A Sweet Time To Buy The J.M. Smucker Company

The J.M. Smucker Company Falls On Weak Guidance 

The J.M. Smucker Company NYSE: SJM had a great FQ3 but one thing is clear - it is weighing on share prices. The supply chain and inflationary disruptions are impacting FQ4 results, the current quarter, and the company guided the market lower because of it. The bad news is that shares are down more than 7.5% because of the guidance, the good news is the valuation has come down, the dividend is still safe, and we see upside risk in the outlook. While supply chain disruptions are affecting the current quarter those headwinds should start diminishing soon and then there is the possibility of price increases. While we don’t want to pay more for jelly it would take much to help this company reclaim its lost margin. 

A Blow Out Quarter For The J.M. Smucker Company 

The J.M. Smucker Company had a blow-out quarter considering the divestitures it made over the last year. The company reported $2.05 billion for a decline of 0.1% on the top line but organic sales are much stronger. On an organic basis, sales are up 4.0% and drove revenue 50 basis points above the Marketbeat.com consensus. On a segment basis, the International/Away From Home segment grew the strongest at 13% headline and it experienced wider margins due to the strength. U.S. Retail Coffee also grew, by 6%, with the Pet and Food segments both showing declines because of divestiture. When adjusted, Pet Food sales declined only 1% while Food sales grew by 4%. 

All segments except International/Away From Home experienced tighter margins but above the Marketbeat.com consensus. On an adjusted basis, the gross and operating margins contracted by 800 and 600 basis points respectively but far short of expectations. On the bottom line, the adjusted EPS of $2.33 fell 5% from last year but beat the consensus estimate by a full $0.025. 

The bad news lay in the guidance which includes downward adjustment for both the revenue and earnings. The company is now expecting revenue in the range of down 1.5% to 0.5% versus down 1.0% to flat with margin pressure to boot. The adjusted EPS is expected in a range of $8.35 to $8.65 versus the previous range of $8.35 to $8.75 and the consensus figure of $9.03. In our view, the guidance change is negligible given the supply chain disruptions and outlook for economic activity in the second half of the year. We expect to see tough conditions persist into the 3rd quarter but for Q4 guidance and outlook show positive improvement. 

The Institutions Are Buying The J.M. Smucker Company 

We’re not surprised to see the institutions have been buying The J.M. Smucker Company because they have been buying Consumer Staples for the past year and their activity has picked up in Q1 of 2022. On net, the institutions purchased about 3.3% of the market cap over the past year with a full 1.3% purchased in Q1 alone. Those Q1 purchases are in the red right now but we see that changing by the middle of the year. Trading at only 15X earnings and yielding close to 3.0% it is high on our list of favored consumer staples stocks. 

The Technical Outlook: The J.M. Smucker Company Retreats To Support 

Price action in The J.M. Smucker Company fell hard in the wake of the earnings report but so far the trend has not been broken. Price action appears to be supported above the $123 level and the long-term up trend line so we are expecting a trend-following move to develop. The indicators are still bearish so there is a downside risk in the near term. Assuming support is confirmed above $123 and the trend line we see price action moving back up to new highs before the end of the year.