Folgers coffee, Jif peanut butter parent aims to eat some tariff costs this year

J.M. Smucker (SJM) shares fell 12.7% after the company issued a weaker-than-expected fiscal year 2026 profit outlook of $8.50 to $9.50 per share, below the consensus estimate of $10.25, citing tariff impacts, input inflation, and changing consumer behavior; sales growth is projected at 2% to 4%, in line with estimates. The company's fiscal 2026 adjusted gross margin is expected to decline to 35.5%-36% from 38.8% in fiscal 2025, as Smucker plans to absorb some tariff costs despite having previously raised prices on coffee and other products to offset higher costs.

Analysis

J.M. Smucker Co. (SJM) faces significant headwinds, evidenced by its fiscal year 2026 profit outlook of $8.50 to $9.50 per share, substantially below the $10.25 FactSet consensus, triggering a 12.7% stock decline to its lowest point since March 2020. This muted earnings forecast is primarily driven by the company's intention to absorb increased costs, including tariffs on green coffee, persistent input inflation, and shifts in consumer behavior, leading to an anticipated contraction in fiscal 2026 adjusted gross margin to 35.5%-36% from 38.8% in fiscal 2025. While projected fiscal 2026 sales growth of 2% to 4% (from $8.73 billion in FY25) aligns with analyst expectations, the fourth-quarter fiscal 2025 results already indicated emerging pressures: sales decreased 2.8% to $2.14 billion, missing consensus, and gross margin fell to 38.4% from 41.4% year-over-year, despite adjusted Q4 EPS of $2.31 beating estimates. The company reported a substantial Q4 net loss of $729 million due to one-time charges. Segment performance was mixed, with retail coffee sales rising 11% to $738.6 million, buoyed by price increases and strong growth in brands like Café Bustelo (19% net sales growth in FY25), while retail pet foods and sweet baked snacks saw significant declines of 13% and 26% respectively. Smucker is actively managing these challenges through price adjustments, with further coffee price hikes planned, and strategies like alternative sourcing and supply-chain optimization to mitigate the impact of tariffs, particularly on its large volume of green coffee imports.

Key Decisions for Investors

• Investors should exercise caution due to the forecasted significant margin compression in FY2026, which overshadowed the in-line sales growth outlook and the stock's sharp negative reaction.
• Closely monitor the company's ability to manage tariff impacts and input cost inflation through pricing actions and operational efficiencies, particularly within the critical coffee segment.
• Assess the persistent weakness in the pet foods and sweet baked snacks segments, as continued underperformance could offset any gains from the coffee division or successful new product introductions.
• Given the substantial stock price decline, evaluate whether the current valuation adequately reflects the heightened operational risks and lowered earnings expectations, or if a potential dislocation exists for long-term investors.