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J.M. Smucker Co. (NYSE:SJM) reports preliminary financial results for the quarter ended Oct. 31, 2012.

J.M. Smucker Co. recently reported its preliminary financial results based on which CapitalCube provides a unique peer-based analysis of the company. Our analysis is based on the company's performance over the last twelve months (unless stated otherwise).

J.M. Smucker Co.'s analysis vs. peers uses the following peer set: General Mills Inc. (NYSE:GIS), H.J. Heinz Co. (NYSE:HNZ), ConAgra Foods Inc. (NYSE:CAG), Ralcorp Holdings Inc. (NYSE:RAH), Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR), Hain Celestial Group Inc. (NASDAQ:HAIN), TreeHouse Foods Inc. (NYSE:THS), and B&G Foods Inc. (NYSE:BGS). The table below shows the preliminary results along with the recent trend for revenues, net income, and returns.

Quarterly (USD million)2012-10-312012-07-312012-04-302012-01-312011-10-31
Revenues1,628.71,369.71,355.41,467.61,513.9
Revenue Growth %18.91.1(7.7)(3.1)27.3
Net Income148.8109.9103.3115.9126.0
Net Income Growth %35.46.4(10.9)(8.0)14.1
Net Margin %9.18.07.67.98.3
ROE % (Annualized)11.58.57.88.69.4
ROA % (Annualized)6.54.84.55.05.6

Valuation Drivers

J.M. Smucker Co.'s current price/book of 1.8 is about median in its peer group. The market expects J.M. Smucker Co. to grow earnings about as fast as the median of its chosen peers (P/E of 19.5 compared to peer median of 19.6), but not to expect much improvement in its below peer median rates of return (ROE of 9.1% compared to the peer median ROE of 13.6%).

The company employs relatively high amounts of assets (with a turnover of 0.6 times compared to the peer median of 0.8 times) while generating profit margins of 8.2% that are only about median among its chosen peers. J.M. Smucker Co.'s net margin continues to trend downward and is now similar to its five-year average net margin of 8.5%.

Economic Moat

Growth in J.M. Smucker Co.'s revenues and earnings have been in line with its chosen peers (annual revenue growth of 14.5% and earnings growth of -5.0%, respectively). Its top-line performance seems to imply "more of the same" for earnings. J.M. Smucker Co. is currently converting every 1% of change in revenue into -0.3% change in annual reported earnings.

J.M. Smucker Co.'s return on assets currently is around peer median (5.2% vs. the peer median of 6.1%) -- similar to its returns over the past five years (5.6% vs. the peer median of 5.4%). This performance suggests that the company has no specific competitive advantages relative to its peers.

The company's gross margin of 35.7% is around peer median, suggesting that J.M. Smucker Co.'s operations do not benefit from any differentiating pricing advantage. In addition, J.M. Smucker Co.'s pre-tax margin of 12.6% is also around the peer median suggesting no operating cost advantage relative to peers.

Growth and Investment Strategy

While J.M. Smucker Co.'s revenues have grown faster than the peer median (13.7% vs. 6.7%, respectively, for the past three years), the market gives the stock an about peer median P/E ratio of 19.5. This suggests that the market has some questions about the company's long-term strategy.

J.M. Smucker Co.'s annualized rate of change in capital of 3.8% over the past three years is less than its peer median of 7.0%. This investment has generated a peer median return on capital of 7.3% averaged over the same three years. The median return on capital investment on a relatively lower investment suggests that the company is underinvesting.

Earnings Quality

J.M. Smucker Co.'s net income margin for the last twelve months is around the peer median (8.2% vs. the peer median of 8.2%). This average margin and relatively conservative accrual policy (9.5% vs. the peer median of 4.0%) suggests possible understatement of its reported net income.

J.M. Smucker Co.'s accruals over the last 12 months are positive suggesting a buildup of reserves. In addition, the level of accrual is greater than the peer median -- which suggests a relatively strong buildup in reserves compared to its peers.

Trend Charts

Company Profile

The J.M. Smucker Co. is engaged in manufacturing and marketing of food products. Its products are sold through a combination of direct sales and through brokers to food retailers, food wholesalers, drug stores, club stores, mass merchandisers, discount and dollar stores, and military commissaries. The company operates through three reportable segments: United States Retail Coffee, United States Retail Consumer Foods and International, Foodservice and Natural Foods. The company was founded by Jerome Monroe Smucker in 1897 and is headquartered in Orrville, Ohio.

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Source: Earnings Analysis: J.M. Smucker