Leanna Wheatcraft

22 January 2018
Managerial Finance
Professor Eberle
Assignment Part One: The J.M. Smucker Company (SJM)
History of the Company
The J.M. Smucker Company has expanded and prospered for the past 120 years from Orrville,
Ohio due to their loyal commitment of emitting quality products which evolve alongside
consumer needs. In 1897, Jerome Monroe Smucker surged cider from his mill and sold his jar of
apple butter from a horse-drawn wagon. The Company formed a familiar trademark, “With a
name like Smucker’s, it has to be good,” which indicates it’s reputation for high-quality
products. More recently, the consumers’ sense of purpose in their lives has become a commodity
so the J.M. Smucker Company has aligned brands and products accordingly.

Mark Smucker is the current President and Chief Executive Officer and Richard Smucker is the
Executive Chairman. The Smucker’s family has and always will run the J.M. Smucker
Company; there is said to be some younger Smucker’s who are currently working at the J.M.
Smucker Company and will take over when Mark and Richard Smucker retire. Mark Belgya is
the Vice Chair and Chief Financial Officer.

The J.M. Smucker Company’s principal subsidiary company is Big Heart Pet Brands, who is a
producer, distributor, and marketer of U.S. pet products for retail. Other subsidiaries include
Eagle Brand, Smucker Foods of Canada Co, Smucker Natural Foods Inc., The Folger Coffee
Company, Knudsen & Sons Inc., Millstone Coffee Inc., Santa Cruz Natural Inc., The Dickinson
Family Inc., Milnot Company, Eagle Family Foods Holdings Inc., Martha White Foods Inc., and
about a dozen more.

The J.M. Smucker Company’s brands include: Smucker’s, Santa Cruz Organic, Jif, Laura
Scudder’s, Crisco, Pillsbury, R.W. Knudsen Family, Hungry Jack, Dunkin’ Donuts, Meow Mix,
Milk-Bone, Kibbles ‘n Bits, 9Lives, White Lily, Martha White, Bick’s, Five Roses, Robin Hood,
and Shirriff (in Canada). Their principal business lies in jam/jelly/preserves (Dickinson’s
Gourmet Preserves, fruit butter, double fruit, low sugar, Simply Fruit, sugar free, and organic),
peanut butter (Jif, Goober PB&J, Smucker’s Natural/ and with honey, Adams Natural, Laura
Scudder Natural), sandwiches (uncrustables), ice cream toppings (Magic Shell, microwaveable
and specialty ice cream toppings, and sundae syrups), specialty products (Crosse & Blackwell
and fruit syrup), oils and shortening (Crisco), flour and baking mixes (Hungry Jack, Martha
White, Pillsbury, White Lily, Robin Hood Flour, and Five Roses Flour), juices (After the Fall,
Natural Brew, Santa Cruz Organic, Tenderleaf Tea), and coffee products (Folgers, Millstone,
Dunkin’ Donuts, and Kava).

The Company’s market segments in U.S. retail are made up of the sale of branded food products
to consumers in North America through retail outlets. J.M. Smuckers’ products are distributed
and sold to food retailers, food wholesalers, drug stores, mass merchandisers, discount stores,
military commissaries, natural foods stores and distributors, and pet specialty stores. On a global
scale, the Company’s products are distributed and domestically and internationally through retail
 channels and foodservice distributors and operators (restaurants, schools, and healthcare
operators).

In 1915, the company brought in nearly $60,000 and netted almost $3,000 annually. In 1928 the
Smucker name and business grew so much that the Pennsylvania Railroad built a special side of
the plant so more products could be distributed throughout Ohio, Pennsylvania, and Indiana.
Sales continued to grow for the Smucker Company despite the 1929 market crash, however it did
record losses in 1932 and 1933. During this time, J.M. Smucker started relaying authority to
Willard who established Smucker’s first facility outside Ohio (in Washington) in 1935 and
marked the first step toward the vertical integration that becomes the company’s trademark in
later years. In 1947, the war years resulted in the company having labor, glass, and fruit
shortages however they made it through to celebrate its fiftieth anniversary. J.M. Smucker,
founder, passed away in the proceeding year.

The J.M. Smucker Company operates in the United States, Canada, Great Britain, Mexico and
Australia. Moody’s Investors Service assigned Baa2 as J.M. Smucker’s current bond rating. Its
strong diversified portfolio of consumer brands, appealing product categories, stable profit
margins, and senior management’s commitment to a firm investment justifies the rating.

The most recent dividend paid was $339 million. The company distributed $223 million in
dividends in 2013, $238 million in 2014, $254 million in 2015, and $317 million in 2016.

The J.M. Smucker Company approaches its market of food and beverages through the
acquisition of iconic brands that are well trusted, demonstrate strength and resilience. They
receive continual positive feedback from consumers to new products, innovations, and brand-
building initiatives. Smucker’s differentiates itself from its competitors by concentrating
particular businesses of variety with key customers and suppliers. Threats to the J.M. Smucker
Company include crude oil price trends along with their impact on transportation and packaging
costs; and the impact of accidents and natural disasters (crop failures and storm damages).
Weaknesses for the company are limited global exposure and general competitive activity in the
market (competitors’ pricing practices and promotional spending levels).

