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Supply chain disruptions for The J.M. Smucker Company primarily impact pet food

Doggone Well Staff by Doggone Well Staff
March 4, 2022
in Home, PRODUCTS
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Supply chain disruptions for The J.M. Smucker Company primarily impact pet food
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ORRVILLE, OHIO — Sales for The J.M. Smucker Company’s pet food and treat business fell in the third quarter of its fiscal year 2022, reflecting higher input costs, supply chain disruptions and the continued impact of its recent divestitures: Natural Balance in February 2021 and the sale of its private label dry pet food business to Diamond Pet Foods in December 2021.

US Retail Pet Foods, which includes several brands of food and treats for dogs and cats, remains the company’s largest business segment in terms of quarterly and nine-month net sales, which totaled $2.05 billion, down 5.7% from $2.17 billion over the same period in fiscal 2021. However, the company reported supply chain disruptions are predominantly affecting its pet food business.

Net sales for J.M. Smucker Co.’s pet segment totaled $696.6 million, down 9% from $768.6 million in the third quarter of fiscal 2021. Segment profit also declined, totaling $95.7 million, down 29% from $135.1 million over the same period last year.

The company estimated its pet segment divestitures totaled $66.2 million in noncomparable net sales. In excluding this noncomparable revenue, net sales for the pet segment were down only 1%, or by $5.8 million.

Dog food declines and unfavorable volume/mix affected net sales declines by approximately 7%, the company shared. The decrease in segment profit was attributed to increased costs for commodities, manufacturing and transportation and partially offset by net pricing increases across its pet portfolio.

“While top-line growth this quarter was healthy, we continue to experience supply chain and transportation constraints, along with isolated labor shortages, that limited our ability to fully meet demand, most notably for our pet food business,” said Mark Smucker, president and chief executive officer. “We have taken actions to increase production, including additional staffing and expanding our supplier base.”

Smucker went on to explain supply chain disruptions — which have been affecting many others in the pet food and treat industry — have primarily impacted the company’s wet pet food and packaging capabilities. The company will be “strategically allocating” resources to its most profitable brands, specifically Meow Mix, Smucker added.

While dog food underperformed, the company’s pet snacks and cat food brands posted strong growth. Milk-Bone sales grew 11% over the third quarter, attributable to higher pricing to offset increased costs. Meow Mix sales were up 8% over the quarter.

“Our dry cat food portfolio continues to outperform the category, as Meow Mix® has taken over as the number one brand in terms of dollar share in the dry cat food category – gaining one point of share in the quarter and growing over 1.5-times the category rate,” Smucker said. “Our strong growth in dog snacks and cat food reflects our increased focus on prioritizing and accelerating growth in these pet segments.”

Tucker Marshall, chief financial officer, explained a $150 million non-cash impairment charge for its Rachael Ray Nutrish premium dog food brand.

“This charge is primarily driven by the strategic repositioning of this brand within the overall pet food portfolio, which led to a decline in the long-term net sales outlook,” Marshall said. “This repositioning is consistent with our strategy in pet to focus on prioritizing and accelerating growth in dog snacks and continuing momentum in cat food, while improving dog food performance.”

Sales of pet food and snack products abroad also benefited J.M. Smucker Co.’s international business segment, which saw 1% net sales growth in the third quarter.

Overall, total net sales for The J.M. Smucker Company were down 1% to $2.06 billion in the third quarter of fiscal 2022, compared to the same period in fiscal 2021. Operating income totaled $150.6 million for the third quarter, down 63% from the third quarter of fiscal 2021, while adjusted operating income was down 6% to $377.9 million.

Higher costs among commodities, ingredients, manufacturing and packaging drove gross profit down 16% to $126.3 million. The company’s divestitures, including two in the pet segment, its Crisco brand and its Natural Beverage and Grains businesses, also attributed to gross profit declines.

“Looking ahead, we are navigating a dynamic environment led by cost inflation and supply chain disruptions,” Smucker said. “We expect these pressures to continue in the fourth quarter. We are confident in our ability to work through these ongoing challenges, deliver on our fiscal year guidance, and support long-term shareholder value creation.”

The J.M. Smucker Company updated its full-year fiscal 2022 guidance to reflect a decrease in net sales between 1.5% and 0.5%, compared to its previous projection between 1% and 0%. Adjusted earnings per share was downgraded slightly to between $8.35 and $8.65, compared to the previously expected high end of $8.75. The company’s capital expenditure budget remains at $400 million.

This guidance reflects the company’s recent divestitures, including of Natural Balance, private label dry pet food and two others, which represents an impact of $431.8 million, the company stated.

Read more about corporate strategy, financial performance, mergers and acquisitions on our Business page.



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