Supply chain disruptions at The JM Smucker Company primarily impact pet food

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ORRVILLE, OHIO — Sales at The JM Smucker Company’s pet food and treats business fell in the third quarter of its fiscal 2022, reflecting rising input costs, supply chain disruptions supply and the continued impact of its recent divestments: 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 dog and cat food and treats, remains the company’s largest business segment by quarterly and nine-month net sales, which totaled $2.05 billion. dollars, down 5.7% from $2.17 billion over the same period. in fiscal 2021. However, the company reported that supply chain disruptions primarily affected its pet food business.

JM Smucker Co.’s Companion Animal segment net sales totaled $696.6 million, down 9% from $768.6 million in the third quarter of Fiscal 2021. Segment profit decreased also decreased, totaling $95.7 million, down 29% from $135.1 million over the same period last year. .

The company estimated divestitures from its companion animal segment totaled $66.2 million in non-comparable net sales. Excluding these non-comparable revenues, net sales in the companion animal segment decreased only 1%, or $5.8 million.

Lower dog food and unfavorable volume/mixing impacted the decline in net sales by approximately 7%, the company shared. The decline in segment profit was attributed to higher raw material, manufacturing and transportation costs and partially offset by net price increases across its companion animal portfolio.

“While revenue growth this quarter was healthy, we continue to experience supply chain and transportation constraints, as well as isolated labor shortages, which have limited our ability to respond. fully in demand, especially for our pet food business,” said Mark Smucker, President. and CEO. “We have taken steps to increase production, including additional staff and expanding our supplier base.”

Smucker went on to explain supply chain disruptions – which affected many other players in the pet food and treats industry – primarily impacted the company’s packaging and wet pet food capabilities. The company will “strategically allocate” resources to its most profitable brands, particularly Meow Mix, Smucker added.

While dog food underperformed, the company’s pet snack and cat food brands posted strong growth. Milk-Bone sales were up 11% from the third quarter, thanks to higher prices to offset increased costs. Meow Mix sales increased 8% in the quarter.

“Our dry cat food portfolio continues to outperform the category, as Meow Mix® became the number one brand by market share in the dry cat food category – gaining one point of market share over the quarter and growing more than 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 his premium dog food brand Rachael Ray Nutrish.

“This charge is primarily due to the strategic repositioning of this brand within the overall pet food portfolio, which has resulted in a lower long-term net sales outlook,” Marshall said. “This repositioning is consistent with our pet strategy to prioritize and accelerate growth in dog snacks and continue momentum in cat food, while improving dog food performance.”

Sales of pet food and snacks overseas also benefited JM Smucker Co.’s international business, which reported net sales growth of 1% in the third quarter.

Overall, The JM Smucker Company’s total net sales decreased 1% to $2.06 billion in the third quarter of Fiscal 2022, compared to the same period of Fiscal 2021 Operating profit totaled $150.6 million in the third quarter, down 63% from the third quarter of fiscal 2021, while adjusted operating profit decreased 6% to set at $377.9 million.

Higher commodity, ingredient, manufacturing and packaging costs 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 cereal businesses, were also attributed to lower gross profit.

“Looking ahead, we navigate a dynamic environment driven by cost inflation and supply chain disruptions,” Smucker said. “We expect these pressures to continue into the fourth quarter. We are confident in our ability to overcome these ongoing challenges, our guidance for the year and support the creation of long-term shareholder value.”

The JM Smucker Company updated its forecast for fiscal 2022 to reflect a decline in net sales of between 1.5% and 0.5%, compared to its previous projection of between 1% and 0%. Adjusted earnings per share were lowered slightly to $8.35 to $8.65, from the previously expected high of $8.75. The company’s capital expenditure budget remains at $400 million.

The guidance reflects the company’s recent divestments, including Natural Balance, private label dry pet food and two others, representing a $431.8 million impact, the company said.

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