J.M. Smucker Company – A Financial Analysis

The J. M. Smucker Company was started in 1897 by Jerome Smucker.  The business started because he was operating a steam-powered cider mill, and at the same time sold apple butter made from a family recipe.  The apple butter was successful, so the owner continued to create different similar products. At first, the company sold only jelly and jams but then moved into other products such as coffee, and peanut butter which were gained through acquisitions.  Throughout the company’s existence, it has been run by the original owner’s family (Lambert 2013). 

Smuckers now manufactures mostly food and coffee products.  Smuckers produces jelly, peanut butter, coffee, espresso, Crisco, and other various food products.  Over 80% of the company’s sales come from the United States alone. The main method of expansion of the company is to buy other businesses that are in their industry.  One of Smucker’s most expensive acquisitions was that of Folgers from Procter and Gamble. The acquisition cost $3.3 billion and $350 million of Folger’s debt for Smucker’s (Anonymous 2008).  Another major acquisition was that of Jif and Crisco from Procter and Gamble (Award-Winning Smucker . . . 2005). Also, the company has bought some business which it later sold because they did not go along with their other product lines, and they wanted to focus on specific product lines instead of expanding into different ones (Lamber 2013).  The strategy currently being used by Smucker’s is to control the markets in the products they sell (Award-Winning Smucker . . . 2005). The Smucker’s company owns the bestselling brands of coffee, jams, peanut butter, and cooking oil. Smuckers has been able to increase sales dramatically over the past few years, from $632 million in 2000 to $4.6 billion in 2010.  Sales have gone up, and so have profits, $36 million in 2000 to $494 million in 2010 (Gunther 2010). Sales and profits have increased mostly due to various acquisitions made by the company. Overall Smuckers is a profitable company that will continue to be successful.

The vertical analysis of Smucker’s income statement shows that the company is stable in that there are no accounts that change significantly compared to net sales. The average net income has been 9% of total sales with a range of 4%.  The lowest year was 2009 with 7%, but since then the company’s net income has risen as a percentage of their net sales. This means that Smucker’s has become more efficient.

The horizontal analysis of Smucker’s income statement shows that is more unstable than the vertical analysis shows the company to be.  Of major concern is mostly net sales, and net income. Net sales increased by varying amounts each year. The range of the percentages is 16%, not only is the range high but there is no steady increase or decrease from year to year.  In 2010 net sales increased by 23%, in 2011 5%, in 2012 15%, and in 2013 7%. Even though the net sales increased every year there is still the concern that the company may have a decrease, but if the company continues its strategy of buying competitors this may never happen.  Also, operating expenses and other income seem absurd when looking only at the horizontal analysis, the range of other income is about 10400%. Looking back to the income statement it shows these accounts are small amounts, meaning that a major increase or decrease will produce an extreme percentage.  The accounts also change between negative and positive over the years. Even though Smucker’s horizontal analysis shows it to be unstable this can easily be attributed to acquisitions which could create dramatic increases in sales in the year after the acquisition.

For the vertical analysis of the balance sheet, there are only a few items of interest.  One issue that can be seen through the vertical analysis is that the amount of inventory compared to total assets has been increasing.  It increases to 10% in 2013 from 7% in 2009. This could become an issue because if the company is holding excess inventory leads to reduced amounts of cash to be used for other purposes that earn more than sitting inventory.  Not only is the inventory increasing cash is decreasing as well. Cash and equivalents have decreased to 3% in 2013 from 6% in 2009. Another item of interest is long-term debt. Long term debt has doubled since 2009 with 11% to 22% in 2013. 

Sources

Anonymous. (2008, June 16). The J. M. Smucker Company; The Procter & Gamble Company; The J. M. Smucker Company to Merge P&G’s Folgers Business into the Company in an All-Stock Transaction. Proquest. Database. Retrieved July 7, 2013, from http://search.proquest.com.ezaccess.libraries.psu.edu/docview/198010018

Award-Winning Smucker Company Looks For Top- and Bottom-Line Growth. (2005, March). Proquest. Database. Retrieved July 7, 2013, from http://search.proquest.com.ezaccess.libraries.psu.edu/docview/215920408

Gunther, M. (2010, August 16). The Making of a Future 500 Company. EBSCOhost. Database. Retrieved July 7, 2013, from http://web.ebscohost.com.ezaccess.libraries.psu.edu/ehost/detail?sid=c8ddc7fa-8e50-4b21-8abf-7d9434d1fa51%40sessionmgr10&vid=1&hid=1&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=buh&AN=52793544

Lambert, S. (2013). Smucker – Company Overview. Hoover’s. Database. Retrieved July 7, 2013, from http://subscriber.hoovers.com.ezaccess.libraries.psu.edu/H/company360/overview.html?companyId=10811000000000

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