Credit Suisse Finds Fault In Smucker's Key Brands

J M Smucker Co SJM boasts a leadership position in some growing food categories, but Credit Suisse sees multiple reasons for investors to be concerned with the company's brands.

The Analyst

Credit Suisse's Robert Moskow downgraded JM Smucker's stock from Neutral to Underperform with a price target lowered from $120 to $115.

The Thesis

Smucker holds a leadership position within the coffee retail market at 27 percent, Moskow said in the note. However, Smucker's coffee sales have grown at a "paltry" 0.5 percent per year since 2014 while its market share fell 2 percentage points over the same time period as many consumers traded up to more premium coffee brads like Nespresso.

The company's Folgers accounts for around 25 percent of the entire company's profits, but the key millennial market sees the brand as "to stodgy and low in quality," the analyst said.

Meanwhile, the pet food and pet snack market is now dominated by "pet parents who humanize their pets" by paying premium prices to feed their pets, Moskow said. Smucker entered the market in 2015 when it bought the Big Heart pet food business and said at the time it can grow sales above 3 to 4 percent a year. However, sales are down 4.4 percent in fiscal 2018 from the $2.3 billion in sales the company estimated when it bought the business in 2015.

Price Action

Shares of J M Smucker Co were trading lower by 1 percent at $121.69.

Related Links:

Smucker Downgraded At Credit Suisse On Worse-Than-Expected Pet Food Business

JM Smucker: One Way To Play A Turnaround In Food Stocks

Image credit: Mike Mozart, Flickr