Sunday, June 22, 2003

Jam giant sticks to traditional values

Family firm expands into $1.3B corporation

By Cliff Peale
The Cincinnati Enquirer

[IMAGE] The Simply Smucker's store in Orrville.
(Glenn Hartong photo)
| ZOOM |
ORRVILLE, Ohio - Richard and Tim Smucker remember the smell.

Even decades after their start loading trucks for the company their great-grandfather founded, the brothers can remember the smell of strawberries, grapes or whatever flavor of jam or jelly happened to be running in the plant that day.

"Positive pollution, we called it," Richard says.

Those same home-grown memories are everywhere at J.M. Smucker Co., where Tim and Richard are the fourth and fifth CEOs in the company's 106-year history.

The thing is, Smucker no longer sells apple butter out of the back of a horse-drawn wagon, as Jerome Monroe Smucker did for the first time in 1897. After buying Jif and Crisco from Procter & Gamble Co. a year ago for about $675 million, it's now a $1.3 billion corporation with plants around the world.

And icons like the red-and-white gingham caps on lids and weatherman Willard Scott's celebration of centennial birthdays on the Today show have made Smucker a household name.

In this town of 8,000 people surrounded by farms in northeastern Ohio, signs constantly remind workers of Smucker's heritage and principles: Quality, people, ethics, growth and independence.

"The whole theory is that if we commit to the beliefs, then sales and profits will follow," says Tim Smucker, chairman and co-CEO.

So far, it's worked. For the year ended April 30, Smucker earned $96.3 million on sales of $1.3 billion. Adding Jif and Crisco essentially doubled sales and tripled profits from a year before.

Peanut butter, fruit spreads and shortening each are more than one-quarter of the company's annual sales.

Sales of Uncrustables, Smucker's frozen peanut butter-and-jelly sandwich rolled out nationally this summer, have jumped to about $35 million, and co-CEO Richard Smucker declared it "a $100 million idea."

It's building a new plant in Scottsville, Ky., to handle the Uncrustables growth, with 50 acres for potential expansion.

And low-sugar products, which Smucker now offers in nearly every flavor, also are growing faster than the overall company average, they say.

Stock swing

With the growth come some big-company issues Smucker might not have had to face before. In February, the company's stock price fell 10 percent in a single day after an analyst cut his 2004 profit forecast.

And consumer watchdog the Center for Science in the Public Interest has accused Smucker of deceiving consumers with its "Simply 100% Fruit" line. In fact, the product includes some of the advertised fruit, complemented by other types of fruit syrup.

Richard Smucker says the company was confident in the label, but would make it clearer if that was necessary.

"We think (the complaint) is a misconception of what our product is," he says.

Holding shares

After the Jif/Crisco deal, P&G shareholders got 1 share of the new company for every 50 P&G shares. The P&G profit-sharing plan, P&G's biggest shareholder, still holds $49.7 million in Smucker's stock.

Cincinnati money manager Vere Gaynor, who had several P&G-owning clients who received Smucker stock in the deal, toured the Orrville facilities and decided to hold the Smucker shares.

"They've committed themselves to their culture and growing the company at a reasonable rate, and that's OK," Gaynor says. "I think it's a very nice little company."

Dan Popowics, an equity analyst at Fifth Third Bank, said the company manages about 170,000 Smucker shares.

"It's a slow-growth company by virtue of the industry they're in," he says. "The question to ask is, 'What's the next move?' "

There are five members of the next generation already working in the company, and Tim and Richard Smucker have little doubt they can continue to run a profitable, family-controlled, billion-dollar food corporation.

"It really depends upon performance," Richard says. "You can build a company based upon those values."

Johnny Appleseed?

The folklore is everywhere here.

Smucker's offices are on Strawberry Lane. Across the street is the original 1907 J.M. Smucker home, restored and used for company functions. Family pictures of Tim and Richard Smucker as babies adorn the walls.

Though few will vouch for its authenticity, the popular tale is that the apples in the original apple butter sold by J.M. Smucker - the company's first product - were from seeds planted by Johnny Appleseed.

Every fall, when the plant makes apple butter, truckloads of apples are poured into giant water basins along Strawberry Lane, then floated underground to the plant.

But these days, it's the biggest jam and jelly plant in the world. In one day, it will run 10,000 12-jar cases of strawberry jam. Company-wide, Smucker uses about 50 million pounds of fruit.

The fruit comes in frozen, then is thawed and processed at 160 to 180 degrees before being cooked and packed. Halfway through the process, four workers eyeball the fruit for quality before it goes into the jars.

"The technology has really changed. But, overall, the basics are still there," plant manager Dave Thomas says. "A lot of it comes down to the quality of the fruit we bring in - and the quality of the people we have making it."

Cathy Hogan, director of business process development, says the family atmosphere is more than just folklore.

"There's really a long-term continuity provided through the family," she says. "So there's a sense of security here."

Jif and Crisco

A year after doubling the size of the company with Jif and Crisco, Smucker executives say it hasn't changed the culture there.

Smucker continues to invest in the Crisco plant at P&G's Ivorydale complex and the Jif plant in Lexington. Officials said there has been virtually no turnover at either plant.

"I think it's added a layer of enthusiasm," Richard Smucker says. "We've always had great pride in the Smucker brand. But those are two other American icon brands."

While Uncrustables are not made with Jif, the company has done several peanut butter-and-jelly promotions. Adjusting to Crisco has been a different challenge, because it's based on a traded commodity.

Overall, the purchase has energized most of the organization, says vice president of corporate development Barry Dunaway.

"I believe people thought, 'This is it. This is the way we can grow.' "

About J.M. Smucker Co.

• Headquarters: Orrville

• Employees: 2,700

• Products: Smucker's jams and jellies, Jif peanut butter, Crisco shortening. Also operates a food service division that sells to schools, restaurants and hotels, and an industrial unit that sells fruit products to other food manufacturers.

• Fiscal year 2002-'03 sales: $1.3 billion

• Fiscal year 2002-'03 net income: $96.3 million ($2.02 per share)

• Stock price, 52-week high: $42.25 (1/16/03)


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