Have you Strengthened your Portfolio with this Food Giant?
Himanshu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
In the current environment of cost inflation, which is depressing eateries, the only option for any retailer is to pass this on to the customers. But the main problem arises when the price hikes scare away consumers, as they cut down on their consumption. Here is an exception which I believe has done a commendable job of managing it smoothly without affecting results. J.M. Smucker (NYSE: SJM), provider of branded food products, posted first quarter results that beat market expectations, sending the stock price north.
The All in One Package
With good quality products in its kitty and inorganic growth the company earned itself a place in the list of star performers. Consumers’ liking for its products was so strong that even price increases did not scare them away. Smucker’s acquisition of the American hot beverage business from Sara Lee Corp once again boosted the top line. Moreover, Sara Lee's business has been very fruitful to the retail coffee segment of J.M. Smucker. Its products, such as the cappuccino, are consumer favorites in North America. This segment has been growing fast and is expected to be the star segment in the future.
J.M. Smucker largely benefited with the sale of K-Cup pods, which have been a growing attraction for customers. The segment has registered strong sales growth and customers’ enthusiasm indicates greater potential. K-Cups have been very successful and have contributed to the performance of Smucker’s licensed Dunkin' Brands (NASDAQ: DNKN) as well. Dunkin' Donuts is on the key drivers list of the food and coffee retailer, representing 15% of its coffee sales.
All segments performed well during the quarter. There are other drivers that should be taken notice of. Smucker’s product innovation played an incremental role in the results. It has already launched 50 new products and plans to continue with the streak for the rest of the year. Product innovation has been a priority for the food giant along with its line of acquisitions.
Filling in the Gaps…
The company has fallen weak on its promotional efforts since its rivals such as Kraft Foods (NASDAQ: KRFT) have been on the lead to attract more customers. Kraft Foods was successful in snatching away some market share from Smucker due to its large marketing spend. But J.M. Smucker hasn’t given up yet and plans to increase its promotional spending to witness better results in the coming time.
Moreover, Smucker looks quite positive with commodity inflation stabilizing and the company’s declaration of no further price increases for the year. Improvement in volumes, even after excluding the impact of acquisitions, is quite a definite reason to be optimistic about the future.
Bottom Line
J.M. Smucker has been a decent performer with a growing coffee business in the U.S. It has been a good dividend paying stock and has increased almost 11% since its fourth quarter results. Also, the company’s stock price hit its high after posting a stellar quarter with lots of potential for the future. Amazing demand for Smucker’s products has been the major push for the company.
Moreover, its increased promotional effort and innovative offerings can stir the slow demand prevailing in the economy. If a company can do well in the wake of input inflation and rising product prices then, with things getting lighter, it is expected to post blockbuster numbers. I believe this company definitely deserves a place in your portfolio.
justhimanshu 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.
