Pet food performance drags on J.M. Smucker Q1 sales
Aug. 24, 2016
by Erica Shaffer
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Soft demand, competition in the premium pet food space leaves several brands behind.
OROVILLE, Ohio – Pet food has not been the best companion for J.M. Smucker Co.
Soft demand for pet food weighed on the company’s earnings in the first quarter of fiscal 2017. For the quarter ended July 31, net income was $170 million, equal to $1.46 per share on the common stock, up 25 percent from $136.4 million, or $1.14 per share, in the prior-year period.
Net sales fell 7 percent to $1,815.8 million from $1,952 million. The results include the impact of Smucker’s divestiture of its US canned milk business and lower coffee prices.
And the company doesn’t expect the outlook to improve: For the full year, Smucker forecasted net sales to decline by 2 percent to 3 percent from fiscal 2016, reflecting the canned milk divesture. Excluding the impact of the divestiture, Smucker expects net sales to range from flat to down 1 percent, based on a reduced net sales forecast for US Retail Pet Foods.
CEO Mark T. Smucker said the company already is moving on opportunities to provide future growth in the pet food business.
“Specifically, improving the performance of our mainstream dog and cat brands remains a key area of focus,” Smucker said in a conference call with analysts. “We have introduced bonus bags for Kibbles ‘n Bits supported by lower input costs, which entered the market in late June. We expect this will help moderate declines for the brand.
“We also have plans to introduce new packaging later this fiscal year and enhanced brand support consistent with its heritage around taste and fun to further improve the competitive positioning of Kibbles ‘n Bits,” he added.
In the cat food segment, the company remains encouraged by the strength of the Meow Mix brand. Smucker recently launched a new television advertising campaign along with pricing support. “In addition to these areas, we continue to progress on whitespace opportunities in mainstream pet food, driven by consumer preference for additional protein and natural ingredient options,” Smucker said.
Net sales in the retail pet food segment declined $30.4 million, primarily due to unfavorable volume and mix, which impacted net sales by 5 percent. However, segment profit increased $5.4 million on synergy realization, lower commodity costs and a decrease in marketing expense, which more than offset the impact of unfavorable volume and mix.
Looking at the rest of the company’s pet food business, sales for pet snacks advanced 2 percent in the first quarter on top of a 9 percent increase in the prior year.
“Sales for our pet snacks portfolio were up low single-digits with gains across all our key snacking brands, including Milk-Bone, Pup-Peroni, Milo’s Kitchen and Canine Carry Outs,” said Mark Belgya, vice chair and CFO. “Segment profit increased 5 percent, as the impact of unfavorable volume mix was offset by incremental synergy realization and lower input cost. In addition, marketing spend was down double-digits in the first quarter.”
Meanwhile, sales of the company’s premium pet food brand, Natural Balance were down in the quarter.
“While consumer takeaway for the brand remains strong, we are tempering our near-term growth expectations for our premium brands, given the recent softness in the overall pet superstore channel,” Smucker explained.
Barry Dunaway, president, Pet Food and Pet Snacks, said a turnaround in the business won’t come in “a quarter or two.”
“I just think it’s just going to take us a little longer to stabilize the business,” Dunaway said. “I think just a little more time to get that stabilization; and once we stabilize the business then we can get it growing again.
“I just think our performance the first quarter was not what we expected. And based on a combination of both Kibbles and Meow Mix and the softness in the first quarter are what really drove us to be more conservative on the back-half of the year.”