J.M. Smucker kills estimates in Q1
Posted Aug 22nd 2009 9:10AM by Steven Mallas
Filed under: Earnings reports, ConAgra Foods (CAG), Kraft Foods'A' (KFT)
The J.M. Smucker Company (NYSE: SJM), a food manufacturer famous for its jelly and baking products, reported a great first quarter on Friday. Adjusted earnings per share increased 12% to 92 cents. According to Reuters, management was able to beat expectations by a whopping 12 cents.
This is quite impressive given the fact that an analyst quoted by Reuters believes that more people eating at home are helping to fuel Smucker's success. I say this because, if people are deciding to dine at home more often, they are most likely doing so because of the recession.
Yet, if this is the case, then one might expect private-label brands to put pressure on name brands such as Smucker. Obviously, the company is holding its own. Brand equity can certainly pay off, not only for Smucker but for colleagues such as Kraft (NYSE: KFT) and ConAgra (NYSE: CAG).
Now, however, I must make mention of some bad points. According to the press release, the top line, excluding the effect of the Folgers acquisition and the influence of the currency markets, decreased 1%. Not a huge drop, but a drop nevertheless. And cash was used for operations during the quarter. In last year's Q1, cash was generated from Smucker's businesses. I never like it when cash flow is not positive, but I'll take management's word that investors should keep in mind that this is just the first quarter and that cash flows should improve later on in the fiscal year. I see the point: at the moment, the company wants to build inventories for the upcoming fall/winter selling season, including stock related to coffee (management said this latter activity was a prudent move ahead of the Atlantic hurricane cycle).
In general, I think Smucker did well during Q1, and I expect it to keep the fundamental momentum at a strong level. I like the brand mix, I believe the margins will be attractive going forward, and I am bullish on the ability of the Folgers acquisition to create value over the long term. Shares of Smucker closed higher on Friday by over 4%. They're near a 52-week high. I am of the opinion that they may be going higher still.
Tags: CAG, coffee, conagra, folgers, food, inthenews, jelly, jm smucker, KFT, Kraft, SJM, supermarket
