The J.M. Smucker Company (SJM)
A Dividend Aristocrat and Reliable Consumer Staple with Resilience and Growth Potential
JM Smucker embodies the essence of a consumer staple—reliable, durable, and integral to everyday life. With strong family ownership and iconic brands, Smucker offers investors a mix of stability and growth. Here’s why it may deserve a place in your portfolio.
A Legacy of Beloved Brands
Founded in 1897, JM Smucker has evolved into a $9 billion consumer goods powerhouse. Its portfolio includes household names like Uncrustables, Jif, Milk-Bone, Café Bustelo, and Hostess, with over 90% of U.S. households purchasing its products.
Smucker maintains deep family ties, with Richard and Timothy Smucker owning 3.2% of the company and executives holding another 0.2%. This $383 million ownership underscores management’s vested interest in its success.
Strategic acquisitions, such as Big Heart Pet Brands in 2015 and Hostess in 2024, have allowed Smucker to focus on high-growth categories like snacking, coffee, and pet food. The acquisition of Uncrustables for $1 million in 1998 has turned into a brand generating nearly $1 billion in annual revenue.
Business Segments
Smucker operates across several core segments, each contributing to its stable and diversified revenue base:
Snacking and Spreads: Anchored by Uncrustables and Jif, with consistent growth from innovation and marketing.
Pet Food and Treats: Milk-Bone and Meow Mix lead this segment, benefiting from humanization trends and optimized portfolio margins.
Coffee: Café Bustelo and Dunkin’ drive category leadership, supported by premiumization and product innovation.
Sweet Baked Goods: The addition of Hostess strengthens Smucker’s position in this fast-growing category, leveraging its strong brand equity.
International & Away From Home: A double-digit growth channel expected to exceed $750 million in FY2025, supporting Smucker’s entire portfolio through offerings like Uncrustables and on-demand coffee.
Notably, Walmart accounts for 33% of revenue. While this concentration creates pricing pressure, Walmart’s reliability minimizes associated risks.
Strategic Growth and Long-Term Goals
Smucker’s leadership highlighted several key growth platforms during the 2024 Investor Day earlier this month on December 10th:
Uncrustables: Expanded capacity, including a new manufacturing facility, and a national marketing campaign aim to propel this brand to $1 billion in sales. Distribution expansion through the Away From Home channel further strengthens growth, as Uncrustables targets new markets such as schools, convenience stores, and foodservice. Recent innovation in new varieties, such as peanut butter and raspberry spread sandwiches, and seasonal offerings, like Halloween-themed Uncrustables, further drive its growth trajectory.
Hostess: A revitalized marketing strategy and expanded distribution channels target 4% long-term net sales growth. Innovation is a key focus, with 15% of Hostess's revenue coming from products launched in the past three years, including Mystery Twinkies and limited-time offerings to maintain consumer excitement.
Pet Segment: Smucker has optimized its pet portfolio by divesting lower-margin businesses, such as co-manufacturing operations, to focus on higher-value product platforms. The segment is projected to achieve 3% to 4% net sales growth over the long term, driven by leading brands like Milk-Bone and Meow Mix, which together account for nearly 80% of the segment’s revenue. Profit margins have significantly improved, with an anticipated long-term margin profile in the high-20% range. This refined portfolio strategy underscores the company’s commitment to margin improvement and sustainable growth in the pet category.
Coffee: Smucker’s coffee segment is projected to achieve 1% to 2% net sales growth over the long term, with a high-20% margin profile supported by premiumization and category leadership. Cafe Bustelo has delivered 22 consecutive quarters of growth and is projected to surpass $350 million in net sales by FY2025. Strategic innovations, such as light, medium, dark, and dulce de leche roast varieties in prepackaged and K-Cup formats, aim to double household penetration and expand demographic reach. Additionally, Smucker is capitalizing on cold coffee trends with national expansion plans for multi-serve ready-to-drink offerings, including vanilla and decaf varieties. Seasonal innovations in the Dunkin' brand and decaf K-Cup launches further enhance growth opportunities across the portfolio.
Pricing and Volume Dynamics: Smucker’s long-term growth estimates rely on a balanced mix of price increases and volume gains. For example, in recent quarters, price realization contributed 4 percentage points to growth, while volume/mix added 2 percentage points in certain segments. This reflects both the pricing power of its iconic brands and the success of its innovation pipeline.
Long-Term Growth Algorithm and Objectives
Smucker’s long-term growth algorithm targets low single-digit net sales growth annually, supported by pricing power, innovation, and volume gains. The company aims for a mid-single-digit increase in operating income and high-single-digit growth in adjusted EPS, driven by productivity initiatives, margin expansion, and operational efficiency. Free cash flow conversion is expected to remain robust, enabling continued investment in growth initiatives and consistent shareholder returns in excess of 10% long-term.
Capital Allocation
JM Smucker’s disciplined capital allocation strategy is one of its hallmarks, balancing shareholder returns and reinvestment for growth. Mark Smucker, who became CEO in 2016, has guided the company toward operational focus and financial discipline. Early in his tenure, Smucker streamlined its portfolio by divesting less profitable businesses, such as the U.S. baking division in 2018, to concentrate on higher-margin, higher-growth categories like snacking, pet food, and coffee.
