ORRVILLE, OHIO — The J.M. Smucker Company is in a period of transition, following “bold actions to reshape” the portfolio in recent years. While first quarter net sales for its US Retail Pet Foods segment and for the company overall were down year-over-year, the company remains committed to the transformation of the business, and hopeful in its new strategy to drive long-term growth.
On Aug. 29, the company shared its first-quarter earnings for the three-month period ended July 31.
“Our first quarter results reflect a positive start to our fiscal year, including volume growth in every business segment,” said Mark Smucker, chair of the board, president and chief executive officer. “Our ability to continue delivering results in a dynamic environment is due to our talented employees, focused strategy and execution, cost and productivity savings, partnership with our customers, and consumer demand for our leading brands.”
Net sales for the company’s US Retail Pet Foods segment in the first quarter totaled $441 million, down 40% year-over-year. Segment profit came to $81.3 million, down 32%, and the segment’s profit margin was 18.4%, an increase of 190 basis points from year-ago.
First quarter financials for the company were impacted by noncomparable net sales related to the company’s divested pet food brands, which were sold to Post Holdings in April for $1.2 billion. Noncomparable net sales were reported at $367.7 million and, excluding this figure, net sales for the US Retail Pet Foods segment in the first quarter were up 22% to $79.7 million.
According to the company, $50.6 million in contract manufacturing sales, a 12% increase in volume/mix, and sales growth for the company’s Milk-Bone brand contributed to the US Retail Pet Foods business over the first quarter. Increased product pricing in this segment also benefitted the business by 10%.
“We now expect the contract manufacturing sales related to the divested pet food brands to contribute approximately $160 million in net sales, which is approximately $25 million less than our original estimate,” noted Tucker Marshall, chief financial officer.
Segment profit for US Retail Pet Foods was impacted by increased marketing spend and higher distribution costs, the company reported. Smucker shared the recent pet food divestiture has contributed positively to the company’s profit margin to the tune of 200 basis points over the last year, thanks to improved product mix.
Sales of Milk-Bone products contributed 10% to segment growth, with 5% of growth attributed to price realization and 5% attributed to positive volume/mix.
“Milk-Bone continued to outpace the category, with consumer take-away up over 13%, and grew nearly 2-times the category rate,” Smucker said in the company’s prepared remarks. “The Milk-Bone brand continues to drive growth through core offerings and premium positioned innovation.”
According to Smucker, the dog snacks category benefitted from products falling under the biscuits and soft and chewy categories, which “have generated the largest dollar share growth in the dog snacks category over the last year,” he said.
“In biscuits, Milk-Bone has a 62% dollar share and grew over two points of share in the quarter,” he explained. “And in soft and chewy, we are the No. 1 manufacturer with twice the dollar and volume share of the nearest competitor, and we grew over two points of dollar share in the quarter.”
On the cat food side, sales of Meow Mix products were up 13% over the quarter. Capacity constraints continue to impact the dry cat food segment, and the company will continue working to expand supply in order to meet consumption demand. Smucker noted the Meow Mix brand is starting to recover market share, as the brand’s Original Choice dry cat food has reclaimed its No. 1 spot in terms of category consumption.
“We anticipate margins to further improve over time after we fulfill contract manufacturing requirements and mitigate stranded overhead costs related to the recent divestiture,” Smucker concluded.
For the overall business in the first quarter, net sales fell 4% to $1.81 billion, impacted by foreign currency exchange rates and the company’s recent pet food divestiture. Operating income was up 69% to $303.5 million over the quarter, and adjusted operating income grew 23% to $331.7 million.
The company updated its fiscal 2024 guidance for adjusted earnings per share, now expecting it to range from $9.45 to $9.85, up from previous predictions between $9.20 and $9.60. Projected net sales growth between 8.5% and 9.5% and capital expenditure expectations of $550 million are unchanged from previous guidance.
“Our continued business momentum gives us confidence to increase our earnings per share expectations for this fiscal year,” Smucker stated. “In the months ahead, we will continue to support our key growth platforms of coffee, snacking and pet, which are well-positioned to drive sustainable growth and deliver long-term shareholder value.”
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