Q4 2020 J M Smucker Co Earnings Call
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Good morning, and welcome to the JM Smucker companies' fiscal 2024th quarter Earnings Conference call. This conference is being recorded and all participants are in listen only mode. We will open the conference up for questions and answers after their prepared remarks, please limit yourselves to two questions during the Q and they session and re queue. If you have additional question.
I'll now turn the conference over to Aaron Broholm, Vice President Investor Relations Mr. Broholm. Please go ahead.
Good morning, and thank you for joining us for fiscal 2024th quarter earnings Conference call.
After this brief introduction Mark Smucker, President and CEO will give an overview of the quarter's results in an update on our strategic initiatives.
Tucker Marshall CFO will then provide detailed analysis of the financial results in our fiscal 2021 outlook.
During today's call we will make forward looking statements that reflect the company's current expectations about future plans and performance.
These statements rely on assumptions and estimates and actual results may differ materially due to risks and uncertainties.
Encourage you to read the full disclosure concerning forward looking statements in this mornings press release, which is located on our corporate web site at J.M. Smucker dotcom.
Additionally, please note the company uses non-GAAP results to evaluate performance internally as detailed in the press release.
We have posted a supplementary slide deck summarizing the quarterly results, including additional information regarding net sales by segment and cost of products sold for fiscal 2020.
The slides can be accessed on our website and will be archived there along with a replay of this call.
If you have additional questions. After today's call. Please contact me.
I will now I'll turn the call over to Mark Smucker.
Thank you Aaron good morning, everyone and thank you for joining us.
I would like to begin by acknowledging the challenging times, we all continuing to live through as a result of the cobot 19 pandemic.
And Smucker, we are United and our commitment to support those most impacted.
We are focused on maintaining employee wellness and supporting our community.
Retaining our high quality and safety manufacturing standard.
And partnering closely with our suppliers and retailers to ensure we can deliver food for consumers and their pet.
I am extremely proud and thankful for our employees.
Who have fully embraced our driving together philosophy.
Which define success as driving business grow.
While also helping those associated with our company thrive.
This approach means we take an active role in helping our consumers supply chains communities and the planet.
Our teams adapted to a rapidly changing environment by drawing on the strength of our production capabilities and responding quickly to customer and consumer needs.
Our fourth quarter results, including record net sales and adjusted earnings per share performance.
Our a direct reflection of the dedication and agility of our teams.
The quarters net sales increased by 10% versus the prior year driven by the change in consumption patterns due to Cove and 19.
Adjusted earnings per share was $2.57.
An increase of 24%.
Benefiting from increased sales improved profit margins related to mix and operating leverage.
And reduced marketing expense, partially offset by increased costs related to cobot 19.
Oh.
For the full year net sales were flat to the prior year at $7.8 billion, which on an organic basis was an increase of 1%.
Adjusted earnings per share was $8 in 76 cents, an increase of 6%.
And free cash flow was $986 million, an increase of 26%.
Through February 4th quarter results were tracking in line with our previous guidance.
Which called for full year net sales to decrease 3% or 2% on an organic basis compared to the prior year.
And full year adjusted EPS of $8 in 10 cents to $8 in 30 cents.
In March the Coven 19 pandemic led to stay at home orders across the world.
Which resulted in unprecedented demand as consumers loaded their pantries and consumed more food and beverages at home.
To maximize product availability and achieve greater operational efficiency, we produced limited skews within the coffee and consumer foods segments.
And allocated shipments across our customer base as demand began to outpace production for certain products, notably for jif, peanut butter and Uncrustables frozen sandwiches.
Consumer takeaway in measured channels increased 40% across our portfolio in March.
With growth of 72% for consumer food.
37% for coffee.
And 20% for Pat.
In April elevated demand continued in the coffee and consumer foods segment.
For pet food consumer takeaway reversed in April as Pet parents began depleting the initial March stock up purchases.
Consumption for Pat generally did not increase.
With the exception of some additional treating as pet parent spent more time at home.
Well stay at home orders drove significant growth for all our retail businesses. These orders severely reduced demand for the away from home business as restaurant lodging schools and many offices closed.
The away from home business experienced a sales decline of 15% for the quarter and nearly 50% in April.
Our ability to deliver a fourth quarter sales increase.
10% for the total company reinforces the strength of our execution capabilities in a challenging environment.
More broadly the work we have done to transform the company over the last few years and our commitment to our strategic growth imperative to lead in the best categories.
Build brands consumers love and be everywhere supported these exceptional result.
I'll share a few examples of the accomplishment that highlight our strong execution in the fourth quarter.
Let me begin with lead in the best categories.
Our portfolio is tailored towards growing and attractive categories, where our brand have leadership positions.
Over 90% of the growth for consumer products in March and April was driven by established or leading brands.
Those not only recognizable by consumers, but also with the ability to quickly scale production to support the surge in demand.
In the pet food category, our market, leading dogs snacks and cat food businesses continued to deliver strong net sales growth.
Sales for dogs snacks led by the milk bone brand grew 12%.
And cat food led by the Meow mix brand grew 19%.
With our cat food and market share improving over a half point in the 13 week period and 2.5 points in April.
In dog food strong growth for our mainstream and value brands was more than offset by the anticipated declines for the natural balance and Rachael Ray New Trish brand.
The declines for natural balance were primarily attributable to the pet specialty channel, which experienced declines in foot traffic as consumers made fewer stops during their shopping trips and shifted purchases to the grocery and E Commerce channel.
For new Trish dog food.
Volume mix consumer takeaway and household penetration all grew during the quarter.
As anticipated net sales declined following over 20% growth in the prior year fourth quarter, primarily related to sell and from distribution expansion and higher pricing.
Despite an uncertain economic recovery, our pet portfolio is uniquely positioned to perform well with a breadth of option to meet consumer needs across the full spectrum of value mainstream premium and super premium offering.
Turning to our coffee business as the market leader in the at home coffee category, we benefited from increased at home consumption.
We gained dollar and volume share during the quarter for all brands across the mainstream one cup and instant format.
Over 1 million new households tried the folgers Duncan or cafe Bustelo brand in the quarter with 75% of those households, purchasing folgers for the first time during the last 12 month.
