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JM Smucker Co SJM

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New Initiatives Revealed at Smucker’s Investor Day Should Enhance Margins, but Shares Fairly Valued

Analyst Note

| Rebecca Scheuneman, CFA |

No-moat Smucker’s investor day leaves us encouraged that the firm is taking appropriate steps to stabilize market share, improve execution, and sharpen its cost structure. We have expressed concerns that Smucker’s media investments had seemed less efficient than competitors, as the firm invests a greater portion of sales on marketing (6% over the past four years versus 5% peer average) yet has been losing share in most categories. But over the past 18 months, Smucker redesigned its media model to reach 5 million new households (a 10% increase), while lowering nonworking media spend by $30 million, driving a 15% increase in marketing ROI. Further, in the recent September-ending quarter, Smucker gained market share in 46% of brands, up from 26% a year prior. A renewed focus on execution (a likely byproduct of the recently created COO role, in our view) will also result in a separate, dedicated salesforce for pet food, and the rollout of a proprietary digital AI tool in retail stores. Lastly, Smucker now expects to cut at least $150 million (200 basis points) in operating expenses over the next three years.

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Company Profile

Business Description

J.M. Smucker is a packaged food company that primarily operates in the U.S. retail channel (87% of fiscal 2020 revenue), but also in U.S. food-service (10%), and international (3%). Its largest category is pet food and treats (38% of 2020 revenue), with popular brands such as Milk-Bone, Meow Mix, 9Lives, Kibbles 'n Bits, Nature's Recipe, and Rachael Ray Nutrish. Its second- largest category is coffee (32%) with the number-two brand Folgers and number-six Dunkin'. Other large categories are peanut butter (9%), with number-one Jif, fruit spreads (5%) with number-one Smucker's, and frozen hand-held foods (5%) with number-one Uncrustables.

Contact
One Strawberry Lane
Orrville, OH, 44667-0280
T +1 330 682-3000
Sector Consumer Defensive
Industry Packaged Foods
Most Recent Earnings Oct 31, 2020
Fiscal Year End Apr 30, 2021
Stock Type High Yield
Employees 7,300

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