The J. M. Smucker Company (SJM Quick QuoteSJM - Free Report) , like most other food companies, is encountering cost-related challenges and supply-chain disruptions. These factors hurt the company’s performance in the third quarter of fiscal 2022, wherein the top and bottom lines declined year over year. Unfortunately, these headwinds are expected to linger in the fourth quarter as well.

However, revival in the Away from Home division has been a solid upside. Also, the company’s pricing actions and strength in brands like Uncrustables bode well. Apart from this, The J. M. Smucker remains focused on its core priorities like reshaping its portfolio and streamlining costs. Let’s take a closer look at all factors.

Major Headwinds & Soft Guidance

The J. M. Smucker is encountering cost inflation, supply-chain and transportation challenges and isolated labor shortages. On its earnings call, management stated that supply-chain and transportation challenges and isolated labor shortages continue to restrict the company’s ability to fully cater to demand, especially in the pet food business.

In the third quarter of fiscal 2022, adjusted gross profit fell 8% to $712.3 million. The adjusted gross profit margin declined to 34.6% from 37.3% reported in the year-ago quarter. This was a result of the elevated cost of commodities and ingredients, manufacturing, packaging and transportation and a lower volume/mix. Apart from this, comparison with profits related to divestitures also impacted gross margin growth. This was somewhat compensated by pricing actions.  Adjusted operating income dropped 6% to $377.9 million. The adjusted operating margin came in at 18.4%, down from 19.4% reported in the year-ago quarter due to a lower gross margin.

The J. M. Smucker now anticipates net sales to be down 0.5% to 1.5% year over year. SJM had earlier anticipated fiscal 2022 net sales to be down 1% to flat year over year. The net sales view reflects an impact of $431.8 million associated with the Crisco, Natural Balance, private label dry pet food and natural beverage and grains businesses divestitures.  The adjusted gross margin is expected to be nearly 35% in fiscal 2022, with cost inflation expected to have a low double-digit impact on the total cost of products sold. In the fourth quarter, management expects a gross margin decline of roughly 350 basis points, mainly due to inflated green coffee costs. Adjusted earnings per share (EPS) for fiscal 2022 are now envisioned in the range of $8.35-$8.65 compared with the $8.35-$8.75 band expected before. The guidance reflects a timing lag related to increased net price realization and continued cost inflation. Also, the updated view includes adjustments to the fourth quarter for recently sold businesses, elevated costs and supply-chain woes.

Image Source: Zacks Investment Research

What’s Working Well for The J.M. Smucker?

The J. M. Smucker is progressing well with core priorities, which include driving commercial excellence, reshaping its portfolio, streamlining the cost structure and unleashing its organization to win. The strength of such strategies is helping The J. M. Smucker navigate complex supply-chain challenges. This is also helping the company improve in-store fundamentals and the stock performance of the brands. The company is implementing inflation-justified pricing actions across all businesses with lesser-than-anticipated elasticity impacts. On its last earnings call, management highlighted that it raised or maintained the market share for 68% of its U.S. Retail revenues in the third quarter of fiscal 2022. The company is committed to increasing its focus and resources to reshape its portfolio and achieve sustainable growth across the pet food and pet snacks, coffee and snacking categories. Further, in a move to streamline costs, management has been optimizing its supply chain, lowering discretionary costs and expanding network production efficiencies.

Management expects SD&A expenses to decline 10% in fiscal 2022, reflecting gains from cost management and organizational restructuring programs, reduced marketing expenses, lower incentive compensations and declines in discretionary expenses.

The J. M. Smucker Company is benefiting from the revival of the Away from Home division. This was witnessed in the third quarter of fiscal 2022, with net sales advancing 13% to $265.6 million in the International and Away From Home segment.  Excluding the impact of the Crisco divestment and the positive impacts of currency movements, net sales escalated 14%. Management stated that the company’s Away From Home business sales have returned to about 95% of pre-pandemic levels, with liquid coffee and portion control spreads being major contributors to the revival.

The J. M. Smucker expects to see continued strength in demand for its products. Management remains encouraged about its overall coffee portfolio as at-home coffee habits created during the pandemic are likely to stay. On a comparable basis, net sales for fiscal 2022 are anticipated to improve by nearly 4.5% at the midpoint of the adjusted EPS guidance range. This is likely to be backed by a rebound in away from home channels, increased net pricing across several categories, an improved volume/mix for core brands in each U.S. Retail unit and continued double-digit net sales growth for the Smucker's Uncrustables brand. These are likely to be partly negated by a deceleration in at-home consumption and supply-chain headwinds (which are likely to impact the company’s pet food business).

Shares of this Zacks Rank #3 (Hold) company have increased 14.7% in the past six months compared with the industry’s growth of 6.4%.

A Renowned Consumer Staple Stock

A popular pick from the broader Zacks Consumer Staples sector is Altria Group, Inc. (MO Quick QuoteMO - Free Report) , which has also been benefiting from its strong pricing power and a focus on oral tobacco products, such as on!. For 2022, Altria envisions 4% to 7% growth in the bottom line, which is likely to be more weighted toward the second half.  This tobacco giant currently carries a Zacks Rank #3. Shares of MO have increased 19.3% in the past six months. The Zacks Consensus Estimate for the company’s current financial-year EPS suggests growth of around 5% from the year-ago reported figure.

Looking for Consumer Staple Stocks? Check These

Some better-ranked stocks are Tyson Foods (TSN Quick QuoteTSN - Free Report) and Flowers Foods (FLO Quick QuoteFLO - Free Report) .

Tyson Foods, a renowned meat products company, carries a Zacks Rank #2 (Buy) at present. Shares of Tyson Foods have jumped 18% in the past six months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Tyson Foods’ current financial-year sales and EPS suggests growth of 9.5% and 5.6%, respectively, from the year-ago reported number. TSN has a trailing four-quarter earnings surprise of 32.2%, on average.

Flowers Foods, the producer and marketer of packaged bakery products, currently carries a Zacks Rank #2. Shares of Flowers Foods have risen 7.5% in the past six months.

The Zacks Consensus Estimate for Flowers Foods’ current financial-year sales and EPS suggests growth of 7.2% and roughly 4%, respectively, from the year-ago reported figure. FLO has a trailing four-quarter earnings surprise of around 9%, on average.