Novice Investing - J M Smucker Company At a Glance

Date: Friday 29th 2008f August 2008 02:08:51 AM

J M Smucker Company At a Glance - 10/02/2005

By: Hari Wibowo

J M Smucker Company (SJM), no disrespect intended, is an intriguing name. That is what led me to dig out its Annual report and look more into this company. Frankly, for most, my research was led with either good innovative products or just out of curiosity like SJM. So, let's look into its annual report to see what this company is all about.

In its 2005 annual report, Smucker divides its core business into US retail segments and Special Market Segments. US retail segments account for 68 % of revenue in 2005. This is the segment that you normally see in the grocery stores. It includes peanut butter brand name such as Jif, Hungry Jack breakfast syrup, Pillsbury - Martha White - Crisco cooking oils and Smucker's ice cream toppings. Typical Kraft-like company, huh? Meanwhile, Special Market Segments is divided further into Canada, beverage and international. Primary market for international is Mexico, Latin America, Caribbean, Middle East, Asia and Scotland.

Looking at the balance sheet, we spotted trends that not to our liking when picking stocks for investment. Cash and cash equivalent stood at $ 75 Million while long term debt stood at $ 431.5 Million. In 2004, Smucker acquired International Multifood Corp. for $ 500 Million. This increases goodwill by $ 426 Million. Total goodwill now stands at $ 951 Million . Pretty significant, considering that yearly profit were clocked at a 'mere' $ 129 Million. If goodwill is depreciated over 10 years (which it should), then net income will fall to 34 Million. Doesn't look pretty.

Going deeper into the heart of the annual report, you can see that Smucker is all about peanut butter. The revenue breakdown is as such: 20% revenue came from Peanut Butter, 17% from shortening and oils, 14% from fruit spreads, 13% from flour and baking ingredients and 11% from baking mixes and frostings. Furthermore, it is highly dependent on Walmart Inc (WMT) as 16% of revenue came from Walmart. Walmart is by far the biggest customer of Smucker.

Concerning issues of high debt load, management has divided the debt maturity so that it won't strain Smucker's cash flow. The highest amount of debt come due in a single year is on 2009 where $ 213.5 Million of long term debt will have to be paid.

Finally, towards the end of the annual report, Smucker gave readers the recipe of food that can be made with Smucker's own product line. This includes: Cheesy Potato Corn Cakes, Peanut Butter Kiss Cookies and Chicken Tortilla Soup. Hmmm... Yummy!

In short, SJM has most of its revenue tied up in North America. There is still a huge opportunity for it to expand overseas. However, it would take a considerable amount of capital to do that since SJM faces a much larger rival such as Kraft and Unilever.

END

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding JM Smuckers Co.(SJM) or other securities.

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