Blue Buffalo overtaking other pet foods in mass market

After beginning sales in four mass market retailers in August, Blue Buffalo has overtaken other natural pet foods in the food, drug and mass market retail sector.

Tim Wall Headshot Small Headshot
(Andrea Gantz)
(Andrea Gantz)

After beginning sales at four retailers, Target, Kroger, Publix and Meijer, in August, Blue Buffalo has already overtaken other natural pet foods in the food, drug and mass market (FDM) retail sector, CEO Billy Bishop said in Blue Buffalo’s third quarter earnings call on November 7. Despite this, Blue Buffalo hasn’t quite met expected market share goals in all retailers.

Blue Buffalo retail mass market share growth

“Market share in FDM reached 5 percent in four FDM retailers,” he said. “This already puts Blue among the top five percent among these four FDM retailers, surpassing many well-known legacy and natural FDM brands in only 8 short weeks. As a point of reference, Blue is already over four times the size of Nature’s Recipe, which expanded into FDM in the beginning of 2017 and Blue is closing in on Rachel Ray Nutrish.”

This growth and market share isn’t evenly distributed across the four retailers though. At the store with the largest footprint, Blue Buffalo is growing quicker, he said. Reaching their goal of high single digit or low double digit share may take longer than expected at some retailers. However, he expects Blue Buffalo to take an average six percent of the pet food market in the four FDM retailers by the end of the year.

Blue Buffalo third quarter 2017 financial highlights

  • Net sales of US$341 million, up 18.4 percent
  • Net income of US$53 million, up 147.4 percent; Adjusted Net Income of US$53 million, up 19.1 percent
  • 2017 outlook - Net sales between US$1,250 and US$1,265 million

Third Quarter of 2017 Compared to Third Quarter of 2016

Net sales increased US$52.8 million, or 18.4 percent, to US$340.8 million, driven primarily by volume growth and favorable product mix. Net sales of dry pet foods increased US$31.1 million, or 13.3 percent, to US$265.0 million while net sales of wet pet foods, treats and other products increased US$21.7 million, or 40.1 percent, to US$75.9 million.

Gross profit increased US$27.6 million, or 20.7 percent, to US$160.8 million. The increase in gross margin was driven primarily by favorable product mix and supply chain efficiencies, which were partially offset by higher distribution and warehousing costs.

Selling, general and administrative (SG&A) expenses increased US$9.7 million, or 14.8 percent, to US$75.2 million. Adjusted SG&A, which excludes litigation expenses and costs incurred for our public offerings, increased US$12.8 million, or 20.5 percent. The increase was primarily due to our ongoing investment in advertising and marketing consistent with our brand building strategy.

Net income increased US$31.7 million, or 147.4 percent, to $53.1 million in the third quarter of 2017, as compared to US$21.5 million in the third quarter of 2016. Adjusted Net Income, which excludes litigation expenses and costs incurred for our public offerings, increased US$8.5 million, or 19.1 percent, to US$53.3 million in the third quarter of 2017, compared to US$44.7 million in the third quarter of 2016.  Diluted earnings per share in the third quarter of 2017 increased 148.4 percent to US$0.27, compared to US$0.11 in the third quarter of 2016. Adjusted diluted earnings per share in the third quarter of 2017 increased 19.6 percent to US$0.27, compared to US$0.22 in the third quarter of 2016.

Full Year 2017 Outlook

For the full year 2017, Blue Buffalo expects to deliver net sales between US$1,250 million and US$1,265 million. Blue Buffalo expects its adjusted diluted earnings per share to be between US$0.91 and US$0.93. The outlook for full year 2017 adjusted earnings per share excludes costs related to litigation. The company expects 2017 capital expenditures to be between US$150 million and US$170 million.

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