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Can J.M. Smucker Report Improved Fiscal 3Q18 Earnings?

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Part 4
Can J.M. Smucker Report Improved Fiscal 3Q18 Earnings? PART 4 OF 5

Why J.M. Smucker’s Fiscal 3Q18 Profit Margins Could Remain Low

Industry trends

Packaged food manufacturers in the US have been grappling with inflation in raw material prices, which is taking a toll on their profit margins. Soft volumes and lower pricing further pressure profits. 

Also, the recent hurricanes pressured raw material prices, which led to increased transportation costs. In turn, this trend is expected to lower the profitability of these companies. A prolonged price war among retailers and a promotional environment could squeeze their margins.

Why J.M. Smucker’s Fiscal 3Q18 Profit Margins Could Remain Low

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Increased costs, soft volumes to blame

J.M. Smucker’s (SJM) profit margins are expected to remain low on a YoY (year-over-year) basis. Soft volume trends and increased costs, which stem from the rise in logistics and raw material prices, are expected to hurt its margins. An unfavorable mix and the company’s plan to significantly invest in marketing could further dent its margins in fiscal 3Q18.

However, J.M. Smucker’s margins are expected to benefit from higher pricing and moderation in green coffee costs. Its focus on cost and productivity savings should support its margin growth.

Peer comparisons

In comparison, J.M. Smucker’s (SJM) peers have also been witnessing lower profit margins as higher manufacturing and logistics costs, as well as weak sales due to low demand for their traditional products, could present ongoing challenges.

Hershey’s (HSY) profit margins fell in 4Q17 as an unfavorable mix, lower volumes, and higher packaging and transportation costs remained a drag. 

Mondelēz’s (MDLZ) gross profit margins remained flat in 4Q17 as benefits from increased productivity, cost savings, and net price realization was offset by increased costs. However, the company expanded its operating margins through tight control on overhead costs.

Kellogg (K), General Mills (GIS), Conagra Brands, and Kraft Heinz (KHC) saw their profitability take a hit from rising costs resulting from current industry pressures. However, focusing on cost-saving and productivity-saving measures could help lift their profitability metrics.

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