Will J.M. Smucker's (SJM) Q1 Earnings Surpass Estimates?

We expect The J. M. Smucker Company (NYSE:SJM) to beat expectations when it reports first-quarter fiscal 2017 results before the opening bell on Aug 23.

Last quarter, this food products manufacturer delivered a positive surprise of 56.30%. We note that the company has posted positive earnings surprises in each of the last four quarters, which translates to an average positive surprise of 19.93%.

Let’s see how things are shaping up prior to this announcement.

Why a Likely Positive Surprise?

Our proven model shows that Smucker is likely to beat earnings this quarter because it has the right combination of the two key ingredients.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +2.87%. This is a meaningful and leading indicator of a likely positive earnings surprise.

Zacks Rank: Smucker carries a Zacks Rank #3 (Hold), which when combined with +2.87% ESP makes us confident about an earnings beat.

Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.

What is Driving the Better-Than-Expected Earnings?

Strong organic sales growth, product innovation and constant efforts to expand through acquisitions are the company’s strong points. Further, lower coffee prices owing to the continued decline in green coffee costs are aiding the company’s volumes. Lower pricing on Folgers roast and ground coffee resulted in improved performance for the mainstream coffee business in 2016. In fact, management expects momentum in the coffee business to continue in the first quarter of fiscal 2017.

The company completed the acquisition of pet food maker, Big Heart Pet Brand in Mar 2015. This has placed Smucker in the fastest growing pet food and snacks category in the U.S. Also, the divestiture of its U.S. canned milk brands and operations (in Dec 2015) to Eagle Family Foods Group will allow the company to focus on its key brands and growth opportunities.

The acquisition of Big Heart Pet Brand, the launch of Dunkin Donuts K-cup pods, expanding distribution of the Natural Balance pet brand are expected to contribute to the top line in fiscal 2017.

However, currency headwinds pose a concern for Smucker. The company also remains apprehensive about heightened competitive activity in the pet food business.

Stocks to Consider

Stocks in the consumer staples sector that have both a positive Earnings ESP and a favorable Zacks Rank, and are therefore worth considering include:

The New York Times Company (NYSE:NYT) with an Earnings ESP of +33.33% and a Zacks Rank #3.

MGP Ingredients Inc. (NASDAQ:MGPI) with an Earnings ESP of +12.12% and a Zacks Rank #3.

SunOpta Inc. (NASDAQ:STKL) with an Earnings ESP of +16.67% and a Zacks Rank #3.