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Smucker Unveils Plans for Investment in Sherbrooke Facility

Zacks Equity Research

The J. M. Smucker Company’s SJM Canadian business unit namely, Smucker Foods of Canada Corp., announced intentions to invest in the Sherbrooke manufacturing facility. The move is well aligned with the company’s efforts to strengthen business portfolio through strategic investments and partnerships.  Let’s take a closer look.

Efforts to Strengthen Business

The Sherbrooke facility is engaged in the production of Carnation evaporated milk and Eagle Brand sweetened condensed milk. The latest investment, of nearly $12 million, will primarily be utilized to upgrade the facility’s equipments, which is likely to provide greater flexibility and enable production capacity expansion. Further, management highlighted that the investment is likely to broaden the company’s domestic milk sourcing. Also, Smucker expects to launch packaging systems, which are currently unavailable in the region. Clearly, such efforts are likely to bolster Smucker’s presence in Sherbrooke and positively impact the company’s Canadian business as a whole.   

Apart from strategic investments, Smucker has also formed key partnerships and is undertaking buyouts to enhance revenues. In the respect, we note that the company’s agreement with Keurig Green Mountain and Dunkin’ Brands Group, Inc to manufacture and sell the K-Cup category of products is yielding results. Moreover, the Ainsworth acquisition is bolstering the performance in the U.S. Retail Pet Foods category. Other noteworthy buyouts include — Big Heart Pet Brand, Sahale Snacks and Enray Inc. The company is also focused on brand building through product innovations.



Can Strategies Aid Revival?

Despite such efforts, Smucker has been sailing on troubled waters, thanks to higher costs and lower net price realization. Well, this Zacks Rank #4 (Sell) stock has lost close to 11.8% in a year compared with the  industry’s decline of 9.1%.

Speaking of the deterrents, lower net price realization was a drag on Smucker’s top line and gross margin in the second quarter of fiscal 2019. In fact, lower net price realization has been weighing on the performance of the company’s U.S. Retail Coffee, the International and Away from Home categories for a while.

Also, high freight costs marred Smucker’s profitability in the U.S. Retail Pet Foods category in the second quarter. Moreover, management expects higher freight costs to drag earnings in fiscal 2019. The company’s interest expenses have been rising for a while. To top these, the divestiture of the U.S. baking business is hindering the company’s performance. Investors’ sentiments were further dented by lowered view for fiscal 2019.

Although such headwinds make us apprehensive, we expect that Smucker’s well-chalked moves to strengthen business will aid a revival in the long run.

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