Smucker Aims To Step Up Brand Investment While Driving Margin Gains, Though We’re Skeptical

No-moat Smucker’s rhetoric at its Dec. 14 investor day suggests it understands the importance of consumer-valued product innovation, extending its media reach, enhancing its production and distribution capabilities, and unearthing cost savings. But, while the firm maintains market leadership positions by way of its Uncrustables brand, as well as within the pet snacks and cat food aisles (Milk-Bone and Meow Mix), and throughout its coffee portfolio (Folgers, Dunkin’, and Cafe Bustelo), its efforts have proven insufficient to unlocking an economic moat. We see some natural tailwinds that should manifest from increased on-the-go snacking, higher levels of pet ownership, and expanding its product set across price tiers. However, Smucker continues to direct more resources than some peers toward advertising as a percentage of sales on an annual basis (nearly 6% versus the 5% average by peers) but has yet to realize much in the way of outsize revenue growth relative to industry averages. Moreover, while we view the planned shift to increased spending on digital marketing as judicious, we don‘t believe this will be enough to jolt its trajectory either.