We have tailored our marketing strategies to engage these new users and increase loyalty to our brand.
In snacking, our Smuckers Uncrustables business continued to deliver exceptional growth.
Full year sales for the brand increased 26% and accelerated to a 50% increase in the fourth quarter.
The brand benefited from increased capacity provided by the new Longmont, Colorado manufacturing facility.
We anticipate being able to further increase capacity in early calendar year 2021.
Demand for the number one lunch sandwich in the U.S. peanut butter and jelly extended beyond Uncrustables.
As total net sales in retail channels increased double digits for both the category, leading jif peanut butter and smuckers fruit spreads core products.
As consumer takeaway for peanut butter continues to outpace our available production, we have temporarily suspended all promotions.
Further we project higher peanut costs in fiscal year, 2021, driven by reduced peanut crop yield and increased consumer demand.
Shifting to our growth imperative to build brands consumers love.
Last year, we reinvigorated, our largest brands with breakthrough advertising across multiple media and social platforms to support long term growth.
Stepped up investments in marketing.
Included projected spend of approximately 6.5% to 7% of net sales.
For the quarter marketing was 5.7% of net sales and 6.4% of net sales for the full year just below prior estimates due to the higher than projected sales in the fourth quarter and reduced spend due to covert 19.
In fiscal 2020, we launched new advertising campaigns for 10 of our largest brand.
We are continuing this momentum with prioritize marketing investments for our key growth platforms of premium pet food and pet snacks and coffee.
And are planning to run the first national marketing campaign for Smuckers Uncrustables in the second half of the fiscal year.
Increased data provided by shifts in consumer behavior during the quarter allows us to further refine our marketing efforts with a focus on developing strategies to retain consumers who are new to our brands.
Our third growth imperative is to be everywhere.
Ensuring our brands are available whenever and wherever consumers shop.
And that our interactions with consumers and products are available on demand and across more channels than ever before.
Research has indicated that during these turbulent times one out of five shoppers switch their primary grocery store choosing retailers with availability as their preferred products.
And enhanced online capabilities.
Which further underscores the importance of this imperative.
In the quarter, our pure play ecommerce sales grew 66% led by pet food with over 60% growth and coffee with more than 90% growth.
Pure play sales accounted for nearly 7% of total us retail and beat our goal of 5% for the full year.
Further when accounting for total online sales inclusive of Omnichannel retailers over 10% of our U.S retail sales were through E commerce in the quarter.
With the largest driver of growth coming from click and collect purchases.
We anticipate continued strong ecommerce growth.
As 65% of consumers expect to use digital shopping channels more frequently in the future.
I wanted to highlight one final accomplishment before shifting focus to fiscal year 2021 priority.
We completed the evolution of our senior leadership team.
John Brazee joined the company as Chief operating Officer, and Corey Unal joined US as the ahead of us retail sale.
Tucker Marshall transitioned into the role as CFO as of May 1st and Rob Ferguson was promoted to the position of senior Vice President and General manager Us retail pet food and snacks. This week.
All of these individuals bring tremendous experience in CPG to our team.
And I'm confident that with the strength of our leadership team, we are well positioned to execute our strategy and deliver through this dynamic period.
I would now like to shift attention to fiscal year 2021.
The unprecedented environment caused by Cobot 19 has drastically shifted assumptions across the industry, including the preliminary direction, we provided for fiscal year 2021.
The increased contribution from the initial stock up purchasing in the fourth quarter.
Significant headwind throughout 2021 for the away from home business.
An incremental costs related to cobot 19.
We'll be only partially offset by at home consumption growth for our coffee and consumer foods businesses.
This will result in year over year declines for both sales and adjusted earnings per share.
Excluding the cobot 19 related benefits in fiscal 2020, and the anticipated impact in fiscal 2021.
We expect both top and bottom line growth driven by the positive momentum for our key categories and brands.
Along with incremental benefit from ongoing cost savings initiatives.
We will continue to focus on executing our long term consumer centric growth strategy, while strengthening financial discipline.
In the near term this means focusing on executing for key priorities. This fiscal year that are critical to ensuring we continue the underlying momentum and we achieve our financial goals for this year and beyond.
These include first.
Continued progress toward driving consistent net sales growth.
This means capitalizing on increased demand within our consumer foods coffee and international retail businesses, improving the growth trajectory of our pet business and adapting our brand building activities to win in a period of economic contraction.
Second.
An increased focus on financial discipline to maintain or improve our strong profit margin and cash flow generation.
This includes a total company commitment to productivity, a new margin management program and collaboration and transparency with a retail partners to provide value to consumers consistent with pricing that reflect cost changes where appropriate.
Third is to harness our full suite of capabilities to improve our commercial execution and build a competitive advantage.
We have invested in new capabilities and implemented several changes to our organization structure aimed at increasing agility and enhancing our category leadership abilities.
We must market our brands effectively deliver on balance innovation and win across all channels.
Fourth and finally is the continued commitment to our purpose by feeding and fortifying connections now more than ever is important to strengthen connections with all our stakeholders.
Including our consumers customers suppliers employees communities and our shareholders.
I look forward to our team providing detailed insights into these priorities and our long term strategy when we hold and Investor day on October 13th.
More details on the logistic will be shared in the coming month.
In closing I want to reiterate my appreciation an aberration of our employees for their efforts this past year and their continued commitment as we move ahead.
We recognize there's still more work to do but we will continue to adapt as the company has successfully done for more than 120 years.
I would like to also once again acknowledge mark Belgya, who has been instrumental in the transformation of our company over the last 35 years, including 15 years as the CFO.
Also I would like to welcome Tucker Marshall, who assumed the CFO role on May Onest, and I look forward to working with him in the years to calm.
I will now turn the call over to him.
Thank you Mark good morning, everyone.
You may begin by giving an overview of our fourth quarter results before providing more details on our financial outlook for fiscal 2021.
Net sales increased 10% driven by the consumer demand from covert 19, which we estimate contributing 10 percentage points to growth for the quarter.
Favorable vol mix contributed 11 percentage points to net sales growth and was slightly offset by lower net price realization.
