Packaged Food Giant Smucker in Buy Zone After Breakout
Earnings stability is a key factor for dividend stocks.
J.M. Smucker ( SJM ) has three- and five-year EPS Stability ratings of 4 and 6. The scale runs from 0 (calm) to 99 (wild).
The quarterly dividend was recently raised from 48 to 52 cents a share. The payout has more than doubled since early 2006, and the current yield is 2.4%.
The company makes and markets branded food products, including Jif peanut butter, Hungry Jack, Crisco and Pillsbury products.
Smucker recently reported results for fiscal Q1 ended in July. Earnings grew 4%, which topped views by 17%. Sales advanced 15%.
Sales and profits are usually highest in the fall and holiday baking periods, which for Smucker is fiscal Q2 ending in October and fiscal Q3 ending in January. Most sales are in the U.S. and Canada.
The stock recently broke out of a cup base in four times its usual volume. The buy point was 82.07. Smucker remains in a buy zone up to 86.17.
The Composite Rating, which combines all five IBD ratings into a single number, is 96.
Investors should be aware of three factors.
Acquisitions: The company is growing partly because of acquisitions. In 2008, Smucker merged with Folgers Coffee. In 2011, Smucker grabbed privately held Rowland Coffee Roasters, acquiring some leading Hispanic brands. In January, the company bought Sara Lee’s food service and hot beverage business. In March, Smucker bought China’s Guilin Seamild Biologic Technology, a maker and marketer of oats products.
Smucker’s sales have more than doubled since 2008.
Concentration: Smucker’s top 10 customers account for about 60% of net sales. Making up 26% of sales,Wal-Mart Stores ( WMT ) is the No. 1 customer. Consolidation within the grocery business has trimmed the customer count. But consolidation also puts downward pressure on Smucker’s prices.
Drought: The severe drought in the U.S. is driving up commodity costs for Smucker’s. While some costs can be passed on via price increases, inflation makes private labels attractive vs. branded labels.