We recently reiterated our Neutral recommendation on
The J.M. Smucker Company
) 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.
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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
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
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
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.
), carries a Zacks #2 Rank (short-term Buy rating).