Investors Should Pucker Up to Smucker
In disappointing fashion, the Street's irrationality resumed following J.M. Smucker
Plus, given management's focus on profitability and running a business with several market-leading brands, on a long-term basis, Smucker stock, which is cheap when compared to ConAgra
Now to be completely honest, I've been regrettably indifferent about this company for most of the year. This is even though Smucker, which runs a relatively small business compared to Kraft and General Mills
My issue, though, has been that the stock was already very popular. It wasn't going to sneak up on anyone. Accordingly, the Street has had no problem rewarding Smucker for its above-average performances. And given that the sector as a whole was struggling to move product, while profiting very little on what it was able to move, I felt Smucker's popularity was well deserved.
I'm saying this even though I was unimpressed with the company's revenue results for the June quarter. Not to mention the downbeat guidance issued by management. But that, too, plays a role in why I believe the Street's negative reaction to the most recent results was undeserved. Analysts knew that these numbers were coming, yet still seemed surprised.
I'm not suggesting it was an incredible quarter -- not with revenue falling 4% year over year. Even so, the company more than offset this weakness with continued improvements in volume in many of its categories, like Folgers Coffee, Crisco Oil, Jif Peanut Butter and so on. Equally impressive was that Smucker's continues to post gains in the U.S. where competition and unpredictable economic conditions have impacted the industry's margins.
To that end, from an operational perspective, although Smucker did disappoint the Street by missing earnings-per-share estimates of $1.60, this needs to be said in the context of its 7% year-over-year improvement in GAAP earnings. And the idea that good profitable companies should be punished for "missing estimates" that they never issued in the first place is another flaw in these types of assessments.