Smucker Tumbles as Sluggish Pet Food Sales Weigh on Forecastby
The jam maker acquired Big Heart Pet Brands last year
Company cuts its growth outlook after pet sales decline
J.M. Smucker Co. tumbled the most in more than four years after the company cut its annual sales forecast, hurt by sluggish demand for pet food.
Excluding one-time items, revenue will range from flat to down 1 percent this year, the Orrville, Ohio-based company said on Tuesday. Smucker had previously projected a gain of 1 percent.
The outlook signals that Smucker is having a difficult adjustment to becoming a major pet-food seller. The company, best known for its namesake jam, made a push into the industry last year with the acquisition of Big Heart Pet Brands in a deal valued at $5.8 billion. Sales from that business declined last quarter after Smucker decreased market spending and more U.S. pet owners switched to premium brands.
The company saw the pet-food acquisition as a source of growth, but so far the unit has struggled, said Michael Halen, an analyst at Bloomberg Intelligence.
“These products have been in decline since they made the acquisition, and there doesn’t seem to be an end in sight,” he said. “They have to prove they can turn this around.”
The shares fell as much as 8.8 percent to $142.55 in New York trading, the biggest intraday decline since February 2012. They had been up 27 percent this year through Monday’s close.
Smucker said its profit forecast remains on target, partially because of cost cutting. The company expects earnings of $7.60 to $7.75 a share, excluding some items.
U.S. packaged-food makers have lost market share in recent years as customers seek out more fresh and natural grocery items, shifting away from staples that dominated grocery-store shelves for decades. The acquisition of Big Heart, which makes top-selling brands like Milk-Bone and Meow Mix, was an attempt to diversify Smucker’s portfolio with a business it thought was immune to that pressure, Halen said.
But the pet food market has also faced upheaval, with customers trading up to premium brands that are pitched as healthier options for dogs and cats. Premium dog-food sales surged 45 percent to $10.5 billion during the last six years and now account for more than half of the market, according to Euromonitor International.
Smucker is working to meet the changing consumer tastes and has launched new television ads in bid to boost pet-food sales, according to Mark Smucker, the company’s chief executive officer.
“We continue to progress,” Smucker said on a conference call. The company sees opportunities in “mainstream pet-food driven by consumer preference for additional protein and natural ingredient options.”