I recently made a significant shift in my eating habits, abandoning the Unilever
Results for the Smucker's first fiscal quarter were pretty much in line with what I've come to expect. Sales, including an acquisition of the Multifoods company, rose about 23%, though core sales (in other words, excluding the deal) were up only 4%. Gross margins dropped 260 basis points (100 basis points equals 1%), and operating margin fell from 11.7% last year to 9.7% this year.
If those numbers sound uninspiring, it's because they are. Smucker is no prize when it comes to many of the metrics used to evaluate and value companies. Whether you opt to look at return on equity, return on assets, net margin, and so on, Smucker just doesn't make the cut as a high-quality food company.
But this Fool sees how Smucker could still offer some sweetness to patient investors, taking into account two other facts about this company. First, the company gets about one-third of its revenue from its core peanut butter and jelly brands. Second, the company has very modest debt. What that means to me is that this company could potentially be attractive to larger suitors -- strong core brands mean real value, and low debt should make a purchase a bit simpler.
Now, by no means am I suggesting that a sale of the company is likely -- after all, the folks who run things still go by the last name of Smucker. I'm simply saying that the company has some of the hallmarks of an acquisition target -- popular brands, a reasonable balance sheet, and fairly unspectacular current financial performance.
All that said, I don't see a tremendous appeal to these shares. Buying a stock in anticipation of a takeover is a really bad idea, and there isn't much else here to entice me. While the dividend is not too shabby, management seems committed to further acquisitions. Given the currently mediocre state of the business, I have to question the wisdom of buying more businesses when the current management can't even run the existing one as well as it ought.
There is no shortage of food-related investment ideas -- Kellogg
For more Foolish food Takes:
- Hershey's Fatter Dividend
- Unilever: Slow Progress Is Still Progress
- One Cool Deal for Heinz
- Smucker's Sticky Situation: Fool by Numbers
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).