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The J.M. Smucker Company (SJM), Campbell Soup Company (CPB): Acquisitions – A Shortcut To Achieving Rapid Growth

These days, women are becoming more and more career-oriented, and the ratio of women leaving home for work is increasing day by day. This has lead to an increase in the demand for packaged food items due to their ease of usage and reduced preparation time for time-constrained consumers. In addition, the gradual economic recovery we’re experiencing will raise the demand for natural food items as the disposable income of consumers increases. Foreseeing this trend, many companies in the industry are opting for acquisitions as a shortcut to achieving quicker growth.

The J.M. Smucker Company (NYSE:SJM)

Recently, The J.M. Smucker Company (NYSE:SJM) took over Enray in order to extend its natural foods product range in the U.S. In the following article, I will examine the implications of this acquisition, and I will also comment on the current status of JM’s competitors, Campbell Soup Company (NYSE:CPB) and ConAgra Foods, Inc. (NYSE:CAG).

The expected synergies from the acquisition of Enray

The acquisition of Enray widens the existing natural foods product range offered by The J.M. Smucker Company (NYSE:SJM), and further strengthens its market position in the natural and organic beverages market. This combination is strategically compelling, as the privately-held company makes organic, gluten free ancient grain products, including pastas and cookies, which are mainly sold under its brand truRoots. Enray’s products will complement the products supplied by The J.M. Smucker Company (NYSE:SJM)’s, which includes fruit spreads, packaged coffee, peanut butter, ice cream toppings, condensed milk and natural foods.

The addition of Enray will provide Smucker with an excellent opportunity to take part in the gluten-free food category, which is expected to have great future prospects. The J.M. Smucker Company (NYSE:SJM) also looks forward to utilizing its established infrastructure to spread the reach of Enray’s truRoots brand, in order to increase its sales revenue.

Financial impact

Enray has generated $45 million in sales in the last twelve months. Staying conservative and assuming the sales figure will only increase by the current U.S. inflation rate and U.S. GDP growth rate of 1.96% and 1.7%, respectively, Enray will add a minimum of $46.66 million to the top line of The J.M. Smucker Company (NYSE:SJM) in the next twelve months. Applying the net margin (ttm) of 9.2%, this acquisition is projected to add $4.29 million, or $0.04 per share, to the company’s earnings in the coming twelve months.

The market position of rivals

Campbell Soup Company (NYSE:CPB), a key player in the packaged food industry, has recently made two acquisitions. The company acquired the Kelson Group to enhance its international foothold and to capture a larger chunk of the baked snacks growth potential in China. Kelson is the market leader of sweet cookies in China, where its sales have grown at a CAGR of 28% in the last three years. The acquisition has added a well established brand, Kjeldsens, to Campbell Soup Company (NYSE:CPB)’s balance sheet. Campbell’s marketing and supply chain expertise will help Kelson’s high quality snacks expand its reach in existing and new markets.

Campbell Soup Company (NYSE:CPB) also took over the market leader of organic baby food, Plum Organics, in June 2013. The company looks forward to devoting its resources to this premium-priced organic food category in order to enhance the Plum brand’s market presence.

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