A Member of Pat McKeough’s Inner Circle recently asked for his advice on a food-making company that’s best known for its Smucker’s and Jif brands and now an assortment of Hostess brands following last year’s major acquisition.
Pat likes the relatively solid dividend, growing revenue and earnings as well as its improved exposure to the convenience store market. However, Pat notes the company is highly dependent on Walmart as its biggest customer and is also subject to changing consumer whims about unhealthy eating habits.
J.M. Smucker Co., (Symbol SJM on New York; www.jmsmucker.com) is the largest maker of jams, jellies and peanut butter in the U.S. Its top brands include Smucker’s and Jif. It also makes pet food and many other consumer products. The company has over 30 offices and manufacturing facilities across North America.
The U.S. accounted for about 94.8% of Smucker’s total sales in the latest quarter. Walmart, its largest customer, represents about 33% of its sales.
Acquisitions have helped Smucker expand in the past few years, particularly into faster-growing businesses like pet foods. Key acquisitions include the March 2015 purchase of Big Heart Pet Brands for $6.0 billion. That business makes a variety of well-known pet foods, including Milk-Bone (dog treats), Kibbles ‘n Bits (dog food) and Meow Mix (cat foods).
In May 2018, Smucker acquired Ainsworth Pet Nutrition, which makes premium pet food and snacks under the Rachael Ray Nutrish brand. It paid $1.7 billion for Ainsworth.
[ofie_ad]
In November 2023, Smucker’s completed the acquisition of Hostess Brands (symbol TWNK on Nasdaq) for $5.6 billion. Based in Lenexa, Kansas, Hostess was founded in 1930 and is behind several iconic household brands, including Twinkies, Ho-Hos, Ding Dongs, Zingers, and Voortman cookies and wafers.
On October 22, 2024, Smucker’s announced that it would sell its Voortman cookie brand to Second Nature Brands for $305 million. Second Nature is controlled by Capvest Partners LLP, a U.K.-based private equity firm.
Burlington, Ontario based Voortman has annual sales of about $150 million.
The sale is part of Smucker’s focus on its core growth brands, such as Folgers, Smucker’s, Jif, Milkbone, and Hostess.
Inner Circle: Latest results reflect the net effect of multiple corporate transactions
Meanwhile, in its fiscal 2025 first quarter ended July 31, 2024, Smucker’s sales increased 17.7% to $2.13 billion from $1.81 billion a year earlier. Revenue rose from acquisitions as well as higher volumes sold.
Excluding one-time items, earnings rose 14.3% to $259.5 million, or $2.44 a share, from $227.0 million, or $2.21.
Going forward, the Hostess purchase is a plus—but there could also be longer-term challenges with this acquisition. For one, Smucker’s, whose portfolio was focused on peanut butter and jelly spreads, coffee and pet food, has limited experience in snacking. And that could be a factor if consumer tastes veer back toward healthier snacks, and that requires a product shift for Hostess.
Plus, retail giant Walmart is Smucker’s biggest customer, supplying around one third of its sales. This leaves Smucker at risk if Walmart decides to bargain more aggressively on pricing.
On the positive side, the Hostess deal gives Smucker’s greater exposure to the convenience store market and convenient snacking foods. It also provides its Smucker’s Uncrustables sandwich product with another significant distribution network. Uncrustables is on track to generate $800 million in sales in 2024 and $1 billion by 2026.
At the same time, Smucker believes that demand for Hostess’s products will remain high. Smucker says that snacking is among the fastest-growing areas of the consumer food business, and that “indulgent” snacks have grown 20% faster over the past three years than those marketed as being healthier. As well, about 70% of consumers are eating at least two snacks a day.
Smucker’s shares yield a solid 3.9%.
Recommendation in Pat’s Inner Circle: J.M. Smucker Co. is a hold.