Adjusted gross profit increased $85 million or 12% from the prior year driven by the increased contributions from vol mix.
And reduced input costs, partially offset by lower net pricing.
Adjusted operating income increased $78 million as the increase gross profit more than offset the $4 million increase for SDMA expenses.
Within SDMA distribution expense increased $10 million attributable to increased volume and expenses related to the consolidation of distribution centers for the pet business.
Marketing expense decreased $7 million as coated related shutdowns impact is the ability to complete certain initiatives.
Gene a expenses increased $2 million as incremental expenses related to covert they paid more than offset benefits from synergies and cost management programs.
The additional expenses incurred from Cowen 19 totaled $12 million and Janet.
Below operating income interest expense decreased $4 million driven by a reduction in outstanding debt from repayments made over the prior 12 months.
The adjusted effective income tax rate was 23.4%.
Factoring all this in fourth quarter adjusted earnings per share was $2.57 compared to $2, an eight cents in 2019, an increase of 24%.
Let me now turn to segment results beginning with pet foods net sales increased 6% with estimated sales related to covert 19, contributing eight percentage points to growth.
Cat food continued its strong trends with meow mix and nine lies both growing approximately 20% dog treats grew 12% led by milk bone as pepperoni.
Dog food sales decreased mid single digits due to declines for the natural balance and nutritious brands.
Trish results were slightly better than expectations due to consumer stock up purchasing but more importantly achieved increased household penetration and consumer takeaway.
Sales for our mainstream Kibbles 'n bits brands increased over 20% and branded value dog food also grew while private label offerings were flat compared to the prior year.
Pet food segment profit increased 14% compared to the prior year driven by increased volume mix and reduced marketing expense, which was partially offset by increased distribution and selling expenses.
Turning to the coffee segment net sales increased 11% compared to the prior year.
The estimated contribution from consumer stock up and increased at home consumption related to covert 19 was nine percentage points.
The Dunkin' and Cafe Bustelo brands, each grew 19% and sales for the Folgers brand increased high single digits highlighted by double digit growth for classic rose canister and K Cups.
Coffee segment profit increased 11%, reflecting the favorable vol mix increases of selling and marketing expenses were mostly offset by a small debt benefit of price and cost.
And consumer foods net sales increased 22% sales for Smuckers Uncrustables frozen sandwiches increased 47% Smuckers fruit spreads grew 27% and the Krisko brand grew 56%.
Sales for the Jeff brand grew 8% lapping a 17% volume increase and the prior year fourth quarter.
Segment profit increased 69% due to the benefit from vol mix.
The favorable net impact of price and cost and lower SDMA expense.
Lastly in the international away from home segment net sales were comparable to the prior year.
All mix increased net sales by two percentage points, but was offset by unfavorable foreign exchange.
Coven 19 had significant and contrasting effects on the segment.
International sales grew significantly with the largest gains as baking and fruit spreads category.
The away from home business contracted 15% overall led by significant declines in coffee, partially offset by growth for Smuckers Uncrustables frozen sandwiches.
Segment profit decreased 9%, primarily reflecting increased input costs and unfavorable foreign currency exchange.
Fourth quarter free cash flow was $211 million, which represent a $30 million increase from the prior year.
This reflects an increase in cash provided by operating activities and a $16 million reduction in capital expenditures.
On a four year basis free cash flow was $986 million with capex of $269 million, representing 3.5% of net sales.
Capex spending was below our guidance range in part due to cancellation or delay of projects as safety and physical distancing requirements restricted the number of projects, we are able to complete in the quarter.
There were two other key items impacting free cash flow.
First the company initiated a program to extended payment terms in conjunction with a supplier financing program in the fiscal year, which is benefiting working capital.
The total benefit to the full year free cash flow from the program was approximately $150 million.
Second.
The company settled interest rate contracts in conjunction with a debt offering in the fourth quarter.
The one time cash outflow for the settlement was $240 million.
With the expense to be Amortizes interest is paid over the life of the notes, which are 10 and 30 years respectively.
We finished the year with cash and cash equivalents balances at $391 million compared to the prior year end of $101 million a portion of the proceeds from the 800 million dollar debt offering in the fourth quarter was used to pay $500 million a senior notes that were due in March.
We finished the year with a gross debt balance of $5.6 billion based on a trailing 12 month EBITDA of approximately $1.7 billion, our leverage ratio stands at 3.3 times.
Let me now provide additional color on our outlook for fiscal 2021.
Covance implications had a material benefit to our fiscal 2020 results and are creating significant uncertainty in our fiscal 2021 projections.
Rapidly changing consumer purchasing behavior, and retail and away from home channels volatility of input costs.
And any supply chain disruption can materially impact future results.
That said, we are sharing our expectations based on our current understanding of the environment.
Fiscal 2021 that sales are anticipated to decrease 1% to 2%, primarily driven by lapping the $185 million of incremental sales and the fourth quarter of fiscal 2020.
And an additional covered related sales headwind of approximately $120 million in fiscal 2021 together these represent a nearly 4% swing and our forecasted year over year sales results.
The anticipated kobin related headwinds in fiscal 2021.
Is due to a significant and extended sales decline and our away from home business of $170 million further in the US retail pet foods segment pantry Destocking as anticipated in the first quarter. Following the initial consumer stock up in March.
We anticipate no material ongoing changes to pet food demand from Covidien campaign for the remainder of the year.
The impact and away from home and pet is expected to be only partially offset by Colin related benefits for the balance of the business.
For our coffee consumer foods, and Canadian retail businesses, we anticipate elevated demand extending early in the fiscal year from increased at home consumption.
And then moderating the remainder of the fiscal year.
Excluding the disruption caused by Kobin night pain underlying sales growth across the business is projected to be positive.
He considerations included in our assumptions are continued double digit growth for the Smuckers Uncrustables brand enabled by a full year of increased production capacity.
A coffee segment sales increased reflecting lap deflationary pricing and the ongoing growth of the Duncan and Cafe Bustelo brands.
And continued strength for dog snacks, and cat food and improvement for the new Trish brand and dog food.
