(Reuters) - J. M. Smucker Co (SJM.N) cut its full-year earnings forecast and reported disappointing quarterly results on Tuesday, as sales of its Nutrish dog food brand were hit by fierce competition, triggering a 10% drop in its shares.
Smucker has been betting on its pet food business by adding brands such as Milk Bone and celebrity chef Rachel Ray’s Nutrish through the acquisition of Big Heart Pet Brands and Ainsworth Pet Nutrition.
However, Nutrish came under pressure as top dog food brands wrestled for market share in a red-hot premium pet food industry by rolling out products at competitive prices.
“We did not fully anticipate how aggressive some of the competition would be on pricing, particularly in trial-sized products,” Chief Executive Officer Mark Smucker told Reuters.
“We do believe that this pricing that we’ve seen in markets is at an unsustainable level. We will respond with pricing, in-store merchandising and advertising.”
Sales in its pet food unit, which also makes Meow Mix cat food, fell 7% in the first quarter from the previous quarter. The business is Smucker’s biggest, accounting for more than a third of its sales.
The CEO said he expects softness in Nutrish’s sales to continue in the second quarter and expects the dog food brand to grow in mid-to-high single digits for the rest of the year.
Sales of Smucker’s coffee and peanut butter were also disappointing, as it lowered prices to boost demand.
Packaged food companies are facing stiff competition from upstart brands, which are winning more shelf space in supermarkets across the United States as more consumers experiment with new flavors and ingredients.
Sales fell 5% in Smucker’s coffee business and 17% in consumer foods business, which includes Jif peanut butter, from a year earlier.
“As deflation pressures key categories and increased competition impacts premium dog food, it’s hard to find silver linings,” Wells Fargo analyst John Baumgartner said.
The company now expects fiscal 2020 net sales of flat to a 1% drop. It had previously estimated sales to rise 1% to 2%.
For the year, Smucker forecast adjusted earnings of $8.35 per share to $8.55 per share, lower than its previous estimate of $8.45 to $8.65.
Net sales fell 6.5% to $1.78 billion in the quarter, below expectations of $1.87 billion, according to IBES data from Refinitiv.
Excluding items, it earned $1.58 per share, missing estimates of $1.74.
However, net income rose 16.2% to $154.6 million from a year earlier.
Reporting by Nivedita Balu in Bengaluru; Editing by Anil D'Silva