Financial Health

Ratios Value Brief Interpretation of Industry Evaluation Compared

of the the Ratio Average to Industry Average
Ratio

Current Ratio 0.90 Current Assets/Current 1.30 Lower liquidation; not

Liabilities terribly bad.
 Leanna Wheatcraft
22 January 2018
Managerial Finance
Professor Eberle
Quick Ratio 0.40 (Current Assets- 1.20 Low liquidity (short-
Inventory)/Current term)
Liabilities

Debt Ratio 0.3 Total Debt/Total Assets 3.2 Solvency low (long-term)

Times Interest Earned 5.39 EBIT/Interest Expense 38.8 Relatively secure because
this shows what comes
strictly from earnings.

Fixed Asset Turnover 4.56 Sales/Net Fixed Assets 4.58 Low; not by much

Total Asset Turnover 0.47 Sales/Total Assets
Days in Inventory 72.29 Inventory/COGS/360
1.10 Low; more assets are
required to generate sales;
good sale growth but
could be better.
81.86 Better than industry
average.

Average Collection 21.66 Accounts 4.9 Not very good but could
Period (Days) Receivable/(Credit be worse.
Sales/360)

Operating Cycle (Days) 93.95 Average Age of 86.76 Takes about a week more
Inventory + Average than the industry average.
Collection Period

Average Payment Period 37.51 Accounts 37.85 Takes less time for
(Days) Payable/(COGS/360) payables to be received
(less than a day’s
difference).
Gross Profit Margin 38.35% Sales-COGS/Sales 33.5% High; acquisition in
synergy decreased
production costs,
increasing the margin.
Operating Profit Margin 11.88% EBIT/Sales 19.20% Low; more cost effective
than the industry average.

Net Profit Margin 8.01% Net Earnings/Sales 13.6% Low

Operating Income on 0.07 (Net Operating 0.56 Low because the

Return on Investment Inc./Sales)*(Sales/Total investment hasn’t had
Assets) time to generate much
income.
Return on Assets 3.79% Net Earnings/Total 13.5% Low. Large Goodwill
Assets account doesn’t give back
financial/quantitative
returns.
Return on Equity 8.65% Net 35.4% Low, although greater
Earnings/Stockholder’s than ROA.
Equity

Earnings Per Share $5.10 Net Income/Number of $4.95 Higher and better.
Common Shares
Outstanding

Price to Earnings Ratio 17.88 Market Price Per 21.99 Lower which is better for
Share/Earnings Per the firm.
Share

Book Value Per Share $63.84 Common Stock $61.94 High which is good for
Equity/Shares the firm.
Outstanding
 Leanna Wheatcraft
22 January 2018
Managerial Finance
Professor Eberle
Internal analysis of any company is assessing the financial strengths and weaknesses of the firm.
The J.M. Smucker Company’s strengths include: a positive impact from acquiring the Sara Lee
foodservice business and favorable mix on sales growth, variety of trusted iconic brands in its
portfolio, popular brands of commonly used condiments, overall upsurge in customer spending,
and continuous constructive feedback of consumers in response to new brands and products.
Being a well-known and trusted company goes a long way. Most feel more secure knowing the
product has been around for some time and they remember consuming the products in
adolescence.
Weaknesses of Smucker’s company include: limited exposure globally, higher
amortization expense in relation to the Sara Lee foodservice business acquisition, and general
market competition. The J.M. Smucker Company performs in three market segments: U.S. Retail
Coffee, U.S. Retail Consumer Foods, and U.S. Retail Pet Foods. Smucker products are sold
primarily to food retailers, food wholesalers, drug stores, club stores, mass merchandisers,
discount and dollar stores, military commissaries, natural food stores and distributors, pet
specialty stores, and online retailers. One area that Smucker’s suffers in is the exponentially
growing popularity of Amazon (the largest, newest convenience to the U.S.); they have not
hopped on the “Amazon train” which could really hurt them in the near future due to less people
physically going to retail stores and simply ordering their groceries online to be shipped directly
to them. The higher amortization expense is in relation to the intangible assets associated with
the Sara Lee foodservice business acquisition. With more sales, this issue should resolve itself
with the increasing technological advances.

Compared to the industry average, Smucker’s price per earnings, revenue growth, operating and
net margin, and debt per equity ratios are better. The revenue growth is significantly larger than
the industry average because they had a downfall in recent years from large acquisitions and
patiently waiting for ratios to raise again- particularly conservative.
On the other hand, the J.M. Smucker Company falls short in net income growth, return
on assets, and return on equity. These negative occurrences result from, as stated before, large
acquisitions in assets and equity. In 2015, Smucker acquired Big Heart (leading producer,
distributor, and marketer of premium-quality U.S. pet food and snacks) which increased a
presence with consumers and retailers, and added new customers in the “pet sector” of the
company.

The J.M. Smucker Company obtains lower than average ratios suggesting the company is less
profitable than the average competitor. This is due to the fact that they recently acquired a brand
line, and most of the ratios only show a quantitative analysis of the company. Smucker plans to
bring up sales and ratios in the future as the attainment of the Big Heart pet brand shows a
current estimated fair value close to the carrying value at the date of the acquisition.

December 29, 2017, Smucker reported their performance was up 19% in three months. The
company is trying to determine if freight costs may weigh heavily on performance despite brand
building and acquisition efforts.
January 24, 2018, the J.M. Smucker Company announced that Steven Oakland, Vice Chair and
President of U.S. Food and Beverage Business, to retire at the end on June this year. This
executive change will bring new leadership to strengthen the company’s focus on strategic
business areas and balance responsibilities throughout the organization.