CAG ConAgra Brands Inc

J.M. Smucker Co. (SJM) announced the completion of the buyout of Florida-based Rowland Coffee Roasters Inc. for $360 million. As reported by management, the transaction was completed with cash on hand and borrowings under its existing credit facility.

Rowland specializes in Hispanic coffee brands such as Cafe Bustelo and Cafe Pilon, which are primarily sold in the Northeastern U.S. and South Florida. It leads the world of espresso coffee in the U.S., according to J.M. Smucker. Rowland generated more than $110 million in revenue during 2010.

Upon owning Rowland, Orrville, Ohio based JM Smucker will be able to enlarge its scale and reach in the U.S. retail coffee market and stretch its coffee business in northeastern U.S. and southern Florida, which were the strong footholds of Rowland Coffee’s distribution channels.

J.M Smucker, the United States’ number one producer of packaged coffee and the maker of foods such as Crisco and its namesake spreads and beverages such as Folgers and Dunkin Donuts coffee, has added the best espresso Hispanic coffee brands such as Cafe Bustelo and Cafe Pilon, which are primarily sold in the Northeastern U.S. and South Florida.

The transaction is expected to contribute about $0.05 per share to fiscal 2012 earnings, excluding one-time costs of the transaction. One-time costs of the acquisition are estimated to total $25 million to $30 million, including approximately $15 million of non cash charges associated with closing of the Miami facilities.

Smucker, whose buys in the past decade include Jif peanut butter and Crisco oils, plans to save costs by closing Rowland's Miami facility and consolidate the manufacturing operations and retain its existing facilities in New Orleans, Louisiana, while expanding the distribution of Rowland's brands.

The consolidation of operations is expected to increase margins by approximately 10 cents per diluted common share in the first full year after the entire consolidation, excluding one-time costs.

We remain encouraged as J.M. Smucker is well-established fundamentally with solid execution in the core business. The company continues to enhance brand equities, sustain product innovation and improve operational efficiencies. However, the company’s highly competitive business and strong competitors like ConAgra Foods, Inc. (CAG) and Kraft Foods Inc. (KFT) concern us.

Currently, we maintain a Neutral rating on the stock on a long-term basis. Further, Smucker holds a Zacks #2 Rank, which translates into a short-term Buy rating.

 
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