Shares of J.M. Smucker (SJM -0.27%) jumped on Tuesday morning after the company reported strong profits for its fiscal 2025 second quarter and raised its full-year guidance. As of 10:40 a.m. ET, the stock was up by about 8%.
Profits for this food company are strong
When it comes to Smucker, many people only think about jams and jellies, but in recent years, it has diversified its food portfolio to include coffee, pet food, and -- with its acquisition of Hostess about a year ago -- snack cakes.
J.M. Smucker grew its fiscal Q2 comparable net sales by 2% year over year. Adjusting for currency fluctuations, divestitures, and the acquisition of Hostess, sales were up 17% to $2.3 billion. This number was expected. However, the company's profitability was slightly better than expected, which is the big story today.
I'm usually skeptical of adjusted profitability metrics, but focusing on them is appropriate in this case, considering the size of the Hostess acquisition and the one-time expenses associated with it. The company's adjusted operating income was up a strong 27% to $491 million in fiscal Q2, which was exciting for investors.
That excitement was further bolstered when management raised its guidance for its full-year adjusted earnings per share (EPS). At the high end of the range, it was only a 1% hike. But higher expectations are always welcome.
Watch the Hostess integration
Mergers and acquisitions are some of the hardest things to pull off effectively in the business world. J.M. Smucker acquired Hostess for a valuation of $5.6 billion, which was huge -- close to half its own market cap when the deal closed. Management expects to save $100 million annually thanks to eventual synergies and says it's ahead of schedule on the integration process. But it conceded that Hostess sales will come up short of expectations this year due to a slowdown in convenience store traffic.
This isn't necessarily a problem yet for J.M. Smucker. But given the size of the acquisition, it's something investors should continue to monitor. Bad acquisitions can set a company back for years. So shareholders will want to regularly check in and see if it's making enough progress in its integration of the Hostess brand into the J.M. Smucker enterprise.
