The J.M. Smucker Company (NYSE: SJM) posted weak results recently. The company's revenue dropped 5% year over year while its earnings grew 3.2%. The company has been struggling due to a number of headwinds. However, it is trying to make a comeback with a number of moves. Let's take a closer look at how Smucker is trying to make a comeback.
Refreshing quarter with some pain
Increase in product prices in order to fight rising input prices led to weak revenue for the quarter. But this increase in price was not as good as it looks because it came as a shock to the consumers and made them move away from Smucker’s products leading to decline in volume. The company has been struggling with the rising raw material prices and consumers’ sensitivity towards price increase which is hurting its sales volume. But little moderation in the commodity prices has brought some relief, and the coffee giant also cut its price recently which is expected to help it reclaim its lost market share.
Another booster of revenue could be the acquisitions made by the coffee maker. Its acquisition of the coffee company Rowland Coffee Roasters made the retail coffee segment, Smucker’s biggest business segment, witness growth in the segment. Revenue for the retail consumer foods segment jumped, driven by increased prices and revenue for the International and foodservice segment moved north by due to the buyout of the American foodservice coffee and hot beverage business from Sara Lee. But margins for the segments shrunk because of increase in raw material prices such as coffee and peanut butter.
A point of respite
The company witnessed growth in earnings in spite of having to spend a lot on promotional activities. Also, the increase in the adjusted profit already incorporates the loss made due to the sale of fruit and vegetable business in Europe during the year. Moreover, softening of coffee prices and expected sales gain from Sara Lee’s business led Smucker to raise its outlook.
The bottom line
The coffee giant is expected to gain big time with the acquisitions making it more focused on its best business segment. For the raw material price increases the company has taken steps to cut down on its price making it more competitive. Moreover, the retreat of coffee prices from its 34-year high has given hopes of increase in volume. Taking these points into consideration I think it’s a good stock to get into.
