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The J.M. Smucker (SJM) Q1 Earnings Beat Estimates, Decline Y/Y

The J.M. Smucker's (SJM) first-quarter fiscal 2022 results reflect lower earnings and sales. Results were hurt by divestiture impacts and cost inflati...

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The J. M. Smucker Company SJM posted first-quarter fiscal 2022 results, wherein both top and bottom lines came in ahead of the respective Zacks Consensus Estimate, while both the metrics declined year over year. Results were hurt by impacts of the Crisco and Natural Balance business divestitures, as well as cost inflation. That said, organic net sales increased, while seeing tough comparisons with the year-ago period’s double-digit increase. Results continued to reflect solid consumer demand for the company’s brands, as well as gains from strategic priorities.

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Quarter in Detail

Adjusted earnings of $1.90 per share fell 20% year over year. Nevertheless, the metric surpassed the Zacks Consensus Estimate of $1.88.

The J. M. Smucker Company Price, Consensus and EPS Surprise



The J. M. Smucker Company Price, Consensus and EPS Surprise

The J. M. Smucker Company price-consensus-eps-surprise-chart | The J. M. Smucker Company Quote

Net sales amounted to $1,858 million, which beat the consensus mark of $1,800 million. However, the top line declined 6% year over year. Excluding non-comparable sales related to divestitures (of Crisco and Natural Balance businesses), as well as currency movements, net sales inched up 1%. The rise in comparable net sales was mainly caused by positive volume/mix in the company’s U.S. Retail Pet Food segment and Away From Home operating unit. This was partially negated by lower volume/mix in the International operating unit and the U.S. Retail Coffee segment. Net price realization had a slight positive impact.



Adjusted gross profit tumbled 15% to $646.2 million. Adjusted gross profit margin declined to 34.8% from 38.5% reported in the year-ago quarter. Adjusted operating income declined 20% to $323.4 million. Adjusted operating margin came in at 17.4%, down from 20.5% reported in the year-ago quarter.

Segment Performance

U.S. Retail Pet Foods: Segment sales fell 6% to $648 million. Excluding non-comparable net sales associated with the Natural Balance business divestiture, the metric climbed 2%. Volume/mix had a 2-percentage point positive, and net price realization remained neutral. Segment profit slumped 36% to $79.9 million.



U.S. Retail Coffee: Net sales dropped 5% to $543.2 million. Both volume/mix and net price realization had an adverse impact on sales. Volume/mix was affected by tough comparisons with the year-ago period’s retailer inventory restocking. Segment profit fell 17% to $151.3 million.

 

U.S. Retail Consumer Foods: Sales in the segment fell 11% to $435.6 million. Excluding the impact of the divested Crisco business, net sales jumped 4%. Net price realization contributed 4 percentage points to sales advancement. Volume/mix remained neutral. Segment profit decreased 10% to $118.7 million.



International and Away From Home: Net sales advanced 6% to $231.2 million. Excluding the impact of the Crisco divestment, as well as positive impacts from currency movements, net sales escalated 4%. This upside was driven by 27% sales growth in Away From Home division, partly negated by a 12% decline in the International division. Both volume/mix net price realization had positive impacts on segment net sales. Segment profit increased 6% to $32.9 million.

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Financials

The J. M. Smucker exited the quarter with cash and cash equivalents of $168.8 million, long-term debt (less current portion) of $3,517.5 million and total shareholders’ equity of $8,170.3 million. The company’s net debt repayments amounted to $123 million during the reported quarter.



Cash flow from operating activities amounted to $137.8 million for three-month period ended Jul 31, 2021. Free cash flow was $69.8 million in the quarter. Free cash flow is now expected to be nearly $800 million in fiscal 2022 compared with the $900 million projected during fourth-quarter fiscal 2021 earnings call. Management expects capital expenditures of $380 million in fiscal 2022.

Fiscal 2022 Guidance

The company remains troubled by pandemic-related disruptions, as well as cost inflation and supply-chain volatility. These factors also cause uncertainty for management’s fiscal 2022 guidance, which may be affected by any manufacturing or supply-chain headwind; volatile consumer mobility and buying behavior; retailer inventory levels as well as macroeconomic factors. We note that The J.M. Smucker expects to encounter escalated raw material and logistic costs. That said, management is focused on minimizing the effect of cost inflation and any labor or business hurdle. The company revised its fiscal 2022 guidance, considering the current scenario.



The J. M. Smucker now anticipates net sales to decline 1.5-2.5% year over year compared with the 2-3% decrease expected before. The net sales guidance includes an impact of $355.6 million associated with Crisco and Natural Balance divestiture. On a comparable basis, net sales are now anticipated to increase nearly 2.5% at the mid-point of the net sales guidance range compared with roughly 2% increase projected before. The guidance takes into account improved net pricing in various categories, persistent double-digit net sales growth in the Smucker's Uncrustables brand and rebound in away-from-home channels. These are likely to be somewhat offset by decelerated at-home consumption. The updated net sales guidance includes the impact of additional net pricing to battle escalated costs, countered by lower volume/mix.



Adjusted earnings per share for fiscal 2022 are envisioned in the range of $8.25-$8.65 now, down from the $8.70-$9.10 expected before. Adjusted earnings per share came in at $9.12 per share in fiscal 2021. The bottom-line view reflects lower net sales, adjusted gross margin of roughly 36% and a nearly 6% fall in SD&A costs. Earlier, adjusted gross margin was expected to be 37-37.5%, and SD&A costs were projected to decline around 4%.



Shares of this Zacks Rank #3 (Hold) company have gained 15.2% in the past six months compared with the industry’s growth of 3.2%.

Some Solid Food Bets

J&J Snack Foods JJSF sports a Zacks Rank #1 (Strong Buy), at present, and its bottom line outpaced the Zacks Consensus Estimate by a wide margin in the preceding four quarters, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.



Sysco Corporation SYY, currently carrying a Zacks Rank #2 (Buy), has a trailing four-quarter earnings surprise of 13.3%, on average.



Medifast MED, with a Zacks Rank #2, has a trailing four-quarter earnings surprise of about 16%, on average.



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