Tags: J.M. | Smucker | coffee | SJM

J.M. Smucker Gets Tailwind from Moderating Coffee Prices

By    |   Tuesday, 28 Aug 2012 02:35 PM

J.M. Smucker (SJM) has taken off in recent trading, in part on strength following consolidation of its 2008 acquisition of major coffee label Folgers and of Rowland Coffee Roasters, as well as the 2012 deal to buy a stake in the coffee business of Sara Lee Corporation. Analysts point to moderating coffee prices as tailwind for the stock.

J.M. Smucker operates principally in one industry, the manufacturing and marketing of branded food products on a worldwide basis. Sales outside the U.S. represented approximately 9 percent of consolidated sales for fiscal 2012.

The company’s branded food products include a strong portfolio of trusted, iconic, market-leading brands that are sold to consumers through retail outlets in North America, management said in a recent filing.

The principal products of the company are coffee, peanut butter, fruit spreads, shortening and oils, baking mixes and ready-to-spread frostings, canned milk, flour and baking ingredients, juices and beverages, frozen sandwiches, toppings, syrups, and pickles and condiments.

J.M. Smucker has three reportable segments: U.S. retail coffee; U.S. retail consumer foods; and international, foodservice, and natural foods. The company’s two U.S. retail market segments in total comprised nearly 80 percent of net sales in 2012 and represent a major portion of the strategic focus area for the company — the sale of branded food products with leadership positions to consumers through retail outlets in North America.

J.M. Smucker has a market cap of $9.38 billion in a sector, food products, where the average company size is $9.16 billion. Its trailing 12-month P/E ratio is 20.82 and its five-year projected price-to-earnings-growth (PEG) ratio is 2.63, compared to 2.1 for the sector.

Its projected earnings per share growth for the coming year is 9.09 percent, compared to a sector average of 13.87 percent.

Competitive pressures

Analysts are positive on SJM, with buy or outperform calls from Deutsche Bank and Standard & Poor’s Equity Research. Thomson Reuters/Verus rates the stock a sell.

“Over time, we expect acquisitions and cost reductions to bolster SJM's results. Also, in the year ahead, we anticipate that coffee costs will be more favorable than they have been during the past year or so, which should better position SJM to absorb lower sales prices for coffee, which we think will help volume,” Standard & Poor’s analysts wrote on Aug. 21.

“Risks to our recommendation and target price include competitive pressures and commodity cost inflation. The 2009 adoption by SJM directors of a shareholder rights plan seems to have been aimed at protecting SJM's independence.”

J.M. Smucker next reports on Nov. 16.

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