Shares of packaged-foods and pet-food manufacturer J.M. Smucker (NYSE: SJM) stock jumped nearly 10% Thursday, rising as high as 9.8% as of 11:45 a.m. EST, after the company reported an earnings beat earlier in the day. Smucker's sales of $1.92 billion for its fiscal second quarter 2018 topped analyst estimates for $1.9 billion. Similarly, the company reported "adjusted" earnings of $2.02 per share, $0.13 ahead of Wall Street's pro forma estimates.
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So much for the expectations game. Now here's how Smucker performed, objectively. Smucker's net sales increased only 1% year over year. Although Smucker's $1.71 per share in GAAP profits didn't quite measure up to its self-calculated adjusted earnings, it did grow 13% year over year.
Free cash flow declined 32% to $69.9 million in the quarter, hurt by capital spending levels that nearly doubled in comparison to Q2 2016. Nevertheless, thanks to a strong performance in Q1, Smucker's free cash flow for the first half of this fiscal year now stands at $305 million, up 5% from last year's $291 million.
Encouraged by first-half results, when looking out across the remaining six months of its fiscal year 2018, Smucker's management saw no reason to change its guidance for the full fiscal year significantly. By the end of fiscal 2018, management still anticipates that it will generate positive free cash flow of $775 million. Pro forma profits were adjusted only slightly. Management is still pretty sure the company can earn at least $7.75 per share, and dropped the ceiling on its guidance by only a nickel -- to $7.90 per share.
Nevertheless, at a current-year valuation of roughly 17 times projected free cash flow, but with long-term growth estimates still hovering around 8%, the stock still looks overvalued to me. Were I a shareholder, I'd be using today's stock-price surge as an opportunity to exit.
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