QUOTE AND NEWS
Benzinga  6 hrs ago  Comment 
Tigress Financial Partners initiated coverage on The J.M. Smucker Company (NYSE: SJM) Tuesday with a Buy rating. Analyst Philip Van Deusen noted that “Having recently come under pressure following the pre-announcement of its 2Q FY15 results...
Agrimoney.com  Nov 19  Comment 
Smucker says that coffee drinkers are more sensitive to prices than it had thought, as it acknowledges handing customers "sticker shock"
TheStreet.com  Nov 19  Comment 
NEW YORK (TheStreet) -- J.M. Smucker Company shares are fluctuating today after the food products manufacturer reported second quarter net sales that were hurt by slumping coffee sales, and missing analyst expectations. Shares are up .08%...
newratings.com  Nov 19  Comment 
WASHINGTON (dpa-AFX) - Branded food products maker J.M. Smucker Co. (SJM) on Wednesday reported a 3 percent increase in profit for the second quarter from last year, as lower expenses and higher margins offset a decline in sales. The company noted...
Wall Street Journal  Nov 19  Comment 
J.M. Smucker Co. confirmed its concerns over its slumping coffee business, as the food maker posted an expected decline in overall sales.
Forbes  Nov 18  Comment 
Expectations have dropped for J.M. Smucker's second quarter results in the month leading up to the company's earnings announcement slated for Wednesday, November 19, 2014. The consensus analyst estimate has dropped from $1.65 a share to the...
Benzinga  Nov 17  Comment 
CNBC Fast Money's Pete Najarian said that he is a buyer of GoPro Inc (NASDAQ: GPRO), which gained 2.97 percent and closed at $81.50. He thinks that the stock is going to $90. Stephen Weiss wants to own iPath S&P 500 VIX Short Term Futures TM...
TheStreet.com  Nov 14  Comment 
NEW YORK (TheStreet) -- Add J.M. Smucker's name to the list of food companies falling prey to the recent shift in consumers' demands and spending habits. The fruit spread and packaged coffee company issued weak guidance for its fiscal...




 

JM Smucker Company (NYSE: (SJM)) is a leader in the market for branded food products and has built the trademark Smucker’s into a household name. The company sells kitchen staples like peanut butter, fruit spreads, cooking oil, and baking goods, and it has diversified its portfolio in recent years into special markets like organic and natural foods, beverages, and international sales. Smucker’s brands are competitive in their respective niches, selling in the first or second positions in nine of the twelve industries in which the firm operates.

JM Smucker Co. has been in business for over 100 years, capitalizing on broad trends in the marketplace and building long term brand equity in its products. Trademarks like the Pillsbury doughboy and the red Smucker’s picnic blanket remain widely recognized, but the firm is also pushing for growth, introducing 50 new products under a dozen brand names. Recently, the firm has capitalized on the health and wellness trend and produced a variety of sugar-free, low-calorie, and organic products.

But the financial reality for Smucker is harsh, as its core products in baking and packaged foods sell at low margins and in slow growing industries. Most of Smucker’s products are placed in the center aisles of grocery stores, which are increasingly neglected as retailers push customers to the periphery of the store, towards fresh and prepared products. Smucker hopes to protect itself against falling sales in its core products, by branching out into new sectors like natural and organic foods, beverages, and international sales to try to boost its revenue.[1]

Company Overview

The J.M. Smucker Company earns revenue through sales of its food products to distributors in the United States (and a few overseas). Over the last three years, the U.S. retail market has comprised an increasing share of the company's revenue, most recently over 70%.[2]. In terms of product categories, the biggest contributors to Smucker's net sales were peanut butter, shortening and oils, fruit spreads, flour and baking products, and baking mixes. Together they comprised about 61% of net sales.[3].

Business and Financial Metrics

Fourth Quarter Fiscal 2010 Results (ended April 30, 2010)[4]

J.M Smucker reported net income of $120.6 million, or $1.01 a share. In the same period last year the company earned $94.3 million, or 80 cents a share. Revenue rose less than 1 percent to $1.07 billion. Smucker benefited from the recession as shoppers stretched food budgets by buying more food to eat at home.

In the fourth quarter, the company's retail coffee revenue fell 1 percent to $417.7 million as volume fell 4 percent. This was the first full fiscal year the company owned the Folgers brand. In the oils and baking division, which includes Crisco vegetable oil as well as Pillsbury flour, revenue fell 12 percent to $163.2 million. Revenue in the consumer market — which includes products like jams and jellies, but not coffee or baking products — rose 5 percent to $270.4 million. Volume rose for Jif, Smucker's fruit spreads, Hungry Jack pancake mixes and syrups. Excluding the sale of the Hungry Jack potato business announced in March, volume in the segment rose 8 percent.

Folgers Acquisition

In 2009, Smucker's bought Proctor & Gamble's Folgers coffee unit for $2.95 billion. As part of the deal, P&G shareholders will receive a 53.5 percent stake in Smuckers. Smuckers will assume $350 million of Folger's debt.

