Is This the Right Time to Get Into J.M. Smucker?

J.M. Smucker's dismal quarter, poor outlook, and competitive position might not result in a reward.

Mar 17, 2014 at 4:44PM

Coffee prices have decreased over the last few months after a large increase in 2011. This benefited coffee sellers, which had been fighting the pressures of rising coffee costs. The price drop has also benefited coffee drinkers since the coffee sellers passed the benefits on to their customers by lowering their coffee prices.

However, the news has not been all happy for J.M. Smucker (NYSE:SJM), which manufactures branded-food products. Its third-quarter numbers came in below analysts' expectations, which sent its stock price down.

The tragedy...
J.M. Smucker's revenue for the quarter plunged 6% from the year-ago quarter to $1.47 billion. This decline mainly came as a result of lower selling prices which affected the company's revenue from coffee (8%) as well as its U.S. foods segment (4%). Also, the company's planned exits from some parts of the international, foodservice, and natural foods segment lowered its top line.

Although volumes in the Dunkin Donuts coffee business and the Folgers brand surged 8% and 4%, respectively, volumes in other segments declined, such as peanut butter which decreased mainly because of competitive pressures from other players.

Despite the decline in revenue, J.M. Smucker's earnings increased to $1.66 per share from $1.47 per share in the year-ago period. This mainly occurred because of lower commodity costs and efficient cost-management efforts undertaken by the company. Lower input costs also led to a widening of the gross margin to 37.2% from 34.4% in the year-ago period.

Changing consumer tastes
Consumer tastes and preferences have changed as shoppers shift toward healthier and natural food options. As the popularity of organic and natural food increases, other vendors have also jumped into providing such items. Therefore, J.M. Smucker acquired Enray in August last year. Enray provides premium and organic grain products and Smucker's acquired it in order to strengthen its existing natural-food portfolio. Also, the company expects that the buyout will add $45 million to its revenue every year.

Similarly, peer General Mills (NYSE:GIS) made a few additions to its business in order to enhance its presence in the growing healthy food market. Its acquisitions included Food Should Taste Good in February 2012, Yoplait in May 2012, and Yoki Alimentos in August 2012. It has also introduced new products such as Old El Paso and Fiber One lemon bars in order to attract more customers. Despite such efforts, General Mills has not been able to increase its top line, as its latest quarterly results could not meet investors' expectations. However, the branded-food company plans to add more products and control its costs so it affirmed its previously given outlook.

On the other hand, food manufacturer TreeHouse Foods (NYSE:THS) has witnessed higher demand for its products. Its fourth-quarter revenue surged 11.4% over last year as revenue clocked in at $660.3 million. The acquisitions of Cains Foods and Associated Brands last year and an increase in volumes drove this revenue gain. The company also recently acquired Associated Brands, which added to its private-label food product portfolio. Also, TreeHouse's launch of specialty teas enabled it to expand its single-serve coffee business. Hence, this company provides tough competition to other food players.

Points to consider for the future
Although J.M. Smucker posted disheartening numbers and faces stiff competition from its peers, it has made certain moves which can turn things around. Along with the benefits of its acquisitions, Smucker plans to launch some new products which should attract customers.

The retailer plans to introduce blended fruit pouches in its snacks segment. The company will launch these products under the name of J.M. Smucker's Fruitful and they will enhance its fruit-spreads product category. This shows the company's efforts to cater to the health-conscious needs of consumers.

The company has also developed stronger marketing campaigns with more impact. In order to increase consumer interest, J.M. Smucker has sponsored eight Olympic champions who will be featured in all of its promotions and advertisements. Hence, this should benefit the food retailer.

However, the company did lower its outlook for the current fiscal year. It now expects its annual revenue to decrease by 5% and expects earnings in the range of $5.55-$5.60 per share. Its guidance provided earlier called for a 2% decline in revenue and earnings between $5.72-$5.82 per share.

Final Foolish thoughts
Along with the lower-than-expected numbers, the lowered outlook added to investors' disappointment. It is difficult to say how J.M. Smucker's efforts will result in future benefits. At present, a dull quarter, increased competitive pressure, and a lowered outlook offer reasons enough to stay away from this food company.

Want to learn more about the Fool's favorite stock?
There’s a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it’s one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

 
 

Himanshu Poddar has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers