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Author: yofluke Three stars, 500 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 5655  
Subject: A First Run - Smuckers (SJM) Date: 3/16/2002 12:41 PM
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Recommendations: 20
Company Name: J.M. Smucker
Stock Symbol: SJM
Web Address: http://www.smuckers.com

Intro
(me)
Smuckers struck me while reading the Barker Portfolio in the March 4, 2002
Businessweek edition (the article is still not available online without a
subcription).  What struck me about the article, which was about Smuckers
pending purchase of Jif and Crisco from P&G, was not content, but rather the
idea of Smuckers as an investment.  I thought, what could be more boring
than making jelly, jam, peanut butter, etc.

"Z" Factor
(Taken From v1.1 of Boring Port 3.0 FAQ)

-Analyst Coverage - According to YahooFinance, SJM has 1 or 2 analysts 
covering the copy at any given time.  3 pts
-Industry Growth Rate – According to YahooFinance, the industry 
growth rate estimate for the next 5 years is ~10% 2 pts
-Revenues per Industry – According to the summary for SJM on 
YahooFinance revenues comes  from food products 2 pts
-Earnings History – According to the SJM web site, for continuing 
earnings growth, there has been 3 years (Fiscal 2000, 2001, and 2002 est.)
 1 pt 
-Low Average Trading Volume – From YahooFinance:
Shares Outstanding – 24.5 M
3 Month Average Trading Volume – 71.7 K
10 Day Average Trading Volume – 110.0 K
% Trading = (71.7 K / 24.5 M) * 100 = 0.3%
or
% Trading = (110.0 K / 24.5 M) *100 = 0.4%
3 pts 

Total "Z" Factor: 11 out of 14


History

SJM was founded in 1897 by J.M. Smucker who began selling pressed
cidar and then branched out into selling apple butter.  Currently, SJM
is a fourth generation company with Timothy and Richard Smucker
serving as co-CEO. 

Recent Dividend History from 
http://www.smuckers.com/fc/investor/default.asp?

Declared     Record       Payable     Amount  Type  
01-Feb-2002  15-Feb-2002  1-Mar-2002  $0.16   Regular Cash 
30-Oct-2001  19-Nov-2001  3-Dec-2001  $0.16   Regular Cash 
20-Jul-2001  21-Aug-2001  4-Sep-2001  $0.16   Regular Cash 
18-Apr-2001  18-May-2001  1-Jun-2001  $0.16   Regular Cash 
24-Jan-2001  15-Feb-2001  1-Mar-2001  $0.16   Regular Cash 
24-Oct-2000  17-Nov-2000  1-Dec-2000  $0.16   Regular Cash 
14-Jul-2000  18-Aug-2000  1-Sep-2000  $0.16   Regular Cash 
19-Apr-2000  18-May-2000  1-Jun-2000  $0.16   Regular Cash 
17-Jan-2000  16-Feb-2000  1-Mar-2000  $0.15   Regular Cash 
26-Oct-1999  17-Nov-1999  1-Dec-1999  $0.15   Regular Cash 
14-Jul-1999  18-Aug-1988  1-Sep-1999  $0.15   Regular Cash 
20-Apr-1999  18-May-1999  1-Jun-1999  $0.15   Regular Cash 
22-Jan-1999  15-Feb-1999  1-Mar-1999  $0.14   Regular Cash 
27-Oct-1998  17-Nov-1998  1-Dec-1998  $0.14   Regular Cash 
17-Jul-1998  18-Aug-1998  1-Sep-1998  $0.14   Regular Cash 
21-Apr-1998  18-May-1998  1-Jun-1998  $0.14   Regular Cash 
23-Jan-1998  17-Feb-1998  2-Mar-1998  $0.13   Regular Cash 
30-Oct-1997  17-Nov-1997  1-Dec-1997  $0.13   Regular Cash 
17-Jul-1997  19-Aug-1997  2-Sep-1997  $0.13   Regular Cash 
18-Apr-1997  19-May-1997  2-Jun-1997  $0.13   Regular Cash 

Also, according to the press release on 10-Oct-2001, the historic dividend
practice is for the dividend to usually be 40-50% of earnings.


Business Description

Over the past four generations, SJM has diversified from selling cidar
and apple butter to manufacturing and/or marketing jam, jelly, preserves,
fruit butter, low/free sugar fruit spreads, natural peanut butter, pre-packaged
snacks & sandwiches, specialty fruit syrups, ice cream tops like 
Magic Shell, among other products.  Soon, with the pending purchase of
JIF and Crisco from P&G,  SJM's product line will again expand.

