J. M. Smucker Down 15% in 6 Months: How to Play Ahead?

The J. M. Smucker Company SJM has experienced a 15.2% decline in its share value over the past six months, underperforming the industry's decline of 4.8%. In the same time frame, the company's performance has also been unfavorable compared to the broader Zacks Consumer Staples sector and the S&P 500, which grew by 0.6% and 17.2%, respectively.

Additionally, the stock is down 29% from its 52-week high of $153.94, indicating a substantial drop from its peak value. SJM is currently trading below both its 50-day and 200-day moving averages, which often signals bearish sentiment among investors.

Over the past 60 days, the Zacks Consensus estimate for the current fiscal year has declined 1.5% to $10.03 per share. This downward revision in earnings estimates suggests that analysts have lowered their expectations for the company's financial performance.

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Decoding the Recent Slide

The J. M. Smucker has been experiencing elevated selling, distribution, and administrative (SD&A) costs. These costs are expected to increase by approximately 13% in fiscal 2025. This uptick is primarily driven by higher investments in the Uncrustables brand and increased spending on marketing.

Apart from this, J.M. Smucker faces challenges from volatile and inflationary coffee commodity prices. The coffee segment's sales declined by 4% to $666.1 million in the fourth quarter of fiscal 2024, primarily due to negative impacts from volume/mix and net price realization, each contributing 2% to the decrease. Management expects rising green coffee costs to impact the business starting from the first quarter of fiscal 2025, though it remains on track to implement a list price increase for parts of its portfolio in early June.

The company expects the coffee category to remain resilient despite recent inflationary pressures and volume declines, driven by consumers' strong attachment to daily coffee rituals and the continued popularity of at-home consumption. That said, elevated commodity costs are likely to partly affect the gross margin in fiscal 2025.

The Brighter Side of the Picture

Despite facing near-term challenges, J.M. Smucker prioritizes key objectives such as growing volume and net sales, integrating Hostess Brands, maintaining cost discipline, generating cash and capitalizing on positive net price realization. Positive net price realization, along with volume/mix increase, boosted comparable net sales in the fourth quarter of fiscal 2024.

The fourth-quarter and fiscal 2024 performance reflects the strength of the company's business and solid demand for its leading brands. Management attributed the company's success to superior execution and disciplined cost management, which were vital in a dynamic operating landscape.

The company's transformed portfolio, bolstered by the recent buyout of Hostess Brands, has set the stage for long-term growth across key platforms such as coffee, Uncrustables frozen sandwiches, dog snacks, cat food and sweet baked snacks. The J. M. Smucker intends to remain committed to investing in brands, capabilities and talented employees in fiscal 2025, staying confident about achieving long-term growth and boosting shareholder value.

For fiscal 2024, the company anticipates comparable net sales to rise 1.5-2.5%, which includes expectations of elevated net price realization, especially in the Coffee segment, along with volume/mix growth. Additionally, the integration of Hostess Brands and ongoing transformation initiatives are expected to further bolster overall sales performance.

Attractive Valuation

Notably, J.M. Smucker maintains an attractive valuation compared to its industry peers. With a forward 12-month price-to-earnings ratio of 10.75, which is below the industry average of 15.42, the stock presents an appealing opportunity for value-oriented investors. Additionally, SJM has a Value Score of B, indicating strong potential for price appreciation based on fundamental valuation metrics.

The Final Word

Beyond this fiscal, the company anticipates adjusted earnings per share growth in fiscal year 2026 above its long-term algorithm. This growth will be supported by base business momentum, cost and productivity savings, relief from stranded overheads, full realization of acquisition synergies and continued debt paydown. While these factors and an attractive valuation might appeal to investors, the abovementioned cost challenges should be considered.

All said, current investors should hold their positions in the stock, while potential new investors should consider waiting for a more favorable entry point.

J.M. Smucker currently carries a Zacks Rank #3 (Hold).

3 Picks You Can't Miss

Here, we have highlighted three better-ranked stocks, namely, Vital Farms VITL, Ollie's Bargain Outlet OLLI and Colgate-Palmolive CL.

Vital Farms offers a range of produced pasture-raised foods. It currently sports a Zacks Rank #1 (Strong Buy). VITL has a trailing four-quarter average earnings surprise of 102.1%.

The Zacks Consensus Estimate for Vital Farms' current financial-year sales and earnings suggests growth of 22.6% and 62.7%, respectively, from the year-ago reported numbers.

Ollie's Bargain, the extreme-value retailer of brand-name merchandise, currently carries a Zacks Rank #2 (Buy). OLLI has a trailing four-quarter earnings surprise of 10.4%, on average.

The Zacks Consensus Estimate for Ollie's Bargain's current financial-year sales and earnings indicates a rise of around 7.9% and 12.0%, respectively, from the year-earlier levels.

Colgate-Palmolive, a leading oral care company, currently carries a Zacks Rank #2. CL delivered an earnings surprise of 4.4% in the trailing four quarters, on average.

The Zacks Consensus Estimate for Colgate's current fiscal-year sales and earnings suggests growth of 3.9% and nearly 9.3%, respectively, from the year-earlier reported figures.

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