On August 17, 2012, the J. M. Smucker Company (SJM) released earnings that topped analyst estimates by a significant amount. According to Reuters, it made $1.17 for Q1 2013, beating analyst's estimates of $1.00 by 17%. Last quarter, Q4 2012, it earned $1.10 vs analyst's estimates of $0.99 for an 11.1% beat. Estimates for Q2 2013 are $1.41 and Q3 2013 are $1.44. The stock was up 5.05%, closing at $82.96 for the day. For a good explanation of the company's products this article by David Zanoni provides details. A major line of the business is the U.S Retail Coffee segment.
It appears that Folgers Gourmet Selections and Millstone K-Cups have contributed to a 4% increase in U.S. Retail coffee for Quarter 1 2013. It should be noted that Folgers competes directly with both Starbucks (SBUX) and Green Mountain Coffee Roasters (GMCR) and there may be some trading down by hard-pressed consumers. The discussion by management provides further detail on the most recent quarter's results. The following passage from Vincent C. Byrd President, Chief Operating Officer, and Director offers some insight into the coffee business:
Of particular note is the continued strong performance of our K-Cup offering. Once again, the product line exceeded our expectations, delivering an incremental $31 million in sales growth for the quarter. As a reminder, this business does tend to be more seasonal than our traditional coffee business, particularly around the pre- and post-holiday season. Based upon the continued success of K-Cups, we are revising our projections and now expect K-Cup sales to grow approximately 60% in 2013.
I have owned J.M. Smucker since shares were spun off to me from Procter and Gamble (PG) in 2002. The company has always been a good dividend growth stock as can be seen by the graph below showing SJM vs. the S&P 500 (SPY):
The following table shows dividend reinvestment of a $10,000 investment 5 years ago in JM Smucker stock:
|Stock||Date of reinvest||Div Rate||# Shares||Dividend||Drip price||# Shares pur||Total Value||Current Yield|
These figures have been graphed below:
It can be seen from the graph that the only setback to the growth of the investment was the Great Recession of Q4 2008-Q2 2009. The investment of $10,000 in Q1 2008 grew to $17,967 by Q3 of 2012, for an annual growth rate of 13.12%. Smucker has been increasing dividends for the past 12 years and the 5-year dividend growth rate is 10.6%. Since it is more of a growth stock, the yield remains around 2.5%, due to share appreciation. The ttm P/E is 20.45 and the debt/total assets ratio is 43.35%. Year over year earnings per share growth are projected to be 25.62% for 2013. (Data from Yahoo Finance and David Fish's CCC charts)
Conclusion: J. M. Smucker has been expanding through acquisitions recently and appears to have a good coffee product, especially with the K-Cups. Consumer's budgets are stressed today, by high unemployment and underemployment rates throughout the world. This has made consumers more cost conscious and may be causing a trend toward lower priced beverages. In addition, many older consumers, like myself, can no longer drink sodas and have become coffee connoisseurs by default.
I am quite pleased with my investment in SJM and have reinvested the dividends ever since I received the stock, enjoying the high growth of investment shown in the charts above. If you would like to invest in Smucker, be sure you do a thorough due diligence first.