Can The J. M. Smucker Overcome Gross Margin Strains in FY26?

Yahoo

07-07-2025

The J. M. Smucker Company SJM enters fiscal 2026 under pressure, grappling with gross margin headwinds due to persistent cost inflation, unfavorable product mix and soft volumes. In fourth-quarter fiscal 2025, the company reported a 9% year-over-year decline in adjusted gross profit and an 8% drop in adjusted operating income. These declines were largely attributed to higher costs, reduced sales volume and the lingering impact of recent divestitures.Looking ahead, The J. M. Smucker expects the fiscal 2026 adjusted gross profit margin to range between 35.5% and 36%. This forecast reflects elevated commodity and manufacturing costs and negative volume/mix. Management also highlighted a roughly 50 basis point (bps) unfavorable impact from tariffs — most notably affecting the U.S. Retail Coffee segment — as a factor contributing to the margin outlook.Adding to the pressure, The J. M. Smucker expects its selling, distribution and administrative expenses to rise approximately 3% year over year in fiscal 2026. The increase is primarily caused by elevated marketing investments aimed at supporting key growth brands, particularly Cafe Bustelo and Uncrustables. Total marketing spend is projected to reach 5.7% of net sales, up 30 bps from the prior year. While these investments are intended to fuel long-term growth, they contribute to near-term cost headwinds as The J. M. Smucker navigates a dynamic operating environment.As The J. M. Smucker focuses on brand investment and operational efficiency, overcoming margin pressures will require disciplined cost control and sustained consumer demand. Success in navigating these headwinds will be key to restoring profitability and supporting shareholder value in fiscal 2026 and beyond. Investors should monitor margin trends closely as the year progresses.
Like The J. M. Smucker, Conagra Brands CAG and Lamb Weston LW are managing inflationary pressures and shifting consumer demand.Conagra continues to face elevated protein and input costs, which contributed to a 389 bps adjusted gross margin decline in the third quarter of fiscal 2025. Conagra is focusing on portfolio restructuring, divesting lower-growth assets and investing in high-margin categories like snacks to offset margin pressure.Meanwhile, Lamb Weston is emphasizing cost efficiency and operational restructuring. The company reported 9% global volume growth in the third quarter of fiscal 2025 and is executing over 30 strategic projects for fiscal 2025, even as its price/mix declined 5% due to strategic pricing adjustments. Lamb Weston aims to drive profitability through network optimization and new customer wins across international and foodservice channels.
Shares of SJM have dropped 5.5% in the past year against the industry's growth of 3.1%.
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From a valuation standpoint, SJM trades at a forward price-to-earnings ratio of 11.06X, below the industry's average of 16.01X.
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The Zacks Consensus Estimate for SJM's current fiscal year's earnings implies a year-over-year decline of 8.3%, whereas its next fiscal year's earnings estimate suggests a year-over-year uptick of 7.7%.
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SJM stock currently carries a Zacks Rank #4 (Sell).
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This article originally published on Zacks Investment Research (zacks.com).
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