This Stock is Smoking Hot
Himanshu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The food industry has been undergoing a lot of changes in recent times. Though it'll never go out of vogue, since people keep eating as long as they live, it has its own set of problems. Increasing costs and budget-conscious consumers have made life difficult for food retailers; thanks to penny-pinching shoppers, even a small increase in product prices can lead to lower volumes.
However, some great food companies have managed the situation well, and are now witnessing better days. J.M. Smucker (NYSE: SJM) posted particulaly remarkable third-quarter results. Let’s see what it did.
An all-around performance…
Great demand for J.M. Smucker’s products, as well as a shrewd acquisition strategy, drove revenue north by 6% from last year, clocking in at $1.56 billion. The success of K-Cups has been a cushion for a number of companies, especially Green Mountain Coffee Roasters, and Smucker was no exception.
Smucker’s K-cups sales surged 50% as consumers continued to drink more and more coffee. However, another key reason of the top line growth was Smuckers' buyout of Sara Lee's food and beverage business, which contributed one-third to the increase.
Smucker gets even more interesting when we get to the bottom line. Due to higher sales and decreasing coffee costs, the company witnessed increasing margins as well as higher earnings.
The well deserved segment
J.M. Smucker’s International, Foodservice, and Natural Foods segment was a remarkable performer during the quarter. Along with the benefits of Sara Lee’s acquisition, huge demand for natural foods led to revenue growth of 28%. The increasing popularity of natural and organic foods, driven by health-conscious consumers, has contributed largely to the industry players, including J.M. Smucker.
For example, Whole Foods Market (NASDAQ: WFM) is one those players who cater to a niche crowd, who are looking for premium organic food. Consumers want healthy products so much so that they seem indifferent to higher costs. In spite of its price increases, demand for Whole Foods’ products rose, leading to a 14% jump in first-quarter revenue over last year. The food company has also been expanding its reach every quarter, backed up by new product launches.
The future looks glamorous
Smucker has been smart with its strategies. It has been managing its costs well and keeping customers happy by passing on its lower costs to customers. This has led to more and more demand for its products. Moreover, its strategy of introducing new products and acquiring other companies has been quite fruitful. This has led the company to plan on 19 new product launches in future.
Overall, increasing demand for both natural food and K-cups is proving lucky for J.M. Smucker. With new product and business additions, the company is expected to do even better. I believe this company is a strong one and can prove to be a great investment in the long run.
justhimanshu has no position in any stocks mentioned. The Motley Fool recommends Green Mountain Coffee Roasters and Whole Foods Market. The Motley Fool owns shares of Whole Foods Market. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!