the j.m. smucker...

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


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


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


• 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


→ 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


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


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


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


Competitor Price PerformanceThe J.M. Smucker Company

Charts published by TradingView

SJM Red

XLP White

GIS Orange

KHC Yellow

UN Pink


Technical AnalysisThe J.M. Smucker Company

Charts published by TradingView

SJM White

50 MA Top Green

200 MA Orange

RSI Bottom Green


Data from Bloomberg

Ratio AnalysisThe J.M. Smucker Company


▪ 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


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


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


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



Target prices derived by a 2 year estimate, 5 year projection DCF model.


• 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


Data and graphs obtained from Fidelity

Sector OutlookThe J.M. Smucker Company


Footnotes

Portfolio Analytics and AllocationThe J.M. Smucker Company


Purchase 92 shares of SJM at ~$105

Total investment of ~$9500

RecommendationThe J.M. Smucker Company


Thank you for your time. We would like to invite questions.


Appendix


Ratio Analysis DataThe J.M. Smucker Company

Data from Bloomberg


Portfolio Analytics DataThe J.M. Smucker Company


Detailed Valuation InputsThe J.M. Smucker Company

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