Q1 2021 J M Smucker Co Earnings Call
[music].
Good morning, and welcome to the JM Smucker companies. The school 2021 first quarter earnings Conference call.
This conference is being recorded and all participants are they listen only mode. We will open the conference up for question and answers. After the prepared remarks, please limit yourselves to two questions. During the Q1 day session every Q feel additional questions Oh, no trouble coal over to Aaron Broholm, Vice President Investor Relations. Please go ahead.
Sir.
Good morning, and thank you for joining us for fiscal 2021 first 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 in fiscal year priorities.
Talker Marshall CFO will then provide detailed analysis of the financial results and our updated 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.
I 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 Dot com.
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.
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 turn the call over to Mark Smucker.
Thank you Aaron good morning, everyone and thank you for joining us.
Our nation families and colleagues have experienced unprecedented event and challenges over the past six months.
The covert 19 pandemic has ended our way of life and societal awareness about racial and justice has been magnified.
Companies like ours as corporate citizens have their responsibility to lead and add to help overcome these challenges.
I am proud of our employees, who had served our constituents produced record volumes, while maintaining high quality and safety standards and delivered exceptional results all amidst many personal sacrifices.
I am incredibly thankful for their dedication and continued commitment to each other and our shared values.
At Smucker, we pride ourselves on living and applying our basic belief, which include people and ethics as guidepost for everything we do.
We advocate for the mutual respect of every individual while remaining steadfast in our commitment to a positive and inclusive work environment for everyone.
With our shared values and history as a foundation.
We know more needs to be done, which is why we have accelerated our inclusion into versus the effort with several new initiatives, including.
Signing the CEO action for diversity inclusion pledge to show our support for marginalized groups.
Introducing unconscious bias training for our employees.
Committing $500000 to organizations that advocate for inclusion racial justice and the invent advancement of underrepresented people.
Participating in the stop hate for profit social media advertising movement.
And designating June team as a company paid holiday beginning next year.
We are committed to building on these initiatives to become a more inclusive and diverse organisation, while supporting efforts to ensure our communities become more equitable and just.
The global Cobot 19 pandemic has made the operating environment dynamic and challenging to predict.
We have built an organization well prepared to adapted this period of rapid change and our employees continue to execute at a high level.
Supporting and approximately 400 million dollar year over year increase in net sales over the past two quarters, resulting in adjusted EPS growth over 30%.
In the first quarter net sales increased 11% versus the prior year with each business outperforming our expectations.
In the coffee consumer foods and international retail businesses demand remained elevated throughout the quarter driven by increased at home consumption.
And retailers rebuilding inventory levels that were depleted in March and April from consumer stock up.
Results in the pet food and snack segment were slightly better than expected.
With consumption growth continuing for our cat food and pet snacks brands, while some pantry de stocking was evident for dog food.
Finally declines for the away from home business moderated ahead of our expectations as reopenings occurred earlier than anticipated.
Adjusted earnings per share was $2 in 37 cents, an increase of 50%.
Benefiting from increased sales volume improved profit margins related to mix and operating leverage and reduced SDMA expenses.
Due to stronger than anticipated in first quarter results, along with revised assumptions for the remainder of the year. We have increased our full year expectations to include net sales flat to up 1% versus the prior year.
And adjusted earnings per share of $8 in 20 cents to $8.60.
On our fourth quarter call I highlighted net to effectively build on our long term strategy to lead in the best categories build brands consumers love and be everywhere. It was imperative to deliver against four specific priorities for this fiscal year.
These priorities our first drive consistent net sales growth.
Second.
Increased focus on financial discipline, with an emphasis on maintaining or improving our strong profit margins and cash flow generation.
Third.
Harness our full suite of capabilities to strengthen our commercial execution and build competitive advantages and fourth maintain our commitment to our company's purpose of feeding connections that help us thrive.
Now more than ever we need to strengthen our connections with consumers customers suppliers employees communities and our shareholders.
While there's still work to do we're off to a great start in delivering against these priorities. Let me provide some examples from the first quarter.
We capitalized on the increase demand created by the shifted to elevated at home consumption with a second consecutive quarter of double digit sales growth.
Further market share trends improved sequentially throughout the quarter for several of our categories as we returned to producing our full breadth of products.
Including the gift brand, which in the latest four week period has regained three share points since mid may when our on shelf assortment was limited.
