JM Smucker (NYSE:SJM) spread around its fiscal Q2 earnings at the end of last week, but the market didn't find them tasty, driving the stock down 1% on the news.

Total net sales came in basically flat at $605 million; excluding divested operations, net sales grew 4%. Operating income declined 4% to $74.3 million. Net profit, on an adjusted basis excluding charges related to restructuring in the comparable quarters, declined 6% to $47.4 million. On a per-stub basis, that worked out to $0.83 per diluted share this year, versus $0.86 per diluted share last year.

Smucker is fighting to keep margin erosion at bay. It reduced its selling, distribution, and administrative expenses by 3%. It's also trying to offset higher energy costs via price increases on its products. As Stephen Simpson pointed out in a previous article, Smucker is attempting to improve its operations by getting rid of low-margin businesses. The company credited solid performance in a few of its major brands -- Jif, Smuckers, and Crisco -- as top-line drivers.

The company did generate an increase in cash flow for the past six months. Net cash from operating activities rose 81% to $107.4 million, aided by working capital changes. Impressively, operational cash flow covered capital expenditures, payment of dividends, and share repurchases. Smucker said that it relied, in part, on a reduction in its quantity of shares outstanding to aid earnings during this period of elevated commodity pressures; it's good to see, then, that its cash flow covered the buybacks. There were acquisitions worth $60.4 million during this time period, but the company's interest coverage ratio is more than adequate to maintain the debt level.

Smucker has done a decent job on the cash flow front, judging by the latest 10-K:

2006

2005

2004

Net cash from operating activities

$198.3

$149.8

$136.6

Capital expenditures

$63.2

$87.6

$97.7

Free cash flow

$135.1

$62.2

$38.9

Dividends paid

$62.7

$56.1

$45.7
Figures in millions.

Smucker did have significant acquisition activity in 2004 (FY 2005), worth roughly $99 million. (Again, operating income is healthy enough to cover such investments.) Nevertheless, the company has improved its relationship between the dividends it pays and the free cash flow it generates. Net income rose during this time period as well.

Since Smucker wants to make shareholders happy via dividends, a check of the payout history is requisite. The quarterly payment has doubled over the last eight years, rising from $0.14 to $0.28. That's a nice record, showing confidence on the part of Smucker's management.

What are we to conclude from all this data? From my point of view, Smucker is a company buttressed by several famous brands, including Pillsbury baking products and Hungry Jack pancakes. (Hey, I'm hungry just thinking about them.) I'd recommend that long-term shareholders ignore the earnings miss and focus instead on Smucker's continued ability to raise its dividend over time. It generates cash flow, buys back shares, and knows how to market consumer goods.

True, the recent decline in operating income made Smucker's latest quarter no home run. All the same, investors interested in growing free cash flow might want to give Smucker a taste test.

Jam to further Foolishness:

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Fool contributor Steven Mallas owns none of the companies mentioned. As of this writing, he was ranked 936 out of 13,432 investors in the CAPS system. Don't know what CAPS is? Check it out. The Fool has a disclosure policy.