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Smuckers (SJM) Upside Driven by Accounting Change - Stifel

June 10, 2016 11:19 AM EDT
Get Alerts SJM Hot Sheet
Price: $125.72 --0%

Rating Summary:
    8 Buy, 15 Hold, 3 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 12 | Down: 10 | New: 10
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Stifel analyst, Christopher Growe, noted Smucker's (NYSE: SJM) reported its 4Q16 EPS results with EPS of $1.44, up 43% against the prior year, and well ahead of our consensus leading estimate of $1.22. A lower tax rate provided a $0.07 benefit to the quarter, but the performance here was in every segment producing $0.31 of EPS upside alone in relation to the firm's estimates.

Smucker's has shifted to one form of presenting EPS, a less conventional form of cash EPS that excludes amortization expense, adding $1.22 to the EPS base in FY16. Given an FY16 EPS of $5.98 on the old basis, the excluded amortization results in an EPS base of $7.20. Smucker’s initial EPS guidance calls for EPS in the range of $7.60 to $7.75, or 5.5% to 7.5% on this quasi cash EPS basis. While below its initial expectation, the stronger 4Q performance is supporting a higher level of EPS overall for FY17 in relation to our estimate and consensus.

The company’s guidance for FY17 could prove conservative with unique factors around synergy realization and capital actions potentially supporting a stronger rate of growth. When considering the $25 million headwind from the canned milk divesture offset by the $100 million in incremental synergies, lower interest expense, and lower share count, EPS growth could hit 9% or above on the new cash EPS basis.

No change to Hold rating for the shares, noting the shares now trade at a modest premium to domestic food peers on an EV/EBITDA basis.

For an analyst ratings summary and ratings history on J.M. Smucker click here. For more ratings news on J.M. Smucker click here.

Shares of J.M. Smucker closed at $143.23 yesterday.



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