J.M. Smucker selling Natural Balance brand to investors

The J.M. Smucker Co. announced Friday it has entered into a definitive agreement to sell its Natural Balance premium pet food business to Nexus Capital Management LP, in a cash transaction valued at approximately US$50 million.

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(Kir2 | BigStock.com)
(Kir2 | BigStock.com)

Adapted from a press release:

The J.M. Smucker Co. announced Friday it has entered into a definitive agreement to sell its Natural Balance premium pet food business to Nexus Capital Management LP, in a cash transaction valued at approximately US$50 million, subject to a working capital adjustment and before a one-time cash tax benefit to be realized on the sale. The transaction encompasses Smucker pet food products sold under the Natural Balance brand, certain trademarks and licensing agreements, and select employees who support the Natural Balance business. The business generated net sales of approximately US$220 million for the Smucker’s fiscal year ended April 30, 2020, which were reported in its U.S. retail pet foods segment.

"The divestiture reflects our strategy to direct investments and resources toward areas of the business that will generate the greatest growth and profitability," said Mark Smucker, president and chief executive officer of the J.M. Smucker Co. "Today's announcement helps the Company further focus on the core brands within our pet food and pet snacks portfolio including Rachael Ray Nutrish, Milk-Bone and Meow Mix among others, which together create a unique portfolio with significant long-term growth potential that meets consumer needs across value, mainstream and premium offerings."

Smucker expects the divestiture to be dilutive to its adjusted earnings per share in the range of US$0.05 to US$0.10 on a full-year basis, reflecting the foregone profit related to the Natural Balance business, before factoring in any potential benefit from the use of proceeds from the sale.  Smucker will discuss the transaction's impact on its fiscal year 2021 outlook when it releases its third quarter results in February 2021 and anticipates the earnings impact will be immaterial.

The transaction is expected to close in the third quarter of Smucker’s 2021 fiscal year, subject to customary closing conditions. Smucker appointed Goldman Sachs & Co. LLC as financial advisor and Calfee, Halter & Griswold LLP as legal advisor to assist with the sale of the Natural Balance pet food business.

About Nexus Capital Management

Nexus Capital was formed in 2013 to make opportunistic debt and equity investments in a broad range of companies and industries, according to its website. Its capital comes largely from U.S. and international institutions: endowments, financial institutions, public and private pension funds, family offices and foundations. The group invests in a range of industries and seeks long-term returns. Nexus invests US$20 to US$150 million per transaction.

Smucker pet food sales down Q2 FY21, up for first half

Adapted from a press release:

In the second quarter of fiscal year 2021, J.M. Smucker pet food net retail sales declined US$1.2 million compared to the same quarter in 2019, although this was offset by a one percentage point increase from volume/mix. Smucker pet segment net sales stood at US$708.7 million in the three months ending on October 31, 2020, whereas net sales in the second quarter of 2019 hit US$709.9 million. Segment profit decreased US$12.1 million from US$137.0 million in Q2 FY20 to US$124.9 million, primarily due to the impact of lower net pricing and higher marketing expense. For the first half of fiscal year 2021, Smucker’s pet food net sales reached US$1,401.3 million, an increase from sales during the six months ended October 31, 2019, which hit US$1,379.8 million.

The contribution from volume/mix primarily reflects growth for cat food and dog snacks driven by Meow Mix and private label cat food, as well as Pup-Peroni and Milk-Bone dog snacks. These gains were partially offset by reduced volume/mix for dog food, mostly driven by private label and the Natural Balance brand.

Overall Smucker performance in Q2 FY21

Net sales increased US$76.2 million, or 4%, primarily reflecting growth in the Smucker’s U.S. retail consumer foods and U.S. retail coffee segments, partially offset by a decline in its international business. Net income per diluted share was US$2.02. Adjusted earnings per share was US$2.39, an increase of 6%. Cash from operations was US$378.7 million, an increase of 69%. Free cash flow was US$326.3 million, compared to US$160.6 million in the prior year.

About J.M. Smucker pet foods

According to Petfood Industry’s Top Pet Food Companies Current Data, J.M. Smucker’s is a leading producer, distributor and marketer of premium-quality, branded pet food and pet snacks in the U.S. Smucker runs processing plants in Decatur, Alabama; Lawrence, Kansas; and Buffalo, New York, USA. Both a processing plant and distribution center are operated at locations in Topeka, Kansas, and Bloomsburg, Pennsylvania, USA. In addition to its own brands, Smucker produces and distributes private-label pet products and utilizes 16 co-packers and 12 re-packers in the U.S., Canada and Thailand.

Timeline of J.M. Smucker pet foods

2018 (April): Smucker will acquire Ainsworth Pet Nutrition and Rachel Ray's Nutrish. 2018 (March): The company recalls certain pet food brands over elevated levels of beef thyroid. 2018 (February): Smucker recalls certain pet food brands over pentobarbital. 2017: US$25 million research-and-development facility opens. 2016: Big Heart's corporate service center operations in Pittsburgh, Pennsylvania, USA, were consolidated with Smucker’s headquarters in Orrville, Ohio, USA. 2015 (March): J.M. Smucker Company completes acquisition of Big Heart Pet Brands for approximately US$5.9 billion. The cash and stock transaction value includes assumption of about US$2.6 billion of debt, which was refinanced at closing. As part of the acquisition, J.M. Smucker acquired a 50% equity interest in Natural Blend Vegetable Dehydration LLC and a 20% equity interest in Mountain Country Foods, LLC. Natural Blend is a privately owned producer and supplier of dehydrated sweet potato products to Big Heart co-manufacturers. Mountain Country Foods is a privately owned co-manufacturer of Big Heart pet products. 2014: Del Monte Foods Co. is now called Big Heart Pet Brands. 2013 (October): Del Monte sells its human food brands to a subsidiary, Del Monte Pacific, to focus on its pet products business and says it will rename the company accordingly. 2013 (May): Del Monte Foods and Natural Balance Pet Foods Inc. sign a merger agreement. 2011 (May): Del Monte Foods appoints new CEO, Dave West. 2011 (March): Del Monte Foods is acquired by an investor group led by funds affiliated with Kohlberg Kravis Roberts & Co. L.P., Vestar Capital Partners and Centerview Capital, L.P.

Key data on leading pet food companies

Petfood Industry's annual survey collects data on companies’ reported annual revenue, number of employees, brands, type of products offered, number of facilities and contact information (including address, phone number, emails and websites). The data is compiled in a convenient spreadsheet format, and is a valuable resource allowing users to sort, filter and analyze the information.

There are three data sets available:There are three data sets available:
50 leading pet food producers worldwide 2016-2019
30 leading US pet food producers 2016-2019
30 leading European pet food producers 2016-2019

Petfood Industry’s annual Top Companies edition includes rankings of the top pet food companies globally, in addition to information about the M&A activity within the industry.

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