View
1
Download
0
Category
Preview:
Citation preview
School of BusinessInvestment Program
Sophie Forstein Operations ManagerLuke Fox Private Equity AnalystRyan Snyder Quantitative Model DeveloperKevin Kennedy Latin American Economist
August 30, 2018
The J.M. Smucker Company
School of BusinessInvestment Program
Investment Thesis
Company Overview and History
Company Strategy
Corporate Governance
Competitive Landscape
SWOT Analysis
Financial Highlights
Valuation Overview
Sector Overview and Outlook
Portfolio Analytics and Allocation
Ratio Analysis Recommendation
The J.M. Smucker CompanyTable of Contents
School of BusinessInvestment Program
Company1. Continuous value creation through strategic acquisitions2. Cost savings and operating margin growth is part of J. M. Smucker’s Strategic Roadmap3. Strong management team capable of making successful acquisitions and divestitures
Macro 1. Consumer staples sector and low beta will prop up portfolio on down days2. Low competition threats coupled with strong brand recognition3. Opportunity for investment and growth in “Away From Home” markets
Investment ThesisThe J.M. Smucker Company
School of BusinessInvestment Program
• Leading manufacturer of fruit spreads, ice cream toppings, beverages, shortening, peanut butter, and oils
• 4 segments: U.S. Retail Coffee, U.S. Retail Consumer Foods, U.S. Retail Pet Foods, and International and Away from Home
• Found in 92% of U.S. households
• #1 Market Share in 4 key products – JIF, Folgers, Smucker’s, Milk-Bone
• Focus on coffee, pet, and snacking categories
• Offers a variety of goods in all product lines that range from value to premium
• Expecting 5% of net sales to be from e-commerce by 2020
• Strategic roadmap: innovation, investments, cost savings, and acquisitions
• Innovating to align with consumer trends
• International and Away From Home segment a key target for growth
Company OverviewThe J.M. Smucker Company
Data from annual reports and filings
School of BusinessInvestment Program
→ 1982: Purchase of Magic Shell brand
→ 1998: Acquires MenUSAver; currently known as uncrustables
→ 2002: Acquires JIF peanut butter and Crisco shortening and oil
→ 2008: Acquires Folgers, #1 of ground and packaged coffee in U.S.
→ 2010: Agreement with Green Mountain Roasters and Keurig to introduce
Folgers K-cups
→ 2011: Acquires Rowland coffee
→ 2012: Acquires of Sara Lee’s North American foodservice
→ 2014: Acquires Sahale Snacks, leading premium nut and fruit snacks
→ 2015: Acquires Big Hearts Pet Brand & D&D K-cups are released
→ 2018: Acquires Ainsworth Pet Nutrition
Company HistoryThe J.M. Smucker Company
Data from annual reports and filings
School of BusinessInvestment Program
Data obtained from J.M. Smucker 2018 Annual Report
Leading Brands and Segments
• Shift focus to premium and one-cup coffee segments (makes up 38% of total coffee sales)
• Pet food focus: largest center-of-store category in US food and bev market, looking to gain market share in premium products
Innovation and Investments
• $500MM in sales of newly introduced products over the last 3 years
• Acquisition of Ainsworth Pet Nutrition
• Investment in e-commerce, 71% increase in online sales (pet and coffee up 64% and 154%)
• Factory investment and growth
Synergy and Cost Savings
• $140MM in recognized synergies in the last fiscal year
• $570MM in debt reduction
• $450MM cost savings goal by 2020
• Additional $50MM cost savings expected from “Zero-Based Budgeting” Initiative over 2 years
Company StrategyThe J.M. Smucker Company
School of BusinessInvestment Program
Corporate GovernanceThe J.M. Smucker Company
Data obtained from SJM Company Executives page and Bloomberg
Mark T. Smucker•President and CEO, May 2016•Joined SJM in 1997•6th CEO in company’s 121 years•Previously led Consumer and Natural Foods, US Retail Coffee, Special Markets, and International Markets
David J. Lemmon•President Pet Food and Snacks, June 2018
•Joined in 1994 from Colgate Palmolive
•President of Canada at Smucker, April 2015 – June 2018
Tina Floyd•Senior VP and GM of Consumer Foods, February 2018