Other highlights include net sales growth of over 50% for the Krisko brand and 35% for Smuckers Uncrustables in the consumer Foods segment.
And the Folgers Duncan and Cafe Bustelo brand each grew double digits in the coffee segment.
We expect the consumer and coffee momentum to continue into the second quarter as we maximize production and add more variety back to shelves.
We also delivered another quarter of net sales growth in pet led by the continued strong performance for our cat food and dogs snacks portfolios, which grew 13% and 9% respectively.
We continue to take actions to improve our competitive positioning in a dog food category, primarily for our premium brands.
Across our entire portfolio, we're adapting brand building activities to attract and retain new consumers.
Key metrics for consumer purchasing behavior were positive in the quarter, including household penetration growth of over 1.6 million households versus the prior year.
A nearly 150 basis point improvement in repeat rate and a high single digit increase in dollars per buyer.
This means more consumers are purchasing our brand bear repeating purchases at a higher rate and they are spending more than before.
Our second fiscal 2021 priority is an increased focus on financial discipline.
We are partnering with our customers to manage pricing where appropriate such as in peanut butter, where a reduction in crop yields has resulted in increased cost.
We have also optimized planned marketing spend for several brands by reallocating resources to brands with capacity for faster growth such as Folgers, which grew 13% in the us retail coffee segment in the quarter.
In new advertising campaign for Folgers is beginning to air this week with content relevant to the current environment focused on attracting new consumers.
We firmly believe the current environment will translate into long term structural changes in consumer behavior and continued growth opportunities.
Finally, we continue to sharpen our focus on productivity and efficiency of our spend as SDMA expenses declined 6% in the quarter.
The pricing discipline reprioritization of marketing spend across categories and continued productivity focus are just a few examples of our margin management activities.
When considering these activities and a focus on execution, we were able to deliver sales and profit growth for the quarter.
We look forward to providing more information about our margin management program during our upcoming Investor day in October.
An example of how we leverage our capabilities to improve commercial execution and build competitive advantages.
Our the investments that we have made in our ecommerce capabilities to support our strategic growth imperative to be everywhere.
In the first quarter, our total ecommerce sales grew over 70% and represented 12% of our us retail sales.
We anticipate ecommerce growth to remain sticky as consumers are increasingly adapting and maintaining online grocery shopping habits as a result of the pandemic.
Including many first time online grocery shoppers that discovered the convenience and benefits of pickup and delivery options.
Fourth and finally is the continued commitment to our purpose.
The actions I previously mentioned around inclusion and diversity, earning example of some of the work our teams are doing.
And I believe through the passion of our employees, we will continue to make continued progress throughout the year.
In summary, I would like to reinforce a few key points one our business performed very well this quarter and we exceeded our expectations in a uniquely challenging period.
Two we remain confident in our consumer centric growth strategy and have significantly improved performance across many of our categories.
Three we continue to adapt and be agile and is changing environment focused on maintaining and growing our consumer base and growing our categories and market share.
And for while there will always be more work to do our strong start and continued business momentum has put us in a position to deliver our financial commitments for the fiscal year.
Before turning it over to Tucker.
I want to again recognize our vice chairman and former CFO Mark Belgya.
Who will retire September onest.
And Catherine Dando, and Gary OTI, who both retired from our board of directors last week.
I am grateful for the council they have provided and thank them for their continued commitment and contributions to our company.
We wish them all the best in the future.
Finally, we are excited to welcome Susan Chatman Hughes and Jodi Taylor, who were elected to our board of directors last week, we look forward to the expertise and oversight Susan and Jody will provide in critical areas that support our company's future growth.
I'll now turn the call over to Tucker.
Thank you Mark.
Good morning, everyone. Let me begin by giving an overview of first quarter results before providing an update on our financial outlook for fiscal 2021.
Net sales increased 11% driven by the favorable volume mix due to elevated at home consumer demand and associated retailer inventory replenishment.
Partially offset by a decline and away from home channels.
We estimated that the continued implications of covert 19 contributed approximately two thirds of the sales growth this quarter.
Including both increased at home consumption and retailer inventory replenishment.
Adjusted gross profit increased $89 million or 13% from the prior year driven by the positive contribution from volume mix had a slight reduction of costs related to pet manufacturing.
