The J.M. Smucker Co. Returns To Trend
The price action in The J.M. Smucker Co. (NYSE: SJM) has been volatile over the past few years but there is a key takeaway in the chart. The price action began an uptrend well before the pandemic set in and the post-pandemic action has only confirmed that trend. The takeaway today is that shares of The J.M. Smucker Co. are trading at the lowest levels in 7 months and offering a sweet deal for investors. Trading at this level the stock is a value relative to the broad market and its peers and it pays a very healthy dividend. The stock is trading at 14.4X its Marketbeat.com consensus estimate and pays over 3.2% in yield compared to an average of 21X for the Consumer Staples sector which pays less than 2.0% in yield.
The J.M. Smucker Co. Beats And Raises Guidance
The J.M Smucker Co. had a decent quarter but one that is well-supported by higher pricing. The company estimates a 10% positive impact from pricing on the top-line results that were offset by a 1% decline in volume and mix. The decline in volume and mix is a tad concerning but not overly so due to divestitures made during the year. On an ongoing basis, the company’s $2.03 billion in revenue is up 9% and driven by strength in 3 of the 4 operating categories. In regards to the analyst and their expectations, the revenue beat by 170 basis points which should help support price action. On a segment basis, the International/Away From Home category led with a gain of 12% followed by an 11% increase in Coffee, a 6% increase in the Pet category, and offset by a 5% decline in US retail food.
The company’s pricing efforts aided the bottom line as well. The adjusted gross and operating margins both widened by at least 100 basis points relative to last year to drive outperformance on the bottom line. The GAAP results are down versus last year due to one-off items but the adjusted EPS of 2.23 is up 18% and beat by $0.34.
The detail the market is wrestling with, however, is the guidance. The company raised its guidance for the year but the news is mixed relative to the consensus. The company is expecting revenue growth of 3.5% to 4.5% versus the 1.0% Marketbeat.com consensus but EPS came in weak. The $7.85 to $8.25 in adjusted EPS missed the consensus by $0.68 at the top end of the range and relies on an expected insurance payment related to a peanut butter recall. The takeaway is that guidance weakness may weigh on share prices in the near term but will only increase the stock's attractiveness in the long. The dividend is still incredibly safe and has a high yield for investors.
The Technical Outlook: The J.M. Smucker Co. Is Testing Support
Price action in The J.M. Smucker Co. is edging lower in premarket action and testing support at the $123 level but that level looks strong to us. The price action has been testing this level for the last few weeks and confirmed it more than once. Assuming the market follows through on this action we see a Double-Bottom forming and a trend-following bounce beginning. If not, this stock may be in for a deeper correction. A fall below the $123 level could take the stock down to $112 or lower but we don’t see that in the cards right now.
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