JM Smucker (), a global food-manufacturer, reported fourth-quarter earnings for its fiscal-year 2012 that exceeded market expectations. The Street was looking for $0.99, but the company reported strong earnings of $1.10 per share. Revenue for the quarter came in at $1.36 billion (up 14%), just a touch better than the $1.35 billion the Street was expecting. The firm’s US retail coffee operation generated sales growth of 7%, while revenue from its consumer foods segment advanced 5% from the same period a year ago. Sales from its international operations, however, continue to impress, as this division grew revenues a robust 47%. We liked the quarterly results and are maintaining our fair value estimate of the company as a result.
Though performance was certainly strong, it wasn’t all roses in the quarter. For one, input and fuel costs continue to weigh on the company’s overall profitability, as its operating margin declined across all segments. In fact, profits in its fast-growing international segment increased by less than half of the segment’s revenue expansion (22%) as a result of higher inputs costs. Nonetheless, Smucker still guided to 7% revenue growth for fiscal-year 2012 and non-GAAP earnings of $5.00-$5.10 per share, the latter slightly lower than consensus forecasts. These numbers include the acquisition of Sara Lee’s (SLE) North American Foodservice business, which was completed at the beginning of calendar 2012.
Currently, shares are trading roughly in line with our fair value estimate, and the company registers a 6 on our Valuentum Buying Index. We do like the firm’s very stable, cash-generating North American business, and investors could witness some earnings upside if commodity costs ease in its international operations. Also, Smucker’s dividend is solid in our view, and we expect high-single-digit growth in its payout for some time to come. Plus, the company posts a Dividend Cushion score of 1.8, which means it can cover future dividend payments with cash flow almost two times. The only thing holding us back from considering the firm in our Dividend Growth portfolio is its valuation, which offers us little upside potential.