More than One Iconic Brand
Kyle is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Consumers are often unaware of the businesses behind the brands in their pantry. Investors, however, know that some of the world's most prestigious companies control more than one iconic brand. When you think about the peanut butter and jelly sandwiches, J.M. Smucker (NYSE: SJM) should come to mind.
Caffeine and more
Smucker is also the largest U.S. producer of packaged coffee. In February, it appealed to coffee drinkers by reducing prices on its packaged coffee products, including Folgers brand and Dunkin' Donuts line, the latter of which is licensed to Smucker. Being able to deliver savings via price cutting is good sign for a company.
If you end up seeing a Life is good brand coffee on your favorite grocer's shelves, don't think its a startup. Smucker has teamed with the Boston based company to provide upbeat coffee names such as Happy Medium. The snappy marketing should help the brand stand out, particularly in grocery stores, where competition is growing.
While some say Smucker is too dependent on coffee, U.S. consumption remains strong. According to Statistic Brain, adults drink coffee every day, regardless of the season. And the proof is in the numbers. Free cash flow has more than doubled since 2011 and net income has held steady the past three years.
Smucker is not a high growth stock, but it does provide defense and stability for your portfolio. If business ventures like the Life is good deal prove successful, you should continue to expect strong operating margins of around 15%. Smucker already has a huge presence all over the country and Canada, so costs should remain low while it attempts to attract a younger, more diverse consumer group.
While the Oreo may be "America's favorite cookie," Mondelez is trying to convince the world to share this opinion. The Nabisco brand is just one of nine that record sales of $1 billion or more. Mondelez has been focused on global expansion and its in a good spot because it controls 15% of the chocolate market and 30% of the chewing gum market on a global scale.
Mondelez also has a strong presence in other food categories. For example, it controls 18% of the biscuit industry. And this share is over four times larger than its closest competitors, Kellogg and Campbell Soup. Holding its own against juggernauts and securing over $2 billion in free cash last year, Mondelez has the brand power and dough to meet its global ambitions.
Master of its Kraft
Kraft's core grocery, cheese, beverage, and frozen meals segment have nine brands that bring in over $500 million in revenue per year. First quarter earnings blew away Wall Street estimates and Kraft stood by its full year projections. When one of its top North American brands is called Jell-O, it's time to take a closer look.
CEO Tony Vernon reported a 16% growth in and this brand now owns nearly a 30% share in the U.S. and Canada. Management believes brand focus and efficient promotion of key areas such as salad dressing are critical to fending off competitors.
Now that Kraft is basically a North American grocery business, its annual revenue of $18 billion will move with the U.S. economy. It even sports a dividend of almost 4%. Which is perfect for income investors because its healthy cash flows, now around $2.5 billion appear stable.
Grocery may not be the most profitable investment on the market, but the U.S. and Canada grocery market is massive and expects to grow by at least 3% in the coming years. Kraft is also responsible for the Planters nuts on your cocktail table and the A-1 steak sauce in your fridge. While its biggest challenge may be keeping up with the evolving health trends of consumers, Kraft is already in 98% of households, in one way or another.
Among heavy-hitting competitors such as Heinz and global behemoth Unilever, it's promising that Kraft and Mondelez have continued to grow market share. Smucker has held its own in the coffee arena while sustaining a 2% dividend and has the cash to keep innovating. Choose your food and beverage companies wisely and it will reward you. Know the brands and you will know your investments.
Shares of Mondelez International fell immediately after it separated from its parent company, Kraft. Is this an indictment of the idea, or a buying opportunity today? Our top consumer goods analyst will give you the scoop in our premium research report on Mondelez. Just click here now for instant access.
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