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Keeping Out Of A Jam


Timothy P. and Richard K. Smucker, the brothers who serve as co-chief executives of J.M. Smucker Co. (SJM), are unabashedly old-fashioned. The deeply religious pair refuses to advertise their jams, jellies, peanut butter, and cooking oil on some of television's biggest hits because they deem the content offensive. Even as they build their once-sleepy foodmaker into a global powerhouse, they keep it based in tiny Orrville, Ohio, a town where tractors may only slightly outnumber churches. And as consolidation sweeps the food industry, the brothers are determined to keep their 107-year-old company independent -- a stance backed by five younger Smuckers in management and other family shareholders.

To gain the heft necessary to fend off potential acquirers, the Smucker brothers have been doing some shopping. In June they bought International Multifoods Corp. (IMC), famous for its Pillsbury and Hungry Jack brands, for $840 million in cash and stock. Smucker's growing portfolio also includes Jif peanut butter and Crisco oil, acquired from Procter & Gamble (PG) in 2002. The company now boasts No. 1 market-share positions in fruit spreads, peanut butter, and cooking oil. "They've hit their stride," says Christina McGlone, an analyst for Deutsche Bank Securities Inc. For the fiscal year ending in April, 2005, McGlone expects Smucker's earnings to grow 35%, to $150 million, on $2.1 billion in sales, up 48% from the previous year.

SIMMERING ISSUES

But the expansion brings some challenges. The brothers will have to come up with a plan to goose sales of Crisco, which stalled recently when rival Wesson cut prices. And they need to figure out how to make money on Uncrustables, a line of frozen sandwiches that hauls in $50 million a year in sales but has been unprofitable since the company bought it from a pair of inventors in 1998. Part of the problem is Smucker's fat cost structure. Its operating margin, minus restructuring costs, is expected to dip almost a full percentage point this year, to about 12.9% -- two to three points below the industry norm. Investors are clearly questioning Smucker's propensity to buy slow-growing, low-margin brands that may drag down the company's profit-growth potential: The company's stock has fallen from a high of $53 in May to a recent $44.

The Smucker brothers aren't fretting about Wall Street just yet. The two, along with a sister and an aunt, control about 12% of the company's shares, the single-largest stake. That gives them some freedom to prove out their strategy for boosting the bottom line.

The brothers detailed that plan recently after a lunch in the modest former home of their great-grandfather, company founder Jerome M. Smucker, which is now on the grounds of the company's headquarters. As they enjoyed a dessert of ice cream topped with Smucker's chocolate sauce, they laid out their goal of 8% sales growth a year, half from buying complementary brands that will fit easily into Smucker's distribution system. They'll cut jobs as needed, but value their long-standing reputation for providing a good workplace too much to be cutthroat about it. So long as their stock rises over time -- even with its recent slide, it trades at double the price it was in late 2000 -- they're satisfied. "We take a much longer-term perspective," says Richard, 56. "You can do that in a family business."

Family has always been at the heart of the brothers' approach. Richard and Tim, who have been close ever since they were boys growing up in Orrville, began working at the company as teens. After both graduated from the University of Pennsylvania's Wharton School of Business, they started working closely with their father, Paul, who had been Smucker's longtime CEO. Paul died in 1998 and the brothers formally assumed the CEO title in 2001. The outgoing Richard also serves as chief financial officer and handles much of the communication with Wall Street. The more reserved Tim, 60, who is chairman, tends to handle tasks such as human resources and information technology. The two rarely squabble. "If there is any friction, I've never seen it," says Elizabeth Valk Long, a former Time magazine president and a Smucker's director since 1997.

FATHER KNEW BEST

The Smuckers say the secret to their harmonious relationship is a consensus-oriented, willing-to-compromise style learned from their father. As the brothers began making key decisions, their father cut them a lot of slack. When they wanted to purchase Mrs. Smith's frozen-pie business in 1994, he was cool on the idea, having failed in a similar venture previously. But Paul let the pair go ahead. Smucker wound up selling the unit for a slight loss two years later. Still, the Smuckers praise their father for allowing them to try.

The straight-talking co-CEOs say Smucker's culture springs from a deeply felt religious tradition handed down from great-granddad J.M. The farmer and committed Mennonite, who churned out apple butter for his Orrville neighbors, had his well-thumbed Bible in mind when he founded the company, especially the passage promising that you will reap as you sow. The brothers say that means treating one another, along with customers, suppliers, and staffers, with respect. The co-CEOs, who were raised as Christian Scientists, are both lay leaders in their churches, and they say religion is a big influence on how they manage. They view advertising to kids as manipulative, for example, so they pitch their famous line, "With a name like Smuckers, it has to be good," directly to Mom instead.

The Smuckers have set up employee groups to brainstorm ways of keeping Smucker's growth on track. "It sets the tone that we're all in this together," Tim says. Together and fighting hard to hold onto the Smucker family's legacy -- a company that somehow manages to remain independent in an industry hungry for consolidation.

By Joseph Weber in Orrville, Ohio


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