A Resilient Food Company That Continues to Impress

Despite the fact that pricing pressure has been a significant headwind, J.M. Smucker (NYSE: SJM  )  continues to impress. Let's take a closer look and try to figure out if J.M. Smucker is worth a look for Foolish investors. 

Ups and downs
In the first quarter, net sales slipped 1% year over year. As hinted at above, this was mostly due to price declines, especially in peanut butter and coffee. The good news is that volume remained strong. For instance, J.M. Smucker enjoyed volume gains for Jif, Crisco, Folgers, and its flour brands. J.M. Smucker operates in three segments:  U.S. retail coffee; U.S. retail consumer foods; and international, food service, and natural foods. That being the case, let's break this story down by segment.

U.S. retail coffee

  • Net sales:  down 1%
  • Profit:  up 16%

In this segment, J.M. Smucker saw an overall volume increase of 4%, including a 14% volume jump for K-Cup packs, 6% for Dunkin' Donuts packaged coffee, and 4% for Folgers. Profit jumped mostly thanks to reduced costs for green coffee. However, J.M. Smucker doesn't expect this trend to continue throughout the second half of the year.

U.S. retail consumer foods

  • Net sales:  up 1%
  • Profit:  down 11%

Once again, J.M. Smucker had to deal with lower prices, which affected profit, but volume improved 4%. Consider the volume moves of the following products: 

  • Jif:  up 8%
  • Smucker's fruit spreads:  flat
  • Smucker's un-crustables:  up 22%
  • Crisco:  up 11%
  • Pillsbury:  up 2%
  • Canned milk:  up 4%

International, food service, and natural foods

  • Net sales:  down 6%
  • Profit:  up 7%

This segment saw dissimilar results from the other two segments. Lower raw- material costs and a favorable product mix aided the bottom line, but volume weakened by 6%.

While there are some inconsistencies across the company's three segments, volume has remained strong for the most part, which indicates robust demand.

The mixed results described above can get confusing when you're attempting to determine J.M. Smucker's future potential, but the company's ability to drive the top and bottom lines higher over the past five years should offer at least some comfort, as this indicates quality management:

SJM Revenue TTM Chart

J.M. Smucker revenue trailing-12 months data by YCharts

It should also be noted that J.M. Smucker regularly buys back its own shares, which will help earnings-per-share growth.

J.M. Smucker vs. peers

Nestle (NASDAQOTH: NSRGY) is a much larger company, with a market cap of $214.1 billion versus a market cap of $11.3 billion for J.M. Smucker. Nestle is impressive in many ways, including its broad product diversification, with products like Poland Spring, Butterfinger, Smarties, Wonka, Kit Kat, Hot Pockets, Lean Cuisine, Haagen-Dazs, Nesquick, Alpo, Purina, and more. Nestle's global distribution network and cost savings are also big selling points.

ConAgra Foods (NYSE: CAG  ) is similar in size to J.M. Smucker (market cap of $13.4 billion), and it's also appealing, especially considering its recent acquisition of Ralcorp. ConAgra's products include PAM, Peter Pan, Hebrew National, Hunts, Reddi-wip, Slim Jim, Swiss Miss, ACT II, and more.

Then there's Mondelez International (NASDAQ: MDLZ  ) , best known for Oreo, Nabisco, Cadbury, Trident, and Tang. Mondelez actually has nine products with annual sales north of $1 billion. Mondelez has a market cap of $56.2 billion. 

All of these household brand names for the above companies should mean strong future potential. And that would be an accurate assessment. But let's see how J.M. Smucker compares to its peers on a fundamental basis.

 

Forward P/E

Net Margin

ROE

Dividend Yield

Debt-to-Equity Ratio

J.M. Smucker

17

9.52%

10.87%

2.20%

0.41

Nestle

16

11.41%

18.55%

None

0.45

ConAgra Foods

12

5.00%

15.88%

3.00%

1.81

Mondelez International

18

6.74%

5.69%

1.80%

0.57

J.M. Smucker is fairly valued on a relative basis, it's good at turning revenue and investor dollars into profits, it offers a generous yield, and it has demonstrated quality debt management. While ConAgra Foods and Mondelez International are highly likely to reward investors over the long haul, they're both still working their way through major changes (Ralcorop acquisition/Kraft spinoff). Nestle also likely to be a long-term winner, but unlike J.M. Smucker, it doesn't pay a dividend. 

The bottom line
J.M. Smucker is a well-managed and resilient company that should continue to grow, albeit at a methodical pace. If you're looking for a defensive name that can offer growth potential and dividend payments, then J.M. Smucker should be strongly considered.

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4/17/2014 4:03 PM
CAG $31.34 Up +0.14 +0.45%
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NSRGY $76.30 Up +0.50 +0.66%
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SJM $96.70 Down -0.13 -0.13%
J.M. Smucker CAPS Rating: ****

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