A Well-Rounded Look at This Company

William is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

J.M. Smucker (NYSE: SJM), maker of the well known jellies along with other iconic food brands such as Jif peanut butter and Folger’s coffee, provides a good opportunity for the long term investor. However, even when a company makes a “needed” product such as food (Hostess represents a good example), all aspects of the company -- strengths, weaknesses, opportunities and threats -- need further examination.

Strengths

Coffee - It’s safe to say that people love their coffee providing that jolt to get them started on the day. The highest volume gainer for Smucker resided with the U.S. coffee retail segment. The Folger’s brand itself gained 6% in volume in the last quarter. Packaged coffee under the Dunkin' Donuts licensed brand gained 11%. However, the coffee segment as a whole gained only 1% in revenue due to price declines.

Natural Foods – The segment including international, foodservice, and natural foods increased volume by 4%, highlighting the need in the marketplace for healthier foods.

Weaknesses

Jelly and peanut butter - That’s right. Smucker’s segment with the largest decline came from its U.S. retail consumer foods division, which sells Jif peanut butter and Smucker’s jelly, the products people know the company by. Volume declined 6% and 11% for Jif and Smucker’s fruit spread respectively.

The flight to healthier foods could be the culprit here. I can see a nation of parents encouraging kids to eat apples and oranges for snacks and lunches instead of peanut butter and jelly sandwiches. Peanut butter and jelly also represent a lunch food that a number of people may not take time to prepare due to busy schedules.

Industry trends indicate a pickup in demand for “food on the go.” Campbell’s Soup's (NYSE: CPB) sales of ready-to-serve meals increased 4% in the most recent quarter. Its U.S. simple meals segment increased 3% overall. Kraft's (NASDAQ: KRFT) refrigerated meals segment, which includes “Lunchables,” increased 4% last quarter. Introducing more finished products might prove beneficial to Smucker.

Opportunities

International expansion - Smucker’s minimal presence in the international scene presents an opportunity. In fiscal year 2012 non-Canadian international sales comprised only 1% of sales. Canadian flour brands Red Robin and Five Roses contributed the most to volume gain in this segment.

Smucker just began its foray into the Chinese market earlier this year by investing in Seamild, which makes oats for that market. In future years Smucker will introduce the rest of the world to Smucker’s jam, Jif peanut butter and Folger’s coffee.

Threats

Healthy tastes - The shift in consumer tastes toward foods perceived as healthier could shift demand away from peanut butter and jelly.

Established global competition - The strong foothold by multinational food conglomerates poses a huge hurdle for Smucker, especially on beverages such as coffee.

Mondelez owns several coffee brands in the international markets. Grand Mere leads the coffee market in France. Jacobs has a strong presence in Eastern Europe and Kenco can be found in UK coffee pots.

Domestic coffee competition - Smucker faces stiff coffee competition on the domestic front. Kraft owns one of the most well known brand names in America other than Folger’s in Maxwell House, a brand that delivered strong gains according to the most recent earnings announcement. Kraft also owns Gevalia, which sells coffee in several nations such as Denmark, Finland, and Sweden.

Conclusion

Coffee and natural foods represent Smucker’s greatest strengths. Jelly and peanut butter represent volume weaknesses stemming from a shift toward healthier and “on the go” foods. Smucker’s greatest opportunities and threats are overseas, where it faces stiff competition in the company’s flagship product, coffee. Smucker definitely has room to grow.


stockdissector has positions in Kraft and Mondelez 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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