SJM - Smucker Has 1 Big Goal for the Next 3 Years. Here's What Investors Need to Know.
2024-01-14 07:20:00 ET
Wall Street has been worried about the impact of weight loss drugs on companies that make sweets, but that didn't stop J.M. Smucker (NYSE: SJM) from buying Hostess Brands. And there are compelling reasons to support the $5.6 billion deal. In fact, if there's one thing that investors should be worried about (and watching closely), it isn't sweet snacks. It is the new debt that has been created from the acquisition. Smucker knows it and has made an important promise.
The big draw of Hostess Brands is most obviously its collection of well-known brands. The list includes icons like Twinkies, Ding Dongs, and HoHos. That makes sense, given that consumer staples companies like Smucker live and die by their brands. And while the acquisition of Hostess is a bit contrarian at a time when Wall Street is worried about the changes that might be caused by new weight loss drugs, the long-term benefit of adding recognizable brands seems likely to win out in the end.
That said, there are other reasons to like the deal. For example, it expands Smucker's business in the snacking space. Snacking has been an increasingly important consumer trend in recent years. Hostess also has extensive distribution in the convenience channel, where Smucker isn't quite as strong. Smucker can now plug some of its other products into that distribution channel with greater ease. And Hostess has an innovation pipeline that will allow Smucker to bring out more "new" and "improved" products. Those two words are big draws for consumers and retailers alike to partner with companies that get consumers in their doors with "new" and "improved" product offerings.
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Smucker Has 1 Big Goal for the Next 3 Years. Here's What Investors Need to Know.