No-Moat Smucker Loses Its Taste for Pet Food; Shares Don't Look Attractive

Smucker is ratcheting back its foray in the attractive pet space with the sale of several pet food brands and its private-label pet fare to Post for $1.2 billion, consisting of $700 million in cash and 5.39 million shares of Post—a transaction that provides further credence to our assessment management has been poor stewards of shareholder capital. The deal—which is slated to close by the end of April—essentially unwinds two of Smucker’s recent (and excessively expensive) transactions, Big Heart Pet Brands (brought into the fold in 2015 for $5.9 billion, or 13 times on an enterprise value/EBITDA basis) and Ainsworth (scooped up in 2018 for $1.9 billion, or 22 times before synergies and tax benefits). The combined brands being offloaded generate around $1.5 billion in sales annually (about 15%-20% of its consolidated total), but the price tag (0.8 times sales) speaks to the languishing prospects for offerings in the value and midstream segments, which have been losing share to premium and super-premium products.