25 Jun

These Obstacles Could Limit J.M. Smucker’s Sales and Earnings


Lower pricing, tough comparisons to hurt sales

The J.M. Smucker Company’s (SJM) revenues have grown at a healthy rate in the past four quarters thanks to the incremental sales from its Ainsworth acquisition. However, we expect the company’s top line growth to slow in fiscal 2020 as it annualizes the Ainsworth acquisition and faces tough YoY (year-over-year) comparisons. Moreover, the lower net pricing of peanut butter and coffee is expected to remain a drag.

These Obstacles Could Limit J.M. Smucker’s Sales and Earnings

SJM’s management expects its growth brands to register strong growth led by innovation-driven products, supporting its sales growth rate. Its volumes are expected to rise and drive organic sales. However, lower pricing is likely to restrict its top line growth.

Wall Street’s consensus estimate indicates that J.M. Smucker’s top line is expected to stay roughly flat YoY in fiscal 2020. Meanwhile, its top line is expected to remain subdued in the first half of fiscal 2020.

Earnings growth unlikely to impress

Wall Street expects J.M. Smucker’s bottom line to continue to benefit from lower input costs and a decline in the effective tax rate. Its management also plans to lower its debt, which, in turn, is expected to reduce the pressure on its earnings resulting from higher interest costs.

However, lower pricing and increased manufacturing costs are expected to pressure J.M. Smucker’s earnings. Analysts expect its adjusted earnings to mark mid-single-digit growth, which is unlikely to catch the attention of investors, in fiscal 2020.

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