This Coffee Maker’s Quarter Looks Refreshing
Himanshu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The J.M. Smucker Company (NYSE: SJM) posted energizing fourth quarter results recently meeting the Street’s expectations and making its investors happy in spite of various obstacles coming its way. Its revenue rose 14% to $1.36 billion and its earnings jumped 10% to $1.10 per share. Let’s delve deeper.
Refreshing Quarter with Some Pain
An increase in product prices in order to fight rising input costs led to higher revenue for the quarter. But this increase in price was not as good as it looks because it came as a shock to the consumers and made them move away from Smucker’s products leading to decline in volumes. The company has been struggling with the rising raw material prices and consumers’ sensitivity towards price increase which is hurting its sales volumes. But little moderation in the commodity prices has brought some relief and the coffee giant also cut its price recently which is expected to help them reclaim their lost market share.
Another booster of revenue for the quarter was the acquisitions made by the coffee maker during the year. Its acquisition of the coffee company Rowland Coffee Roasters made the retail coffee segment, Smucker’s biggest business segment, witness a growth rate of 7% in its sales. Revenue for the retail consumer foods segment jumped 5% driven by increased prices and revenue for the International and foodservice segment moved north by 47% due to the buyout of the American foodservice coffee and hot beverage business from Sara Lee Corp (NYSE: SLE). Sara Lee’s coffee business concentrates on liquid coffee sold along with cappuccino and cocoa products in North America. The acquisition is expected to strengthen Smucker’s position as a market leading coffee giant. But margins for the segments shrunk because of increases in raw material prices such as coffee and peanut butter.
A Point Of Respite
The company witnessed growth in earnings in spite of having to spend a lot on promotional activities. Also, the increase in the adjusted profit already incorporates the loss made due to the sale of fruit and vegetable business in Europe during the year. Moreover, softening of coffee prices and expected sales gain from Sara Lee’s business led Smucker to raise its outlook for fiscal 2013.
The Bottom Line
The coffee giant is expected to gain big time with the acquisitions making it more focused on its best business segment. The company has taken steps to cut down on its price making it more attractive to the consumers and making its products more competitive. Moreover, the retreat of coffee prices from its 34 year high has given hopes of increase in volumes. Taking these points into consideration I think it’s a worthy stock to watch.
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