Smucker Up 19% In 3 Months: Will Momentum Sustain In 2018?

With brand innovations and strong prospects from acquired businesses rolled up in its sleeve, The J. M. Smucker Company (NYSE:SJM) is well positioned to greet 2018. Lately, this global marketer and distributor of food and beverage items has been riding on strong brand performance, fueling growth across most business segments. However, higher freight costs and tight market conditions for green coffee may pose significant hurdles for the company.

Nevertheless, investors are enthusiastic about the stock, as evident from the company’s gain of 19% in the past three months, comparing favorably with the industry’s 6.1% rally.

Strong Brands Act as Valuable Growth Driver

Smucker's reasonably-priced high-quality products make the brand a popular pick. In this regard, the Jif, Smucker's, Nature's Recipe and Uncrustable brands have been performing well over the past few quarters. In fact, the company has been constructing a frozen sandwich plant in Colorado to enhance the capacity of Uncrustable brand.

Owing to the sturdy growth portrayed by the company’s brands, Smucker was able to deliver a year-over-year top-line increase of 0.5% in second-quarter fiscal 2018. Increased net pricing for peanut butter and the Smucker’s brand were the key growth catalysts. Notably, this marked a turning point from the dismal top-line results witnessed in the preceding five quarters.

Further, Smucker regularly undertakes innovation to continue adding products to its already rich brand line-up. Recent launches include Dunkin' Donuts Cold Brew Coffee and Natural Balance high-protein dog food offerings. These launches contributed significantly toward sales growth during the second quarter. Additionally, the company plans to introduce Milk-Bone Puffs dog treats and Dunkin' Donuts coffee canisters by the end of fiscal 2018.

Acquisitions Yielding Positively

Acquisitions have been a preferred strategy for many food and grocery firms to augment market reach and offerings. Smucker’s has also been treading on this path. Notably, the company’s agreement with Keurig Green Mountain, Inc. (KGM) and Dunkin’ Brands Group, Inc, to manufacture and sell the K-Cup category of products, has been yielding positive results since fiscal 2016. The company has been consistently extending partnership with KGM to augment K-Cup business opportunities.

Other instances include the acquisitions of Big Heart Pet Brand, Sahale Snacks, Enray Inc. and Rowland Coffee amongst many others. These acquisitions have added iconic brands to the company’s portfolio and strengthened its presence in the industry.

Freights Costs & Green Coffee Price Pose Worries

The negative impacts from adverse weather conditions and new systems required to be implemented are expected to tighten the freight market conditions in the upcoming periods. As a result, management expects a rise in costs for the remainder of fiscal 2018 and has, thereby, lowered the high end of its fiscal earnings guidance. It now envisions fiscal 2018 earnings in the range of $7.75-$7.90 per share, compared with the previous range of $7.75-$7.95.

Further, green coffee prices have been rising steadily for some time, affecting profits from the coffee segments. During second-quarter 2018, profits from the U.S. Retail Coffee segment declined 18.2% primarily due to higher costs of green coffee and unfavorable volume/mix impacts.

Efforts to Offset Hurdles

We expect Smucker to easily tide over the aforementioned hurdles, backed by dedicated savings strategies. During the second quarter, the company generated cost savings of approximately $200 million from its pet food synergy program. Per the company’s ongoing cost management program, Smucker plans to achieve $450 million of total annual synergies and cost reductions by fiscal 2020. Additionally, the company plans to achieve $100 million of its $250 million cost-management program by the end of fiscal 2018.

All said, we expect this Zacks Rank #3 (Hold) company to march with full steam in 2018, on the back of strong core brands as well as other business expansion and efficiency enhancing efforts.

Looking for More Stocks in Consumer Staples? Check These Picks

Investors interested in the same sector may consider stocks such as Estee Lauder Companies Inc (NYSE:EL) , United Natural Foods Inc. (NASDAQ:UNFI) and Meredith Corporation (NYSE:MDP) . While Estee Lauder flaunts a Zacks Rank #1 (Strong Buy), United Natural Foods and Meredith Corporation carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Estee Lauder came up with an average positive earnings surprise of 18% in the trailing four quarters. It has a long-term earnings growth rate of 12.5%.

United Natural Foods pulled off an average positive earnings surprise of 2.3% in the trailing four quarters. Also, it has a long-term earnings growth rate of 5.8%.

Meredith Corporation delivered an average positive earnings surprise of 7.1% in the trailing four quarters. It has a long-term earnings growth rate of 8%.

More Stock News: This Is Bigger than the iPhone!

It could become the mother of all technological revolutions. Apple (NASDAQ:AAPL) sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.

Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.

Click here for the 6 trades >>