Shares of J.M. Smucker (SJM: Charts, News, Offers), the jam and jelly maker, have remained nearly flat for this year, with even less growth than the S&P 500′s meager 3.2% gain. However, during high volume days in which the overall market has fallen, shares of Smucker have rallied, revealing its safe-haven value in a tumultuous market looking for direction. The stock, which has bounced between 51.19 and 63.75 in the past year, has been traditionally viewed as a dividend income stock, paying out a stable 0.40 quarterly dividend, which at current prices is a 2.6% yield. Should investors spread a little jam between their stocks as a hedge against any sudden jolts to the market in this time of uncertainty?
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Besides its flagship jam and jelly products, Smucker’s also produces a variety of food products including Jif Peanut Butter, Hungry Jack Pancakes, Pillsbury baked products and coffee under the Folgers and Dunkin Donuts labels. Jif and Hungry Jack boosted its bottom line last quarter, but its oils and baking brands incurred losses. Last quarter, its coffee products division posted the best gain in sales, at 7%. The company’s operating margin gained slightly last quarter at 19%, up from 18% the previous year. Revenue declined slightly to $1 billion while quarterly profits rose 4.9% to $103 million. The company has shown a 28% in yearly sales growth since 2007, with an average net income increase of 43% a year. More importantly, as an income stock, the company has increased its dividend every year for the past decade, with a five-year annualized dividend growth rate of 7.4%. The company has $580 million in cash with $1.38 billion of debt, which is not ideal by any means nor is it dangerous for the company in the long term. It carries a debt-to-equity ratio of 0.24, compared to the industry average of 1.07, which suggests the company is in good financial health. The company has a trailing P/E of 12, a P/B ratio of 1.4, which both are bullish “buy” signals. Most analysts have the price target for the stock pegged in the mid-$70s range.
Smuckers is widely believed to be a fairly recession proof stock, dealing in less expensive, non-premium consumer staples. In addition, there is 17% insider ownership of the company stock, mostly within the Smucker family, even though that is down from the 1990s, when the family owned over half the company’s stock. This suggests a firm commitment to the brand and a tight control over its future direction. There is also a wide competitive moat between Smucker’s and its nearest competitors, Kraft (KFT: Charts, News, Offers), ConAgra (CAG: Charts, News, Offers), Unilever (UL: Charts, News, Offers) and General Mills (GIS: Charts, News, Offers), and its brands are fairly unassailable in their niche markets. Of course, in the near term the company is at the mercy of rising commodity prices which may dent its bottom line. Coffee prices have hit a 13-year high without signs of slowing down, which may impact its profitable Folger products.
In the near term, Smucker’s is expected to face shifting trends in American food consumption, as more groceries shift towards organic products marketed towards a more health-conscious consumer. Smucker’s may need to expand is presence in this field if it hopes to stay competitive, and may benefit if it can undercut its higher priced organic rivals. In addition, the expansion of natural and organic supermarkets such as Whole Foods (WMFI: Charts, News, Offers) and Trader Joe’s may slow chip away at Smucker’s bottom line, as the company usually relies on high-volume, low-margin conventional supermarkets to maintain high sales. The company must also stay on its toes to avoid such incidents as ConAgra’s costly, widely publicized contaminated Peter Pan peanut butter recall and maintain stringent policies in their ever expanding line of food products.
Other News About SJM
J.M. Smucker Shares Get a Caffeine High – Smucker’s investment in Folgers pays off – (SJM: Charts, News, Offers)
J.M. Smucker: Food Stock for Defensive Days – Time to buckle up for market turbulence?
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Leo Sun is long-time market follower and finance writer. He regularly contributes to the Stock of the Day analysis.
