J.M. Smucker (SJM +4%) saw a surge today as investors celebrated its Q4 earnings beat and promising FY25 guidance. Despite missing revenue expectations slightly, the stock's nearly 20% drop from 2024 highs has investors looking ahead. The market is optimistic about positive volume projections and healthy sales growth, despite upcoming price hikes.
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SJM's Q4 revenue fell 1.3% year-over-year to $2.21 billion, ending the year at $8.18 billion, just shy of the $8.22 billion forecast. This decline was mainly due to the divestiture of pet food brands. Excluding acquisitions and divestitures, net sales rose 3% in the quarter.
- SJM's $5.6 billion Hostess Brands acquisition from September is expected to add around 9 points to FY25 net sales growth. This is a positive development after the purchase initially led to a significant drop in shares.
- The Retail Coffee segment, SJM's largest, accounting for 30% of Q4 sales, saw a 4% decline due to falling prices and volume. This softness, particularly in coffee and peanut butter products, is expected to continue, limiting adjusted net sales growth.
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SJM projects FY25 revenue to grow by 1.5-2.5% year-over-year, excluding Hostess's impact, which boosts growth outlook to 9.5-10.5%. The FY25 EPS target is $9.80-10.20, missing analyst expectations at the midpoint. Investments in Uncrustables trimmed $0.35 off the forecast, but Hostess's contribution should offset this.
- Positive volume growth is anticipated in Pet Foods and International businesses, with gross margins expected to hold around 38%.
While SJM delivered a decent quarter with several encouraging developments, the stock's depressed state over the past year may make the Q4 report seem more positive than it is. Unlike stronger brands like General Mills (GIS, Financial) and Hershey's (HSY, Financial), SJM's main products—peanut butter, coffee, and pre-made PB&J sandwiches—may not have the same brand power. Despite Hostess adding variety, SJM could face challenges if inflationary pressures persist.
