J.M. Smucker's stock sells off on earnings -- I'm not buying either

Posted Jun 20th 2008 12:10PM by Steven Mallas
Filed under: Earnings Reports, Procter and Gamble (PG), Kraft Foods'A' (KFT)

Well-known maker of peanut-butter and jelly products J.M. Smucker (NYSE: SJM) reported earnings for Q4 and the full fiscal year on Thursday. The market didn't like the report in the least. The stock closed down well over 8% at the end of yesterday's session.

Here's what happened. For the fourth quarter, net sales increased 20%, but that was little consolation to the bottom line, which dropped 11%, as earnings per diluted share came in at $0.67 versus $0.75 in the year-ago period. The top line also was the beneficiary of some inorganic growth based on acquisitions. If you adjust for certain items, bringing the earnings up to $0.73 per diluted share, the decrease in the bottom line improves to 3%, but a decline in this case is still a decline. Plus, earnings expectations were not met. The company came in five pennies shy of Wall Street's wishes, according to estimates posted at earnings.com.

For the fiscal year, J.M Smucker's top line increased 18%, also due in part to acquisitions. On both a reported and an adjusted basis, earnings per diluted share jumped 9% to $3.00. Margins really suffered during the quarter and the year. Input costs are inflating, and they're becoming difficult to manage.

So, is J.M. Smucker a good stock idea right now? After all, it did recently buy the Folgers brand from Procter & Gamble (NYSE: PG), an event that Tom Taulli recently opined on.

For me, the answer is no. It's a cool consumer-products company, I see its stuff all the time at the supermarket, but I favor other consumer-based businesses out there with stronger brand equities, such as Kraft (NYSE: KFT), for example. With the stock at the low end of its 52-week range, with input costs wreaking havoc on margins, and with growth based in part on the inorganic effects of acquisitions, I don't see a reason to place a bet on J.M. Smucker at the moment. I'd rather sit on the sidelines and check out more quarterly data as it is handed down to us in the coming months.

Disclosure: I don't own any company mentioned here; positions can change at any time.

Tags: consumer products, ConsumerProducts, Folgers, food industry, FoodIndustry, J.M. Smucker, J.m.Smucker, PG, procter and gamble, ProcterAndGamble, SJM, Tom Taulli, TomTaulli