Will J.M. Smucker (SJM) Q4 Earnings Surpass Estimates?

We expect The J. M. Smucker Company (NYSE:SJM) to beat expectations when it reports fiscal fourth-quarter 2016 results before the opening bell on Jun 9.

Last quarter, this food products manufacturer delivered a positive surprise of 8.64%. We note that the company has posted positive earnings surprises in three of the last four quarters and a negative surprise in the remaining quarter, translating to an average positive surprise of 5.60%.

SMUCKER JM Price and EPS Surprise

SMUCKER JM Price and EPS Surprise | SMUCKER JM Quote

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 two key ingredients.

Positive Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +0.84%. This is meaningful and a leading indicator of a likely positive earnings surprise.

Zacks Rank: Smucker carries a Zacks Rank #3 (Hold), which when combined with +0.84% ESP makes us confident about an earnings beat.

Note that stocks with a Zacks Rank #1, #2 or #3 have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and #5) should never be considered going into an earnings announcement.

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. We expect recent acquisitions and higher volumes to pull up the top line to some extent in the soon-to-be-reported quarter.

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

Encouragingly, the company will witness growth in coffee volumes in the coming quarter owing to lower coffee price and increase from sales of Dunkin Donuts K-Cup pods.

The acquisitions and divestiture are expected to drive much of the profits in the fourth quarter of fiscal 2016.

However, the company anticipates a significant increase in marketing spend for Pet Food in the fourth quarter of fiscal 2016 related to new launches. Currency impact also continues to remain a headwind through fiscal 2016 due to the weakening of the Canadian dollar.

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:

United Natural Foods, Inc. (NASDAQ:UNFI) with an Earnings ESP of +1.52% and a Zacks Rank #3.

PepsiCo, Inc. (NYSE:PEP) with an Earnings ESP of +1.56% and a Zacks Rank #3.

The Cloroz Co. (NYSE:CLX) with an Earnings ESP of +0.78% and a Zacks Rank #3.