Tomorrow morning’s earnings report from J M Smucker (NYSE:SJM) could garner more attention than usual. After Kraft Heinz (NYSE:KHC) plunged more than 27% in Friday trading, some investors will wonder if SJM stock faces the same fate. However, KHC’s earnings miss were grouped with a SEC subpoena and a dividend cut — so the comparison and increased attention are likely unfair.
But Smucker is not in the clear. The impacts of more traditional challenges such as input costs or marketing could still weigh on SJM stock after earnings.
Even if SJM stock avoids devastation, J.M. Smucker will continue to suffer from the changing tastes that have plagued the packaged food industry in recent years.
Earnings Will Fall — But Not off a Cliff
Wall Street expects SJM to report profits of $2.02 per share. This represents a substantial drop from the prior year when the company reported $2.50 in earnings. They expect these lower profits despite the predicted revenue increase to $1.99 billion. J.M. Smucker brought in $1.9 billion in revenue in the same quarter last year.
SJM ownership of popular brands goes well beyond the fruit spread that bears its name. The company also owns Jif, Crisco, and coffees such as Folger’s and Dunkin Donuts (the packaged products found in supermarkets, not the Dunkin’ (NASDAQ:DUKN) coffee-and-donut chain). Also, unlike KHC or peers such as Conagra (NYSE:CAG), almost 40% of its revenue comes from pet food. SJM owns popular pet food brands such as Meow Mix, Milk-Bone, and Ainsworth Pet Nutrition which Smucker acquired in 2018.
The changing makeup of SJM stock will affect the bottom line. The divestiture of its baking business temporarily hurts sales growth. Furthermore, the company has not only faced pricing pressure, but it has also absorbed higher costs in marketing, interest, and product inputs. In previous decades, J.M. Smucker could simply increase the price of its products. However, times have changed.
Fresh Food Will Continue to Hurt SJM Stock
J.M. Smucker stock and its peers face a challenge from a very old nemesis — fresh food. Consumers have grown increasingly concerned about the quality of their food. They also question the health effect of many of the preservatives and ingredient labels that have become difficult for the average consumer to understand.
Pet food has also seen the effects of the packaged-food backlash. Hence, investors cannot necessarily look at pet food as a haven from this trend.
Final Thoughts on SJM Stock Earnings
Still, just because it has its positives does not mean SJM stock is a buy. Analysts project profits will fall by 0.6% this year. They also predict growth of only 2.5% next year. J.M. Smucker still has to address consumer’s increasing love for fresh food. Until this happens, I would expect little from SJM.
The fallout from the Kraft Heinz report will bring undue attention to SJM stock. While I do not predict a massive drop in SJM stock after the release, I also do not think it will give investors any reason to buy SJM stock.
For decades, J.M. Smucker benefitted as consumer flocked to its products in good times and bad. However, a move toward fresh food has devastated its industry. For this reason, most analysts expect falling profits this quarter with only modest growth in the future.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.