The J. M. Smucker Company (SJM Quick QuoteSJM - Free Report) posted fourth-quarter fiscal 2022 results, wherein the top and bottom lines surpassed the Zacks Consensus Estimate and the former increased year over year. Solid results reflect the continued consumer demand for coffee and at-home food, together with strength in the company’s brands. During the quarter, the company lowered its debt load and returned cash to shareholders via dividends and share buybacks. However, The J. M. Smucker is witnessing a volatile environment due to cost inflation and supply-chain disruptions.

After Apr 30, 2022, SJM initiated a voluntary recall of certain Jif peanut butter products made at its Lexington, KY facility and sold mainly in the United States. The move was a result of potential salmonella contamination.

In fiscal 2023, management remains focused on sustaining its solid momentum by investing in growth areas like Uncrustables and teaming up with retailers to restock Jif products after the recent recall.

Quarter in Detail

Adjusted earnings of $2.23 per share declined 1% year over year. However, the metric surpassed the Zacks Consensus Estimate of $1.88.

Net sales amounted to $2,033.8 million, which beat the consensus mark of $1,981 million. The top line advanced 6% year over year. This included an adverse impact of 1% related to the expected customer returns associated with the Jif peanut butter product recall. Excluding non-comparable net sales related to divestitures and currency movements, net sales increased 9%. The uptick in comparable net sales can be attributed to positive net price realization in each company segment. This was partly offset by a lower contribution from a volume/mix.

The adjusted gross profit fell 10% to $655.2 million. The adjusted gross margin contracted from 37.9% to 32.2%, bearing some impacts of escalated costs, mainly stemming from higher commodity and ingredient, packaging and manufacturing costs. The adjusted operating income rose nearly 13% to $350.9 million due to lower selling, distribution and administrative (SD&A) costs. The adjusted operating margin increased 110 basis points to 17.3%.

Segment Performance

U.S. Retail Pet Foods: Segment sales jumped 6% to $718.1 million. Excluding non-comparable net sales associated with the private label dry pet food businesses divestiture, the metric rose 10%. The volume/mix remained neutral and the net price realization had a favorable 10-percentage point impact on net sales. The segment’s profit jumped 19% to $120.7 million.

U.S. Retail Coffee: Net sales increased 11% to $647.2 million. The volume/mix had a 6-percentage point negative impact and the net price realization boosted net sales by 17 percentage points. The segment’s profit moved down 5% to $164.2 million.

U.S. Retail Consumer Foods: Sales in the segment fell 5% to $397.3 million, which includes a 5% adverse impact of the abovementioned product recall. Excluding the impact of the natural beverage and grains businesses divestiture, net sales jumped 3%. The net price realization contributed 1 percentage point to sales. The volume/mix aided net sales by 2 percentage points. The segment’s profit remained flat at $95 million.

International and Away From Home: Net sales advanced 12% to $271.2 million. Excluding the impact of the natural beverage and grains businesses divestiture, as well as the negative impacts of currency movements, net sales escalated 13%. The volume/mix and the net price realization had positive impacts of 7 percentage points and 6 percentage points, respectively, on the segment’s net sales. The segment’s profit increased 18% to $34.5 million.

Image Source: Zacks Investment Research

Financials

The J. M. Smucker exited the quarter with cash and cash equivalents of $169.9 million, long-term debt (less current portion) of $4,310.6 million and total shareholders’ equity of $8,140.1 million.

Cash flow from operating activities amounted to $393.7 million for the three-month period ended Apr 30, 2022. Free cash flow was $220.7 million in the quarter. Free cash flow is expected at $500 million, while capital expenditures are likely to be $500 million in fiscal 2023. The J. M. Smucker bought back two million shares for $262.7 million in the fourth quarter.

Fiscal 2023 Guidance

Management stated that pandemic-related impacts, together with cost inflation and a volatile supply chain, continue to affect the company’s results and cause risks for fiscal 2023. The recent product recall, in particular, is expected to impact financial results. While the outlook remains unsure, The J.M. Smucker remains focused on actions like minimizing the impacts of cost inflation, product recall and other business disruptions.

For fiscal 2023, SJM anticipates net sales to rise 3.5%-4.5% year over year. Excluding non-comparable sales related to the private label dry pet food and natural beverage and grains businesses divestitures, net sales are anticipated to improve nearly 6% at the midpoint of the net sales guidance. The view reflects the positive impacts of elevated net pricing to counter cost inflation in many categories, partly negated by an expected volume/mix effect of the price elasticity of demand as well as a 2% adverse impact related to the product recall.

Adjusted earnings per share (EPS) for fiscal 2023 are envisioned in the range of $7.85-$8.25, including a 90 cents impact from the product recall. The bottom-line view reflects the positive impacts of pricing and share buybacks (of the prior year), more than negated by inflated costs, an expected volume/mix effect of the price elasticity of demand, an adverse impact of the product recall and elevated SD&A expenses.

The bottom-line view takes into account an adjusted gross profit margin of 33-34%, including a 1% negative impact of the product recall. Also, the adjusted effective income tax rate is envisioned to be 24.2%.

Shares of this Zacks Rank #4 (Sell) company have dipped 8% so far this year compared with the industry’s decline of 2.3%.

3 Solid Staple Stocks

Some better-ranked stocks are Pilgrim’s Pride (PPC Quick QuotePPC - Free Report) , Sysco Corporation (SYY Quick QuoteSYY - Free Report) and Medifast (MED Quick QuoteMED - Free Report) .

Pilgrim’s Pride, which produces, processes, markets and distributes fresh, frozen and value-added chicken and pork products, sports a Zacks Rank #1 (Strong Buy). Pilgrim’s Pride has a trailing four-quarter earnings surprise of 31.4%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for PPC’s current financial-year EPS suggests growth of almost 43% from the year-ago reported number.

Sysco, which engages in marketing and distributing various food and related products, carries a Zacks Rank #2 (Buy). Sysco has a trailing four-quarter earnings surprise of 9.1%, on average.

The Zacks Consensus Estimate for SYY’s current financial-year sales and EPS suggests growth of 32.6% and 124.3%, respectively, from the year-ago reported number.

Medifast, which manufactures and distributes weight loss, weight management, healthy living products and other consumable health and nutritional products, currently carries a Zacks Rank #2. Medifast has a trailing four-quarter earnings surprise of 12.9%, on average.

The Zacks Consensus Estimate for MED’s current financial-year sales and EPS suggests growth of almost 19% and 13.4%, respectively, from the year-ago reported figure.