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JM Smucker Co SJM

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Morningstar’s Analysis

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No-Moat Smucker: First-Quarter Results Fail to Impress, Shares Fully Valued

Analyst Note

| Rebecca Scheuneman, CFA |

Smucker released tepid results for its July-ended fiscal first quarter, with 1% organic sales growth year over year, and a 4.5% bump versus the comparable 2019 period. While management outlined expectations for 2.5% organic revenue growth for the year, we deem the expected lift as lower quality, as it is mainly fueled by price increases versus volume gains. Consistent with our no-moat rating, we believe Smucker acts as a price taker and would generally be at risk of losing sales volume due to the price hike. But as Smucker’s competitors are also raising prices--given widespread inflation for raw materials, labor, packaging, and transportation--Smucker’s volumes should not be materially impacted. This widespread inflationary pressure caused Smucker’s gross margins to drop 370 basis points in the quarter, in line with our expectations.

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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 (88% of fiscal 2021 revenue), but also in U.S. food-service (5%), and international (7%). Its largest category is pet food and treats (36% of 2021 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 (33%) with the number-two brand Folgers and number-six Dunkin'. Other large categories are peanut butter (10%), with number-one Jif, fruit spreads (5%) with number-one Smucker's, and frozen hand-held foods (5%) with number-one Uncrustables.

One Strawberry Lane
Orrville, OH, 44667-0280
T +1 330 682-3000
Sector Consumer Defensive
Industry Packaged Foods
Most Recent Earnings Jul 31, 2021
Fiscal Year End Apr 30, 2022
Stock Type Slow Growth
Employees 7,100