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J.M. Smucker said it will continue to focus on the snacking business after lowering fiscal 2020 revenue outlook due to weakness in premium pet food.
There has been an increase in competitive activity from a proliferation of brands entering the premium pet food market, according to executives at the Ohio-based food company, causing its Natural Balance brand to decline by over 25% in sales during Q2 of fiscal year 2020.
They also expect their Nutrish brand revenues to decline in the second half of this fiscal year and a reduction in forecasted performance for both new distribution and innovation launches.
CEO Mark Smucker noted recent softness in the company’s pet food portfolio is isolated to premium dog food, and he remains optimistic about both short- and long-term growth for its overall pet food business.
J.M. Smucker’s reported net sales for the whole fiscal year is expected to decease 3% compared to the prior year, according to vice chair and CFO Mark Belgya.
“On an organic basis, net sales are expected to be down 2%,” he said. “Private label pet food remains a headwind with approximately a $10 million decline expected in the third quarter.”
Meanwhile, the increasing consumer demand for snacks has pushed J.M. Smucker to invest in the sector, such as divesting non-core operations.
Its U.S. bakery brands including Pillsbury, Martha White and Hungary Jack were sold to PE firm Brynwood Partners for $375 million last year, after Smucker said they no longer aligned with the company’s strategic priorities.
The divestiture along with foreign exchange headwinds caused J.M. Smucker’s Q2 2020 net sales to decline by 3% year-over-year to $1.96 billion. Its adjusted operating income decreased 6% year-over-year to $391 million.
The company’s U.S. retail consumer foods sector decreased 8% year-over-year in net sales to $426.1 million in Q2.
However, Smucker highlighted strong growth in units such as snacking and coffee during the period, stressing the company is committed to improving top line performance and taking “decisive corrective actions” when necessary.
J.M. Smucker’s quarterly snacking sales grew 18% with each of Uncrustables, Sahale Snacks and Jif PowerUps brands growing double-digit in revenues.
“We expect further acceleration for snacking in the third and fourth quarters with the increased production capacity for Uncrustables and expanded distribution for Jif PowerUps,” Smucker said during an earnings call.
Particularly, he expects the growth of Uncrustables to exceed 25% in the second half of fiscal year 2020 and the brand to generate over $500 million in net sales within the next few years.
J.M. Smucker’s coffee business also improved U.S. household penetration in Q2 driven by Dunkin’, Cafe Bustelo and 1850 brands.
“We grew volume in all formats including mainstream, premium KCup and instant while net sales were comparable to the prior year due to increased trade spend as lower green coffee costs are being passed through to consumers,” Smucker said.