J. M. Smucker (SJM)

Packaged foods company J.M Smucker (NYSE:SJM) fell short of the market’s revenue expectations in Q1 CY2025, with sales falling 2.8% year on year to $2.14 billion. Its non-GAAP profit of $2.31 per share was 2.8% above analysts’ consensus estimates.

Company Overview

Best known for its fruit jams and spreads, J.M Smucker (NYSE:SJM) is a packaged foods company whose products span from peanut butter and coffee to pet food.

As America industrialized and moved away from an agricultural economy, people faced more demands on their time. Packaged foods emerged as a solution offering convenience to the evolving American family, whether it be canned goods or snacks. Today, Americans seek brands that are high in quality, reliable, and reasonably priced. Furthermore, there's a growing emphasis on health-conscious and sustainable food options. Packaged food stocks are considered resilient investments. People always need to eat, so these companies can enjoy consistent demand as long as they stay on top of changing consumer preferences. The industry spans from multinational corporations to smaller specialized firms and is subject to food safety and labeling regulations.

Competitors in packaged food with diverse brand portfolios include Mondelez (NASDAQ:MDLZ), Campbell Soup (NYSE:CPB), General Mills (NYSE:GIS), and Nestle (SWX:NESN).

A company’s long-term sales performance is one signal of its overall quality. Any business can have short-term success, but a top-tier one grows for years.

With $8.73 billion in revenue over the past 12 months, J. M. Smucker is one of the larger consumer staples companies and benefits from a well-known brand that influences purchasing decisions. However, its scale is a double-edged sword because it’s harder to find incremental growth when your existing brands have penetrated most of the market. To expand meaningfully, J. M. Smucker likely needs to tweak its prices, innovate with new products, or enter new markets.

As you can see below, J. M. Smucker’s sales grew at a sluggish 2.9% compounded annual growth rate over the last three years, but to its credit, consumers bought more of its products.

This quarter, J. M. Smucker missed Wall Street’s estimates and reported a rather uninspiring 2.8% year-on-year revenue decline, generating $2.14 billion of revenue.

Looking ahead, sell-side analysts expect revenue to grow 2.4% over the next 12 months, similar to its three-year rate. This projection doesn't excite us and indicates its newer products will not accelerate its top-line performance yet.

Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful staples business as there’s a ceiling to what consumers will pay for everyday goods; they can always trade down to non-branded products if the branded versions are too expensive.

To analyze whether J. M. Smucker generated its growth from changes in price or volume, we can compare its volume growth to its organic revenue growth, which excludes non-fundamental impacts on company financials like mergers and currency fluctuations.

Over the last two years, J. M. Smucker’s average quarterly volume growth was a healthy 2.1%. In the context of its 4.6% average organic revenue growth, we can deduce that the company’s gains have been evenly split between price increases and more customers purchasing its products.

In J. M. Smucker’s Q1 2025, sales volumes dropped 3% year on year. This result was a reversal from its historical levels.

J. M. Smucker has good unit economics for a consumer staples company, giving it the opportunity to invest in areas such as marketing and talent to stay competitive. As you can see below, it averaged an impressive 38.5% gross margin over the last two years. That means for every $100 in revenue, $61.46 went towards paying for raw materials, production of goods, transportation, and distribution.

J. M. Smucker produced a 38.4% gross profit margin in Q1, down 3.1 percentage points year on year but still exceeding analysts’ estimates by 4.8%. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

J. M. Smucker was profitable over the last two years but held back by its large cost base. Its average operating margin of 3.7% was weak for a consumer staples business. This result is surprising given its high gross margin as a starting point.

Analyzing the trend in its profitability, J. M. Smucker’s operating margin decreased by 23.7 percentage points over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. J. M. Smucker’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

In Q1, J. M. Smucker generated an operating margin profit margin of negative 27.9%, down 46.4 percentage points year on year. Since J. M. Smucker’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, and administrative overhead increased.

Revenue trends explain a company’s historical growth, but the change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

J. M. Smucker’s EPS grew at an unimpressive 4.4% compounded annual growth rate over the last three years. This performance was better than its flat revenue but doesn’t tell us much about its business quality because its operating margin didn’t improve.

In Q1, J. M. Smucker reported EPS at $2.31, down from $2.66 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 2.8%. Over the next 12 months, Wall Street expects J. M. Smucker’s full-year EPS of $10.12 to grow 1.2%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

J. M. Smucker has shown impressive cash profitability, driven by its attractive business model that gives it the option to reinvest or return capital to investors. The company’s free cash flow margin averaged 8.6% over the last two years, better than the broader consumer staples sector. The divergence from its underwhelming operating margin stems from the add-back of non-cash charges like depreciation and stock-based compensation. GAAP operating profit expenses these line items, but free cash flow does not.

Taking a step back, we can see that J. M. Smucker’s margin expanded by 1.5 percentage points over the last year. This shows the company is heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability fell.

J. M. Smucker’s free cash flow clocked in at $298.9 million in Q1, equivalent to a 13.9% margin. This cash profitability was in line with the comparable period last year and above its two-year average.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

J. M. Smucker historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 2.8%, lower than the typical cost of capital (how much it costs to raise money) for consumer staples companies.

J. M. Smucker reported $69.9 million of cash and $7.68 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $2.12 billion of EBITDA over the last 12 months, we view J. M. Smucker’s 3.6× net-debt-to-EBITDA ratio as safe. We also see its $388.7 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was encouraging to see J. M. Smucker beat analysts’ gross margin expectations this quarter. We were also happy its EPS and EBITDA outperformed. On the other hand, its full-year EPS guidance missed and its revenue fell short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock traded down 7.7% to $103.15 immediately following the results.

Updated: June 16, 2025 at 10:44 PM EDT

Before deciding whether to buy J. M. Smucker or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

J. M. Smucker falls short of our quality standards. To kick things off, its revenue growth was uninspiring over the last three years, and analysts don’t see anything changing over the next 12 months. And while its strong free cash flow generation allows it to invest in growth initiatives while maintaining an ample cushion, the downside is its declining operating margin shows the business has become less efficient. On top of that, its relatively low ROIC suggests management has struggled to find compelling investment opportunities.

J. M. Smucker’s P/E ratio based on the next 12 months is 9.3x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $111.50 on the company (compared to the current share price of $95).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.