Shares of packaged food and beverage giant J.M. Smucker (NYSE: SJM) were down 13% this week as of 2:30 p.m. ET Thursday, according to data provided by S&P Global Market Intelligence.
Smucker reported dismal fiscal fourth-quarter earnings, with sales and adjusted earnings per share falling 3% and 13%.
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Making matters worse, the company took another $980 million impairment charge on its $5.6 billion Hostess Brands acquisition, bringing the total amount written down to $2 billion.
While this charge doesn’t mean Smucker “lost” that money in Q4, it acts more as an admission that it dramatically overpaid for the Twinkie maker two years ago.
J.M. Smucker: Turnaround story or falling knife?
When you look at J.M. Smucker’s brands, there’s a lot to like:
Folgers, Cafe Bustelo, and Dunkin
MeowMix, Milk Bone, and Pupperoni
Uncrustables, Jif, and Smuckers jelly
Twinkies, Donettes, and Ho-Hos
In fact, thanks to its collection of popular brands, Smucker estimates that roughly 90% of U.S. households already buy its products. However, that widespread adoption is also part of the problem now facing the company — minimal growth.
Image source: Getty Images.
While Smucker grew sales by 4% annually over the last decade, this figure dipped to 1% since 2020 — and Q4’s results only made things worse.
This slowdown undoubtedly contributed to the company’s questionable acquisition of Hostess for a precipitous 30 times after-tax earnings.
Now, Smucker holds $7.3 billion in debt versus a market capitalization of $10.2 billion, meaning the company will likely focus on paying down debt and streamlining its operations, rather than delivering any significant sales growth.
Though Smucker consistently generates positive free cash flow (FCF) — and its 4.5% dividend yield only uses 56% of its FCF — investors may want to wait for signs of improvement before jumping in.
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Josh Kohn-Lindquist has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends J.M. Smucker. The Motley Fool has a disclosure policy.
