Smucker (SJM) Shines on Yielding Buyouts and Savings Plans
The J. M. Smucker Company SJM is an appropriate pick for investors, courtesy of prudent acquisitions and benefits from savings plans. This Zacks Rank 2 (Buy) stock has rallied 26.7% in the past six months compared with the industry’s rise of 5.7%. Let’s delve deeper.
Acquisitions Aid Growth
Smucker actively pursues strategic acquisitions in the United States and overseas. We note that the buyout of Ainsworth is bolstering performance in the U.S. Retail Pet Foods category and driving the top line. In fact, during the fourth quarter of fiscal 2019, net sales increased 7% year over year, mainly driven by the Ainsworth buyout and gains from growth brands. Other noteworthy acquisitions are Big Heart Pet Brand, Sahale Snacks, Enray Inc and coffee brands as well as business operations of Rowland Coffee among others. These acquisitions have added iconic brands to the company’s portfolio and strengthened footing in the food space.
The company has formed key partnerships with quite a few coffee companies. Smucker’s agreement with Keurig Green Mountain as well as Dunkin’ Brands Group, Inc to manufacture and sell the K-Cup category of products is yielding results since fiscal 2016. The company has been consistently extending partnership with KGM to augment K-Cup business opportunities.
Enhancing Savings and Other Growth Efforts
Smucker resorts to cost-saving initiatives to fuel investments and augment operating performance. In early fiscal 2018, the company generated synergies of nearly $200 million from its pet food synergy program. In fiscal 2019, the company delivered savings of nearly $30 million through the right-spend program. Going ahead, management is focused on cost reduction and optimization efforts to ensure greater profitability.
Additionally, the growing trend of online customers has urged Smucker to take notice of its e-commerce channel to boost sales. In fact, e-commerce is a fast-growing retail channel of the company. In the digital realm, the coffee and pet food categories are steadily expanding. We note that during fiscal 2019, e-commerce sales improved nearly 50%. Management expects to continue gaining from increasing online sales in the forthcoming periods.
Moreover, the company is utilizing the digital platform to enhance consumer engagement. Further, it is on track with product launches under banners such as Folgers, Milk-Bone and Nutrish. The company is also ramping up marketing support for growth brands.
Clearly, Smucker is striking the right chords to stay on growth track. In fact, the company’s well-chalked moves are likely to mitigate headwinds stemming from rising costs, low net price realization and divestitures of certain weak businesses. That said, we expect the company to maintain its position as a prominent player in the food space.
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Campbell Soup Company CPB, with long-term earnings growth rate of 5%, carries a Zacks Rank #2.
The Chefs' Warehouse CHEF, with a Zacks Rank #2, has long-term earnings growth rate of 15%.
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