The J. M. Smucker Company SJM appears to be in great shape, with its shares having risen 23.1% over the past year, outperforming the industry’s growth of 15.7%. The company has been benefiting from its solid pricing and robust digital sales. Focus on buyouts and prudent partnerships has also been strengthening The J. M. Smucker’s brand. These upsides, together with a healthy financial profile, seem to be boosting investors’ optimism in this Zacks Rank #2 (Buy) stock.
Let’s delve deeper.
The J. M. Smucker actively pursues strategic acquisitions both in the United States as well as overseas. The acquisition of Ainsworth (completed in May 2018) has been aiding the performance in the U.S. Retail Pet Foods category. Other noteworthy acquisitions of the company include; Big Heart Pet Brand (pet food maker), Sahale Snacks (branded nut and fruit snacks maker), Enray Inc. (manufacturer of organic, gluten-free ancient grain products) and coffee brands and business operations of Rowland Coffee, among others. These acquisitions have added iconic brands to the company’s portfolio and strengthened its presence in the United States.
The J. M. Smucker has formed key partnerships with quite a few coffee companies. In this regard, the company's latest alliance with JDE Peet’s is noteworthy. The J. M. Smucker’s agreement with Keurig Green Mountain (KGM) and Dunkin’ Brands Group, Inc, to manufacture and sell the K-Cup category of products, has also been yielding results since fiscal 2016. In the fourth quarter of fiscal 2021, sales of K-Cup grew 14%, forming more than 30% of the U.S. Retail Coffee segment sales.
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Robust Pricing & Away From Home Demand Recovery
In fourth-quarter fiscal 2021, the company saw favorable net price realization to the tune of 1 percentage point, mostly driven by the U.S. Retail Consumer Foods and U.S. Retail Pet Food units. Apart from this, the Away From Home division saw a rebound, with sales rising 7%. While net sales are expected to decline 2-3% in fiscal 2022, on a comparable basis, they are expected to grow about 2% (at the mid-point of the net sales view). This upside is likely to be backed by higher net pricing in several categories, a revival in away-from-home channels and continued sales growth in Smucker's Uncrustables brand.
Digital Business Aids
The J. M. Smucker has been focused on enhancing its e-commerce channel, given the growing trend of online customers. In fact, e-commerce is a fast-growing retail channel of the company. On its fourth-quarter fiscal 2021 earnings call, management said that e-commerce sales formed 12% of the company’s U.S. sales. Management anticipates witnessing continued strength in the e-commerce channel in the forthcoming periods as consumers adapt to online shopping amid the pandemic.
The J. M. Smucker’s financial flexibility helps it undertake shareholder-friendly moves. Earlier this month, management announced a dividend hike, when it stated that the company will now pay a quarterly cash dividend of 99 cents per share, reflecting 10% growth from the prior rate of 90 cents. This marks the 20th successive quarterly dividend hike. The increased dividend will be paid out on Sep 1 to shareholders of record as of Aug 13, 2021. The J. M. Smucker is also focused on making share buybacks. The company repurchased 1.5 million shares worth $174 million in the fourth quarter and 5.8 million shares for $678 million in fiscal 2021. The company has a dividend payout of 39.6%, a dividend yield of 2.8% and a free cash flow yield of almost 9%. With an annual free cash flow return on investment of 10.2%, the dividend payment is likely to be sustainable.
All said, The J. M. Smucker looks all set to keep its growth story going.
3 More Lucrative Food Stocks
Darling Ingredients DAR, which currently carries a Zacks Rank #1 (Strong Buy), has a trailing four-quarter earnings surprise of 29.8%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
Medifast MED has a Zacks Rank #2 and its bottom line outpaced the Zacks Consensus Estimate by 12.7% in the trailing four quarters, on average.
Lamb Weston LW has a Zacks Rank #2 and a long-term earnings growth rate of 10.8%.
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