J.M. Smucker Co. recently reported its preliminary financial results based on which we provide a unique peer-based analysis of the company. Our analysis is based on the company’s performance over the last twelve months (unless stated otherwise). For a more detailed analysis of this company (and over 40,000 other global equities) please visit www.capitalcube.com.

The J.M. Smucker Company (NYSE:SJM)’s analysis versus peers uses the following peer-set: General Mills, Inc. (NYSE:GIS),  H.J. Heinz Company (NYSE:HNZ), ConAgra Foods, Inc. (NYSE:CAG), Ralcorp Holdings, Inc. (NYSE:RAH), Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR), The Hain Celestial Group, Inc. (NASDAQ:HAIN), TreeHouse Foods Inc. (NYSE:THS) and B&G Foods, Inc. (NYSE:BGS). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.

Quarterly (USD million) 2012-10-31 2012-07-31 2012-04-30 2012-01-31 2011-10-31
Revenues 1,628.7 1,369.7 1,355.4 1,467.6 1,513.9
Revenue Growth % 18.9 1.1 (7.7) (3.1) 27.3
Net Income 148.8 109.9 103.3 115.9 126.0
Net Income Growth % 35.4 6.4 (10.9) (8.0) 14.1
Net Margin % 9.1 8.0 7.6 7.9 8.3
ROE % (Annualized) 11.5 8.5 7.8 8.6 9.4
ROA % (Annualized) 6.5 4.8 4.5 5.0 5.6

Valuation Drivers

J.M. Smucker Co.’s current Price/Book of 1.8 is about median in its peer group. The market expects SJM-US to grow earnings about as fast as the median of its chosen peers (PE of 19.5 compared to peer median of 19.6) but not to expect much improvement in its below peer median rates of return (ROE of 9.1% compared to the peer median ROE of 13.6%).

The company employs relatively high amounts of assets (with a turnover of 0.6x compared to peer median of 0.8x) while generating profit margins of 8.2% that are only about median among its chosen peers. SJM-US’s net margin continues to trend downward and is now similar to its five-year average net margin of 8.5%.

Economic Moat

Growth in The J.M. Smucker Company (NYSE:SJM)’s revenues and earnings have been in-line with its chosen peers (annual revenue growth of 14.5% and earnings growth of -5.0% respectively). Its top-line performance seems to imply ‘more of the same’ for earnings. SJM-US is currently converting every 1% of change in revenue into -0.3% change in annual reported earnings.

The J.M. Smucker Company (NYSE:SJM)’s return on assets currently is around peer median (5.2% vs. peer median 6.1%) — similar to its returns over the past five years (5.6% vs. peer median 5.4%). This performance suggests that the company has no specific competitive advantages relative to its peers.

The company’s gross margin of 35.7% is around peer median suggesting thatThe J.M. Smucker Company’s operations do not benefit from any differentiating pricing advantage. In addition, The J.M. Smucker Company (NYSE:SJM)’s pre-tax margin of 12.6% is also around the peer median suggesting no operating cost advantage relative to peers.

Growth & Investment Strategy

While SJM-US’s revenues have grown faster than the peer median (13.7% vs. 6.7% respectively for the past three years), the market gives the stock an about peer median PE ratio of 19.5. This suggests that the market has some questions about the company’s long-term strategy.

SJM-US’s annualized rate of change in capital of 3.8% over the past three years is less than its peer median of 7.0%. This investment has generated a peer median return on capital of 7.3% averaged over the same three years. The median return on capital investment on a relatively lower investment suggests that the company is under investing.

Earnings Quality

SJM-US’s net income margin for the last twelve months is around the peer median (8.2% vs. peer median of 8.2%). This average margin and relatively conservative accrual policy (9.5% vs. peer median of 4.0%) suggests possible understatement of its reported net income.

SJM-US’s accruals over the last twelve months are positive suggesting a buildup of reserves. In addition, the level of accrual is greater than the peer median — which suggests a relatively strong buildup in reserves compared to its peers.

Trend Charts

Graph of Revenues Trend for J.M. Smucker Co. (NYSE:SJM)
Graph of Revenues Trend for J.M. Smucker Co. (NYSE:SJM)
Graph of Net Margin Trend for J.M. Smucker Co. (NYSE:SJM)
Graph of Net Margin Trend for J.M. Smucker Co. (NYSE:SJM)
Graph of Accruals Trend (% revenues, Quarterly) for J.M. Smucker Co. (NYSE:SJM)
Graph of Accruals Trend (% revenues, Annual or TTM) for J.M. Smucker Co. (NYSE:SJM)

Company Profile

The J. M. Smucker Co. is engaged in manufacturing and marketing of food products. Its products are sold through a combination of direct sales and through brokers to food retailers, food wholesalers, drug stores, club stores, mass merchandisers, discount and dollar stores, and military commissaries. The company operates through three reportable segments: United States Retail Coffee, United States Retail Consumer Foods and International, Foodservice and Natural Foods. The United States Retail Coffee segment represents the domestic sales of Folgers, Dunkin’ Donuts, Millstone, Cafe Bustelo, and Cafe Pilon coffee to retail customers. The United States Retail Consumer Foods segment includes domestic sales of Smucker’s, Crisco, Jif, Pillsbury, Eagle Brand, Hungry Jack, and Martha White products. The International, Foodservice, and Natural Foods segment is comprised of products distributed domestically and in foreign countries through retail channels, foodservice distributors and operators, for example restaurants, schools and universities, health care operators and health and natural foods stores and distributors. The company was founded by Jerome Monroe Smucker in 1897 and is headquartered in Orrville, OH.


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