J M Smucker Co (NYSE:SJM) shed a quick 8% on Tuesday after smooshing together an unappealing first-quarter earnings sandwich. In short, while SJM exceeded profit expectations, investors are turning their nose at Smucker’s stock for missing on the top line.
Per-share profits rose 16% on an adjusted basis to $1.86, much more than the $1.74 that Wall Street expected. Smucker’s attributed the earnings beat to “incremental synergy realization,” which was $32 million in Q1 and on pace to hit $100 million for the entire fiscal 2017.
All well and good, but things were stickier on the outlook front. SJM merely maintained its full-year guidance of $7.60 to $7.75 per share, which remains below the average estimate for $7.70. Investors happy about the earnings beat don’t have much to get jazzed about for the rest of the year.
The real disappointment, though, came on the revenue front. Sales of $1.82 billion were 7% lower than the year-ago quarter. The company blamed its low revs on price declines and a $39.5 million impact of selling off its U.S. canned milk business last year. The market anticipated revenues of $1.89 billion.
Backing out forex and Smucker’s noncomparable divested business, net sales still declined some 5% thanks to lower prices across the board (mostly in coffee) and an “unfavorable volume/mix” in its American pet foods business.
J M Smucker said price deflation weighed on sales, but cost cuts should allow the company some breathing room to meet its full-year targets.
Here’s what CEO Mark Smucker had to say in his company’s earnings release:
“We are pleased with the start to our fiscal year as we delivered record first quarter earnings per share, which exceeded our expectations. Despite the impact of deflation on the top line, we remain on track to achieve our original expectations for full-year earnings per share. We are strengthening a great portfolio of brands by investing in new capabilities and on-trend platforms that are essential to long-term sales growth. At the same time, we are focused on sustainable cost reductions that are delivering significant bottom-line benefits. For these reasons, we remain confident in achieving our long-term objectives and delivering continued shareholder value.”
While Smucker’s purchase of Big Heart Pet Brands (which includes brands like Meow Mix and Kibbles ‘n Bits) paid off in Q1 2016, it wasn’t enough to continue propelling SJM stock as consumers increasingly favor fresh items over packaged goods.
Tuesday’s declines in SJM stock knocked shares from their perch near all-time highs.
As of this writing, John Kilhefner did not hold a position in any of the aforementioned securities.
