The Sweet Taste of Smuckers
John is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
You may have heard that J.M. Smuckers (NYSE: SJM) is currently facing problems regarding its Folgers coffee products; there was a problem with the supplier that provides the company with coffee canisters. This has led to a bit of inventory juggling to make sure that stores have enough coffee to meet consumer demand, though Smuckers is confident that this is merely a short-term setback that will be overcome fairly quickly. Given that Folgers is the top retail coffee brand in the US I imagine that it's going to do everything it can to make sure that most consumers never even know that there was a problem.
Of course, when you think of "Smuckers" you likely don't think of Folgers coffee. I was actually somewhat surprised when I first read about the canister shortage because until then I didn't even know that J.M. Smuckers owned Folgers. I had always associated the Smuckers name with the jams and preserves that "have to be good," but came to find out they actually offer a wide range of products including Eagle Brand condensed milk, Crisco shortening and the packaged Dunkin Donuts brand you can pick up at the grocery store.
Having discovered this new side of Smuckers, I decided to dig a bit deeper to see if there was anything else that I didn't know. It turns out that not only is the Smuckers brand a good buy at the grocery store, but it's also a good buy for investors. J.M. Smuckers has been having a good year, and has a good outlook in the year ahead as well.
At the beginning of October, J.M. Smuckers hit a 52-week high with shares trading at $86.45. Not only did this beat the $80 per share high point of 2011, but it marks the highest point in a long-term growth trend that started in March 2009, when shares were trading for $35.01. In fact, the lowest points of the past year was only $71, and though prices have dropped by approximately $3 per share since that high point was reached the decline already shows signs of leveling out.
The company released its Q1 earnings for the 2013 fiscal year back in August; it showed a 4.5% growth over the previous year and paid a $0.52 per share dividend (which was 8% higher than the previous year's Q1 dividend.) Overall, J.M. Smuckers expects to see a 7% increase in net sales during the 2013 fiscal year, a target that they could very well surpass if the company's momentum continues as it has for the past few years.
One thing that will help the company to meet this projected increase is the purchase of a large portion of the Sara Lee's tea and coffee business back in January; another portion of the company was sold to Ralcorp Holdings, while the remaining portions of Sara Lee were sold to split into two companies: Hillshire Brands (nyse:hsh) and D.E. Master Blenders 1753. This purchase gives Smuckers additional hot beverage options on the market, and created a noticeable bump in the company's net sales in the latter half of the 2012 fiscal year.
The splitting of the Sara Lee assets hasn't seemed to create excess competition for Smuckers, either; Hillshire Brands deals largely in meats and other savory products through product lines such as Hillshire Farms and Jimmy Dean, while D.E. Master Blenders focuses on the international coffee market. Hillshire Brands' offerings largely complement those of Smuckers, especially when you consider that the two companies together represent the largest portion of Sara Lee's US business.
A final thing that should help J.M. Smuckers in the coming year is the fact that it appears that coffee prices could stabilize in 2013. The rising price of coffee has been cutting into Smuckers' profit margins, so a price stabilization would definitely help ease some of the uncertainty about the company's coffee business. As I mentioned, it owns the #1 retail coffee brand in the country; stable pricing will help the company avoid price hikes that might cause Folgers to lose ground to competing brands such as Starbucks and Maxwell House. It will also help this sweet brand to ensure its continued growth for the foreseeable future.
Croaxleigh has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.