J.M. Smucker is too sweet to pass up down here

Key Points

• J.M. Smucker agreed to acquire Hostess Brands on September 11, 2023, adding iconic snacks like Twinkies, Ho Hos, Sno Balls and Zingers to its consumer retail foods portfolio.
• Smucker sold pet foods brands 9Lives, Kibbles n' Bits, Nature's Recipe, Nutrish and Gravy Train brands to Post Holdings for $1.2 billion in stock and cash deal.
• Smucker lowered its fiscal full-year 2024 EPS guidance due to the Hostess Brands acquisition.

The J.M. Smucker Co. NYSE: SJM is a leading consumer packaged goods company with a family of trusted brands you may not know. It's a member of the consumer staples sector along with its competitors like General Mills Inc. NYSE: GIS and Conagra Brands Inc. NYSE: CAG. Smucker operates in three segments in the United States: retail consumer foods, retail pet foods and retail coffee. Its products range from jams, syrups and peanut butter to coffee, pet food and frozen foods. Shares have been depressed partially from normalization and from fear that the popularity of weight-loss treatments like Ozempic will deter consumers from consuming snacks and treats.

Brand portfolio

Smucker's portfolio of brands falls into one of its three segments. On September 11, 2023, Smucker agreed to acquire Hostess Brands for its retail consumer foods portfolio, which includes several iconic snacks like Dingdongs, Sno Balls, Ho Hos Twinkies and Zingers. The company's retail consumer foods segment also includes brands like Jif Peanut Butter, Knott's Berry Farm, Dickinson's, Adams Peanut Butter and Smucker's. Its retail coffee segment owns popular brands like Folger's, Dunkin', Café Bustelo, Café Pilon and Medaglia D'oro. Its pet foods segment owns Meow Mix, Milk-Bone, Pup-Peroni, Milos Kitchen dog treats and Canine Carry Outs.

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Solid growth despite the divestment.

On December 5, 2023, Smucker reported fiscal Q2 2024 non-GAAP earnings of 2.59 cents per share, beating consensus analyst estimates for $2.47 by 12 cents. Revenues fell 12.1% YoY to $1.94 billion, matching analyst estimates. The revenue drop and guidance drop were attributed to its sale of a number of its pet food brands to Post Holdings Inc. NYSE: POST for $1.2 billion, consisting of $700 million in cash and 5.39 million shares of Post Holdings stock. Cash provided by operations was $176.9 million versus $205 million in the year-ago period. Free cash flow was $28.2 million versus $102.9 million a year ago. EPS grew 8% YoY, which included a 29-cent headwind from the termination of a coffee supplier.

Segment growth

The U.S. Retail Consumer sales rose 7% YoY. Notably, Smucker's Uncrustables showed a 22% YoY net sales growth. Pet Foods sales rose 20% YoY. International and Away From Home sales rose 13%. Coffee experienced a net sales decline of 3% YoY.

Lowered guidance due to Hostess Brands' acquisition

The purchase of Hostess Brands was primarily responsible for the lowered guidance. The company sees fiscal full-year 2024 EPS of $9.25 to $9.65, down from previous guidance of $9.45 to $9.85, versus $9.62 consensus analyst estimates. Comparable net sales are expected to rise 8.5% to 9% YoY.

CEO Insights  

J.M. Smucker CEO Mark Smucker addressed questions regarding the Hostess acquisition. He stated they are very confident in the consumer environment around snacks, specifically Hostess. Smucker noted that Hostess has proven to be very agile in their approach around net revenue optimization and merchandising products at different times of the year. He also complements their expertise in the convenience store environment, which will benefit a broader Smucker portfolio.

Smucker noted, "So those capabilities are in part what drove us to have Dan as a leader over both Hostess and pet because there are some -- those are things that are similar to our pet snacks business, the merchandising, the NRO and the innovation cycles. So we feel very confident in those capabilities." He concluded that Hostess was. "So, just a great complementary fit at a time when our base business is performing exceptionally well. And so just, again, feeling very confident about the way this deal has come together." Debt reduction will be the short-term priority moving forward and halting its share buybacks.

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Daily rounding bottom towards gap fill   

The daily candlestick chart for SJM illustrates a daily rounding bottom pattern with the potential gap fill at $132.12. The price gap was formed on September 11, 2023, as shares fell 7% from $138.72 to $132.12. SJM proceeded to plunge to a low of $ 106.31 on November 8, 2023. It eventually triggered the daily market structure low (MSL) breakout through the $113.94 trigger to form a rounding bottom. The daily relative strength index (RSI) rose to and peaked at the overbought 70-band. The daily 200-period moving average resistance is descending at $137.40. Pullback support levels are at $113.94 daily MSL trigger, $109.44, $106.31 and $101.89.