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This Company Will Make Your Portfolio Strong

June 25, 2014 | About:
Suravi Thacker

Suravi Thacker

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People want healthy food and have become highly health conscious. Therefore, the demand for healthy food, especially organic and natural food has risen. This has forced many food retailers to enter the organic food industry and take advantage of the growing industry. Companies such as J.M. Smucker (SJM) have also got into this domain by making an acquisition of a natural food provider.

However, J.M. Smucker is suffering from change in green coffee costs, which is hampering its results. Its recently reported fourth quarter results also highlighted the problems of rising green coffee costs. Moreover, chilled winter affected sales during the period.

Into the quarter

Lower coffee prices led to a decline of 8% in revenue during the quarter, clocking in at $1.2 billion. Coffee prices were lowered by the company since coffee costs had declined at the beginning of the year. However, the situation seems to be changing and rising coffee costs are forcing the retailer to raise coffee prices.

Also, the company exited some of its hot beverage and sandwich business in its Foodservice segment, which led to a drop of 7% in the revenue from International and Foodservice segment.

However, the food retailer witnessed growth in volumes in most of the categories. For instance, Folgers brand’s volume increased 3% and that of Dunkin’ Donuts surged 7%. Also, the most popular Jif and Smucker’s volumes grew 2% during the quarter. This highlights that the company is witnessing great demand for its products and customers are willing to buy its products.

Earnings during the quarter fell 9% to $1.16 per share as higher coffee costs weighed on the bottom line. Also, costs related to exit from various businesses as well as higher promotions to attract customers played an important role.

Efforts to consider

Although Smucker’s quarter was not so interesting, its efforts do make it look attractive for future. It introduced 100 new products over the last one year, which included products such as Pillsbury baking mixes, new K-Cups variations, JifWhips and much more. These items have given customers an extra reason to look for J.M. Smucker.

Moreover, it has expanded its manufacturing capacities such as spread plant in Ohio and a peanut butter facility in Memphis. These efforts should also help the company boost its revenue. Additionally, its acquisition of Enray last year, a provider of premium organic food, should again add to its revenue base. With the growing popularity of natural foods, the company is benefitting from this buyout.

Even peer TreeHouse Foods (THS) made a similar move to expand its organic food segment. It acquired Protenergy Natural Foods last month, which will attract health conscious customers as well as expand its product portfolio. This is indeed a great move to boost its revenue.

Summarizing

J.M. Smucker is a growing company and is making a host of efforts to enhance its presence. Although its latest quarter was not so attractive, its undertaken measures make its future look bright. Moreover, its new products and acquisitions will instigate more customers. It has also increased its annual dividend by 11%, which delighted its investors. Therefore, this food retailer makes for a great investment pick for the long term.


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