The J.M. Smucker Company
is still headquartered in the same small town of Orrville, Ohio, where Jerome Smucker first sold apple butter out of a horse-drawn wagon long ago in the late 1800s. The company has become a strong presence in the culinary market as the purveyor of various preserves and jams, but there is more to the company than simply delicious strawberry jelly. Overall, Smucker’s has consistently provided great returns for investors and is in a strong position for growth in the near and long term.
Should investors be hungry for food stocks?
Companies involved in the food industry are currently ironing out kinks in marketing strategies in order to cope with rising production and material costs during the past few years as well as slowing profit margins. Some food companies have been able to enact effective business plans, while others are still struggling to find direction.
As a graphic from the Wall Street Journal illustrates, Smucker’s and Campbell Soup Company (NYSE:CPB) have posted gains since the last quarter, while Kraft Foods Group Inc (NASDAQ:KRFT) was subject to a large decrease in sales.
Kraft Foods Group Inc (NASDAQ:KRFT) is the largest food and beverage company operating in North America; however, Campbell Soup Company is the world’s largest producer of soup, with a 60% market share in the $4 billion soup market. The most recent quarterly results demonstrate that Smucker’s and Campbell’s have much room to grow and seem to be succeeding in their new marketing strategies, while Kraft Foods, although still a very large company, still needs to formulate an effective response to the “squeeze” on the food industry. Contrary to the adage that “two’s a company, three’s a crowd,” there is enough room in the food industry for all three companies. But, as will be illustrated later, Smucker’s plans for expansion might start “eating” into Kraft’s profit margin.
Overall, food stocks provide a good opportunity for investors to reap benefits even amidst rising food and production costs. Food/sustenance is obviously one of the fundamental human needs, and investors can effectively tap into this by, literally, “putting their money where their mouth is.” Companies such as Smucker’s and Campbell’s, among others, exhibit a good ability to be flexible with the times. Kraft Foods Group Inc (NASDAQ:KRFT), on the other hand, faces falling sales and a not-so-cheery outlook.
Why Smucker’s will continue to produce results
Smucker’s has more diversity than being simply a jam and jelly company. Through acquisitions in recent years and expansions into other food markets, Smucker’s has been able to consistently produce results and still has room to grow even more. A good portion of the company’s plans center around large-scale acquisitions it has made in recent years, such as Jif and Folgers.
Smucker’s has done well in the past, but previous quarters are not necessarily indicative of continued growth. Below are both past and present indicators that point to continued growth for Smucker’s:
For the quarter that ended on Jan. 31, the company earned $154.2 million, or $1.42 per share, up from $116.8 million, or $1.03 per share, in the same quarter in 2012. Smucker’s net income jumped 32%. Overall revenue rose 6%, to $1.56 billion from $1.47 billion.
The coffee business of Smucker’s appreciated quite nicely in the third quarter, as profit shot up 27%. Smucker’s acquisition of Folgers in 2008 appears to be paying off nicely.
Smucker’s is planning on expanding production of the Jif peanut butter brand, which already has a large grip on the majority market share.
Smucker’s has ambitious plans to roll out new and improved product lines and is planning expand its presence in China. Kraft Foods Group Inc (NASDAQ:KRFT), on the other hand, struggles to create innovative food products, and Smucker’s is producing goods that can easily draw customers away from Kraft.
Conclusion
Overall, Smucker’s and Campbell’s both have continued to serve up delectable returns for investors, while Kraft has had to wrangle with decreasing sales and fewer innovative ideas. Smucker’s is especially poised to continue to provide great returns to investors. As the Smucker’s advertising slogan famously proclaims, “With a name like Smucker’s, it has to be good!”
The article With a Stock Like Smucker’s, It Has to be Good! originally appeared on Fool.com and is written by Evan Buck.
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