J. M. Smucker Confident in Pet Business Even as Sales Drop
J. M. Smucker Co.’s Natural Balance took a hit in the company’s second quarter, with sales of the pet food brand dropping more than 25 percent.
“The brand has been impacted by increased competitive offerings, continued growth of premium dog food in the grocery, mass and e-commerce channels, and continued weakness in the pet specialty channel,” said Mark Smucker, president and CEO, during a second quarter earnings conference call in late November. “Given the recent performance, we are reevaluating our plans, which may go beyond the previously communicated actions to restage the brand late this fiscal year.”
Despite the drop, Smucker said that he remains confident in growth opportunities for the total pet business.
In the pet snacks and cat food businesses, the company achieved mid-single-digit growth in its second quarter ended Oct. 31, 2019. This marked the eighth consecutive quarter of year-over-year sales growth for its cat portfolio, Smucker said.
“Meow Mix, 9Lives and Nutrish cat food each grew household penetration,” Smucker added. “In the latest 52-week period, Meow Mix now has the highest household penetration of any brand in the dry cat food segment.”
Meow Mix, 9Lives and Nutrish drove cat food growth of 4 percent, while Milk-Bone led growth of 4 percent for pet snacks, according to Mark Belgya, vice chair and chief financial officer, adding that the gains were offset by declines for the Natural Balance brand.
While the Nutrish brand sales increased 3 percent in the quarter, it was less than what company officials had originally projected.
Officials added that they anticipate increased competition in the premium dog food category.
“We expect the brand to decline in the back half of the year due to competitive activity and a reduction in forecasted performance for both new distribution and innovation launches,” Smucker said. “Also, the targeted actions we are taking to improve Nutrish performance have begun to be reflected on shelf, and we expect further reflection throughout the third quarter.
“These actions include incremental investments aimed at improving the consumer value proposition to drive increased trial and loyalty and launching new advertising later this fiscal year,” Smucker added.
Overall, net sales in the pet segment came in at $709.9 million for the quarter, a 2 percent drop compared to the year-ago period. This reflects a $19.5 million decline in private label sales due to both planned exits and softness at certain retailers, according to company officials.
Pet segment profit for the quarter increased 11 percent compared to the year-ago period. The increase was driven by “favorable net pricing, synergy realization and lower marketing expense being partially offset by increased input costs and a decline from volume mix,” Belgya said.
“Looking ahead, the actions we are taking across the company, including the recently announced leadership changes, position us well for future long-term growth and shareholder value creation,” Smucker said.
The company had announced in mid-November that its leadership structure and team were in the process of undergoing changes. This included initiating a search for new leadership of its pet food business, which in the interim will be led by Rob Ferguson, senior vice president of pet food and pet snacks (interim) and supply chain. Ferguson will receive counsel from Jeff Watters, former president and CEO of Ainsworth Pet Nutrition.
“I am confident these changes ensure the alignment of a team that has a deep knowledge of the Smucker businesses and our industry,” Smucker said. “The new executive leadership team will continue to refine our strategy and evaluate our portfolio of brands ensuring we remain focused on delivering growth and creating value for our shareholders.”
Overall, the Orrville, Ohio-based company reported net sales of $1.96 billion for the quarter, a 3 percent drop compared to the year-ago period. Year to date, the company reported net sales of $3.74 billion, down from $3.92 billion in the year-ago period.