J.M. Smucker's stock extends bounce as Hostess purchase helps boost profits

By Tomi Kilgore

Sales surprisingly fell, as coffee, spreads and pet foods all saw declines amid brand divestitures

Shares of J.M. Smucker Co. surged Thursday, after the consumer-foods company, with brands including Folgers, Jif, Meow Mix and Dunkin', beat quarterly profit expectations, as the Hostess Brands purchase and lower costs helped offset a surprise dip in sales.

"Our transformed portfolio, including the acquisition of Hostess Brands during the fiscal year, has strengthened our business for long-term profitable growth across our key platforms of coffee, Uncrustables frozen sandwiches, dog snacks and cat food, and sweet baked snacks," said Chief Executive Mark Smucker.

In addition to the purchase of Hostess Brands, which was completed in November 2023, the divestiture of its Canada condiment business in January 2024, its Sahale Snacks business in November 2023 and certain pet food brands in April 2023 also affected results.

The stock (SJM) jumped 5% in afternoon trading, to extend its bounce off the four-year closing low of $107.47 seen on May 29. The stock was headed for the biggest one-day, post-earnings gain in two years.

For the fiscal fourth quarter to April 30, the company swung to net income of $245.1 million, or $2.30 a share, from a loss of $600.7 million, or $5.69 a share, in the same period a year ago.

Excluding nonrecurring items, such as losses on divestitures, adjusted earnings per share rose to $2.66 from $2.64 and beat the FactSet consensus of $2.35. For the full fiscal year, adjusted EPS rose 11.4% to $9.94.

Net sales for the latest quarter slipped 1.3%, to $2.206 billion from $2.235 billion, while the FactSet consensus called for a slight increase to $2.241 billion. Full-year sales grew 10%.

On a comparable basis, excluding the impact of divestitures and acquisition, fourth-quarter sales increased as prices rose 2% and volume and mix were up 1%.

Gross margin improved to 41.4% from 35.5%, as the cost of sales fell a lot more than net sales, down 10.4% to $1.29 billion.

Within the company's business segments, U.S. Retail Coffee sales fell 4% to $666.1 million, as prices and volume both fell 2%. Profit for the business increased 5%, however, to $210.3 million, as lower commodity costs offset the price declined an increased marketing spend.

For U.S. Retail Frozen Handheld and Spreads, sales were down 1% to $450.5 million, while profit fell 7% to $95.8 million. Higher prices, mostly from increased list prices for Jif peanut butter, were offset by volume declines, primarily driven by Jif and Smucker's fruit spreads.

U.S. Retail Pet Foods sales dropped 42% to $452.6 million, but if sales of divested pet food brands from last year were excluded, sales actually increased, helped by strength in its Milk-Bone, Meow Mix and Pup-Peroni brands.

Meanwhile, Sweet Baked Snacks contributed $337 million in sales and $70.2 million in profit, driven by the Hostess acquisition.

International and Away From Home sales slipped 1% to $299.5 million, while profit rose 28% to $61.1 million, amid higher prices and lower costs.

For fiscal 2025, the company expects adjusted EPS of $9.80 to $10.20, which compares with the current FactSet consensus of $10.18. And Smucker sees net sales rising 9.5% to 10.5%, while the current FactSet sales consensus of $9.02 billion implies 10.2% growth.

The company was asked by Barclays analyst Andrew Lazar on the post-earnings call with analysts, according to a FactSet transcript, why the EPS growth outlook - EPS of $10.00 at the midpoint of the guidance range - is "flattish" with the $9.94 reported for fiscal 2024 despite a double-digit-percentage increase in sales.

The company, said the outlook stems from expectations of "a level of growth" in the pet and away from home and international businesses, offset by some softness in coffee and peanut butter.

The stock has lost 8.4% year to date, while the Consumer Staples Select Sector SPDR ETF XLP has gained 8.6% and the S&P 500 has advanced 12.2%.

-Tomi Kilgore

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06-06-24 1341ET

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