6 Takeaways From J.M. Smucker’s Earnings Announcement

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On June 6, J.M. Smucker (NYSE: SJM) released results for its 4th quarter and FY 2013 which lasts from May 1 to April 30 of each calendar year. The company performed well for the full year improving profitability margins and lowering debt. The six takeaways highlighted below represent key elements in determining the investment worthiness of this company.

Price sensitivity

You learn that brand loyalty starts to fade as the price of branded products such as Jif peanut butter and Folger’s coffee begin to increase. The Jif product line faced volume challenges when the company raised prices 30% in the earlier part of FY 2012 according to J.M. Smucker’s earnings call. Lowering the prices of Jif products contributed to a 17% volume growth in fiscal year 2013.

The same goes for J.M. Smucker’s coffee segment. Price reductions contributed to a 4% volume growth for J.M. Smucker’s coffee segment for FY 2013.

Brand focus

J.M. Smucker wants to initiate capital expenditures on building capacity for expanding the Jif and Uncrustable brands. It even wants to convert one its fruit spreads plants in Memphis, Tennessee into a peanut butter facility. Specifically, new Jif products include Jif Whips, Jif Almond and Cashew Butter.

Brand support of its Folger’s brand resulted in Folgers receiving the Coffee Brand of the Year in the Harris Poll rankings according to its earnings call.

J.M. Smucker plans to launch two new varieties of its K-Cup coffee line next fiscal year.

Excellent year

J.M. Smucker improved upon many important metrics for FY 2013. Sales, operating income, and free cash flow all increased 7%, 17% and 42% respectively. Return on equity went from 9% in 2012 to 11% in 2013. In addition, all of its profitability margins increased as well. It only paid out 34% of its free cash flow in dividends and currently yields around 2.1% per year.

Efficiencies brought on by increased volume and cost saving initiatives contributed to top and bottom line growth despite declines in prices.

Competitor ConAgra Foods (NYSE: CAG) posted a higher revenue increase of 8%, but profitability and margins all declined. ConAgra’s free cash flow declined 20% for the year.

Kraft Foods Group (NASDAQ: KRFT) saw a decline in revenue of 2% last year. Free cash flow increased 16% a far cry from J.M. Smucker’s increase of 42%.

Mondelez International (NASDAQ: MDLZ) showed declines in revenue and free cash flow of 2% and 12% last year.

Lukewarm quarter

While J.M. Smucker had an excellent year, its quarterly results left much to be desired. Its revenue and free cash flow declined 1% and 40% respectively in its most recent quarter. The top line decline stems from the price declines taken on Jif peanut butter and coffee.

Competitors ConAgra Foods, Kraft Foods Group, and Mondelez International all experienced increases in revenue of 13%, 2% and 1% respectively in their most recent quarter. Free cash flow of all three companies declined 9%, 236%, and 48% respectively.

Low debt

J.M. Smucker doesn’t possess a heavy debt burden. Long term debt to equity and total debt to equity equate to 38% and 75% respectively. J.M. Smucker’s times interest earned holds steady at 9.75. Its debt laden counterparts, ConAgra, Kraft Food Groups’, and Mondelez’s long term debt to equity ratios stood at 63%, 279%, and 48% respectively in their last fiscal years. The times interest earned on ConAgra Foods, Kraft Foods Group, and Mondelez calculates to 4, 10, and 2 respectively.

J.M. Smucker shareholders can breathe easier knowing the company possesses a little greater capability to make interest payment on its debt.

Cautious outlook

J.M. Smucker expects revenue for FY 2014 to remain relatively even due to price cuts taken in FY 2013. The company expects commodity costs to soften, lowering its overall cost of goods sold. Increased capital expenditures resulting from investment in expanding capacity for its Jif peanut butter and Uncrustables products should leave free cash flow even with this year.

Conclusion

J.M. Smucker possesses a strong portfolio of brands and plans to spend the next year expanding its major product lines. In addition, J.M. Smucker provides its investors with a decent dividend yield. J.M. Smucker possesses the groundwork for superior long term performance. Its competitors are spread a little thin (pardon the pun) and operate under a heavier debt burden which could hinder their long term performance.

Moreover, Kraft Foods Group is entering a new era after its recent corporate breakup. Its brand power is indisputable and its market share dominates, but Kraft's growth potential is limited and its heavily-commoditized categories face massive pressures. In The Motley Fool's premium report on the company, we guide you through everything you need to know about Kraft, including the key opportunities and threats facing the company. To get started, simply click here now.


William Bias owns shares of Kraft Foods Group and Mondelez International. The Motley Fool has no position in any of the stocks mentioned. 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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