J.M Smucker (SJM, Financial) posted weak results for the second quarter. Higher pricing and reduced promotional activities were the main reason behind its lower net sales and profit in the coffee segment. However, Smucker is seeing good traction in its other segments such as consumer foods, international food service, and the natural food segment. The fundamentals of the company are strong, and it is now focusing on long-term gains. Let's take a look at its business.
Improvements expected
Smucker expected that the coffee volume trends will surely rise, but the company is still defensive towards the coffee segment and has posted a cautious outlook for it. The company is focused towards the key consumer preferences, and it is now adjusting its dynamics to address the current dynamics in the market place. Besides all the near-term crunches, J.M Smucker is expecting good relevance of mainstream roast and ground coffee to the customers in terms of volume.
The growth in the Dunkin Donuts brand (DNKN) is also playing a key role in Smucker’s growth. The brand has strong equity and resonates well with the customers. The company is seeing impressive volume growth in eight of the past 10 months. Smucker is confident that in the growth of its premium category, Dunkin Donuts will play a major role.
Smucker, after some soft response from the coffee segment in the second quarter, still expects to achieve long-term profitability with this coffee strategy in the upcoming quarters. Even with the higher green coffee costs, the company is seeing good growth in profits. As a result of such a traction, Smucker has clearly become a leading participant in all the key forms of coffee and segments. The consumer trends are still positive for Smucker, and, as a result, the retailers are also relying on Smucker as a premium coffee brand due to growing demand by the consumers.
Focus on key products
Despite soft performance by the company in the second quarter. Smucker is on track to achieve full year profit segment growth. The key products on which it is counting on are consumer food segments including Jif peanut butter, uncrustable frozen sandwiches and Crisco oils. Not only domestically, Smucker’s food service and natural food segment is performing well on the international fronts as well. However, the results can be affected slightly by the headwinds such as foreign exchange rates and rationalization businesses still, Smucker is expecting the sales and segment profit growth to be on track as the fiscal year proceeds.
To deal with the rising challenges, Smucker is focusing on innovations, and it is more concerned to add more value to the existing products in the market for whom it is seeing positive consumer trend. It is further accelerating its commitment to the areas with which the company is seeing biggest opportunity for future growth.
Conclusion
Moving to the valuation, the trailing P/E of 0.00 shows that the company has been under performing in the past but now it is on track and the forward P/E of 16.86 shows that its earnings are also improving at an impressive pace. But in the next five years the company’s earnings are disappointing its earnings are moving with a CAGR of just 5.20% which is lower than the industry average of 13.68%. These facts show that as of now J.M Smucker is definitely a good pick but for long term I would like to suggest the investors to stay away from the stock until it shows concrete signs of gaining market share.
