J.M. Smucker Remains Neutral - Analyst Blog

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We recently reiterated our Neutral recommendation on The J.M. Smucker Company ( SJM ) as the company continued to be challenged by unfavorable foreign currency translation as well as the global macroeconomic headwinds. Euro-zone crisis and slow recovery of U.S. economy continued to affect the company's top-line.

However, the company commands a strong brand portfolio that consists of brands like Smucker's, Folgers, Dunkin' Donuts, Jif, Crisco, Pillsbury, Eagle Brand, R.W. Knudsen Family, Hungry Jack, Café Bustelo, Café Pilon, White Lily and Martha White in the United States as well as Robin Hood, Five Roses, Carnation and Bick's in Canada.

Smucker plans to position Folgers Gourmet selections as its entry level premium coffee brand and expects to keep the price competitive with brands such as Eight O'Clock coffee. The company also plans to branch out into specialty nut butters in fiscal 2013. It also plans to launch chocolate and mocha cappuccino varieties of Jif hazelnut spreads in fiscal 2013.

Smucker actively pursues strategic acquisitions that might help the company to gain control over the domestic market as well as tap the fast growing emerging markets. The acquisition of North American foodservice coffee and hot beverage business of Sara Lee Corporation in January 2012 enriched Smucker's portfolio with Sara Lee's market-leading liquid coffee concentrate brand Douwe Egberts. Again, in March 2012 the company entered the fast-growing Chinese market and has taken control of the region's oat category food business through acquiring a non-controlling minority interest in the privately-owned Seamild in China.

Additionally, inflationary pressure of coffee prices has subsided and the prices are expected to fall in 2013. This will prove to be a great boon for coffee companies like JM Smucker, whose margins were being crippled due to high input costs in the past few quarters. Following the drop in green coffee costs, J. M. Smucker had lowered its price in May this year. This narrowed the gap between premium and ordinary coffee prices, and eventually led to the slight improvement in volume during the first quarter of fiscal 2013. If the price remains stable, we expect higher volume growth leading to higher profits for the company.

However, the company experienced volume declines in major categories in all the four quarters of fiscal 2012. After having reported volume decline of 1% and 3% in first quarter and second quarter of fiscal 2012, respectively, the company suffered a wider-than-expected 10% volume decline in the third quarter, fuelled by decline in mainstream categories like coffee, peanut butter and oils. The trend continued and volume plummeted by 7% in the fourth quarter due to decline in all the segments. Although volume improved marginally by 2% in the first quarter of fiscal 2013, it was mostly due to lower volume in the comparable year-ago quarter.

Moreover, foreign currency fluctuations against a strong dollar are pulling down revenues of most companies like J M Smucker that have significant business outside U.S.

Additionally, the slow pace of economic recovery is keeping the consumers' budget under check. Slow job growth, high interest rates and tightened credit availability continues to hurt the consumer discretionary spending

Headquartered in Orrville, Ohio, The J.M. Smucker Company engages in manufacturing and marketing of branded food products in the United States, Europe and Canada. Currently, J M Smucker, which competes with companies like Green Mountain Coffee Roasters Inc. ( GMCR ), carries a Zacks #2 Rank (short-term Buy rating).

GREEN MTN COFFE (GMCR): Free Stock Analysis Report
SMUCKER JM (SJM): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Symbols: GMCR , SJM

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