Six Takeaways From The J.M. Smucker Company (SJM)’s Earnings Announcement

On June 6, The J.M. Smucker Company (NYSE:SJM) released results for its 4^th quarter and FY 2013 which lasts from May 1 to April 30 of each calendar year. The company performed well for the full year improving profitability margins and lowering debt. The six takeaways highlighted below represent key elements in determining the investment worthiness of this company.

Price sensitivity

You learn that brand loyalty starts to fade as the price of branded products such as Jif peanut butter and Folger’s coffee begin to increase. The Jif product line faced volume challenges when the company raised prices 30% in the earlier part of FY 2012 according to J.M. Smucker’s earnings call. Lowering the prices of Jif products contributed to a 17% volume growth in fiscal year 2013.

The same goes for The J.M. Smucker Company (NYSE:SJM)’s coffee segment. Price reductions contributed to a 4% volume growth for J.M. Smucker’s coffee segment for FY 2013.

Brand focus

J.M. Smucker wants to initiate capital expenditures on building capacity for expanding the Jif and Uncrustable brands. It even wants to convert one its fruit spreads plants in Memphis, Tennessee into a peanut butter facility. Specifically, new Jif products include Jif Whips, Jif Almond and Cashew Butter.

Brand support of its Folger’s brand resulted in Folgers receiving the Coffee Brand of the Year in the Harris Poll rankings according to its earnings call.

J.M. Smucker plans to launch two new varieties of its K-Cup coffee line next fiscal year.

Excellent year

The J.M. Smucker Company (NYSE:SJM) improved upon many important metrics for FY 2013. Sales, operating income, and free cash flow all increased 7%, 17% and 42% respectively. Return on equity went from 9% in 2012 to 11% in 2013. In addition, all of its profitability margins increased as well. It only paid out 34% of its free cash flow in dividends and currently yields around 2.1% per year.

Efficiencies brought on by increased volume and cost saving initiatives contributed to top and bottom line growth despite declines in prices.

Competitor ConAgra Foods, Inc. (NYSE:CAG) posted a higher revenue increase of 8%, but profitability and margins all declined. ConAgra’s free cash flow declined 20% for the year.

Kraft Foods Group Inc (NASDAQ:KRFT) saw a decline in revenue of 2% last year. Free cash flow increased 16% a far cry from J.M. Smucker’s increase of 42%.

Mondelez International Inc (NASDAQ:MDLZ) showed declines in revenue and free cash flow of 2% and 12% last year.