We have also factored in two items that will be a drag on top line, while having a lesser impact on profit the discontinuation of just power ups, which contributed 20 million to the consumer foods segment in the prior year and an approximate $20 million decline in private label dog food beginning in the second.
Quarter due to planned distribution contractions.
Taking all this into consideration, we expect low single digit sales growth as a first quarter with coffee and consumer foods growth exceeding the away from home decline and the pet Destocking headwind.
For the remainder of the year underlying sales growth and at home consumption increases will be more than offset by lapping. The initial demand surge in the fourth quarter and the decline from the away from home throughout the remainder of the year.
Full year adjusted earnings per share is anticipated to range between $7, a 90 cents and $8.30, which factors and approximately one dollar of year over year coated related impact.
Included lapping the benefit in the fourth quarter of fiscal 2020.
And now the expected incremental headwind in fiscal 2021.
This incremental covert 19 headwind reflects one the decrease profit contribution from the sales declined in the away from home business, only partially offset by other business sales growth.
To changes in market dynamics, including unfavorable foreign currency and higher commodity costs.
Three additional health and safety costs and for supply chain disruption or delayed projects.
We expect to reduce this year over year coven 19 impact with underlying sales growth with an emphasis on delivering profits inclusive of ongoing cost management programs and discipline that will allow us to achieve our guidance range.
Our full year adjusted earnings per share projection also includes.
Gross profit margin of 37.5%, which factors at higher costs, driven by increased commodity costs for peanuts, Green coffee and animal proteins, along with incremental koby 19 related costs, partially offset by reduced freight expense.
SDMA expenses flat to slightly down with total marketing spend approximately 6% to 6.5% of net sales, reflecting savings generated by margin management programs.
Interest expense of approximately $190 million.
Adjusted effective tax rate of approximately 24%.
The weighted average share count of 114 million, which assumes no share repurchases at this time.
We project free cash flow will be between $900 million and $950 million with capital expenditures of $300 million for the year.
Other key assumptions affecting cash flow include depreciation and amortization expenses of approximately 230, and $240 million, respectively and share based compensation expense of $30 million.
We anticipate making debt repayments over the fiscal year, which will reduce our leverage to approximately three times and then provide flexibility for strategic uses of cash to support future growth and shareholder value.
In closing, let me reiterate marks opening comments, our businesses performed exceptionally well the fourth quarter and we're proud of the agility and commitment our employees demonstrated to meet demand. We remain encouraged by the underlying trends for our brands and believe the actions we have taken to transform our company.
Will enable us to achieve balanced long term top and bottom line growth and a fiscally responsible manner, which will lead to the continued delivery of shareholder value.
Thank you for your time, we will now open the call to your questions. Operator, please queue up the first question.
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Our first question today is coming from Andrew is our from Barclays. Your line is that alive.
So much good morning, everybody.
Turning in.
Okay.
You talked about it think excluding cold weather related sales impact.
21, and the fiscal Fourq, you lap that you've talked about.
Nobody is looking for I guess anywhere between two and 3% rise and organic sales in fiscal 21.
You put some parameters around that and I appreciate it and I understand of course, we're in a very dynamic environment to begin with but given that I guess underlying organic after excluding.
The covert benefit for Q for the year last year I think we're still it was still negative trying to get a sense of.
Your level of comfort around that type of underlying acceleration.
Sales growth as we go through this year.
And then I've got I thought your particularly given some of the current mortgage or challenges and Pat just got a follow up thank you.
Andrew It's Mark I'll start and I'll take that will add on here, but.
First of all I think.
What we've seen through the co bid situation is obviously first and foremost we had to make sure that we're doing the right things for our customers and consumers because clearly in a crisis of this magnitude we have an obligation to.
Consumers.
The citizens of North America, where we do business to make sure that we supply safe and consistent food supply.
And what we have seen through that is a.
First of all we are in resilient categories.
And.
Strategically our three growth imperatives are right.
In other words wheat, we demonstrated that we were able to lead in these categories to continue to support the health and building of the brands and then of course, making sure that our products could and brands could be everywhere, so given that it and given that consumers have.
We have seen a return to a number of trusted brands that are in a host of other things gives us confidence that we can maintain some of this momentum going into this next fiscal year. Despite the headwinds that that we are for.
Pacing.
Andrew This is Tucker to further address your question.
We do see underlying growth in the business absent co bid as we've said largely driven by double digit growth for Smuckers Uncrustables continued momentum in the coffee business led by Duncan and Cafe, Bustelo, obviously strength around our dog and cat, our dog snack and cat portfolio and then continue to.
Proven in the nutritious brand and as we've shared before in order to translate that topline growth into bottom line growth. We continue to advance our margin management programs in order to ensure both profitability and and earnings growth overtime. This commentary absent Cove. It is pretty consistent with what we shared a cagney obviously.
Pandemic has some sense occurred so new news.
And then a follow up would be one of the one of the four key priority and Mark you talked about for fiscal 21.
New margin management program and I think as part of your specific we said.
Some potential changes in the.
I guess sort of it sounded like pricing architecture to.
To be more consistent with where some of your your cost might be or key inputs and I was trying to get a better sense of them. If there's more color you can put around that.
Intrigued by it but still unclear exactly what that was like yet there are two separate things to be honest.
But to answer your question specifically Andrew on margin management, we have been every year, we have a continuous improvement mindset. So we continue to look at no cost discipline across all of our businesses and functions every year. This is basically in.
Evolution of those efforts.
Making sure that as we continue to challenge our cost structure that we are making decisions that essentially would be permanent decisions. These are not temporary.
Exercises, but ensuring that our cost structure is right.
For the company that we are and wish to become.
Pricing.
We it was in the script.
We are C.
Increased costs on peanuts and on coffee.
There is.
A number of components, particularly in the in the in the coffee in terms of how we get to a total delivered cost so to the extent.
Obviously were very cautious in monitoring.
The various.
Price gouging lives that are out there, but we do expect to be able to recover in a prudent and very well justified way those cost increases throughout the year.
Thank you. Our next question today is coming from Ken Goldman from JP Morgan. Your line is now a lot.
Hi, Thank you everybody I appreciate all the details as always.
