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Smucker Takes Over Ainsworth, Focuses on Pet Foods Unit
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The J. M. Smucker Company’s (SJM - Free Report) previously-announced strategic move to acquire Ainsworth Pet Nutrition, LLC, was concluded on May 14. Smucker acquired Ainsworth in a transaction worth $1.7 billion, after considering tax gains of about $200 million. The transaction was funded through a combination of term loan and commercial paper borrowings.
Significance of the Takeover
Consumers’ rising consciousness regarding the health and wellness of pets has strengthened the traction of the pet foods category. Driven by such a market scenario, building strength in this category is an appropriate strategy by Smucker. Moreover, Ainsworth is a renowned name in the premium pet foods segment with popular brands like Rachael Ray Nutrish that will fortify the company’s portfolio. Incidentally, the Rachael Ray brand accounts for about two-thirds of Ainsworth's sales.
Well, this is not the first time that Smucker has undertaken strategic efforts to strengthen its footing in pet foods. In 2015, it acquired Big Heart Pet Brand that added iconic brands such as Meow Mix and Kibbles 'n Bits. The buyout has been bolstering the company’s pet food business. Incidentally, net sales in the company’s U.S. Retail Pet Foods category inched up 2% during the third quarter of fiscal 2018, owing to improved volume/mix. These were primarily related to the Nature's Recipe brand and the company’s pet snacks portfolio. With the inclusion of Ainsworth, we expect Smucker to expand further in this category.
Apart from Smucker, General Mills Inc. (GIS - Free Report) has also been striving to expand in this category and recently concluded the acquisition of Blue Buffalo Pet Products, Inc. Further, Amazon (AMZN - Free Report) is also looking toward invading this category, evident from its recent launch of the Wag brand.
Focus on Buyouts & Brand Expansion Bodes Well
The food industry is rife with stiff competition and shifting consumer preferences. Amid this scenario, companies like Smucker and United Natural Foods (UNFI - Free Report) often resort to strategic tie-ups to augment their offerings and stay afloat. Smucker actively pursues strategic acquisitions in the United States as well as overseas. Its agreement with Keurig Green Mountain and Dunkin’ Brands Group to manufacture and sell the K-Cup category of products has been yielding positive results since fiscal 2016. Further, the growing popularity of certain brands has encouraged the company to undertake innovations. Moreover, Smucker’s cost-saving initiatives have also contributed effectively toward undertaking brand augmenting efforts.
Wrapping it Up
Despite the aforementioned upsides, Smucker’s performance has long been eclipsed by higher freight expenses, which has been weighing upon its gross margin performance. Additionally, lower net price realization has dampened Smucker’s performance in several segments. Well, such deterrents have dragged the company’s shares by almost 10.6% in the past year compared with the industry’s decline of 16.1%.
Nevertheless, we are confident about the company’s ability to offset such headwinds with well-chalked cost-reduction measures and efforts to boost top line. We hope that such endeavors will uplift investors’ optimism in this Zacks Rank #3 (Hold) stock in the forthcoming periods.
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
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Smucker Takes Over Ainsworth, Focuses on Pet Foods Unit
The J. M. Smucker Company’s (SJM - Free Report) previously-announced strategic move to acquire Ainsworth Pet Nutrition, LLC, was concluded on May 14. Smucker acquired Ainsworth in a transaction worth $1.7 billion, after considering tax gains of about $200 million. The transaction was funded through a combination of term loan and commercial paper borrowings.
Significance of the Takeover
Consumers’ rising consciousness regarding the health and wellness of pets has strengthened the traction of the pet foods category. Driven by such a market scenario, building strength in this category is an appropriate strategy by Smucker. Moreover, Ainsworth is a renowned name in the premium pet foods segment with popular brands like Rachael Ray Nutrish that will fortify the company’s portfolio. Incidentally, the Rachael Ray brand accounts for about two-thirds of Ainsworth's sales.
Well, this is not the first time that Smucker has undertaken strategic efforts to strengthen its footing in pet foods. In 2015, it acquired Big Heart Pet Brand that added iconic brands such as Meow Mix and Kibbles 'n Bits. The buyout has been bolstering the company’s pet food business. Incidentally, net sales in the company’s U.S. Retail Pet Foods category inched up 2% during the third quarter of fiscal 2018, owing to improved volume/mix. These were primarily related to the Nature's Recipe brand and the company’s pet snacks portfolio. With the inclusion of Ainsworth, we expect Smucker to expand further in this category.
Apart from Smucker, General Mills Inc. (GIS - Free Report) has also been striving to expand in this category and recently concluded the acquisition of Blue Buffalo Pet Products, Inc. Further, Amazon (AMZN - Free Report) is also looking toward invading this category, evident from its recent launch of the Wag brand.
Focus on Buyouts & Brand Expansion Bodes Well
The food industry is rife with stiff competition and shifting consumer preferences. Amid this scenario, companies like Smucker and United Natural Foods (UNFI - Free Report) often resort to strategic tie-ups to augment their offerings and stay afloat. Smucker actively pursues strategic acquisitions in the United States as well as overseas. Its agreement with Keurig Green Mountain and Dunkin’ Brands Group to manufacture and sell the K-Cup category of products has been yielding positive results since fiscal 2016. Further, the growing popularity of certain brands has encouraged the company to undertake innovations. Moreover, Smucker’s cost-saving initiatives have also contributed effectively toward undertaking brand augmenting efforts.
Wrapping it Up
Despite the aforementioned upsides, Smucker’s performance has long been eclipsed by higher freight expenses, which has been weighing upon its gross margin performance. Additionally, lower net price realization has dampened Smucker’s performance in several segments. Well, such deterrents have dragged the company’s shares by almost 10.6% in the past year compared with the industry’s decline of 16.1%.
Nevertheless, we are confident about the company’s ability to offset such headwinds with well-chalked cost-reduction measures and efforts to boost top line. We hope that such endeavors will uplift investors’ optimism in this Zacks Rank #3 (Hold) stock in the forthcoming periods.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Click here for the 6 trades >>