPS.

J.M. Smucker’s adjusted EPS are expected to fall YoY (year-over-year), reflecting weak operating margins and higher interest expenses. However, a YoY fall in its effective tax rate is expected to support its bottom line.

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Packaged food companies have managed to accelerate their sales growth rates by acquiring fast-growing brands, but the higher interest expenses associated with the funding of these acquisitions are taking a toll on their earnings. J.M. Smucker, General Mills (GIS), Conagra Brands (CAG), and the Campbell Soup Company (CPB) are seeing pressure on their earnings owing to these higher interest expenses.

Stock performance

Shares of the J.M. Smucker Company are up 35.5% so far this year, reflecting better-than-expected sales and earnings performances during its last-reported quarter. Improvements in its gross margins have also impressed. However, the upside in J.M. Smucker stock could be limited given the projected slowdown in its sales growth rate and continued challenges on the earnings front.

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