J. M. Smucker (SJM) rises on earnings, revenue beat

February 27, 2024 9:09 AM EST

J. M. Smucker (NYSE: SJM) reported a stronger-than-expected third quarter, with adjusted earnings per share (EPS) of $2.48, surpassing the analyst estimate of $2.27. Revenue also exceeded expectations, coming in at $2.23 billion against the consensus estimate of $2.22 billion. The company's stock responded positively to the news, climbing 1.6%.

The increase in net sales by $12.9 million, or 1%, was attributed to organic growth and strategic acquisitions, despite divestitures and foreign currency exchange headwinds. When excluding these factors, net sales saw a 6% increase. The growth was primarily driven by volume/mix, which rose by 4 percentage points, led by Meow Mix® cat food, contract manufacturing sales, and the Café Bustelo® brand. Additionally, a 2 percentage point increase was supported by net price realization, mainly from list price hikes in various segments, partially offset by lower net price realization for the U.S. Retail Coffee segment.

Mark Smucker, CEO, expressed satisfaction with the results, noting, "We are pleased to have delivered another quarter of strong financial results, including organic sales and earnings growth, driven by focused execution on our strategic priorities, sustained customer and consumer loyalty to our iconic brands, and volume growth across our business."

For the full-year fiscal 2024, J.M. Smucker provided an EPS guidance range of $9.45 to $9.65. The midpoint of this range, $9.55, is slightly above the analyst consensus of $9.52, indicating a cautiously optimistic outlook from the company.

The company's gross profit rose by 9%, primarily due to the positive impact from the acquisition of Hostess Brands, higher net price realization, and favorable volume/mix. However, operating income saw a decrease of 6%, mainly due to an increase in special project costs associated with the Hostess Brands integration. Adjusted operating income, which excludes these costs, increased by 28%.

Net interest expense saw a significant increase due to financing the Hostess Brands acquisition, and the effective income tax rate rose to 38.4% from 24.3% in the prior year, primarily due to one-time adjustments related to the acquisition.

Cash flow from operations decreased compared to the previous year, mainly because of increased cash required to fund working capital and lower net income adjusted for noncash items. Free cash flow also declined due to the decrease in operating cash flow and an increase in capital expenditures.

The company's financial results reflect its strategic focus on growing its portfolio in coffee, snacking, and pet foods, as well as its ability to navigate through divestitures and acquisitions effectively.

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