J. M. Smucker (SJM) Expands Portfolio with Wesson Oil Brand

Food manufacturer The J. M. Smucker CompanySJM inked an acquisition agreement with one of North America's largest packaged food companies ConAgra Brands Inc. CAG to acquire Wesson oil brand for about $285 million in cash. This excludes an expected tax benefit of about $45 million. Post the announcement, shares of Smucker dipped 0.31% yesterday.

Per the agreement, the acquisition, which is still subject to regulatory approval, will be funded with debt. Smucker expects annual net sales of $230 million and additional adjusted earnings of 10 cents per share in the first full year of the closing of the deal. The company also expects to realize annual cost synergies of about $20 million within two years of the closing of the deal. ConAgra will continue to manufacture products and provide other services after the completion of the sale until Smucker consolidates the same into its existing oil manufacturing plant in Cincinnati, OH.

Of late, ConAgra has been selling non-core brands in an effort to focus on higher-margin, more contemporary and higher-performing company brands. Prior to Wesson oil brand, the company sold its private label operations to TreeHouse Foods, Inc. THS in Feb 2016.

On the other hand, Smucker has been actively pursuing acquisitions in both the U.S. and overseas. The acquisition of pet food maker Big Heart Pet Brand in Mar 2015 has brought opportunities to the company to expand in the fastest growing pet food and snacks category in the U.S. The acquisition significantly contributed to the top line in fiscal 2016. With the acquisition of Seattle, WA-based Sahale Snacks, Inc., which manufactures and markets premium, branded nut and fruit snacks, in early Sep 2014, the company acquired a new snacking brand.

With the acquisition of Enray Inc. in Aug 2013, the company took control of Enray's flagship brand truRoots, which has helped it to grow across the rapidly growing gluten free market. Enray, is a manufacturer and marketer of premium organic, gluten-free ancient grain products. The acquisition is expected to add sales in excess of $50 million on an annual basis, thus increasing the scale of the company's natural foods and specialty businesses.

Other acquisitions by Smucker include Seamild in China, Hillshire Brands Company's North American foodservice coffee and hot beverage business in 2012, and the coffee brands and business operations of Rowland Coffee in 2011. These acquisitions have also added iconic brands to the company's portfolio and strengthened its presence in the U.S.

However, Smucker's share price has been underperforming the Zacks categorized Food-Miscellaneous/Diversified industry over the past three months. The Zacks Rank #4 (Sell) stock declined 9.2% in comparison to the Zacks categorized industry, which increased 0.9%. Notably, the industry is part of the bottom 25% of the Zacks Classified industries (198 out of the 265). The broader Consumer Staples sector is placed at the bottom 19% of the Zacks Classified sectors (13 out of 16).

Estimates have also dipped 0.1% to $7.64 in fiscal 2017 and by 0.3% to $7.83 in fiscal 2018 over the past 60 days. We note that Smucker posted weak third-quarter fiscal 2017 results, where the bottom line met estimates, after posting positive surprises in the past six straight quarters. In addition, sales marked its third consecutive miss. Sales have been declining due to currency headwinds, lower coffee volumes, lower pricing and sluggish pet food sales. The recent increase in coffee prices will also negatively impact the coffee volumes. Though the company remains optimistic on the company's acquisitions and innovation program and remains focused on improving the performance of the mainstream dog and cat brands, heightened competition in the pet food business in the near term remains a concern. Further, management expects top-line softness in the business and across the industry to negatively impact the company's growth.

J.M. Smucker Company (The) Price, Consensus and EPS Surprise

J.M. Smucker Company (The) Price, Consensus and EPS Surprise | J.M. Smucker Company (The) Quote

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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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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