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Summary

  • Smucker's has the dominant share in US retail coffee.
  • The company has grown revenue per share at over 6% for the last decade.
  • Smucker's has increased its dividend for 16 consecutive years.
  • The company generates the bulk of its revenues in the US.
  • Smucker's has repurchased close to 15% of its market cap over the last 4 years.

The J.M. Smucker (NYSE:SJM) company was founded in 1897. Smucker's is a consumer brand food and coffee business. The company's flagship brands include Folger's coffee, Smucker's jellies, and Jif peanut butter. Smucker's had revenues of $5.6 billion for its most recent year. The company's revenue is divided into 3 divisions:

  • US Retail Consumer Foods (39% of revenue)
  • US Retail Coffee (38% of revenue)
  • International Food Services & Natural foods (23% of revenue)

(click to enlarge)
Source: SJM June 2014 Investor Presentation

Dominant Market Share

Smucker's holds dominant market share in several US retail food categories. Smucker's Crisco band is the most dominant, holding 67% of the $210 million US shortening market. The next nearest competitor has a market share of only 8%, less than 1/8th of Crisco's market share.

Smucker's also has a 29% market share of the $8.4 billion retail coffee industry. The company's second closest competitor has a market share of 15%. The company's strength in coffee is from its Folger's brand.

In addition to coffee and shortening, Smucker's has the #1 US retail market share in: peanut butter, fruit spreads, natural beverages, sweetened condensed milk, and ice cream toppings.

(click to enlarge)
Source: SJM June 2014 Investor Presentation

2014 Results

Smucker's 2014 results were mixed. The company posted strong net income per share growth of 8% due to higher margins and share repurchases. The company's top line revenue was down 5% in 2014, the first full year revenue decrease for Smucker's in several years.

Lower sales resulted from the company's decision to pass on cost savings in the coffee division. This strategy has not proven effective, and the company recently announced price increases in its coffee products.

In addition to lower prices, 2014 sales were negatively impacted by the company exiting hot beverage sales and Smucker's Uncrustables frozen sandwiches with international food service customers. The company is focused primarily on US growth, and it appears that international growth is stagnating due to the company's US focus.

Source: SJM 4th Quarter & Full Year Results

Future Growth Plans

Smucker's expects solid organic revenue growth of 5% in 2015. The company believes it can grow earnings per share by 8% over the long-term from organic growth (3% to 4%), acquisitions (2% to 3%), and share repurchases (~3%).

The company is looking for 3 types of businesses to acquire. The first of which are transformational acquisitions. These are very large acquisitions that substantially alter the company. The Folger's & Jif acquisitions are examples of transformational acquisitions. Secondly, the company is looking for bolt-on acquisitions; smaller brand acquisitions that leverage the company's core competencies. Finally, Smucker's is looking for enabling acquisitions; smaller brands that help the company enter new markets.

Smucker's is constantly developing new products to drive organic revenue growth. In 2014, the company launched over 100 new products. New product sales are likely to continue to drive growth going forward.

(click to enlarge)
Source: SJM June 2014 Investor Presentation

Smucker's future growth will come primarily from the US for the forseable future as the company continues to focus on building its strong US brands. The company has a history of making strategic acquisitions that have been accretive for shareholders, and will likely continue to acquire food businesses in the future when opportunities arise to enhance growth.

Shareholder Return

Shareholders of Smucker's can expect a CAGR of between 9.5% and 12.5% going forward from dividends (2%), share repurchases (3.5%), and organic growth (4% to 7%). The company has repurchased about $1.6 billion in shares over the last 4 years, which is close to 15% of the company's current market cap. Smucker's is a very shareholder friendly business that is likely to continue paying increasing dividends, repurchasing shares, and growing earnings per share.

Valuation

Smucker's current P/E of 19.71 is in line with its peers. The company appears to be fairly valued based on the P/E ratio compared to its peers.

Ticker

Company

P/E

GIS

General Mills, Inc.

18.76

K

Kellogg Company

12.59

GMCR

Green Mountain Coffee Roasters Inc.

35.55

MJN

Mead Johnson Nutrition Company

27.91

CPB

Campbell Soup Co.

21.62

CAG

ConAgra Foods, Inc.

15.92

SJM

The J. M. Smucker Company

19.71

MKC

McCormick & Co. Inc.

24.21

Median

20.67

Source: Finviz

Consecutive Years of Dividend Increases

Smucker's has paid dividends without interruption since 1949. The company has increased its dividend each year for 16 consecutive years. Smucker's long history of rewarding shareholders through dividend increases shows that it can grow profitably over long periods of time.

Why it matters: The Dividend Aristocrats (stocks with 25-plus years of rising dividends) have outperformed the S&P 500 over the last 10 years by 2.88 percentage points per year.
Source: S&P 500 Dividend Aristocrats Factsheet, February 28, 2014, page 2

Dividend Yield

Smucker's current yield of 2.17% is slightly higher than the yield of the S&P 500. The company has the 72nd highest dividend yield out of 128 businesses with 25+ years of dividend payments without a reduction.

Why it Matters: Stocks with higher dividend yields have historically outperformed stocks with lower dividend yields. The highest-yielding quintile of stocks outperformed the lowest-yielding quintile by 1.76 percentage points per year from 1928 to 2013.
Source: Dividends: A Review of Historical Returns

Payout Ratio

Smucker's current payout ratio of 41.70% is the 47th lowest out of 128 stocks with 25+ years of dividend payments without a reduction. The company's lower payout ratio gives it the ability to raise its dividend faster than overall company growth for several years.

Why it Matters: High-yield, low-payout ratio stocks outperformed high-yield, high-payout ratio stocks by 8.2 percentage points per year from 1990 to 2006.
Source: High Yield, Low Payout by Barefoot, Patel, & Yao, page 3

Long-Term Growth Rate

Smucker's has managed to compound revenue per share at over 6% a year for the last decade. This is the 44th quickest revenue growth out of 128 businesses with 25+ years of dividend payments without a reduction.

Why it Matters: Growing dividend stocks have outperformed stocks with unchanging dividends by 2.4 percentage points per year from 1972 to 2013.
Source: Rising Dividends Fund, Oppenheimer, page 4

Long-Term Volatility

Smucker's has long-term standard deviation of about 21%. The company has the 24th lowest standard deviation out of 128 businesses with 25+ years of dividend payments without a reduction. Smucker's low standard deviation shows it has stable, predictable cash flows.

Why it Matters: The S&P Low Volatility index outperformed the S&P 500 by 2 percentage points per year for the 20-year period ending September 30th, 2011.
Source: Low & Slow Could Win the Race, page 3

Conclusion

Smucker's is a growing business with dominant brands in the slow changing food industry. The company has a long history of rewarding shareholders with both dividends and share repurchases.

Smucker's is the 12th highest ranked stock out of 128 businesses with 25+ years of dividend payments without a reduction based on the 8 Rules of Dividend Investing. The company has solid growth, an acceptable dividend yield, fairly low payout ratio, and low volatility. Shareholders of Smucker's will likely compound their investment at around 10% a year, with limited risk.

Source: The Future Of J.M. Smucker Company