dog bowelTracking growth in the pet industry has historically been a static exercise.  Industry observers have become beholden to annual disclosures from the American Pet Products Association (APPA) or one of the third party research organizations that track the industry’s performance (Packaged Facts, Mintel, GfK, etc.).  Garnering a read in between reporting mileposts has required the application of inference to lagging data.  The take private of PetSmart removed a valuable leg to the data stool on which many inferences relied. However, in the case of pet consumables, recent public offerings and acquisitions of major pet properties by public companies, provides us greater transparency from which to make educated guesses.  Consider the following August 13th reporting disclosures:

  • Nestle Purina disclosed segment level growth data for the first half of 2015 for all of its businesses (note, European public companies report on a half yearly basis).  The Petcare division delivered ~ $5.63 billion in Sales in 1H2015 (reflects conversion of CHF to USD as of the data of publication), up 4.9% over the same period in 2014.  Nestle also disclosed that its Petcare division increased Operating Income margin by 1.1%.  Healthy growth given the size of the numbers involved.
  • Blue Buffalo reported strong second quarter sales and earnings performance.  Sales for the quarter totaled $254 million, or 16% growth versus the same period in 2014. While earnings were up for the period by 14%, Blue Buffalo posted a 2.0% decline in Operating Income margin for 2Q2015.  Volume growth for the quarter was 15%, with dry food posting a 16% gain.  However, the company noted that dry volume growth was more a function of timing, based on sell-in shipment dates. For the full year Blue Buffalo anticipates that wet food and treat growth will outpace the growth of dry food from a percentage standpoint. Gross Margin was 0.4% higher than the same period in 2014, though 0.7% lower than 1Q2015 due to the ramp-up in the companies owned production facility (Heartland).  The balance of the Operating Income compression is explained by IPO related expenses, investments in new product introductions, and brand related expenses.
  • Freshpet also reported strong second quarter sales and earnings performance.  Sales for the quarter totaled $28.4 million, or 39% growth versus the same period in 2014.  Approximately 4.8% of this growth was attributable to new product tests, as the company seeks to enter the kibble sub-segment. Freshpet reported a 9.1% increase on Operating Margin as losses narrowed. However, the company experienced a 1.3% decline in Gross Margin versus the same period in 2014, driven primarily by mix.

While these three data points do not reflect all brands or channels, they do provide us a reasonable cross section from which to extrapolate. If we compare these results to the APPA projections for 2015, it would seem we are on track to meet or exceed projected growth in the largest category of pet spending.  For calendar 2015, the APPA projected total industry growth of 4.4% and 3.5% growth within the consumables.  If the largest industry player is growing 4.9%, albeit globally, and two key emerging but established independents are growing at healthy double digit rates, it would seem to augur for an up year in pet consumables. For further triangulation, we add to this the J.M. Smuckers disclosure that its Big Heart Brand’s acquisition is growing at a 4% – 5% annual rate. In the future, a publicly traded Petco, will only further add to our ability to predict in year category performance.

The above certainly does not represent perfect science, but in the absence of real time data, it does provide me some comfort as it relates to anticipated annual growth for the industry.

/bryan

Note: This blog is for informational purposes only. The opinions expressed reflect my view as of the publishing date, which are subject to change.  While this post utilizes data sources I consider reliable, I cannot guarantee the accuracy of any third party cited herein.

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