If you're to look in your food pantry you may find companies that provide immunity against obsolescence unlike fast changing technology companies. Food conglomerates J.M. Smucker (NYSE:SJM), Kraft Foods (NASDAQ:KRFT.DL), and Mondelez (NASDAQ:MDLZ) may serve as a good investment. However, investing legend Peter Lynch once said, "Investing without research is like playing stud poker and never looking at the cards." Let's look under the proverbial hood at the fundamentals of these companies to see if they are investment worthy.
PB & J and so much more
J.M. Smucker sells items such as coffee under the Folgers and Millstone brands and food items such as Smucker's jelly, Jif peanut butter, and Hungry Jack biscuits. The company caters to retailers and foodservice companies domestically and internationally. J.M. Smucker's performance, fundamentally, leaves room for improvement. Year to date revenue and free cash flow declined 4% and 18% respectively.
Price cuts and the exit of certain businesses in its International, Foodservice, and Natural Foods segment contributed to this revenue decline. Its free cash flow declined due to the timing of payments to vendors and receipts from customers and to provide for working capital. On a bright note net income increased 8% so far this year with lower commodity costs and the acquisitions of Enray and Cumberland contributing to gains in profitability. The U.S. Coffee segment represented J.M. Smucker's only product segment to see growth in year to date profitability.
J.M. Smucker needs to improve its cash position. Last quarter it registered at $169 million or a mere 3% of stockholder's equity. On the plus side, J.M. Smucker saw its long-term debt decline 5% last quarter, dropping its long-term debt to equity ratio to 36% from 38% the same time last year . J.M. Smucker paid out a frugal 40% of its free cash flow in dividends so far this year. Currently the company pays shareholders $2.32 per share per year in dividends and yields 2.4%.
The name behind your groceries
Kraft Foods sells many of the groceries you may find in your refrigerator and cupboard such as Kraft cheese, Philadelphia cream cheese, Oscar Mayer cold cuts, Planters nuts, and Maxwell House coffee . A look at Kraft Foods' fundamentals reveals that its revenue remained basically even last year. Price cuts and volume increases balanced each other out. Its net income increased 65% in 2013 while its free cash flow declined 38%.
Cost savings and a one-time gain from "market-based impacts on certain post-employment benefit plans" contributed heavily to the net income expansion. The backing out of the line item "market-based impacts to postemployment benefit plans" resulted in a lower balance in Kraft Foods' operating cash flow contributing to the decline in free cash flow. Kraft Foods' balance sheet shows cash and long-term debt to equity ratios of 33% and 192% respectively. Last year Kraft Foods paid out 75% of its free cash flow in dividends . Currently the company pays shareholders $2.10 per share per year and yields 3.7%.
Snacks and cookies
Mondelez International sells snacks, food, and beverages under brand names such as Nabisco, Oreo, Trident, Jacobs coffee, and Tang. Last year Mondelez International grew its revenue, net income, and free cash flow 1%, 28%, and 102% respectively. Higher volume and pricing contributed to growth in revenue stemming mostly from the Eastern Europe, Middle East, and Asia regions. One-time accounting gains, lower spin off costs, and positive litigation settlements accounted for about half of the gains in operating income contributing to the expansion in net income. Higher net income, favorable impacts from debt extinguishment, and timing of accounts payable/receivable contributed to the gains in free cash flow.
Mondelez International's balance sheet shows cash and stockholder's equity clocking in at 8% and 45% respectively. Mondelez International saw a decrease in its long-term debt of 7% last year resulting in its long-term debt to equity going from 48% in 2012 to 45% in 2013. Last year, Mondelez International paid out 19% of its free cash flow in dividends. Currently the company pays $0.56 per share per year and yields 1.6%.
If you're looking for growth, Mondelez offers the most potential as it derives a great deal of growth from the emerging markets such as Eastern Europe, Middle East, and Africa. J.M. Smucker and Kraft will need to find new markets to drive top and bottom line growth. Also, like most large companies they can derive increases in profitability by cutting costs and playing the balancing game between price and volume.