Consumer good firm J.M. Smucker (NYSE:SJM) boasts that it can "help families create memorable mealtime moments," and has done so for more than 100 years now. The addition of a leading coffee brand two years ago has helped it deliver on this mission, but may have made sales growth more of an uphill battle going forward.
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Fourth Quarter Sales and Profit Trends
Net sales eked out an ever-slight .05% increase to $1.069 billion. The U.S. consumer retailing and special markets, which is a catch-all operating unit combining Canada, foodservice, and beverage sales, posted 5% and 8% top-line growth, respectively while the U.S. coffee retailing segment saw a slight 1% sales decline and the U.S. oils and baking business reported a 12% decline.

Despite the tepid top-line trends, J.M. Smucker continues to ring out cost savings from the purchase of Folgers from Procter & Gamble (NYSE:PG) in mid-2008. Coffee is the largest sales category and also now accounts for the bulk of company profits. For the fourth quarter, domestic retail coffee made up 47.9% of total company operating income of $263.9 million, despite a 15% segmental decline from last year's fourth quarter. The other three divisions saw healthy profit jumps, but still posted lower profit margins than the coffee unit. (Learn more about M&A, read The Basics Of Mergers And Acquisitions.)

Higher gross margins and a huge reduction in merger charges boosted net income 28% to $120.6 million, or $1.01 per diluted share. This was well ahead of analyst projections.

Full-Year Recap
Full year results benefited from the addition of Folgers to the corporate fold. Total reported sales grew 23% to $4.6 billion while the reduction in merger-related costs played a primary role in boosting operating income 75% to $790 million. Net income jumped 86% to $494.1 million, or $4.15 per diluted share.

Guidance
J.M. Smucker expects sales for the coming year to grow 3% from organic means and earnings between $4.50 and $4.60 per diluted share, though this excludes 55 cents to 60 cents in more merger charges. Longer term, management's goal is to grow the top line 6% and earnings 8% annually.

Bottom Line
Free cash flow improved markedly at J.M. Smucker, growing 70.5% to $576.5 million, or approximately $4.84 per diluted share. Yet despite the improvement, returns on invested capital weren't overly impressive at 9.7%.

At a forward P/E ratio of just below 14, Smucker trades slightly below the mid-teens multiples of larger packaged-good rivals including P&G, Unilever (NYSE:UL), and HJ Heinz (NYSE:HNZ). Its primary focus on food and coffee offers a very stable sales base and the addition of Folgers has boosted overall company profitability. However, it has also added a slow-growing brand that accounts for the bulk of total sales and leaves the shares somewhat unappetizing.

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