On the tail end of earnings season, confection giant J.M. Smucker (NYSE:SJM) released strong operating results for the fourth quarter. Let’s review this company’s earnings announcement and see whether this stock could sweeten your portfolio.
We all know the Smucker name from its line of jam, jelly and fruit preserves, but what many don’t realize is that this 115-year-old confection giant is also responsible for peanut butter (under the Jif name as well as a variety of organic brands), Pillsbury-brand flour and even Folgers and Millstone coffee.
Over the years, this company has aggressively expanded its product family through a series of acquisitions, most recently including the North American food service coffee and hot beverage business formerly owned by Sara Lee (NYSE:SLE) With its wide range of food products, Smucker brought in $4.83 billion in FY 2011.
There are currently 44 companies in the Processed & Packaged Goods industry, the largest player being Unilever (NYSE:UN). Out of the entire industry, Smucker is eighth largest in terms of market capitalization. Smucker also ranks at eighth in terms of Price/Earnings to Growth ratio, 13th for sales growth and 14th for its 2.6% dividend yield.
However, Smucker falls in the middle of the pack in terms of earnings growth, long-term growth rate and return on equity. Smucker’s main competitors are ConAgra (NYSE:CAG) and Kraft (NYSE:KFT). Of these three companies, Smucker has the highest sales growth, gross margin and operating margin.
Before the opening bell on Thursday, management announced that the company advanced its top- and bottom-lines during the fourth quarter thanks to a series of acquisitions and price increases. Compared with the same quarter last year, adjusted earnings climbed 10% to $1.10 per share; this topped the 99 cents per share consensus estimate by 11%. Over the same period, net sales jumped 14% to $1.36 billion; this also modestly topped the $1.35 billion consensus estimate. However, looking forward, the company’s 2013 earnings guidance of $5.00 to $5.10 per share is much lower than the $5.23 Street View.
Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. Since the beginning of the year, this stock has slipped from an A-rated buy to a C. This is due to a series of marginal earnings reports as well as steadily declining buying pressure.
On the fundamentals side, Smucker does decently in terms of sales growth, but is a middle-of-the-road company in terms of earnings growth, cash flow, return on equity and analyst earnings revisions. To add insult to injury, Smucker is very weak in terms of operating margin growth and its track record of beating earnings surprises. SJM receives a C for its Fundamental Grade and a C for its Quantitative Grade (which indicates the current level of buying pressure for the stock).
Due to the lackluster buying pressure for this stock, I would recommend holding off on buying this stock for now.
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