Skip to Content
Stock Analyst Update

Our Take on Smucker's Moves

While concerned that the Ainsworth purchase comes as Smucker struggles in the pet-nutrition sector, we applaud the firm’s openness to divesting its baking business.


Our $133 fair value estimate for narrow-moat  Smucker (SJM) should not see a large change after it announced plans to acquire Ainsworth Pet Nutrition (maker of Rachael Ray Nutrish Pet Food) for $1.9 billion in cash and that it is exploring strategic options for its U.S. baking business. The moves come on the heels of Smucker’s thwarted attempt to acquire Wesson’s cooking oil lineup from Conagra, which the FTC challenged.

The offer corresponds to a purchase multiple of around 22 times EBITDA, versus the roughly 25 times General Mills is offering for Blue Buffalo. After synergies and expected tax benefits, the Ainsworth multiple dips to around 12 times, versus 22 times for Blue Buffalo.

We have long been skeptical of Smucker’s ability to justify the 13 times EBITDA it paid for Big Heart Pet Brands in 2015 (9 times after synergies expected upon announcement of the deal), a fear validated by a $177 million impairment in the third quarter. While the path to synergies is clearer given the existing pet unit (Smucker did not have a presence in the industry prior to its Big Heart deal), we remain concerned that the purchase comes as Smucker has struggled organically in the sector. The Ainsworth multiple appears somewhat high though not egregious (Blue Buffalo has a more premium standing), and we expect the Rachael Ray brand (two thirds of Ainsworth’s sales) to help offset weakness in Smucker’s lower-end mainstream offerings.

Smucker’s U.S. baking business accounts for around $370 million of the consumer foods unit’s $2.1 billion in sales (or around 5% of overall revenue, including Ainsworth). While its brands (including Hungry Jack, Martha White, and Pillsbury) carry weight, the segment has struggled alongside the category. While Pinnacle's success with Duncan Hines suggests a way to succeed through innovation in a declining category, we applaud Smucker’s openness to moving away from a segment under intense competitive pressure with diminishing significance to grocers.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

Zain Akbari does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.