Dividend History
Smucker has increased its dividend for 23 consecutive fiscal years, demonstrating an unwavering commitment to shareholders. With a 6% compounded annual growth rate (CAGR) over the past decade, Smucker targets a payout ratio of 40-45% of adjusted EPS—a sustainable and appealing metric for income-focused investors.
Here’s a longer historical look at Smucker’s EPS and dividend per share growth. Smucker has consistently increased dividends with ample cushion in its payout ratio.
Share Repurchases
Over the last decade, Smucker has returned $2.5 billion to shareholders through share repurchases. In FY2024 alone, the company repurchased 2.4 million shares for $362.8 million, with 1.1 million shares remaining under its current authorization.
I expect management to prioritize debt paydown for the next few years until it hits its target leverage ratio. Dividends and debt paydowns will use up any excess cash flow the next couple of years but this directly contributes to total shareholder return/yield.
Mergers and Acquisitions
Smucker’s acquisition of Hostess Brands for $5.6 billion underscores its focus on transformative deals. While the price raised my eyebrows, management’s track record of achieving synergies—including $210 million in anticipated integration costs—suggests a thoughtful approach. The company’s integration successes with prior acquisitions, such as Uncrustables, bolster confidence.
Smucker purchased the Uncrustables brand in 1998 for $1 million. Today it generates revenue just under $1 billion.
Debt Reduction
Smucker is committed to reducing its debt by $500 million annually over the next three years, targeting a leverage ratio below 3.0x net debt-to-EBITDA by FY2027. This disciplined approach ensures financial flexibility while supporting growth.
Assuming a weighted-average cost of debt conservatively around 5.5%, paying down $500 million per year increases EPS by approximately 2.6% per year over the next 3 years ignoring other drivers.
Shareholder Yield
Taking the above into account, except for new acquisitions, I expect a total shareholder yield of 8.18% over the next couple of years before considering any cash flow not reinvested back into the business for growth:
Debt Paydown Yield: 4.26% ($500 million debt paydown / $11.73 billion market cap)
Dividend Yield: 3.92%
Buyback Yield: 0.00%
Total Shareholder Yield: 8.18%
Navigating Potential Risks
Smucker faces some uncertainties, including evolving health initiatives under the new administration through RFK Jr. Potential ingredient reformulations and cost pressures could emerge, though management’s proactive innovation strategy should mitigate these risks.
Additionally, Smucker maintains a defined benefit pension plan. While not a large or pressing concern, it requires ongoing monitoring to ensure alignment with the company’s financial health.
One of the broader challenges Smucker has faced is its relatively modest growth in sales, income, and cash flow over the last decade or two, as seen in the chart further below. This is attributable to a combination of factors:
Portfolio Maturity: Core brands like Jif and Folgers dominate mature categories with slow organic growth, limiting significant volume gains.
Customer Concentration: Heavy reliance on Walmart (33% of revenue) creates pricing pressures that constrain margin expansion.
Conservative Strategy: Smucker’s focus on financial discipline, stable dividends, and share repurchases prioritizes stability over aggressive growth investments.
Innovation Challenges: While brands like Uncrustables and Café Bustelo have excelled, broader innovation efforts have not consistently driven high incremental revenue across categories.
Acquisition Costs: High acquisition costs, such as the $5.6 billion Hostess deal, reduce near-term free cash flow and limit immediate reinvestment opportunities.
These factors highlight the balance Smucker must strike between maintaining its reliable reputation and pursuing meaningful growth opportunities. As an investor, you must believe in this family CEO and his execution of the strategic plan.
Valuation
At ~10.8x NTM EPS and a 7.6% free cash flow yield, Smucker is attractively priced for income-focused investors seeking some capital appreciation. With strategic growth initiatives and a robust dividend, the stock fits well in conservative dividend-growth portfolios. The dividend yield is at multi-year highs.
Conclusion
JM Smucker exemplifies what we seek in Safe Harbor Stocks: strong cash flows, durable competitive advantages, and prudent capital allocation. The combination of iconic brands, strategic acquisitions, and attractive valuation metrics makes Smucker a compelling investment for those seeking stability and growth in uncertain markets.
While the growth profile may not be as robust as other companies, Smucker’s conservative strategy and recession-resistant product portfolio provide a level of resilience that many competitors lack. This positions the company to weather economic downturns better than most.
With the integration of Hostess underway and key growth platforms firing on all cylinders, Smucker is poised to deliver consistent returns. Investors can take comfort in the company’s steadfast commitment to shareholder value and operational excellence. JM Smucker’s recipe for success is one we’d happily invest in—it’s not just a staple in your pantry, but also in your portfolio.
Perhaps in a future article I will break down and analyze the algorithm of Smucker’s 10%+ expected EPS growth. Let us know your thoughts in the comments below!
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Disclosure: This information is provided for informational purposes only and should not be considered a solicitation or recommendation to buy or sell any securities. The author or entity providing this information may hold positions in the securities discussed. This is not investment advice.