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What are your gross margin guidance of 37.5% for next year.
It would be the lowest in six years for the company.
I appreciate the headwinds you've highlighted you talked about higher being cost higher costs.
Cost you leverage fits dr. stock et cetera, our pet food Destocking.
But I might have thought that maybe a bit more of the.
The fixed cost leverage would flow through and I know your total sales number will be down so I think thats, probably the main answer here.
But to get to the point.
Why will this be the lowest gross margin year. This company has had since 2015. It just feels like that is slightly conservative given that you had down sales years in the past when the gross margins hasn't gone that low so maybe if you can walk us through.
Maybe rank order with the biggest drivers of that.
Would be that would be helpful for us.
Yes, Ken. Thank you and yes, you are correct, we have anticipated the gross profit margin to be down year over year, largely I would say first of all you have to factor in the away from home impact of lost volume.
Coming through the respective facilities and that is having a significant impact.
Sorbion.
So that is a key driver so as away from home volume does return it so that should help the gross profit margin.
Second observation that I would make is to Mark's point, we need to continue to recover traditional commodity costs increases over time, and we are doing that.
Other observation that I would share too is that we're stepping into the next phase of our longmont expansion in order to ensure capacity for that growing business and so as we began to normalize around these costs over time, we should see an enhancement to that mark.
Okay. Thank you so.
Never going to ask a company about guidance for 2022 at this point, but I'm imagining what you're suggesting is that.
The 20 or 37 five.
Hopefully will be a low watermark for the business all things equal that a fair way of thinking about it.
Yes, I would not a line on what what the outcome is going to be for for the future. We obviously remain committed to ensuring profitability over time and so right now we're working through those elements that I just shared with you.
Okay.
And then follow up.
For Mark you have a new COO, new CFO, new head of your biggest segment you changed some other.
Hi level People's titles, maybe some responsibility is well within the last year. So I'm sure. There's a lot of new ideas and suggestions for changes in direction that you're hearing obviously, you've talked about how we shouldn't expect major deviations, but sometimes voices can get louder. Once they are actually in the room. So im just curious if you think about some of the conversations you have with your.
New senior leadership team, how they changed recently I know you're hearing any bigger strategic debates within the company that that could inform us about how smuckers thinking about the modern world I guess.
And thank you for the question.
I would start by just highlighting that did a couple of things that team itself in terms of the people is.
One of the strongest teams maybe the strongest team we've ever had with incredible CPG experience.
I would highlight as well you know.
Particularly not only the new members of the team, but even those who have been promoted within have a strong track record.
Delivering results.
And so I couldn't be happier with the team itself.
Structure as you know what you know hiring as COO and John coming in had been contemplated for some time so I.
I think I may have said this before is that when I became CEO I wanted to stay closer to the businesses, but had a pretty clear sense that as COO would be.
Required down the road and and I'm very pleased in terms of the way that this leadership team has been structured it's a little more streamlined it's going to help drive accountability and then more specifically to answer your questions I will tell you the dialogue in the room is.
As rich as it's ever been.
There have been a number of.
There is always differing opinions I will say the conversations always take place with a tremendous amount of mutual respect.
And we always get to a place of alignment.
Ultimately, though strategy is my responsibility and so this structure will allow me to more.
Consistently focus on the strategy of the company the fundamentals of that strategy, which you already know we believe still artists are the right fundamentals and this particular structure will allow for.
A greater degree of agility and execution of that strategy.
Thank you next question today is coming from David Driscoll from TD Research. Your line is our lives.
Great. Thank you good morning, everybody.
Good morning, David.
Great.
And just to go back to the outlook I have kind of two questions I'd like to ask on the on the outlook.
One big long question effectively.
Can you just tell us what are some of the key assumptions on.
Do you make assumptions on what you think happens on the virus and then eating at home when we get to the fall do you think theres a resurgence in the in the virus.
Those are helpful pieces to understand I, certainly try to think about that when I think on how to model the winter quarters for different companies I'm curious what you thought about in giving this guidance and then I just had a big picture question on guidance, how do you feel about your confidence level in this particular guidance versus.
Previous years, when you've given guidance at this time.
Because I think people put an incredible amount of weight on the numbers you guys have put out there, but I just wonder if it didnt normal year, you're 90% competently guide, but today.
I would suspect you are not as confident because this future outlook, just any uplift seems to be more uncertain than ever but we'd like to hear your opinion on that thank you.
David as it relates to some of the key assumptions that we considered and and building our guidance.
We would first say that.
The tremendous impact that we saw positive impact in March and April and continued momentum and in may as well.
We don't believe that we're going to lap the fourth quarter. So so just big picture.
That's the first observation the second observation is that we see significant an extended decline in our away from home business throughout the fiscal year.
And then as it relates to our retail businesses, we have anticipated that Pat will have a destock in the first quarter. That's what we're anticipating and then Furthermore, as is that we'll see continued momentum in coffee and consumer at elevated levels in Q1, but then begin to moderate in Q2, three and four.
And that's kind of how we've modeled out the year. We recognize there are lot of avention uncertainty and this dynamic time.
But that's also why to your second point, we put a wide guidance range. So that we have some flexibility to achieve the numbers that we've put out there, but also recognize that we need to narrow the range over time, as we get more certainty and finishing the fiscal year.
David It's mark Thanks for the question I think if I can just make one broad generalization and then maybe give you a little bit of color on the away from home business to provide a bit of confidence there.
The generalization is that if you think about some of the assumptions that we've we've made around co bid.
Basically we are assuming a.
For a long end gradual returned to normal.
I would just leave it at that.
Obviously, we know things can change and so for us but that is is.
The numbers that we have given in the and the breadth of the range are really intended to provide you guys with some degree of transparency given that it is down from where we finished this year. We felt it was important to provide that to you all.
The second piece just on the away from home business just to give you a sense because we really don't talk a lot about.
The away from home business. It's it had been projected to be just just shy of about $600 million business. It essentially consists of coffee.
Branded tabletop products that you would see in restaurants in hotels like the little portion controls of jams and peanut butter is and uncrustables.
In coffee it consists of a roasting ground business.
