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JM Smucker Co SJM

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Morningstar’s Analysis

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No-Moat Smucker Continues to Benefit as Consumers Shelter at Home, but Shares Fairly Valued

Analyst Note

| Rebecca Scheuneman, CFA |

In its January-ended fiscal third quarter, no-moat Smucker realized 7% organic sales growth and a 19.4% adjusted operating margin, down 70 basis points year over year, driven by higher manufacturing and incentive compensation expenses. Smucker updated fiscal-year 2021 guidance, increasing its organic sales growth expectations to 2% from 0%-1% previously, and earnings per share to $8.70-$8.90, from $8.35-$8.65. As year-to-date results are tracking ahead of our fiscal 2021 expectations for 0.3% organic sales growth and EPS of $8.56, we plan to revise our estimate higher. But we do not expect a material change to our $120 per share fair value estimate, as we are holding the line on our long-term expectations for 2% annual organic sales growth and 18%-19% adjusted operating margins. As shares trade near this level, we suggest investors looking for exposure to the packaged food aisle consider 4-star, narrow-moat Hostess.

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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.

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