The J.M. Smucker Co. sold its private-label dry pet food business, including its manufacturing facility in Frontenac, Kansas, USA, to Diamond Pet Foods, Inc., in a cash transaction valued at approximately US$33 million.
"This divestiture enables us to focus investments and resources on areas of our pet food and pet snacks business positioned for growth and profitability, including driving category growth in dog snacks, building upon our momentum in cat food—particularly with Meow Mix, and stabilizing Nutrish dog food by growing consumer demand," said Rob Ferguson, senior vice president and general manager of pet food and pet snacks for The J.M. Smucker Co., in a press release.
The transaction does not include any branded products or private label wet pet food business. The divested business generated net sales of approximately US$95 million for the fiscal year ended April 30, 2021. The divestiture is immaterial to the Company's adjusted earnings per share on a full-year basis.
Smucker updated its full-year fiscal 2022 guidance to reflect the removal of divested net sales for the remainder of the fiscal year. Full-year net sales are now expected to range from down 1% to flat compared to the prior year, which incorporates the impact of the divested Crisco, Natural Balance and private label dry pet food businesses. On a comparable basis, net sales are expected to increase approximately 4.5% at the mid-point of the net sales guidance range. The Company maintains its adjusted earnings per share guidance range of US$8.35 to US$8.75 and free cash flow guidance of US$700 million.
Smucker US pet food profits down 20% Q2FY22
Prior to the sale of its private-label pet food business to Diamond Pet Foods, J.M. Smucker pet food segment profits declined 20% in the second quarter of fiscal year 2022. During an earnings call, company executives pointed to higher commodity, manufacturing and transportation costs as the prime reasons for this decline, which was offset somewhat by higher net pricing. Overall, Smucker’s net pet food retail sales decreased by 1% compared to the same quarter in fiscal year 2021. However, net sales increased by 7% if the effects of divestitures are excluded. U.S. retail pet food net sales stood at US$701.6 million in Q2 FY22 for Smucker. Segment profit was US$99.6 million with a profit margin of 14.2%.
“This was driven by increased net pricing across the portfolio and favorable volume/mix for dog snacks, private label offerings, and cat food, partially offset by declines for dog food,” Mark Smucker, president and chief executive officer said in a prepared statement. “Higher commodity, manufacturing, and transportation costs, partially offset by initial higher net pricing actions, led Pet Foods segment profit to decline 20 percent.”
Supply chain disruptions are affecting Smucker’s wet pet food business, he said.
Smucker U.S. pet food net sales decreased US$7.1 million. However, excluding US$50.8 million of noncomparable net sales in the prior year related to the divested Natural Balance business, net sales increased US$43.7 million. Higher net price realization across the portfolio increased net sales by 4 percentage points. Volume/mix increased net sales by 2 percentage points, primarily driven by the Milk-Bone, Meow Mix, and 9Lives brands, as well as private label pet food, partially offset by decreases for the Pup-Peroni and Kibbles 'n Bits brands. Segment profit decreased US$25.3 million, primarily reflecting higher commodity, manufacturing, and transportation costs, partially offset by the higher net pricing.