J.M. Smucker's (SJM) profitability will benefit from deflation in green coffee prices, RBC Capital Markets said in a Wednesday note.
With positive early indications for this year's coffee crop, the company has begun reducing prices through increased trade investments and is set to cut the list price in the sustained deflationary environment, RBC analysts said. They expect the falling coffee prices to negatively impact revenue but positively impact profit, with its Coffee division's profit margins returning to the high 20s.
J.M. Smucker's posted better-than-expected fiscal Q4 organic sales growth and EPS, driven by its Sweet Baked Snacks division, which benefited from a faster-than-expected recovery from a fire in February at the company's manufacturing plant in Emporia, Kansas, according to the note.
The company's stock price gains post-earnings show that its focus on organic growth and prudent guidance has pleased investors, the note said.
RBC maintained the company's stock rating at outperform and raised the price target to $135 from $130.
Price: $116.67, Change: $+4.28, Percent Change: +3.81%