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Summary

  • Smuckers (NYSE:SJM) is an interesting investment choice with decent dividends and fast growth.
  • Revenue has increased by an average of 21% annually over the past four years.
  • Earnings have increased by an average of 38% annually over the past four years.
  • These astoundingly high numbers are put into perspective by the fact that Smuckers has dramatically increased its number of shares over this time period, so the fuel for this growth was largely due to issuing shares.
  • The company is still partly family run, meaning that management should have long-term goals in mind.
  • The company has a clean balance sheet with a Total Debt/Equity ratio of 0.17.
  • The dividend yield is about 2.60% and has grown by an average of 7% annually over the past 5 years. The most recent increase was 14%.
  • Smuckers looks like a decent value with share prices in the low $60s.

How to Read My Stock Analysis Reports

Overview

The J.M. Smuckers Company was founded in 1897, is headquartered in Ohio, and is still run by the Smuckers family.

The company produces jam, jelly, preserves, peanut butter, sandwich products, ice cream toppings, baking products, oil, juices, and coffee.

The company draws its revenue almost entirely from North America.

Business Segments

The four business segments are:

U.S. Retail Coffee Market
This segment has high profit margins, accounting for 37% of total company sales but 49% of total company profits. The biggest product here is Folgers Coffee which was acquired in 2008 from Procter and Gamble (NYSE:PG).

U.S. Retail Consumer Market
This segment accounts for 24% of total company sales.

U.S. Retail Oils and Baking Market
This segment accounts for 20% of total company sales.

Special Markets
This segment accounts for 19% of total company sales.

Revenue, Earnings, Cash Flow, and Margins

Smuckers has had massive revenue, earnings, and cash flow growth because it has issued shares to pay for big acquisitions.
Note: Smuckers ends its fiscal year in April.

Revenue Growth

Year Revenue
2010 $4.605 billion
2009 $3.758 billion
2008 $2.525 billion
2007 $2.148 billion
2006 $2.154 billion

Smuckers has increased company revenue by an average of 21% per year over these past 4 years.

For the full year ending in 2002, Smuckers had $650 million in sales, 25 million shares outstanding, and 2,300 employees. For the full year ending in 2010, Smuckers had $4,605 in sales, 119 million shares outstanding, and 4,850 employees. This amounts to a monstrous 28% average revenue growth over that 8 year period, but the cost was that shares were dramatically diluted. But, looking at the numbers, in 2002, Smuckers had $26 in sales per share, while in 2010 Smuckers had over $38 in sales per share. This amounts to about 5% in average annual sales growth per share.

Earnings Growth

Year Earnings
2010 $494 million
2009 $266 million
2008 $170 million
2007 $157 million
2006 $143 million

Over these four years of growth, the company has grown net earnings at a rate of about 38% per year. This outrageous number is impressive, but keep in mind that the company also dramatically increased its number of shares during this time period.

As of April 2010, the company has a little bit over 118 million in shares outstanding. This number was a little under 57 million during April 2008.

Cash Flow Growth

Year Earnings
2010 $713 million
2009 $445 million
2008 $192 million
2007 $273 million

During the three years of growth between 2007 and 2010, Smuckers has increased cash flow at a rate of nearly 38% per year. Again, the increase in the number of shares must be kept in mind.

Profit Margin

Smuckers has a profit margin of about 11%. This number is up over the 5 year average due to a large acquisition of Folgers coffee in 2008 which carried with it very high margins.

Dividends

Smuckers currently has a dividend yield of about 2.60%.

Dividend Growth

Year Dividend Yield
2009 $1.37 2.70%
2008 $1.26* 2.70%
2007 $1.18 2.30%
2006 $1.11 2.40%
2005 $1.06 2.20%
2004 $0.98 2.10%

* During 2008, Smuckers also paid a one-time large special dividend as part of an acquisition deal which is not included here.

During this time period, the company has grown its dividend by an average of 7% annually. The most recent increase between 2009 and 2010 was an increase from $0.35 per quarter to $0.40 per quarter which is an increase of over 14%. The payout ratio is currently only about 34% which is moderately low and provides a lot of room for dividend growth and stability.

Balance Sheet

Smuckers has an outstanding balance sheet. The ratio of Total Debt to Equity is only 0.17 meaning that Smuckers has a fairly low debt load.

Investment Thesis

Smuckers is an interesting investment choice. With a market capitalization of over $7 billion, Smuckers has size and stability but plenty of room to grow. There are several Smuckers family members that own millions of dollars in company stock and run the company. When you have your name and your wealth on the line, in addition to 110+ years of operating history, you’re almost certainly going to think in the long-term instead of stressing about short term profits to please shareholders. Family-run companies in general tend to align with what makes a dividend-paying company good in the first place: consistency and an emphasis on long-term returns. The leaders are likely to be focused on building their company, not on their pay packages and perks.

The company, as can be seen by the above financial information, has chosen to focus on a path of dramatic growth that it has fueled by issuing shares to pay for acquisitions. Its largest purchase by far was Folgers which had a huge effect on company revenue and earnings. This is worth noting with caution, but I feel that the risk is reduced by the fact that the company has continually grown shareholder value and is led by the Smuckers family which has its name and wealth on the line. As large as it was, I feel that Folger’s, a major home coffee brand in the US, was a good acquisition for the long-run.

Smuckers has a long line of successful acquisitions in its history:
2003- Crisco and Jif
2004- Crosse and Blackwell
2005- Pillsbury, Robin Hood, Golden Temple, Martha White, Bicks, Hungry Jack
2007- Five Roses, White Lily
2008- Eagle Brand, Europe’s Best, Snack’n Waffles, Carnation, King Kelly
2009- Folgers, Knotts

The main emphasis by this company is to focus on establishing and maintaining #1 brands.

In 2008, Smuckers initiated and completed a very large acquisition of Folgers coffee from Procter and Gamble, and this was reported under the 2009 fiscal year. This resulted in issuance of stock, a special large dividend, and massively increased revenue and profits. Smuckers now has a huge string of growth along with share dilution with the overall result being increased shareholder value.

In the next few years into 2013, according to a recent investor presentation, Smuckers is focusing on company restructuring. They will be consolidating fruit spreads, ice cream toppings, and syrups into an existing Ohio facility and a new Ohio facility that they will begin construction on. Coffee manufacturing will be consolidated into two existing facilities in Louisiana. The company expects to save $60 million per year and reduce its workforce by 15%, and the restructuring cost is expected to be $190 million.

The company’s long-term objective is to grow sales at a rate of 6% per year while growing earnings-per-share by at least 8% per year. The plan is to do this through new products, increased market share, and acquisitions. When the dividend is included in these projections, the company hopes to offer solid growth to shareholders.

Risks

Like any company, SJM has risks. Being a food company, they are a defensive stock, but they always face risk in two main forms: commodity costs and cheaper private label competition. In addition, in contrast to many large American companies, Smuckers has most of its sales and operations in North America, meaning it is geographically concentrated.

Conclusion and Valuation

I find that Smuckers is attractively valued as it currently is, with shares trading hands in the low $60s.

Disclosure: I own shares of SJM at the time of this writing.

Source: J.M. Smucker Stock Analysis: Still Room to Grow