ORRVILLE, OHIO — The J.M. Smucker Company reported its fourth quarter and fiscal year 2021 earnings on June 3, sharing across-the-board declines in net sales and segment profits over the quarter. The company's US Retail Pet Foods segment sustained sales declines for the quarter and fiscal year 2021.
Despite this, the company remains hopeful in its long-term strategies as it begins to recover from pandemic-era impacts.
For the full fiscal year 2021, the company reported net sales of $2.84 billion for its pet food business, down 0.9% from fiscal 2020 sales.
J.M. Smucker's fourth quarter and full-year earnings reflect its divestiture of Natural Balance on Jan. 29, as well as its divestiture of Crisco on Dec. 1, 2020, from which the company collected roughly $123.9 million collectively. However, the long-term loss of earnings impact of these divestitures is estimated at $335.6 million, which has affected the company’s fiscal 2022 guidance.
The company sold the Natural Balance premium pet food brand to Nexus Capital Management in January for roughly $50 million. The business generated approximately $220 million in net sales for J.M. Smucker's fiscal year ended April 30, 2020.
“These decisions show our commitment to divesting brands and businesses that are no longer consistent with our long-term strategic focus,” said Mark Smucker, president and chief executive officer, in the company earnings call. “In turn, this allows us to optimize assortment to maximize productivity, reduce complexity and shift resources to our fastest-growing opportunities.”
These divestitures were also a factor for gross profit, which was down 7% to $735.7 million, according to the company.
“Adjusting for divestitures, net sales grew at a two-year CAGR of 4%, demonstrating growth across all three of our US Retail segments,” Smucker said.
Net sales for the company's pet food segment were down $93.2 million, or 12%, to $674.6 million in the fourth quarter, with segment profit down 32% to $101.7 million. When excluding the divestiture of Natural Balance, net sales were still down by $41 million, or 6%, from year-ago sales.
Volume/mix for the pet food business caused a 6% decline in net sales for the segment, reflecting fallout across its Rachael Ray Nutrish, Kibbles ‘n Bits, Nature’s Recipe and Meow Mix brands.
“Dog snacks continue to perform well, decreasing just 1% in the fourth quarter after growth of 12% in the prior year,” said Tucker Marshall, chief financial officer, during the company’s earnings call. “Cat food decreased 4%, following 18% growth in the prior year. Dog food net sales decreased 15%, reflecting anticipated declines versus the prior year.”
Segment profit margins also declined for all four of the company's business segments, with US Pet Foods’ segment profit down 440 basis points to 15.1%.
“Pet foods’ segment profit declined 32%, primarily reflecting lower volume/mix, increased marketing investments and increased freight and transportation costs, partially offset by higher net pricing,” Marshall said.
Despite a less-than-ideal performance in the fourth quarter, the company’s US Pet Foods business remains its most profitable segment.
“In pet food, we anticipated sales to be down due to lapping stock-up purchasing in the prior year,” Smucker explained. “Net sales, excluding sales for the divested Natural Balance business, decreased 6% and demonstrated growth on a two-year basis. While pet food consumption was not materially impacted by at-home versus away-from-home eating trends, as in other categories, the pandemic did impact how consumers shop for their pets, such as accelerated growth in e-commerce channels.”
E-commerce currently makes up 12% of J.M. Smucker's total sales. This channel “definitely skews toward pet” food and snacks, Smucker shared.
The company increased its total marketing budget by nearly $40 million last year, including an $18.9 million increase to its pet food and snack marketing investments.
“We expect top line growth [for pet food] on a comparable basis for the pet business in fiscal '22, supported by higher pricing, category growth, continued marketing support and innovation for our leading treats portfolio and premium food offerings,” Smucker said.
Net income at J.M. Smucker for the year ended April 30 was $876.3 million, equal to $7.79 per share on the common stock, up 12% from $779.5 million, or $6.84 per share, in fiscal 2020. Fiscal 2021 sales also were higher, climbing 3% to $8 billion from $7.8 billion.
Of the company's four business segments — US Retail Pet Foods, US Retail Coffee, US Retail Consumer Foods, and International and Away From Home — none experienced net sales gains in the fourth quarter. Pet food and retail consumer foods segments sustained double-digit net sales declines, while sales for its retail coffee segment were flat, and sales for its International and Away From Home business were down 7%.
"Our fourth quarter and full-year results demonstrate the continued execution of our strategy, as we delivered net sales, adjusted earnings per share, and free cash flow above our expectations, with significant investment in our brands and gaining market share in several of our key categories," Smucker said. "Our strong financial results reflect sustained elevated demand for at-home food and coffee consumption and consumers' desire for our trusted and iconic brands. Fiscal year 2021 marked another year of progress strengthening our financial position, with earnings growth and cash generation enabling debt reduction and return of cash to our shareholders."
In fiscal 2022, the company expects net sales to decline between 2% and 3%, adjusted earnings per share to fall between $8.70 and $9.10, and a free cash flow of $900 million. Smucker’s also plans to budget $380 million for capital expenditures in fiscal 2022.
The US Pet Foods business will be a key focus for the company moving forward. J.M. Smucker strategy is primarily focused on pet snacks, the premiumization of its Milk-Bone brand, and launching new products under its Meow Mix and Nutrish brands, Smucker shared.
With a “No. 2 position in cats,” according to Smucker, the company will continue to work toward the “stabilization of the Nutrish brand, from which he expects “moderate growth over time.” The company will continue to prioritize its dog and cat treat portfolio, followed by cat food and dog food products.
"Looking ahead to fiscal year 2022, we are focused on building upon the momentum and exceptional results we delivered this year, advancing our consumer-centric growth strategy, and supporting our talented employees who have been instrumental to our success,” Smucker said. “I am confident the investments we have made in our businesses and the increased agility and flexibility we developed during the past year will enable us to continue driving sustainable growth and shareholder value."
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