Much of which is in offices and then a liquid coffee business that is dispensed through equipment that we distribute with the product is basically concentrated coffee that it dispense in customized drinks are high volumes.
So.
What I would like to leave you with is that the underlying trends of that business are very strong pre covidien, we had been gaining share across all of those segments and even during covert even though the sales are down significantly. We have also continued to see some share growth in those segments.
Uncrustables as a segment is still we anticipate is going to do okay and.
The healthcare channel of course is going to continue to do to do okay, but it's the coffee in sort of those tabletop businesses that we would anticipate.
To be to be down so I know that we don't talk about the away from home business, a lot and I I think it would just wanted to give you guys a little bit a sense what's in there.
And obviously just acknowledging our away from home team has been fantastic and the yeoman's work in terms of what they've been doing these last several months. So just wanted to acknowledge them.
One Super fast follow up on just are you, adding capacity when you'd get off allocation. Thank you when I'll pass it on.
So first of all we have two plants and Jeff.
You know we anticipated this question might come up so first of all I just want to say, we're not apologizing for the performance on chip it has been fantastic.
We're lapping a huge Q4 last year that we did not think that we could beat.
And I will tell you that the Jeff performance is one of the things that I'm most proud of during this time.
The latest 12 takeaway is about 26% and we had been gaining share.
In the prior three quarters, you know the second third and fourth quarters. We're clearly the leader we're in a much larger base.
Not and none of the none of the other players in the in a category have sold as much peanut butter is we have in the last few months and we tended to be the brand that would first sell out in stores. So we quickly pivoted to full capacity at both of our plants, we streamlined the product offering.
Thanks to the most productive skews.
And so some of those flanker items have not been on shelves for months, but I will tell you that we are working to get a close to full assortment back on shelf in the next few mine.
And we will be launching some innovation as well. So we are very confident I will tell you we're selling everything that we can make.
And that has been the disciplined around making sure that we get peanut butter to the various customers.
In a in a fair and equitable way has really been our focus and just really part of the proud of the work there and we will you will see we believe have confidence that our shared numbers will return to growth as we get that the assortment in the innovation up back up and running.
Thank you next question today is coming from Pfizer always from Deutsche Bank. Your line is that a lot.
Yes, hi, good morning.
I just wanted to dig a little bit deeper on your outlook for the pet business. So I guess in the short term you've talked about in little bit of de stocking.
But I'm wondering if anything has changed from a longer term perspective, especially given that one during this pandemic there seems to be anecdotal evidence us increased pet adoption and secondly, I wonder is delivering.
During recessionary times, you are expecting a shift in demand from more sort of premium.
Pet food, especially on the dog food side toward some of the more you know that some of your mass brands like like Kibbles 'n bits et cetera. Thank you.
Thank you for the question this is mark.
So just a couple flat foundational things about the pet category, Yes, we saw spike in March that was really related to just stock up a little bit of pant panic buying and then the subsequent de load I think the fundamental thing to remember is that Pat always eat at home.
Right. So hats are not eating at home more than they used to they always here at home and so that the pet category, particularly the pet food segment of the category is relatively immune to the effects of.
The pandemic and this stack up buying that's why our projections for the pad business have have been relatively consistent even through the dynamic of the pandemic. We have seen some additional good performance on.
Snacks pet snacks, because humans are at home more and they are.
Giving their pet more treat so we have seen some increase there and we have seen as you pointed out.
Very strong performance in mainstream brand.
As consumers are watching their wallets, a little more there's probably a little bit less.
Tony in their pockets across the board, we have seen very strong performance.
In in our cat portfolio as well as Kibbles 'n bits, we commented in the prepared remarks, and so those mainstream both cat and dog food brands are doing very well.
Great. Thank you.
Thank you next question today is coming from Chris Growe from Stifel. Your line is that a lot.
Hi, good morning.
Morning.
Hi, I just had a quick question for you if I could from a high level and I wanted to dig into one of the divisions.
I guess I'm curious the degree of conservatism that you've built into your guidance for the year you have a wide range and that the account for various scenarios, but.
Just thinking about for example, the risk at least in a recessionary environment of private label gets here as an example or are there. Other factors returned to incorporate into this outlook very early in the year, given your you're giving guidance for your outsell.
Yeah, Chris I think the objective here with respect to guidance was around visibility and transparency as what we know regarding the current environment specific to covert 19, and then also the underlying performance of our business. So really our scripted comments it kind of highlighted where we see both the the headwinds and tailwinds to the bid.
Yes, what I would simply say is is that we see the dollar year over year impact due to koby 19, and then the ability to come up about 34 cents to the mid point of the guidance range is largely driven by the underlying growth that we've discussed across coffee and consumer and some return and momentum.
And Pat and then continued advancement of our margin management programs that March spoke to earlier.
Okay. Thank you Alan just to understand how you're approaching promotional.
Advertising is going to be down a little bit for the year, but from a promotional standpoint, you're you're scaling back on that if you also ulcers.
Product launches card programs towards your given the environment that we're in.
Chris It's mark.
Second part of your question I'll answer first we did delay the launches a few new.
New product.
But it's relative.
Pretty much minimal so we have actually gotten knows.
Those launches back in the pipeline and we are scheduled to launch them with at ESMO in Macau in in the most cases, possibly a few months delay. So we have gotten those things back on track.
And the first part of your question I.
Oh marketing.
So we will continue to spend against our brands, we have been very successful and becoming more efficient from a marketing perspective in terms of.
Finding ways to strip out nonworking marketing dollars to the dollars that we are spending are.
Very very effective and efficient we will continue to prioritize those marketing investments against those brands that we think I have the most upside. So for example, new Trish.
And Uncrustables being two notable ones.
So.
Again, you know just making sure that we are as effective as we can with our marketing dollars.
Thank you next question is coming from Rob Dickerson from Jefferies. Your line is now a lot.
Hi, Good morning, it's Matt this fine on for Rob. Thanks for the question just to follow up on the marketing piece first second.
Some of your peers are continuing to keep their foot on the marketing pedal so to speak despite some of the out of stocks that they're seeing because it's more about building brand equity.
Over the next couple of months.
