We reaffirm our Neutral recommendation on
The J.M. Smucker Co
) following an appraisal of its third quarter fiscal 2013
Why the Reiteration?
Smucker posted strong fiscal third quarter results beating the
Zacks Consensus Estimate for both revenues and earnings. The
company's continued focus on its brands through innovations and
promotional offerings, strategic acquisitions, improving volumes
of K-cups and effective utilization of cash through buybacks
The company's earnings of $1.47 per share jumped approximately
20% year over year in the third quarter, primarily driven by
increased sales growth and lower share count due to share
buybacks. Net sales growth of 6% was driven by favorable sales
mix and benefits from the acquisition of Sara Lee Corporation's
North American foodservice coffee and hot beverage business in
January last year. Volume gains in the higher priced K-Cups
coffee brand and peanut butter business also fueled growth.
In addition, the company managed to offset higher peanut costs
in the quarter by acquisition gains, favorable sales mix and
lower green coffee costs. This was also reflected in higher gross
and operating margins in the third quarter.
Smucker also raised the lower end of its adjusted earnings
guidance to a range of $5.17 to $5.22 per share from 5.12 to
$5.22 per share announced previously. The company had already
increased its fiscal 2013 earnings guidance in the first and
second quarters, reflecting its attractive earnings
Following its third quarter earnings, Smucker slashed the list
prices by an average 6% for its flagship brand Folgers, its
licensed brand Dunkin' Donuts and majority of its packaged coffee
products sold in the U.S. The company has cut its prices for the
third time since year 2011 in response to decline in green coffee
However, the company has been experiencing volume declines in
major categories since last many quarters. Volumes declined 1% in
the third quarter due to declines in the Pillsbury, Canadian
Robin Hood and Five Roses flour brands, offset by gains in Jif
peanut butter and Smucker's fruit spreads. In addition, tough
foreign exchange environment, Euro-zone crisis and slow recovery
of the U.S. economy act as headwinds.
Smucker holds a Zacks Rank #3 (Hold). Other stocks in the food
industry that are portraying strong upward trend are
Flower Foods Inc
Kraft Foods Group Inc
). While Flower Foods carries a Zacks Rank #1 (Strong Buy), Kraft
and Kellogg hold a Zacks Rank #2 (Buy).
FLOWERS FOODS (FLO): Free Stock Analysis
KELLOGG CO (K): Free Stock Analysis Report
KRAFT FOODS GRP (KRFT): Free Stock Analysis
SMUCKER JM (SJM): Free Stock Analysis Report
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