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J.M. Smucker Exceeds Q1 Expectations; Shares Fall on Lower Guidance

J.M. Smucker Co. (SJM), a manufacturer of food and beverage products, delivered better-than-expected first-quarter results aided by continued demand for its products. However, the company reduced its fiscal year 2022 guidance due to supply chain volatility and pandemic-related uncertainty. Consequently, shares fell 2.6%, closing at $123.92 on August 26.

The company posted adjusted earnings of $1.90 per share, down 20% year-over-year, but better than the Street’s estimate of $1.84 per share. (See J.M. Smucker stock charts on TipRanks)

Moreover, net sales for the quarter declined 6% to $1.86 billion compared to the year-ago period but outpaced analysts’ estimates of $1.77 billion. However, net sales, excluding divestitures of Crisco and Natural Balance, along with foreign currency translation, grew 1% year-over-year.

Management warned of higher raw material and logistic costs from supply chain disruptions and inflationary trends affecting its near-term results.

Having said that, Mark Smucker, President, and CEO of the company, said, “We are optimistic in managing these challenges and remain confident in the momentum of our business, the talent and commitment of our people, and our strengthened financial position to deliver balanced top-and bottom-line growth and long-term shareholder value.”

Based on the current macro-economic conditions and supply chain headwinds, SJM reduced its Fiscal 2022 guidance. The company now expects net sales to decrease 2.5% – 1.5% year-over-year. Excluding the impact of divestitures, net sales are expected to grow 2.5% year-over-year on a comparable basis.

Additionally, FY22 earnings projections have been lowered to fall in the range of $8.25 – $8.65 per share compared to the consensus estimate of $8.84 per share.  

In response to SJM’s quarterly performance and lowered FY22 outlook, Jefferies analyst Robert Dickerson assigned a Hold rating to the stock and reduced the price target to $135 (8.9% upside potential) from $140.

Dickerson said, “Although the company operates in solid long-term growth potential categories (coffee and pet food) and has a new go-forward strategy, which focuses on commercial excellence, streamlined costs, and portfolio optimization, questions still remain regarding the pace of top-line growth acceleration and margin expansion amidst further brand-building needs and cost inflation headwinds.”

Notably, the analyst attributed near-term cost volatility and outstanding elasticity risks for his cautious view of the stock.

Overall, the stock has a Hold consensus rating based on 7 Holds and 1 Sell. The average J.M. Smucker price target of $135.88 implies 9.7% upside potential to current levels. Shares have gained 2.5% over the past year.

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