•23 years of experience with SJM•VP and GM Away from Home/Foodservice, Feb 2016 – Feb 2018
School of BusinessInvestment Program
Unilever (ULVR)
Main threat lies in their dominance overseas, could create tougher barriers to entry for “Away From Home” products
Conagra Brands (CAG)Recent Pinnacle Foods acquisition shows interest in new markets, has capacity to grow similar to SJM
Kraft Heinz (KHC)Primary competition in the form of snack foods, unlikely to grow spreads product category
General Mills (GIS)Mainly packaged food company with little overlap in SJM space, but will always pose a threat due to financial strength and flexibility. Pet food market also is a concern
Competitive LandscapeThe J.M. Smucker Company
School of BusinessInvestment Program
Competitor Price PerformanceThe J.M. Smucker Company
Charts published by TradingView
SJM Red
XLP White
GIS Orange
KHC Yellow
UN Pink
School of BusinessInvestment Program
Technical AnalysisThe J.M. Smucker Company
Charts published by TradingView
SJM White
50 MA Top Green
200 MA Orange
RSI Bottom Green
School of BusinessInvestment Program
Data from Bloomberg
Ratio AnalysisThe J.M. Smucker Company
School of BusinessInvestment Program
▪ High brand recognition
▪ Market share dominance in core business segments
▪ Strong cash holding
▪ Overall market exposure paired with facility to develop existing product lines
Strengths:• Heavily reliance on U.S. market => (85% of Sales)
• Reliance on small group of large distributors => (Walmart 31% Net sales)
• Costs dominated by marketing activity
Weaknesses:
▪ E-commerce
▪ Adapting to consumer preference trends
▪ Tactical acquisitions and partnerships
▪ New facilities and marketing campaigns
▪ Distribution
Opportunities:• Major competitors in a highly competitive market
• Food product standards – laws fluctuate in different markets
• Trade negotiations affecting international sales
Threats:
SWOT AnalysisThe J.M. Smucker Company
Data from 2018 Annual Report & 2019 Q1 Earnings Call
School of BusinessInvestment Program
All data and visuals produced by J.M. Smucker’s Company, 2018
Financial HighlightsThe J.M. Smucker Company
U.S. Retail Coffee U.S. Retail Consumer Foods
School of BusinessInvestment Program
All data and visuals produced by J.M. Smucker’s Company, 2018
Financial HighlightsThe J.M. Smucker Company
U.S. Retail Pet Foods International and Away From Home
School of BusinessInvestment Program
Target prices derived by a 2 year estimate, 5 year projection DCF model. Detailed valuation inputs found in appendix.
Valuation OverviewThe J.M. Smucker Company
School of BusinessInvestment Program
Valuation OverviewThe J.M. Smucker Company
Target prices derived by a 2 year estimate, 5 year projection DCF model.
School of BusinessInvestment Program
Target prices derived by a 2 year estimate, 5 year projection DCF model.
Valuation OverviewThe J.M. Smucker Company
School of BusinessInvestment Program
• Consumer staples boom over past 3 months
• Safety and stability in a bear market
Sector OverviewThe J.M. Smucker Company
Data obtained from finviz.com
School of BusinessInvestment Program
Data and graphs obtained from Fidelity
Sector OutlookThe J.M. Smucker Company
School of BusinessInvestment Program
Footnotes
Portfolio Analytics and AllocationThe J.M. Smucker Company
School of BusinessInvestment Program
Footnotes
Portfolio Analytics and AllocationThe J.M. Smucker Company
School of BusinessInvestment Program
Purchase 92 shares of SJM at ~$105
Total investment of ~$9500
RecommendationThe J.M. Smucker Company
School of BusinessInvestment Program
Thank you for your time. We would like to invite questions.
School of BusinessInvestment Program
Appendix
School of BusinessInvestment Program
Ratio Analysis DataThe J.M. Smucker Company
Data from Bloomberg
School of BusinessInvestment Program
Ratio Analysis DataThe J.M. Smucker Company
Data from Bloomberg
School of BusinessInvestment Program
Portfolio Analytics DataThe J.M. Smucker Company
School of BusinessInvestment Program
Detailed Valuation InputsThe J.M. Smucker Company
Recommended