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Will Coffee Unit Softness Hurt Smucker's (SJM) Q2 Earnings?

The J. M. Smucker Company SJM is set to report second-quarter fiscal 2018 results on Nov 16, before the opening bell.

The company’s coffee, consumer foods and pet foods businesses are likely to face challenges owing to unfavorable market conditions. However, the company expects positive yields from the partnership with Dunkin' Brands as well as its cost-reduction efforts.

We note that Smucker has delivered an average positive earnings surprise of 0.9% in the trailing four quarters. Let’s look into some of the aspects that are likely to impact Smucker’s second-quarter results.

What to Expect?

The Zacks Consensus Estimate for earnings per share has inched up by a cent in the past 30 days to $1.89. However estimated earnings depict a 7.8% decline from $2.05 recorded in the year-ago quarter.

Further, analysts polled by Zacks expect net sales of $1,895 million, down 1% from the prior-year sales of $1,914 million.

J.M. Smucker Company (The) Price, Consensus and EPS Surprise

Factors at Play

Smucker’s coffee segment has been performing disappointingly, owing to price rise and unfavorable volume/mix. Management expects headwinds in the coffee market to persist in fiscal 2018. As a result, the consensus mark for second-quarter sales of the U.S. Retail Coffee unit is at $532 million, depicting a 3.6% decline from the prior-year quarter.

Further, the company’s U.S. Retail Consumer Foods business segment is expected to face challenges from stiff competition and unfavorable volume/mix. The consensus estimate for sales for this segment is pegged at $547 million, reflecting a 1.8% dip year over year. 

We note that sales from Smucker’s U.S Retail Pet Food business were flat in the prior quarter, owing to adverse impacts from rising competition and shift in consumer preference toward protein-rich products. These hurdles are likely to continue in the second quarter. Accordingly, the consensus mark for sales at the pet foods segment is $532 million, which represents a marginal 0.2% rise from the year-ago figure.

Nevertheless, Smucker is hopeful about its strategic partnership with companies such as Dunkin' Brands Group. This is likely to drive the company’s performance in the second quarter. Moreover, the company’s cost-reduction initiatives and innovation-related efforts have been encouraging and are expected to yield favorable results. While these endeavors bode well for the company’s quarterly results, the aforementioned factors pose concerns. 

What Does the Zacks Model Unveil?

Our proven model shows that Smucker is likely to beat earnings estimates this quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Smucker has an Earnings ESP of +0.88% and a Zacks Rank #3 that make us reasonably confident of an earnings beat.

Stocks With Favorable Combinations

Here are some companies which, according to our model, have the right combination of elements to deliver earnings beat.

Nomad Foods Limited NOMD has an Earnings ESP of +8.70% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here

Energizer Holdings Inc ENR has an Earnings ESP of +0.35% and a Zacks Rank #2.

United Natural Foods, Inc. UNFI has an Earnings ESP of +6.33% and a Zacks Rank #2.

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