J.M. Smucker (SJM) to Hold
J.M. Smucker (SJM) is trading 5% lower after reporting earnings this morning. The grocery company’s sales totaled $1.82 billion this quarter, far less than the $1.9 billion expected and 7% lower than in the same quarter last year.
A 2% sales decline was expected due to the divestiture of Smucker’s canned milk business. Most of the rest of the decline—about 4%—can be chalked up to lower prices, especially for coffee. The rest of the drop was due to lower than expected pet food sales.
However, gross margins rose to 39.6% from 38.0%, thanks to lower commodity prices and synergies from recent acquisitions. Even in the coffee segment, where net sales declined 9%, profit was steady thanks to lower green coffee costs. And profits rose in the pet food segment, thanks mostly to increasing synergies as the Big Heart acquisition is digested.
As a result of better margins across the board, EPS rose 16% to $1.86, well above the $1.76 consensus. And management reiterated its full-year EPS guidance of $7.60-$7.75.
I’m putting SJM on Hold today while we wait to see if the stock can find support, but I don’t think the earnings report merits selling. Management lowered prices while raising margins, and improved profits despite the revenue decline. Hold.