ORRVILLE, OHIO — Segment profit for The J.M. Smucker Company’s US Retail Pet Foods segment declined $10.9 million, or 7%, to $135.1 million in the third quarter of fiscal 2021 compared to the same period in 2020. However, net sales increased 6% to $768.6 million and the segment remains the company’s most profitable business.
Net sales growth reflected favorable volume and mix, and was partially offset by $1.4 million in noncomparable net sales in 2020 related to the Natural Balance brand, from which Smucker’s divested in January 2021.
The company sold Natural Balance for roughly $50 million to Nexus Capital Management, who has already made two key leadership appointments and announced a strategy to bring the brand back to success in the independent pet retail channel.
Favorable volume and mix of the company’s dog treat and cat food brands — including Milk-Bone, Pup-Peroni, Meow Mix and 9Lives — contributed to the net sales growth.
“Sales for dog snacks increased 14% led by gains for the Milk Bone, Pup-Peroni and Rachael Ray Nutrish brands,” said Mark Smucker, president and chief executive officer, in the company’s third-quarter earnings call on Feb. 25. “Sales growth for the Meow Mix brand led cat food growth of 9% representing the 14th consecutive quarter of cat food growth, with our share increasing in both the dry and wet cat categories.”
Volume and mix for its dog food segment was “neutral,” with gains by Rachael Ray Nutrish offset by declines in private label brands and Natural Balance. Net sales for Nutrish dry dog food products grew 4% over the quarter, total Nutrish dog food sales increased 6%, and total Nutrish sales — including dog food, dog treats, cat food and cat treats — were up 8%.
Smucker’s shared that its dog treat and cat food brands drove an 8% increase in net sales, but lower net price realization pulled sales down by 2%, resulting in the overall 6% growth for the quarter.
Smucker also shared that e-commerce sales increased approximately 50% over the quarter.
“The reduction in net pricing primarily reflects investment in e-commerce and new product launches,” said Tucker Marshall, chief financial officer. “Growth was led by our three largest brands in the segment, including increases of 8% for Nutrish, 9% for Meow Mix, and 11% for Milk Bone.”
Segment profit declines for US Retail Pet Food were attributed to an $8.1 million legal settlement “related to a supplier issue received in the prior year,” Smucker’s stated. Not including the legal settlement, segment profit would have still been down $2.8 million due to lower net pricing and higher costs.
“The increased costs were mostly driven by higher transportation expense,” Marshall explained.
During the question-and-answer session of the third quarter earnings call, Smucker reaffirmed the company’s optimism for pricing power.
“I think the good news about the pet industry is that the industry in total really does have a great track record of recovery,” Smucker noted. “So we do have confidence that, regardless of the category or our position they're in, that we would continue to have the ability to recover justifiable cost increases through the various pricing levers.”
Additionally, 9% growth across pet food and snack sales, baking, peanut butter and fruit spreads in Canada partially offset an overall 13% net sales decline for Smucker’s International Away From Home segment.
Smucker shared he expects consumption in the pet category to grow roughly 5% over the next few years, “as nearly 10 million households adopted a cat or dog over the past 12 months.”
As part of its full-year fiscal 2021 outlook, the company is projecting total marketing spend of 6.5% or more of net sales, “with incremental fourth quarter brand reinvestments across all US retail businesses, most notably for pet food,” Marshall said.
Overall, the company reported net sales of $2.08 billion for the third quarter, up 5% from $1.97 billion in the third quarter of 2020. Operating income increased 41% to $406 million, and adjusted earnings per share totaled $2.45, up 4% from the third quarter of 2020.
“During the quarter, we completed two divestitures, supporting our priority to further focus our portfolio and resources toward pet food, coffee, and snacking,” Smucker said. “With our strong performance in the third quarter and momentum for our leading brands, we are pleased to increase our full-year financial guidance, while continuing to invest in our brands to support long-term growth and increase shareholder value."
Smucker’s expects full-year fiscal 2021 net sales to increase by 2%, up from its previous projection of 0% to 1%. Adjusted earnings per share expectations grew roughly $0.15, now between $8.70 and $8.90 for the year. Capital expenditure projections were lowered from $315 million to $300 million for the year.
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