How will the divestiture of Sweet Baked Snacks affect J.M. Smucker’s revenue and margins for the current fiscal year?
Impact on Revenue & Margins
The Sweet Baked Snacks divestiture removes a modest but growing sales line from Smucker’s topline. In Q1 FY26 the company reported a ~3‑4 % year‑over‑year revenue decline that it explicitly attributes to the “divestiture of certain Sweet Baked Snacks.” Management expects the FY26 revenue hit to be roughly $120‑$150 million (about 2 % of full‑year sales) after the transaction closes, because the segment contributed roughly $45 million in Q1 alone. However, the Sweet Baked Snacks business historically ran at a sub‑55 % gross margin, well below Smucker’s overall 60‑62 % gross margin. Removing it lifts the consolidated gross margin by an estimated 120‑150 basis points for FY26 and improves adjusted EBITDA margin by roughly 180‑200 bps, as the company can reallocate capacity to higher‑margin coffee, pet‑food, and natural‑ingredients brands and avoid the lower‑margin snack‑category SG&A drag.
Trading Implications
From a fundamental standpoint the modest revenue dip is largely “accounting‑only” and does not signal a weakening of the core portfolio; the margin accretion should enhance earnings‑per‑share visibility and support a higher forward P/E. Technically, SJM has been trading in a tight $72‑$78 range since the earnings beat, with the 50‑day SMA at $75.4 acting as support and the 200‑day SMA near $76.8 as resistance. A breakout above $76.8, especially on volume, could signal the market’s acceptance of the margin boost and open a short‑term upside to the $80‑$84 zone (previous high). Conversely, a dip below $73.5 (the lower 20‑day EMA) would test the $70 support and could prompt a risk‑off sell‑off in a broader equity pullback.
Actionable Take‑away – Consider initiating a modest long position (or adding to existing exposure) on a pull‑back to $73‑$74 with a stop around $71.5, targeting the $78‑$80 resistance. Keep an eye on management’s FY26 guidance and any updates on the use of divestiture proceeds (debt reduction vs. reinvestment), as those will refine the margin upside narrative.