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Pet Food News / Pet Food Market Trends
Dog-Money
photo by Javier Brosch, Bigstock.com
on September 17, 2017

Blue Buffalo releases second quarter 2017 results

The pet food company’s Q2 report includes a full 2017 outlook.

Blue Buffalo Pet Products has announced its second quarter 2017 results. A full copy of the report is available on the company’s website.

“We are excited to expand the distribution of our BLUE Life Protection Formula line with a launch in four leading mass and grocery retailers,” said Blue Buffalo CEO, Billy Bishop. “This is a natural evolution of our go-to-market model that will allow us to reach more pet parents and feed more pets. Going forward, you will see us take a deliberate and channel specific approach with each of our retail partners as we match their needs with the breadth and strength of the Blue Buffalo platform. As part of this, our Wilderness, Basics, Freedom, and Earth's Essentials lines will continue to be distributed exclusively through our specialty retail partners.”

Second quarter of 2017 compared to second quarter of 2016

Net sales increased US$8.0 million, or 2.8 percent, to US$294.8 million, driven primarily by favorable product mix. Net sales of Dry Foods increased US$7.6 million, or 3.3 percent, to US$237.5 million while net sales of wet foods, treats and other products increased US$0.4 million, or 0.7 percent, to US$57.3 million.

Gross profit increased US$10.4 million, or 8.2 percent, to US$137.7 million and gross margin was 46.7 percent, up 230 bps compared with 44.4 percent in the second quarter of 2016. The increase in gross margin was driven primarily by supply chain efficiencies including lower input costs.

Selling, general, and administrative expenses increased US$3.8 million, or 5.8 percent, to US$69.4 million.  Adjusted SG&A, which excludes litigation expenses and costs incurred for our public offerings, increased US$6.4 million, or 10.2 percent. The increase was primarily due to an ongoing investment in advertising and marketing consistent with the company’s brand building strategy.

Net income increased US$6.1 million, or 16.5 percent, to US$42.7 million in the second quarter of 2017, as compared to US$36.6 million in the second quarter of 2016. Adjusted Net Income, which excludes litigation expenses and costs incurred for our public offerings, increased US$4.4 million, or 11.6 percent, to US$42.7 million in the second quarter of 2017, compared to US$38.3 million in the second quarter of 2016. Diluted Earnings Per Share in the second quarter of 2017 increased 15.8 percent to US$0.21, compared to US$0.18 in the second quarter of 2016. Adjusted Diluted Earnings Per Share in the second quarter of 2017 increased 10.9 percent to US$0.21, compared to US$0.19 in the second quarter of 2016.

First half of 2017 compared to the first half of 2016

Net sales increased US$30.1 million, or 5.3 percent, to US$596.8 million, driven primarily by volume growth and favorable product mix. Net sales of dry foods increased US$22.2 million, or 4.8 percent, to US$482.6 million while net sales of wet foods, treats and other products increased US$7.8 million, or 7.4 percent, to US$114.1 million.

Gross profit increased US$25.9 million, or 10.3 percent, to US$276.4 million and gross margin was 46.3 percent, up 210 bps compared with 44.2 percent in the first half of 2016.  The increase in gross margin was driven primarily by supply chain efficiencies including lower input costs.

Selling, general, and administrative expenses increased US$10.3 million, or 8.2 percent, to US$135.6 million. Adjusted SG&A, which excludes litigation expenses and costs incurred for our public offerings, increased US$12.6 million, or 10.4 percent. The increase was primarily due to our ongoing investment in advertising and marketing consistent with our brand building strategy.

Net income increased US$12.8 million, or 17.3 percent, to US$86.8 million as compared to US$74.0 million in the first half of 2016. Adjusted Net Income, which excludes litigation expenses and costs incurred for our public offerings, increased US$11.3 million, or 14.8 percent, to US$88.0 million in the first half of 2017, compared to US$76.6 million in the first half of 2016. Diluted Earnings Per Share in the first half of 2017 increased 16.6 percent to US$0.43 compared to US$0.37 in the first half of 2016. Adjusted Diluted Earnings Per Share in the first half of 2017 increased 14.1 percent to US$0.44, compared to US$0.39 in the first half of 2016.

Net cash provided by operating activities was US$63.0 million in the first half of 2017 compared with US$54.7 million in the first half of 2016. Net cash provided by operating activities for the first half of 2016 was reduced by US$20.0 million, which includes US$12.0 million of cash tax savings, related to our settlement agreement in the US consumer class action lawsuits. Cash and cash equivalents were US$338.7 million as of June 30, 2017 as compared to US$292.7 million as of December 31, 2016. Capital expenditures for the first half of 2017 and 2016 were US$32.9 million and US$3.8 million, respectively.

Full year 2017 outlook

For the full year 2017, the company expects to deliver net sales between US$1,240 million and US$1,270 million. The company expects its Adjusted Diluted Earnings Per Share to be between US$0.91 and US$0.94. The outlook for full year 2017 Adjusted Earnings Per Share excludes costs related to litigation. The Company expects 2017 capital expenditures to be approximately US$150 million to US$170 million.

Approval of share repurchase program

On July 31, 2017, the Board of Directors approved a US$50 million share repurchase program, which will primarily be used to offset dilution caused by the issuance and exercise of stock options and other equity compensation. The company expects to complete this share repurchase program in fiscal 2017.

Blue Buffalo growth driven by e-commerce

E-commerce pet food sales drove Blue Buffalo’s growth in the second quarter (Q2) of 2017, CEO Billy Bishop said during their earnings call on August 8. These online sales helped Blue Buffalo increase sell-through to pet owners by seven percent year-over-year for Q2, despite ongoing challenges at brick-and-mortar pet food specialty retailers. Sell-through is the ratio of the quantity of pet food sold by a retail outlet to the quantity it received wholesale.

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