After looking at The J. M. Smucker Company’s (NYSE:SJM) latest earnings announcement (31 January 2020), I found it useful to revisit the company’s performance in the past couple of years and assess this against the most recent figures. As a long-term investor I tend to focus on earnings trend, rather than a single number at one point in time. Also, comparing it against an industry benchmark to understand whether it outperformed, or is simply riding an industry wave, is a crucial aspect. Below is a brief commentary on my key takeaways.
Did SJM’s recent performance beat its trend and industry?
SJM’s trailing twelve-month earnings (from 31 January 2020) of US$625m has declined by -0.7% compared to the previous year.
Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 11%, indicating the rate at which SJM is growing has slowed down. What could be happening here? Well, let’s take a look at what’s going on with margins and whether the rest of the industry is experiencing the hit as well.
In terms of returns from investment, J. M. Smucker has fallen short of achieving a 20% return on equity (ROE), recording 7.6% instead. Furthermore, its return on assets (ROA) of 4.9% is below the US Food industry of 6.0%, indicating J. M. Smucker’s are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for J. M. Smucker’s debt level, has declined over the past 3 years from 8.6% to 8.1%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 42% to 68% over the past 5 years.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Generally companies that endure an extended period of diminishing earnings are undergoing some sort of reinvestment phase Although, if the entire industry is struggling to grow over time, it may be a signal of a structural change, which makes J. M. Smucker and its peers a riskier investment. You should continue to research J. M. Smucker to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SJM’s future growth? Take a look at our free research report of analyst consensus for SJM’s outlook.
- Financial Health: Are SJM’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 31 January 2020. This may not be consistent with full year annual report figures.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.