Shares of packaged food giant The J.M. Smucker Company (SJM 1.27%) fell on Wednesday, declining as much as 9.3% before recovering to a 5.1% decline as of 1:05 PM EDT.
J.M. Smucker, home to a variety of food brands such as Smucker's, Folgers, and Hostess, gave its fiscal-third-quarter earnings report this morning. The numbers missed expectations, with tariffs especially taking a bite out of the bottom line.
NYSE: SJM
Key Data Points
A tariff-related miss leaves a bitter taste
In the fiscal third quarter, J.M. Smucker's revenue declined 1% to $2.1 billion, although absent the effect of divestitures over the past year, revenue would have actually increased 2%. On a more pessimistic note, adjusted (non-GAAP) earnings per share of $1.90 fell a more severe 22% from the prior year. Both top and bottom lines missed expectations.
But while the quarter came in a bit soft, management actually increased full fiscal year guidance, now expecting full-year revenue to grow between 3% to 5%, compared with 2% to 4% previously. While the earnings-per-share range with $9.00 per share at the midpoint was left unchanged, management also raised guidance for free cash flow by $100 million to $975 million.
The free cash flow uplift was nice to see, but was actually the result of tax benefits in the recently passed "big, beautiful bill." Meanwhile, revenue gains are coming from price hikes, especially on coffee, in response to increased commodity prices, which have been affected by recent tariffs.
Image source: Getty Images.
Tariffs are clearly biting Smucker's profits
While Smucker appears to be raising prices with some success, it doesn't appear the increases are totally compensating for higher commodities and tariff impacts, as evidenced by the decline in earnings. This is especially true in the coffee segment, which makes up about a third of revenue and is the company's largest. Unfortunately, that's where tariffs on green coffee are hurting the most. And the tariff effect will get bigger because President Trump decided to institute a 50% tariff on Brazil at the end of July.
Still, shares trade for a low valuation, at just 11.5 times this year's free-cash-flow guidance with a healthy 4% dividend yield. Assuming tariffs are a one-time cost, and that's not a demanding valuation for investors.