And really trying to capitalize on the household penetration uptick and like you were saying with with advertising.
Down what's kind of the philosophy behind.
Marketing spend in 2021.
And does that have anything to do with just going back.
Mr Crystals question.
Regarding the allocation of products does that have anything to do with perhaps the.
Customers still being on allocation for things like peanut butter. We're uncrustables. We're coffee can you give us a little but my second question can you give us a little bit an update on.
Maybe the allocation for those for those three categories.
Maybe at the end of Q4, if you're more comfortable with that only because just from an investor standpoint.
This kind of takes away from the upside that.
Smuckers would would.
We would think that the company would have.
Given your exposure to these these categories that would fit well in this at home consumption.
Situation.
Can you can you help us kind of bridge.
The gas there between the lower marketing spend on the allocation for products. Thanks.
Rob Thanks.
So this is mark again that was a lot, but I will I will do my best to answer it first of all on marketing.
Couple of things our brands are performing.
You mentioned promotions in there and we have pulled back on promotions on things like peanut butter and coffee in part because the customers have asked us to do that and also because.
There isn't a need to promote as much because consumers those products are in very high demand.
And similarly.
On a.
The.
The marketing dollars that we have out there you know some of those brands don't need as much marketing support in this current environment because the brands are selling themselves.
In some cases, we have actually polled certain advertising campaigns off air because we felt that the themes that knows advertising campaigns were not appropriate for.
The current environment. So for example.
Jeff and Dunkin' both had advertising is sort of had an apocalypse theme, we pulled those so thats just just one example.
Moving forward as we have obviously engage with consumers a lot over these past few months there was a lot more data available and so it affords us the opportunity to tailor our marketing efforts more specifically to different tribes of consumers or what have you.
So I would not say in any way that we are taking our foot off the gas we still launch 10, new campaigns. This past year, and we're going to keep pushing against almost every one of those.
We're just going to be laser focused on on which brands as I said earlier are getting are going to get the most resources and really make sure that were Taylor tailoring those efforts.
So your question about allocations.
I would say the worst of it is over.
At least given the this the spike you know we mentioned in the script that peanut butter uncrustables, both experienced some allocations and as I as I already said, we are getting our fuller assortment back on shelves. So from an allocation standpoint, I would tell you we believe that we're past the.
The biggest.
Constrained period.
Thank you next question today is coming from Alexia Howard from Bernstein. Your line is now live.
Good morning, everyone.
Good morning.
Hi.
So actually just following up on the previous question.
Well I know you just talked about some of your allocation and everything on should be fairly let's say will come here, but you got a number of categories. When volume growth has been incredibly high over the last few months.
Obviously single serve coffee bean oil business, the jams and jellies.
Pardon sandwiches.
It's a mom continues its kind of hey.
Do you have been though.
Well I mean can you keep your production level.
Hi.
Level without.
More inventory problem going down the road and they're not helpful.
The Alexia the short answer is yes, we in almost everywhere, we really do you have that the requisite capacity in the highest demand products of or again peanut butter and uncrustables have been very high obviously coffee as well, but we do have an.
Thats capacity to service, what we're viewing the demand will be over the next several quarters.
Great and then I'm going to follow up is.
Just around side, you're seeing everywhere I mean, even bother.
Distribution channel to ship so rapidly wouldn't know targeted approach on that's focuses on the phone just growing channels, the most profitable markets where your product.
See really viable does it actually makes sense to be pushing your distribution as far as you probably turn on Incenting audio sales people to be pushing volumes wherever you terms what do you got it still is focused in this environment. Thank you and I'll talk to them.
Yeah, Alexia I think I understand your question, our our sales team is incented to obviously sell profitably.
And so we are focused on making sure that we are.
Really getting the products, where they need to be if you think about E. Commerce. What was interesting about this quarter was that we did see a large increase in click and collect sales, which tend to have a profitability more in line with with brick and mortar I will also see.
Say that even our E. Commerce are pure play ecommerce sales, which are up significantly notably on on smaller brands like Eighteenfifty, we are making progress to ensuring that our profitability across all channels is is.
Relatively in line.
Thank you. Our next question is coming from Jason English from Goldman Sachs. Your line is not a lot.
Perhaps there Jason.
Perhaps reformers I'm you Sir.
Yes, sorry, I didn't hear me that yes, ordering jails warning or hey, good morning, guys. Thanks, a lot mute sorry about that.
So I appreciate all the volatility, especially some of the year on year noise.
But if we rewind to sort of cagney before all this stuff sedan.
And look at your expectations, then and comparable to what you're expecting now.
Your your forecasting a sales level pretty about year on year bus sales level next year, that's lower than what you would have expected a CAGR and earnings level, that's lower also.
I appreciate that.
You've got like 6.5% of your business that's under pressure you've got about 50% of your business that has some consumption tailwinds right now so if anything I would step back and think that.
The baseline now should be higher for next year.
What's the offset where's worse than that softness as you think about fiscal 2021 relative to what you were expecting just a couple of months ago.
Jason Thanks for the question I will tell you I'm not sure that we aligned to the premise that what we shared a CAGR is not happening absent the impact of the covert 19 pandemic.
We are based on our.
Analyses looking and saying that we are seeing some topline growth at a total company level, we have communicated on our scripted comments what those were around Smuckers uncrustables growth by the don't get in Cafe Bustelo brands within the coffee segment, obviously continued growth and cat food and dogs.
It actually along with improvement in the nutritious brand as well within within the dog food area and so that also is translating down to the bottom line in terms of demonstrating bottomline growth is well on not only from those incremental sales, but more importantly also through our ongoing margin management program. So.
I'm not sure that Theres, a vacuum or a whole like you said I think the reality of it is that we do see.
Growth in our business, both top and bottom line through the coded situation.
Okay. Okay.
I'll try to walk through the offline because you guys. Later, just so I could point about my head around it but.
This is switching topics and I'll turn it back to your pet food business.
Looking at what we see and consumption data that we obviously saw the big grocer in March and the destock in April.
Consumer perspective, but it looks like Mays kind of come back to normal consumption. So I guess my question is.
