Consumption of low- and middle-income groups continues to decline! The cash flow of US packaged food leader SJM.US (SJM.US) is increasing its full-year performance forecast

The Zhitong Finance App learned that North American packaged food leader SJM.US (SJM.US) announced the “first quarter of fiscal year 2027” results up to July 31, 2026 before the market. The company's “revenue and profit both exceeded expectations” and unexpectedly raised performance guidelines, driving the company's stock price to rise more than 10% before the US stock market. Smack is regarded by some investors as a trend vane for “US household food consumption expenditure and brand price increase acceptance”. It can be described as representing the consumption trend of low- and middle-income households in the US — it is largely a beneficiary of the downgrade in low- and middle-income consumption in the US, but it cannot fully represent overall consumer spending such as travel, automobiles, housing, and consumption of services essential to the US economy.

Smack is a leading North American brand of packaged food. Its business covers Folgers, Dunkin' retail packaged coffee, Café Bustelo, Jif, Smucker's, Uncrustables, Hostess, Milk-Bone, and Meow Mix, etc., coffee, spread, frozen food, baked goods, and pet food. This time, the company's “performance exceeds expectations+upward guidance+positive cash flow” favors both fundamentals and short-term stock prices, and has event-driven upward momentum; however, whether continuous revaluation can be formed depends on profit growth, sales recovery, Hostess repair, and declining debt trends after excluding tariff refunds.

SMARK's quarterly revenue for the first quarter of fiscal year 2027 was US$2,219.3 billion, up 5.0% year on year, about US$89 million higher than Wall Street analysts' unanimous expectations of about US$2.13 billion, exceeding expectations by 4.2%; adjusted earnings per share were $3.24, up 71% year over year, higher than the Wall Street consensus of $2.22 and exceeded expectations by about 46%. GAAP's diluted earnings per share changed from a loss of $0.41 in the same period last year to a profit of $3.03.

Profit and cash flow recovery was particularly significant. SMARK's adjusted operating profit for the first fiscal quarter increased 46% from US$370.3 million to US$540.7 million, corresponding operating margin of about 24.4%, an increase of about 684 basis points over the same period of the previous year; operating cash flow changed from a net outflow of US$10.6 million to a net inflow of US$425.7 million, and free cash flow also changed from negative US$94.9 million to US$337.3 million. The company also made a net repayment of about US$230.8 million in debt, which is enough to show that profit recovery has been converted into real cash and supports deleveraging.

The business structure was not fully prosperous: US retail coffee revenue was US$807.8 million, up 13% year over year, and segment profit increased 124%, mainly driven by price increases, Dunkin' and Café Bustelo sales, and tariff refunds; frozen ready-to-eat food and spread revenue increased 3% and profit increased 13%. Uncrustables is still the core growth engine. In contrast, pet food revenue increased by only 1% and profit decreased by 2%; Hostess's sweet baked goods revenue fell 7% and profit fell 13%, with sales/mix dragging down 8 percentage points. This indicates that current improvements are being led by Coffee, Uncrustables, and cost-side dividends, and Hostess demand and integration issues have yet to be fully addressed.

Uncrustables is a frozen ready-to-eat food brand wholly owned by Smack. The full name is Smucker's Uncrustables. The core product is a pre-sealed peanut butter jam sandwich (PB&J) with the bread side removed, which can be eaten by consumers after defrosting, so it falls under the “US Retail Frozen Ready-to-Eat Food and Spreads” division. It has become one of the most important sales growth engines for SMARK in recent years.

Hostess was originally an independent American snack company Hostess Brands. Smack completed the acquisition in November 2023, and the transaction value is about US$5.6 billion. Therefore, Hostess is now part of the brand assets of Smack and is included in the “Sweet Baked Snacks (Sweet Baked Snacks)” division. Its products include packaged cakes and donuts such as Twinkies, Donettes, Ding Dongs, Cupcakes, Ho Hos, and Zingers; the so-called “Hostess integration problems” are weak sales, operating cost pressure, production capacity networks, and brand restoration issues faced by SMARK after its acquisition.

The full-year outlook forms the most direct share price and basic outlook. The company's overall revenue guidance for the full fiscal year 2027 was unexpectedly raised from a 3% to 4% decline of 1% to 2%, which was about 1.65 percentage points higher than the 3.15% decline that the market agreed to; the adjusted EPS was raised from 9.75-10.25 US dollars to 10.50-11.00 US dollars, up about 14.8% to 20.2% compared to the $9.15 consensus in FY2026, and the median value of $10.75 was also about 7% higher than the $10.05 consensus. The free cash flow guideline was raised 10% to US$1.1 billion from the maximum of US$1 billion previously given, but it is still about 4.9% lower than the actual US$1,1562 million in the previous fiscal year.

Smack can be described as a structural beneficiary of America's low- and middle-income consumers “shifting from eating out to spending at home” in recent years. It is also the core beneficiary of lower- and middle-income consumption downgrades in the US under long-term high inflation and upward pressure on borrowing costs. Folgers and Dunkins' packaged coffee, Jif peanut butter, and Uncrustables instant sandwiches have a single consumption cost significantly lower than coffee shops, restaurants, and takeout, and are convenient, storage-resistant, and home-use scenarios. As a result, consumers with tight budgets are reducing eating out and switching to at-home coffee and ready-to-eat staples, which is supporting Smack's demand.