The business currently includes >2000 employees worldwide with 12 plants, 
and 4 fruit processing centers in 70 countries.  According to the SJM web site
customers for SJM products include grocery stores, specialty retailers, 
restaurants, hotels and other food product manufacturers.  The company web site
also proclaims their basic beliefs as being "Quality, People, Ethics, Growth (either to
protect or enhance business), independence (for the company), and stewardship of the
Smucker name".  They also tout their commitment to community service through 
programs like the Boy Scouts, the United Way, etc and to employees by being
ranked #22 by Fortune in 1999, 1998, and 1997 in places to work.


Distribution & Competitors
Taken from my "unofficial" walkthrough of my local Genuardis and Giant

Distribution:
->For Jams, Preserves and Jelly distribution was great in both Giant and Genuardis
->For Peanut Butter the display was small at both Genuardis and Giant, though that
  is primarily because currently SJM selling only natural peanut butter.  Assuming 
  they get JIF, distribution will be very good.
->For Fruit Syrups, there was next to nothing in the local Genuardis.  Just on type.
->For Ice Cream Toppings and Syrup, there was a pretty good selection of SJM
  products in the Genuardis.

Competition:
From what I was able to telling during my trips to the grocery stores, the competitor(s)
for peanut butter is primarily Skippy from Unilever via Bestfoods and generic brands 
assuming the JIF acquisition goes through), for jam, jelly, and preserves there was
Welch's as well as some specialty products and generic brands, and for the ice cream
toppings the other major brand was Hershey's.


Other Interesting Things
Acquisition of JIF and Crisco from P&G.
The acquisition of JIF and Crisco from P&G seems to me like a good fit.  JIF
combined with Smuckers Natural Peanut Butter should catapult them into the 
#1 position for Peanut Butter which seems to be a good fit.  According to the 
companies' press release, the deal should double SJM sales and potentially 
triple earnings in the coming years.  The deal is expected to be dilutive in fiscal
2002 and 2003, but that seems like a small price to pay for such a large increase
in sales and earnings. I like the fact that the company is making such a bold step
to better there company when a great opportunity came along.


Stock Voting Rights
At the time of purchase each share of stock receives 1 vote, but after 4 years of 
ownership, each share receives 10 votes.

Share Repurchase
Approximately 4 million shares were repurchased in Fiscal 2001, some of which 
used debt for the repurchase.

Financials 

Growth	    2001	         2000	         1999
Sales	     1.50%	        5.00%	        6.50%
Earnings	  29.30%	      -28.70%	       13.20%
Margins			
Gross	     32.70%	       34.50%	       34.30%
Net Profit	4.70%	        4.20%	        6.30%
Returns			
ROE	       10.90%	       8.30%	        12.10%
ROA	       6.50%	        5.80%	        9.00%
Asset Turns	1.39	        1.39	         1.43
Capital			
FCF	     $58,811,000 	$1,359,000 	     $4,832,000 
LT Debt	$135,000,000 	$75,000,000 	    $0 
FFR	       2.65	         2.87	         2.26
CKM	       9.00%	        0.20%	        0.80%
Cash/Debt	 0.38	         0.44	         0.97




Long Term Debt			

Debt 2000			
Type	         Due	  Rate	   Amount
Senior Notes	6/1/09	6.77%	$75,000,000

Debt 2001			
Type	         Due	  Rate	   Amount
Senior Notes	9/1/10	7.94%	$10,000,000
Senior Notes	9/1/07	7.87%	$33,000,000
Senior Notes	9/1/05	7.70%	$17,000,000


International Sales Have Been Increasing:
  
	         2001	      2000     1999	     1998
Domestic	$557921	  $551324	   $537154	  $498072
Overseas	$93321	   $90561     $75508	   $67404
Total	   $651242   $641885	   $612662	  $565476

	                      2001	        2000	    1999	    1998
Overseas Sales %	       14%	        14%	     12%	      12%
Overseas Sales Growth   3%          20%      12%	



Final Thoughts/Conclusions
One thing I definitely do not like is the fact that SJN has been taking on 
LT Debt the last couple of years and used some of it to by back stock.  The
Cash To Debt ratio is also a little higher than I usually like to see companies
that I invest in.  On the other hand, I like that the company has been around
100+ years and is in an industry that I feel like I can project will be around for
a long long time.  I also appreciate the willingness to make the bold move of
acquiring JIF and Crisco.    One interesting thing I read in the BusinessWeek
article (which I seem to have lost) was the fact that after the acquisition, 
there could be even more dilution short term as mutual funds who held P&G 
shares sell their new SJM shares due to the company being too small for their
funds.  I like the sound of that as a buying opportunity.  At this point, I am 
leaning towards purchasing some SJM when my one of my next buying windows
comes about.

Other References
An interview with Timothy P. Smucker, Chairman and Co-CEO
http://www.twst.com/pdf/sjm.pdf
SJM Press Release on 10 – Oct – 2001 for the stock acquisition of JIF and Crisco
from P&G
SJM Fiscal 2001/2000 Annual Reports
NAIC  from 8/2001
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