The J.M. Smucker Co.: A Sweet Opportunity For Income Investors

Key Points

• The J.M. Smucker Co. has a robust quarter; shares move higher. 
• The company also raised guidance and forecasts a strong year in F24. 
• The stock pays 2.75% in yield at 17X earnings, and the company also repurchases shares. 

If all you think of is jams and jellies when you hear the name J.M. Smucker Co.NYSE: SJM think again. This iconic brand is the parent to many product labels that dominate in 3 major center-aisle categories. The company has been cementing its position in pet food to diversify its portfolio, and diversification efforts include coffee.

Those labels include Dunkin’, Folgers, and Cafe Bustelo, which are on store shelves nationwide and internationally. The takeaway is that The J.M. Smucker Co. is a blue-chip quality, diversified, packaged-food-focused consumer staple that offers value and yield to investors. 

The J.M. Smucker Co. Has Solid Quarter, Issues Favorable Guidance

The J.M. Smucker Co. had a solid fiscal 4th quarter supported by demand and pricing power. The company reported $2.23 billion in revenue for a gain of 10% compared to last year, which beat the consensus figure by 135 basis points. The strength was driven by an 11% price increase offset by a 1% headwind from FX and divestiture. The volume and mix contribution was flat compared to last year but is expected to grow in the current fiscal year. International and Food Away led on a segment basis with a gain of 12%. Retail Food and Retail Pet grew by 9%, while Coffee grew by 7%.

The margin news is just as good as the top-line results. All but 1 segment saw its margin expand: Retail Food, which lost 100 bps. The gross and operating profits grew by double digits to outpace the topline strength and were compounded by share repurchases to leave adjusted EPS up 18% YOY. The $2.64 in earnings is also $0.23 better than expected, leading to better-than-expected guidance, lifting the market. 

J.M. Smucker Co.'s executives forecast revenue to grow from 8.5% to 9.5% in F24. This is an acceleration from the 7% growth posted in F23 and may be cautious. Adjusted EPS is expected from $9.20 to $9.60, with the Marketbeat.com consensus below the midpoint. 

The J.M. Smucker Capital Return Program Is Healthy

The J.M. Smucker Co. is a reliable dividend-paying stock with a yield near 2.75%, with shares near $149. That’s compounded by repurchases which totaled (with dividends) $797 million for the fiscal year. That is above FCF but offset by divestitures and a large cash increase on the balance sheet. The company is forecasting FCF to fall in F24, which may impact the number of repurchases but should not affect the dividend. The payout is less than 48% of earnings, with earnings expected to grow this year. That suggests another dividend increase which would be the 26th consecutive.

The analysts appear iffy on the name and have it rated at Hold, but the price target, which is 3% above the pre-release closing price, is trending higher. The price target is up compared to last month, last quarter, and last year, suggesting an underlying bullishness in the market that is not shown in the sentiment. If this trend continues, the stock should be able to resume its uptrend. 

The Technical Outlook: The J.M. Smucker Co. Shows Support 

The market for shares is showing support at a critical level, adding another element to the outlook. The post-release action has the market up and confirming support at the $145 level. The market has difficulty rising above the 150-day EMA, but that resistance may not last long. Assuming the stock can stay above $145, it should move sideways within the current range. If the analysts raise their targets again, the stock could rise to a new high.