General Mills’ pet food and treat sales grew 38% in the fourth quarter of fiscal year 2019 on a pro forma basis. General Mills officials released that data and other preliminary financial results for the company’s pet segment, including Blue Buffalo, at the 2019 Bernstein Strategic Decisions Conference.
General Mills’ pet segment operating profit increased 82% on a pro forma basis in the fourth quarter of this fiscal year. This included US$3 million in purchase accounting charges. Without these charges, operating profit increased 88%.
For the full fiscal year, pet segment net sales have increased 11%. Segment operating profit decreased 11% on a pro forma basis in fiscal year 2019. This included US$66 million of purchase accounting charges. Operating profit increased 11% excluding these charges.
In late June, General Mills plans to report its fiscal year 2019 results for the whole company, including final pet food results.
History of General Mills’ entry into pet food industry
In February 2018, General Mills and Blue Buffalo Pet Products entered into a definitive agreement under which General Mills acquired Blue Buffalo for approximately US$8 billion.
According to a press release from General Mills, one reason for the acquisitions was that Blue Buffalo has built a loyal consumer base, particularly among millennials. General Mills believes Blue Buffalo is well positioned to capitalize on the pet humanization and the pet food premiumization trends. Another reason General Mills gave was that Blue Buffalo does well in e-commerce, where the company generated more than US$250 million of net revenues in 2017 growing over 75 percent versus prior year.
Blue Buffalo may shift towards wet pet food and treats
In March, Blue Buffalo executives announced that they may steer the pet food brand’s product mix towards wet pet foods and treats as the company further expands in the food, drug and mass market (FDM) retail channel. Billy Bishop, president of General Mills’ pet segment, discussed this plan and other aspects of Blue Buffalo’s business at the Consumer Analysts Group of New York Conference.
In August 2017, Blue Buffalo began selling in four FDM retailers: Target, Kroger, Publix and Meijer. General Mills purchased Blue Buffalo in February 2018.
“Blue is now the number one pet food brand at Target,” Bishop said.
By the end of this fiscal year, Blue Buffalo plans to double FDM distribution. Meanwhile, the company is introducing new products into the FDM channel.
The mix of new Blue Buffalo products appearing on mass market retail shelves may shift towards wet pet foods and treats, which have a higher profit margin, he said.