J.M. Smucker (SJM) to focus more on pet snacks to drive profit margins

Shares of The J.M. Smucker Co. (NYSE: SJM) were down 2% on Wednesday. The stock has dropped 8% year-to-date. The company delivered mixed results for its third quarter of 2023 a day ago and updated its outlook for the year. The branded food products maker is focusing on unloading several of its slower-growth brands in order to improve its margins.

Portfolio revamp

One of JM Smucker’s key priorities is to transform its portfolio and as part of these efforts, the company is divesting brands and businesses that are not seeing the desired growth. Last month, SJM announced the sale of several of its pet food brands including Rachael Ray, Nutrish, 9Lives, Kibbles n’ Bits, Nature’s Recipe and Gravy Train, along with its private label pet food business.

With this divestiture, the company’s Pet Foods business will shift to approx. 60% pet snacks and 40% cat food as opposed to the current mix where pet foods forms the majority and snacks makes up one-third of the business. This is expected to improve the profit margin and product mix of the business.

On its quarterly conference call, SJM said that the brands it is divesting make up only a mid-single digit percentage of its profit and that it plans on investing more in the fast-growing, high-margin dog snacks category. In Q3, net sales in the dog snacks category grew 11%, driven by the Milk-Bone brand.

Other growth platforms the company plans to focus more on include its Uncrustables sandwiches, as well as its cat food and coffee businesses. In Q3, net sales for Uncrustables increased 38%. Cat food saw a 6% growth in sales, led by the Meow Mix brand. In coffee, net sales increased 11% with continued strength in the at-home coffee portfolio.

Quarterly performance

In Q3 2023, JM Smucker’s net sales increased 8% year-over-year to $2.21 billion, which narrowly missed estimates. Adjusted EPS of $2.21 was down 5% YoY but surpassed projections.

Outlook

SJM now expects net sales for the full year of 2023 to increase 6% year-over-year versus the previous range for sales growth of 5.5-6.5%. Adjusted EPS is expected to range between $8.55-8.75 versus the prior range of $8.35-8.75.

Click here to read the full transcript of JM Smucker’s Q3 2023 earnings conference call