Smucker Ready to Jam? Dave Marino-Nachison (TMF Braden)
November 18, 1999
"With a name like Smucker's," late-night wiseguy Jay Leno once said, "why does it have to be good?" Though not necessarily known as a reliable source of investment advice -- most of Jay's money apparently goes toward collectible cars -- the comedian had a point... and it's one investors in J.M. Smucker (NYSE: SJM.A) would no doubt agree with, given the stock's erratic performance of late.
The company's recent record doesn't do much to suggest the stock's performance is out of line. Over the last five fiscal years, revenues at the leading jams, jellies, preserves, and other specialty foods maker (Smucker also makes everyone's favorite, Magic Shell ice cream topping) have risen just 3.6% annually on a compounded basis -- with operating and net income figures even less compelling.
But in a time when many companies in the food products industry are looking to expand through acquisition, Smucker now believes it may be able to better position itself for growth by slimming down. It said today that it's looking over its businesses to target "non-strategic or underperforming" lines. Look for the study to wrap up around the end of January (the close of the company's fiscal third quarter).
"We believe that we have strategies in place... that will drive future sales and earnings growth," said Vice President of Finance and Administration Steven Ellcessor. "At the same time, we believe we need to take a hard look at certain assets on our books. Taking action to trim assets may impact our earnings in the third or fourth quarter, but it will give us a stronger balance sheet on which to base future growth."
It's a strategy worth exploring. Those who've been watching the bakery industry as closely as the mini-Chips Ahoy!-obsessed Fool News Team will know plenty about the recent trouble Flowers Industries (NYSE: FLO) has had with the Mrs. Smith's Bakeries line, bought from Smucker in 1996.
But trying to guess where Smucker might cut is difficult. The company doesn't break out sales too specifically in its annual report, so gauging where sales and profits might be lagging is hard. Today's earnings press release dealt mostly with good news.
And recent news from the company doesn't help, as Smucker has moved to address both the consumer/retail side of its business -- through the opening of a combination store and tourist attraction in Amish Country -- and the foodservice side: It earlier this year bought a Florida beverage company to snag a proprietary process restaurants use to prepare frozen desserts.
Without knowing much more about the company's plans to look over and possibly shed some assets, it's difficult to say how any such moves might affect the company long term. As such, it's not surprising that the stock was quiet in morning trading today. Investors, though, should keep in mind that how Smucker reinvests any of the cash it might get from an asset sale is just as -- if not more -- important than what it decides to sell.
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Jay Leno With His Classic 1932 Packard Twin 6-Cylinder Coupe