This Stock Could Be Your Family Fortune
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JM Smucker (NYSE: SJM) has had success producing and marketing popular brands like Folgers, Jif, and Smucker’s. Since it was founded in 1897, the company has been a family-run business that has offered consumers quality food. While family management might not always the best management for investors, Smucker family members have been effective executives.
When a company goes public, the founding family can find it hard to relinquish power. But in the case of JM Smucker, they didn’t have to. Since 1897 the company has had five chief executives, all with the last name Smucker. Current Smucker family executives include Chairman of the Board Timothy Smucker, CEO Richard Smucker, President of U.S. Retail Coffee Mark Smucker, and President of U.S. Retail Consumer Foods Paul Smucker Wagstaff.
This would appear to be obvious nepotism, but having family management has worked for Smucker. The company recently posted a 14% year-over-year increase in earnings per share to $5.37 for the 2013 fiscal year. This comes from revenue of $5.9 billion, a 7% increase.
Al Yeagley, a former Vice President and Smucker employee for 38 years, explained how a having the leadership of the Smucker family was a positive:
The real secret is the family. They treat people the way you want to be treated. It's the old golden rule.
This is why JM Smucker is consistently ranked in Fortune’s top 100 Companies to Work.
Smucker has divided its operations into coffee, consumer foods, and the catch-all international, food service, and natural food segment. 2013 was a good year for Smucker, with positive growth in all three segments. This growth can be attributed to the 70 new items launched during 2013 and a 10% increase in marketing.
During the fourth quarter of 2013, retail coffee volume increased 6%, leading to a profit increase of 18% in the segment. Green coffee cost moderation allowed the company to lower its prices during the year, contributing to the volume growth.
The K-cup and premium coffee businesses also play a large part in growing the coffee segment. K-cup sales increased 18% to $290 million, and are projected to continue growing in 2014 with the addition of two new varieties. Dunkin’ brand premium coffee experienced a 29% increase in volume. The company has completed a $70 million expansion to its coffee factory in New Orleans to support coffee expansion in the future.
Consumer foods' volume growth was 4%. Driving this increase was a 17% peanut butter volume increase. Specifically, Smucker’s Uncrustables had a strong fourth quarter, with volume up 22%. This momentum is expected to continue into 2014 with back-to-school promotions.
Moving forward, Smucker will continue growth in 2014 by releasing 100 new products and continuing to invest more heavily in marketing. The company has a long term growth target of a 6% sales increase and 8% earnings-per-share increase.
ConAgra competes with Smucker in the area of consumer foods, which accounts for more than half of ConAgra’s sales. With brands such as Hunts, Healthy Choice, and Chef Boyardee, the company is known for producing second-tier foods. The gross margin of ConAgra is 23%, which is low compared to Smucker’s 35%. This shows that Smucker retains more of its revenue than ConAgra.
Kraft Foods is a recent spinoff of Mondelez International; it focuses on consumer packaged food and beverages. The company experienced issues related to its spinoff but has been slowly returning to business as usual. The company had a 2.1% and 2.4% increase in revenue and volume, respectively, during its last quarter. Kraft produces coffee, and followed Smucker in reducing the price of its coffee by 6%. Kraft has a smaller coffee market share of at 6.8% compared to Smucker’s 11.8%.
Smucker has a lower dividend yield of 2.18%, compared to ConAgra and Kraft’s 2.80% and 3.60%, respectively. This is after a recent dividend increase of 11.5% by Smucker.
JM Smucker continues to innovate quality products and is a great example of how a founding family can successfully run a publicly owned company. The company continues to increase dividends and repurchase shares to return wealth to investors. With a beta of 0.49 showing low volatility, this is a good defensive stock for risk averse investors.
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