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J.M. Smuckers: Still Tasty

12/06/2018 5:00 am EST

Focus: CONSUMER

Hilary Kramer

Editor, GameChanger Stocks

J.M. Smuckers (SJM) has moved lower but still offers upside potential, explains Hilary Kramer, growth and value expert and editor of Value Authority.

The company reported fiscal second-quarter earnings per share (EPS) of $2.17 vs. $2.02, which was $0.17 below expectations. The gain in EPS was due to a lower tax rate and a gain on sale of the company's bakery business.

Excluding divestitures and acquisitions, sales declined 1%, with volume up 1% and price realization down 2%. Competitive conditions in peanut butter and coffee drove the company’s product price declines.

However, results are not as bad as they appear at first blush, with a good deal of the earnings miss related to non-recurring or non-operating items.

Still, EPS guidance for the whole fiscal year was reduced to $8.00 to $8.20 a share from $8.40 to $8.65 a share, reflecting the lower price realizations, higher freight costs, and a delay in achieving synergies from the Ainsworth premium pet food acquisitions.

Despite another earnings disappointment, I believe SJM remains a good buy here. The company’s core businesses continue to grow, and marketing spend growth and freight cost increases will slow next year.

Earnings comparisons will be easy in the April 2020 fiscal year. Even if EPS improves to just $8.30 from the $8.00 to $8.20 expected this year, I think investors will want to get back in the name.

We saw how SJM became a favorite last month with the market declining, and I still believe the stock has excellent defensive qualities. In the meantime, shareholders still get paid 3% in dividends while waiting for the company to complete its turnaround. Continue to buy SJM under $108. My target is $120.

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