Smucker Earnings: Solid First Fiscal Quarter Buoyed by Jif Recovery, but Shares Look Fairly Valued

We don’t anticipate a material change to Smucker’s SJM fair value estimate of $140 per share or its no-moat rating based on first fiscal quarter 2024 results. Shares were up 2% on the solid start to the year and remain fairly valued, so we think investors should wait for a more attractive entry point.

Excluding the impact from the divested pet food brands, comparable net sales grew 21% over the prior-year quarter. Of this, 13% came from volume/mix growth, which benefits from a favorable comparison with last year’s Jif product recall. Price increases contributed the other 8% of growth.

Although retail consumer foods delivered the headline performance given the benefit from Jif, Smucker’s other segments performed well, too. Now a much smaller business (24% of quarter sales), the remaining retail pet foods saw 22% revenue growth year on year, as volume growth of 12% was boosted by contract manufacturing related to the divesture and prices rose 10% from increases. Retail coffee sales rose 5%, mostly from volume/mix growth driven by Folgers and Café Bustelo.

The company updated its full-year guidance after the strong quarter. Although it continues to expect comparable net sales growth of 8.5% to 9.5%, it boosted its adjusted EPS guidance to $9.45 to $9.85 from $9.20 to $9.60. However, the impact on valuation is negligible, as the timing of cash tax payments leads Smucker to maintain full-year free cash flow guidance of $650 million despite the improved accounting profit outlook.

Smucker also entered derivative transactions to unload its Post shares that came from the pet foods divestment. The company will receive about $466 million during the third fiscal quarter. At quarter-end, the company’s net debt/EBITDA remained low at 2.2 times, even after spending $372 million to repurchase shares during the quarter. Smucker will have the capacity to acquire something sizable, though we think it will need to focus on paying a good price to avoid repeating mistakes of the past.