Shares of J.M. Smucker (SJM, Financial) have surged 16% in the past year. The food products company has a wide variety of products under its umbrella, which resonates with the customers. Although the food items have been quite popular and have helped revenue grow, the volatile coffee prices have been a matter of concern. Therefore, the company’s recently reported third quarter results were mixed, where the top line was slightly below the Street’s estimates, and the bottom line managed to beat it.Â
In-depth analysis
Revenue for the quarter dropped 2% to $1.44 billion, as compared to the previous year. This decline in the top line was mainly due to lower volumes, especially in the coffee segment. Therefore, the company fell short of analysts’ estimates of $1.47 billion.
The coffee sales in the U.S. slipped 1% to $571.8 million. This was because of higher green coffee costs, which resulted in an increase in coffee prices. Also, reduced promotions from the food company led to lower sales. Further, there are a number of cheaper options available to the customers, which made them switch to the other coffee brands in order to keep their pockets intact. Thus, profits from the coffee business fell 13% for the last nine months.
Nonetheless, Smucker witnessed a great demand for its peanut butter so much so that 70% of households have Jif peanut butter and snack bars.Ă‚
Although the earnings for the quarter declined 6% to $1.58 per share, it was ahead of the analysts’ estimate of $1.51 per share. Moreover, the food retailer has taken up measures to restructure its costs in order to boost the bottom line.
Future plans
Since demand for coffee is on the decline, the company plans to lower coffee prices. It will make smaller packages and increase promotions for premium coffee, which is expected to boost demand. Also, it has entered into a partnership with Dunkin Donuts to sell coffee.
Smucker also plans to launch Jif peanut powder and Jif bars this summer. With this introduction, it would be the first national company to offer peanut powder, demand for which is expected to double in the next few years. It will also expand the Jif hazelnut offerings to add a swirled spread and a sweet flavor with hazelnut.
In fact, the food company has a list of new additions to its portfolio, which includes new fruit and honey spreads, Uncrustables lines of frozen sandwiches, and the Folgers Perfect Measures in selected markets. In addition, it plans to launch Folgers Iced Café, which contains pure coffee.
Additionally, the acquisition of Big Heart Pet Brands will strengthen the company’s foothold in the pet food business and grow its U.S. Retail consumer food segment. This new acquisition is in addition to Sahale Snacks in September 2014 and Enray in August 2013.
In conclusion
J.M. Smucker is performing well in the food industry. The new additions of products in the upcoming months will further boost its business. The coffee segment, too, is expected to get better if prices are lowered and costs are cut. Moreover, the company provided a dividend of $0.64 per share, along with a dividend yield of 2.25%. Therefore, this company is definitely worth a bet.
