J.M. Smucker, the owner of Jif peanut butter and Sahale snacks, expects “headwinds” to limit its sales growth in its new financial year – but for its top line to pick up in subsequent years.

The company, part-way through its current financial year, used the Consumer Analyst Group of New York investment conference to outline some preliminary metrics for its fiscal 2020 period, which is due to start in May.

J.M. Smucker CFO Mark Belgya said the business was forecasting its earnings per share would grow by 3-4% on an adjusted basis, an estimate that was higher than analysts had been expecting and which pushed up the group’s shares on Wednesday (20 February), the day it addressed CAGNY.

The manufacturer of Smucker jams is forecasting its earnings per share will reach US$8.00-8.20 in its current financial year. The company plans to give fuller guidance on fiscal 2020 in June.

Management set out its long-term expectations for how much it expects to see J.M. Smucker’s net sales, operating income and earnings per share to grow each year in the “long term”.

The company expects its net sales to grow by 2-3% a year, its operating income to rise by 5% and its earnings per share to improve by 8% annually.

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By GlobalData

However, in the upcoming 2020 financial year, J.M. Smucker is forecasting its sales will rise more slowly, by 1-2% a year.

Belgya said the recent disposal of J.M. Smucker’s bakery business and pressure on prices in a key remaining part of the company’s portfolio would weigh on J.M. Smucker’s sales growth in the new financial year.

“Throughout fiscal 2019, we’ve been faced with private-label competition in our peanut butter category. In response to this, along with the anticipated lower peanut cost, we announced a price decline on peanut butter for the Jif brand effective in March that will not be fully offset by lower input costs or anticipated volume gains. Ten months of this price-cost relationship will impact us in 2020,” Belgya said.

The J.M. Smucker finance chief said other factors could help sales in the company’s new financial year. “While the ten-month price decline and the divestiture of our baking business will negatively impact sales, a full-year benefit of pet pricing actions and the impact of innovation across all our businesses, notably pet, should provide top-line growth of 1-2% next year,” he said.

Belgya said innovation and investment in marketing in Smucker’s and Jif meant the company expects sales from its core brands to be “flat to slightly up” over the next five years. However, he said Smucker’s “growth brands”, including Uncrustables, would “average high-single-digit” growth, leading the business to achieve sales growth of 2-3% over the longer term.

Belgya said J.M. Smucker’s “aggressive action” in recent years to “reshape” its business through M&A and innovation meant the company “looks and functions much differently, while providing more avenues to profitable growth in the future”.

He added: “As we look to the next several years, it is our intent to strengthen the overall financial position by returning to a model of delivering to a model of delivering consistent earnings growth, increasing cashflow, deleveraging the balance sheet and improving our return on capital.”

Belgya said J.M. Smucker expects its earnings per share growth to “trail” the long-term target of 8% “for the next three years” but added: “As innovation gains footing and moves toward run-rate margin, our financial leverage is reduced, we see a clear path to achieve our targeted growth rate of both operating income and adjusted earnings per share.”