SJM Missed Q1 Estimates by Wide Margin, Lowered Guidance

  • J.M. Smucker reported weak first-quarter results.
  • The weak performance and guidance cut likely pressured SJM stock.

SJM missed the estimates

J.M. Smucker (SJM) posted weaker-than-expected fiscal first-quarter results. The company’s first-quarter sales and margin missed analysts’ estimate by a wide margin. Commenting on the first-quarter results, SJM’s CEO, Mark Smucker, stated that the company’s “performance fell short of our expectations.”

Lower volumes had a negative impact on SJM in the first quarter. Meanwhile, lower pricing in the coffee and peanut butter segment remained a drag. Also, heightened competition in the premium dog food category pressured the company’s sales. Lower sales and a decline in the operating margin took a toll on J.M. Smucker’s earnings, which marked a double-digit decline. A higher effective tax rate also dragged the earnings lower.

Given the weak start to fiscal 2020, SJM’s management reduced its fiscal sales guidance. The company expects its net sales to either fall 1% or stay flat in fiscal 2020. Earlier, J.M. Smucker projected a 1%–2% increase in its net sales.

Due to the expectation of lower sales and profit margins, J.M. Smucker also lowered its adjusted EPS outlook. The company expects to post an adjusted EPS of $8.35–$8.55 in fiscal 2020. Previously, SJM expected to report an EPS of $8.45–$8.65.

The disappointing first-quarter performance and guidance cut lowered SJM stock by more than 5% lower during the pre-market session.

First-quarter results

J.M. Smucker posted net sales of $1.78 billion during the first quarter, which fell more than 6% YoY (year-over-year). The sales also fell short of analysts’ consensus estimate of $1.87 billion. The volumes and mix fell 3%, while the net pricing fell 1%.

SJM’s adjusted gross margin expanded by 90 basis points to 37.7%. However, the adjusted operating margin contracted by 40 basis points to 16.3%.

The company posted an adjusted EPS of $1.58, which fell about 11% YoY and missed the consensus estimate by a wide margin. Analysts expected SJM to post adjusted EPS of $1.74 in the first quarter.

While J.M. Smucker’s underlying sales were low, its peers were strong. Kellogg (K) posted better-than-expected results due to an improvement in its underlying sales. Kellogg’s organic sales rose 2.3% during the last reported quarter due to a higher net price realization. Continued momentum in Pringles also supported the company’s organic sales growth.

Meanwhile, Mondelēz (MDLZ) and Hershey (HSY) had impressive organic sales growth rates. Mondelēz’s organic sales rose 4.6% due to balanced growth in its pricing and volumes. The company’s pricing rose 3.0%, while the volumes and mix rose 1.6% during the last reported quarter. Hershey’s organic sales benefited from a 1.2% increase in pricing and a 0.6% rise in volumes.

Due to the weak first-quarter performance and guidance cut, SJM stock will likely remain pressured in the near term.