JM Smucker: Pet Food to Peanut Butter

06/18/2019 5:00 am EST


John Buckingham

Editor, The Prudent Speculator

Shares of JM Smucker (SJM) rose modestly as the manufacturer and marketer of food products reported what we thought were solid fiscal Q4 2019 financial results, asserts John Buckingham, value investing expert, money manager and editor of The Prudent Speculator.

Smucker earned an adjusted $2.08 per share in the period, versus the analyst consensus of $1.95. Revenue was $1.90 billion, lagging investor expectations of $1.93 billion. The company is increasing marketing spend a bit to help stabilize market share over the long-term.

CEO Mark T. Smucker commented, “We are pleased with the progress that we made during the year towards executing against our strategic plan, which supported fourth quarter adjusted earnings growth of 8% and full-year adjusted earnings growth of 4%.

We successfully integrated Ainsworth, extending our leadership in pet foods, while our key growth brands delivered double-digit sales growth, demonstrating the power of our brands when supported by ongoing product innovation, including 1850 coffee and Jif Power Ups.

We continued to focus on productivity, allowing us to deliver on our cost reduction targets for the year, providing fuel for investment in future growth.”

Looking ahead, Mr. Smucker explained, “As we transition to fiscal year 2020, our organization is committed to delivering on its growth imperatives to lead in the best categories, build brands consumers love, and be everywhere our consumers want us to be. Disciplined investment in our brands across pet food, coffee, and snacking leaves us well-positioned to drive sustainable financial growth and enhance shareholder value for the long term.”

The company also announced that it sees full-year fiscal 2020 adjusted EPS in the range of $8.45 to $8.65, while free cash flow is expected to come in between $875 million and $925 million.

While there will continue to be operating headwinds and competitive pressures, we like the diversification SJM adds to our broadly diversified portfolios and think that management’s focus on pet foods and healthier franchises will boost the long-term prospects for the company.

While shares are up 33% so far in 2019, we think they have more room left to run. The stock sports a forward price-to-earnings ratio of 14.6 and a 2.7% dividend yield. Our target price has been increased to $144.

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