What's driving your anticipation of the destock it and you guys in May as the just the shipment timing thing and then secondly on Pat you were talking throughout the year of private label wins, beginning the fourth quarter planned part a little wins, but now you're talking about play in private label losses became the second quarter.
What's what's changed on the private label side.
Jason It's Mark just to the easy answer to your first question about the destock. It it's just timing and shifts the way that.
You know as what what we're seeing some consumer takeaway would indicate to us that folks as they stocked up in March it's just taking a little bit time through this quarter for them to get through the product it's in their pantry.
Yeah, Mark and I guess in support of the private label question. There is a private label headwind and Pat just due to some discontinued business and the in the fiscal year.
Thank you and the question is coming from Robert Moskow from Credit Suisse. Your line is not a lot.
Hi, Thanks, I was hoping to understand the it's a 100 and.
$70 million headwind away from home fiscal 21, but when I look at your fourth quarter results. It was little hard to tease out how it could be that date because.
What the personally says is that a little bit.
Decreased sales by 1%.
Flexing, a 21% decrease and away from home.
So if a 21% decrease and away from home only hurt your topline by 1% in that division.
I guess I guess, the big question, how big is away from home and what kind of the total decline are you expecting for the year.
In a percentage basis, yes, so rob the way that we've thought about the a $170 million as is at that as the year over year impact.
Have a not being able to lap what occurred in the fourth quarter for away from home along with the extended decline over a 12 month period for away from home.
And so that that is what's what's happening in that $170 million number that's having both away from home actually had a good couple of months before it's all the decline in April and that it seem the decline over the 12 month period, so its lapping that kind of.
Fourth quarter little bit of sales benefit and then seem the full impact starting in April over that 13 month period.
So thats the first thing as relates to away from home I think Mark said in his comments earlier the away from home business was about 550 million to 600 million dollar business.
Okay. So.
All right, well I guess I'll I'll walk through them.
Matt.
Later.
Sounds great all right Oh, all Oh, thank you.
Thank you. My next question today is coming from John Baumgartner from Wells Fargo. Your line is not alive.
Good morning, Thanks for the question.
Thanks, John.
Mark just look Big picture. If you go back to the Investor Day 18 months ago. It was a lot of focus on February Sascar brands that were excited to high single digit growth in your framework.
Last quarter, the presently power existence, and Eighteenfifty hasn't really scale, yet, we're where the scribbles interest. So if you we frame that growth discussion first now which is I mean are you assuming a new leaders and lose some comes through here are you more inclined to just to set the lower contributions from the growth brands and then just down shift or concentrate your branded doesn't accordingly.
Hi puts and takes in that business.
John Thank you for asking that question.
If you rewind the clock, we did put a lot of focus on Ed just a couple brands in our portfolio, notably Jeff and they are just powerup and Eighteenfifty as you know we've made a difficult but correct decision on power up.
Given the profit trajectory of that brand, we don't view it as a as a failed launch, but I think it requires a bit more discipline on the profitability side.
As it relates to 18 50, and then I will answer your question more broadly on we are not giving up on eighteenfifty. It does have upside in fact, it is doing exceptionally well online and where we're able to just recently secure some additional brick and mortar distribution for that brand. So we still have.
Feel that Eighteenfifty has runway its never going to be a half a billion dollar brand, but it does play a role in our portfolio.
But I would point out to you that in the fiscal year that we just finished as we look at all new products in aggregate and the way we measure that as many companies do is products launched in the last three years and accumulate or in a in a rolling fab.
Cash and are those that that we consider new product.
Those new products in totality contributed about $360 million to our topline during the year. So I would submit to use it. Although we were shining the spotlight on a few brands when you look across our portfolio more broadly innovation is still encouraged.
Yeah.
And we will continue to drive innovation notable innovations that will be seeing this year would be on Jeff and new Trish.
Others. So its still plays a key role in our portfolio.
Thanks Mark.
Thank you next question today is coming from Pamela Kaufman from Morgan Stanley Your line is alive.
Hi, Good morning morning fan.
You highlighted and prepared comments that leading brands are benefiting from the current environment I guess based on your conversations with customers. What do you see as the implications for shelf space for your products over the coming quarters and do you expect to see any changes to retailers strategy.
When it comes to managing your key categories.
You know I.
That's a difficult one to answer I would say that.
A couple of things that are important to highlight is is.
What has come to light is that our brands do matter to consumers.
And many one our our stated strategic vision is to inspire and delight consumers and I will tell you that if you look at folgers, how many new households that we penetrated with folgers that many consumers have sort of rediscovered.
They're delight for our brands and that is the key thing that we really must leverage as we move forward with our marketing efforts to make sure that that those feelings those sensations about our brand truly do stick.
As it relates to customer it's a little early to really give a sense there, but I and I do think customers will will think this will caused customers to think differently about how the merchandise in their store, but I I am hopeful and cautiously optimistic that we will see.
The a return to or a greater support of some of these leading brands, which may be a here to four were considered slightly lackluster so even with a brand like folgers, which we saw tremendous growth on instrument tremendous improvement in household penetration.
We will continue to reinvigorate to think about how we market those brands in a new and more contemporary way.
Thanks, and what is your view on the impact was the macro environment on the consumer and any views on potential for Downtrading in your categories. As a result, I guess, how are you thinking about private label trends going forward and.
The past what kind of performance did you see across your portfolio during challenging economic times.
Well.
Traditionally you know our brands and categories tend to performed reasonably well during times, which are economically challenged.
And I guess I would just leave it at that.
Thank you we reset of our question answer session I want to turn the floor back over to management pretty further closing comments.
Yeah I just first of all wanted to thank each and every went up for you for tuning in today I know it was a bit of a longer call, but we felt that it was important to try to get as much information out there as we could end just thank you for your patience in your attention. Most importantly, though I would like to.
Thank our employees, who have truly resin to the occasion to serve our.
Our nation.
And I could not be prouder of of the work that we've done considering that we have been working virtually now for several months.
And the and the pivot to agility and focus has been.
Noticeable and phenomenal. So just wanted to take a moment to acknowledge our employees and thank you all for listening.
Thank you that does conclude todays teleconference. You may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.