JM Smucker Earnings: Price Hikes Buoy Sales Growth Even as Volumes Tick Down; Shares Not a Bargain

Our $141 fair value estimate for no-moat JM Smucker shouldn’t see a material change following fourth-quarter results. Organic sales popped 11%; while this was entirely driven by higher prices, we surmise flat volume against such pronounced pricing is commendable. However, we’re skeptical growth can hold at such lofty levels over a longer horizon, even following the sale of its lagging pet food business (which had accounted for 20% of sales). We see the benefit from focusing its resources on higher value stock-keeping units (like pet snacks and cat food, with the retention of Milk-Bone and Meow Mix, up 20% and 7%, respectively in the quarter). But competitive angst throughout the aisles in which it competes (coffee, pet, and spreads) is unlikely to remain dormant (as has been the case over the past three years) and could prompt Smucker to lower prices or risk market share losses, particularly as it plays in categories where lower-priced private-label fare has carved out a sizable presence (coffee, jam, peanut butter). This underpins our forecast for low-single-digit annual sales growth longer term.