The acquisition doubled the Smucker's market cap and made the company the leader in the coffee market. The Folger's brand takes in over $1 billion in sales annually, half of Smucker's total revenue.

Smucker also bought Jif and Crisco from P&G in a $1 billion stock deal in 2002.

Trends and Forces

Smucker's must continue to respond to changes in consumer demand

Smucker's relies on its widely recognized brand names to compete with other firms for consumer food dollars. As a result, Smucker's must pay close attention to trends in consumer preferences, such as convenience, health concerns, and dietary trends. Smucker's acknowledges that continuing to develop new products is vital for maintaining and growing market share, asserting that the strong and growing market share of many of its brands is a sign of its mastery of this force.[5] Problems like food contamination, product recall, and consumer product liability claims might all impact consumer demand as well. A liability claim, especially one that is ruled against Smucker's, can also cause a loss in consumer confidence of its brands, negatively impacting its brand equity.[6] If a product is really contaminated, then Smucker's might have to recall an entire line, hurting inventory, sales, and its reputation, as ConAgra found last year in the Peter Pan debacle. In the short term, demand for Jif is bound to decrease as ConAgra brings Peter Pan back to market and restores consumer confidence in its products.

Rising commodities prices can hurt Smucker's operating margin

Smucker's uses many raw materials to manufacture its products including corn, sugar, fruit, wheat, and peanuts. The manufacture, packaging, and transportation of its products requires fuels like natural gas and oil. As a result, Smucker's earnings are greatly affected by fluctuations in oil prices, wheat prices, and corn prices, among many other commodities. Recent rising prices in these commodities will increase costs for Smucker's, and competition it faces with other manufacturers may prevent the company from passing these costs onto consumers. Although Smucker's uses forward and futures contracts to hedge against price increases, it acknowledges that even these may not be enough to fully offset higher costs the company faces when commodity prices are more volatile.[7]

Shifting trends in the retail grocery business don't work to Smucker's advantage

Growth in consumer interest in natural and organic products has had a significant impact on the food industry, and grocery stores continue to increase their inventory of these products. While Smucker's has recognized this trend and acquired/released new brands to compete in this sector, if natural and organic products begin to take up more of consumer's limited food budgets, then Smucker's core brands will suffer. Grocery stores have also moved in recent years towards an emphasis on fresh and prepared foods, building sandwich and soup stands and preparing meals for same-day consumption. To make these new ventures profitable, stores are steering customers toward the periphery of the store where they can find prepared products - and away from the center aisles, where most of Smucker's brands can be found.

Competition

Smucker's competes for retail shelf space with other food product producers, both branded and private label. There is no one company that competes with Smucker's in all the food products that it sells. Smucker's brand Jif is a leader in the peanut butter category, as is Crisco in oils and food shortening. Smucker's is confident in its ability to be a strong competitor because of its brand, high quality, varied offerings, innovations, and distribution network.[8] Other companies that compete with the JM Smucker Company in multi-market categories include Conagra, Kraft Foods, Inc, General Mills, Inc., and Unilever. The table below compares a few metrics of these companies.

Company Name[9] Revenue Operating Margin Market Cap Famous Brands[10]
The J.M. Smucker Company $2.1 billion 12.0% $3.1 billion Jif, Smucker's, Crisco
Conagra Foods (CAG) $12.0 billion 8.4% $12.6 billion Chef Boyardee, Slim Jim, Hebrew National
Kraft Foods (KFT) $35.4 billion 13.2% $54 billion Jell-O, Kool-aid, Kraft cheese
General Mills (GIS) $12.4 billion 16.5% $18.6 billion Yoplait, Honey Nut Cheerios, Pillsbury
Unilever (UL) $49.6 billion 13.6% $166.0 billion Skippy, Knorr, Ben and Jerry's

Another potential source of competition for Smucker's is private labels . These are private brands owned and used by retailers, such as Wal-Mart. A rise in private labels will hurt Smucker's business in the U.S.; Smucker's would be competing with not only companies like ConAgra, but the very retailers it sells its products to. Additionally, the natural foods boom has flooded the market with new small businesses and their organic products. As Smucker's tries to gain a foothold in this market, it must compete with these smaller labels. Smucker's also must deal with the increasing market share of Whole Foods Market and Trader Joe's, companies which focus on natural and organic products and which aim to draw more customers away from conventional grocery stores.



References

  1. SJM 2007 10-k, page 2
  2. SJM 2007 Annual Report, page 12
  3. 2007 Annual Report, page 45
  4. APP.com: "J.M. Smucker earnings rises 28 percent" June 17, 2010
  5. 2007 10-k, page 5
  6. 2007 10-k, pages 5-6.
  7. 2007 10-k, page 6.
  8. 2007 10-k, page 4
  9. Source: 10-k reports
  10. This is not a comprehensive list of the company's brands, but only a small sample of them.
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