ORRVILLE, OHIO — An impairment charge in the company’s pet food business coupled with supply chain disruptions and cost inflation dragged down income at J.M. Smucker Co. in the third quarter of fiscal 2022.
Net income for the period ended Jan. 31 fell 73% to $69.7 million, equal to 64¢ on the common stock, down sharply from $261.5 million, or $2.32 per share, in the same period a year ago. Fiscal 2022 results were adversely affected by a $150.4 million impairment charge related to the Rachael Ray Nutrish brand.
Quarterly sales eased to $2.057 billion from $2.077 billion.
During the quarter J.M. Smucker completed the sale of its private label dry pet food business and its natural beverage and grains businesses.
“We are pleased to report that our results for the third quarter exceeded our expectations, reflecting the strength of our brands, our executional excellence, and our ability to successfully pivot in response to a dynamic operating environment,” said Mark T. Smucker, president and chief executive officer, in March 1 prepared remarks related to the company’s financial results. “While macroeconomic conditions remain volatile as supply chain disruptions and cost inflation persist, our teams continue to navigate the challenging environment, manage the factors under our control, and deliver exceptional results. We continue to see robust demand for our brands that consumers love and trust, and we are taking meaningful actions to maintain this momentum for the long-term.”
US Retail Consumer Foods unit sales decreased 3.3% to $433.1 million from $447.6 million during the third quarter of fiscal 2021. Excluding $31.7 million of noncomparable net sales in the prior year related to the divested Crisco business, net sales increased 4%, Smucker said. Segment profit fell 10.3% to $99.5 million from $110.9 million, also in part reflecting the divested Crisco business.
In a March 1 conference call with analysts, Mr. Smucker said the company’s Uncrustables business delivered its 31st consecutive quarter of growth. Sales of Uncrustables increased 30% in the quarter to approximately $120 million, and the brand now represents nearly 25% of Smucker’s total Consumer Foods business.
“We essentially hit our $0.5 billion sales target more or less a year early,” Mr. Smucker said. “So on a 12-month run rate basis, we have already achieved that goal. …We are adding capacity in Colorado, and we broke ground on the facility in Alabama, which is going to take a couple of years before it’s online. But the investments we are making in capacity will clearly support increased demand. And we have high confidence that we will continue to see double-digit growth.
“And truly, capacity is the only constraint. If you think about demand, lower household penetration, the fact that we haven’t totally unlocked new channels or parts of our away-from-home channel. Canada is an area that would come online at some point in the future. And then, of course, marketing. We have not turned on marketing for Uncrustables, either. So there’s a lot of tailwinds that we see in the future. And our focus right now is just continuing to make sure that we ramp up capacity as quickly as possible to support the double-digit growth.”
Sales for Smucker’s US Retail Coffee business unit increased 5.7% during the quarter to $661.8 million from $625.9 million the year prior. Segment profit moved up 1.2% to $213.4 million from $210.7 million.
“Our brands gained nearly 1 point of dollar share in the quarter, more than double any other manufacturer,” Mr. Smucker said. “We outpaced the category in all segments, including mainstream, premium, one cup, and instant. Growth was led by Dunkin’ and Café Bustelo, the fasting growing at-home coffee brands, with consumer take away up 12% and 15%, respectively.”
Sales fell 9.4% to $696.6 million in Smucker’s largest business unit, US Retail Pet Foods, down from $768.6 million a year ago. Segment profit also was lower, falling 29% to $95.7 million from $135.1 million. The decline primarily reflected higher commodity, manufacturing, and transportation costs and the decreased contribution from volume/mix, partially offset by the higher net pricing.
“Our pet food business continues to be impacted by supply chain disruptions, primarily for wet pet food and packaging,” Mr. Smucker said. “We are strategically allocating supply and production to our most profitable items, notably for our leading Meow Mix cat food brand. While we continue to take actions to mitigate supply constraints, we expect these isolated supply challenges to persist in the near term.”Smucker said its full-year net sales are expected to decrease approximately 1.5% to 0.5% compared to the prior year, down from earlier forecasts of down 1% to 0%. Adjusted earnings per share guidance also was lowered, to $8.35 to $8.65, down from an earlier forecast of $8.35 to $8.75.