Adjusted operating income grew $114 million or 39% reflectivity increase gross profit as reduced espina expenses.
Within SDN, a general and administrative expense declined $15 million.
Marketing expense decreased $11 million, reflecting a shift in timing for certain initiatives and the benefit from media efficiencies and now working expense reduction.
These reductions more than offset increased distribution expense of $6 million attributable to increased volume and expenses related to the consolidation of distribution centers within the pet business.
Below operating income interest expense decreased $3 million.
The adjusted effective income tax rate was 24.4% compared to 25.2% than the prior year.
During all this in first quarter adjusted earnings per share was $2 of 37 cents compared to $1.58 cents and 2020.
The increase of 50%.
Let me now turn to segment results beginning with pet foods.
Net sales increased 3%.
Achieved 13% growth led by the nine lives and Meow mix brands and dog Saks grew 9% led by growth for milk bone and pepperoni.
While still relatively small cap snacks increased over 20% driven by the new Trish Brad.
Dog food sales decrease mid single digits, driven by declines for the natural balance and natures recipe brands and private label dog food slightly offset by growth for the Kibbles 'n bits brand nutrition dog food sales were down slightly due to lower pricing.
Pet food segment profit increased 4% compared to the prior year driven by lower costs related to manufacturing increased volume mix and reduced marketing selling expenses, partially offset by increased promotional activity.
Turning to the coffee segment net sales increased 23%.
Led by K Cups, which grew over 40% growth occurred across all brands in the segment, including at 13% net sales increased for the Folgers brand, while the Duncan and Cafe Bustelo brands, both continue their strong trends growing 35% and 58% respectively.
Coffee segment profit increased 42%, primarily reflecting the favorable volume mix.
In consumer foods net sales increased 22% sales for the Smuckers brand grew 25% inclusive of strong growth for Uncrustables frozen sandwiches fruit spreads and ice cream toppings.
Sales for the Jeff brand grew 14%, including volume mix growth related to refilling retailer shelves.
And increased at home consumption, along with a reduction in promotional activity.
Consumer foods segment profit increased 62% due to the benefit from increased volume mix.
Higher net price realization and lower SDMA expense, partially due to lapping of expenses included in the prior year related to the startup of the new Uncrustables production facility.
Lastly in international away from home net sales declined 9%.
The away from home business contracted 33%, primarily driven by significant declines and the coffee and portion control products due to the continued impact of covert related changes and consumption behavior.
International net sales grew 21% with the largest gains in the Canadian baking ingredients categories.
Segment profit decreased 4%, primarily reflecting higher cost partially attributable to the de leveraging of fixed costs and the away from home business.
And lower volume mix.
Partially offset by reduced SDMA expenses.
First quarter free cash flow was $332 million, which represented a $184 million increase from the prior year.
Reflecting a decrease in net working capital requirements and the growth and earnings.
Partially offset by increasing capital expenditures of $4 million.
Capital expenditures for the quarter were $77 million, representing 3.9% of net sales.
We finished the quarter with cash and cash equivalent balances at $397 million compared to the prior fiscal yearend of $391 million.
We paid down debt during the quarter, resulting in a total debt balance of $5.4 billion based on a trailing 12 month EBITDA of approximately $1.8 billion.
Our leverage ratio stands at 2.9 times.
The combination of the improvement in earnings and debt repayments over the past two quarters has resulted in our leverage ratio falling below our three times stated target.
We continue to prioritize and use of cash towards dividends and debt repayments for the remainder of the fiscal year, while evaluating other strategic uses of cash to support future growth and shareholder value.
Let me now provide additional color on our revised outlook for fiscal 2021.
Covert 19 implications continue to impact our financial results and create uncertainty in our full year fiscal 2021 projections.
Changes in consumer purchasing behavior retailer inventory levels macroeconomic conditions and in a supply chain disruption incrementally impact our future results that said, we're sharing our expectations based on our current performance and understanding of the overall environment.
Net sales are now anticipated to be flat to up 1% compared to the prior year, which reflects the strong sales performance in the first quarter.
With expectation for growth rates to moderate and our us retail segments throughout the remainder of the fiscal year.
The lapping of the 185 million dollar benefit to net sales in the fourth quarter of fiscal 2020 and significant sales decline in our away from home operating segment remain headwinds.
We now anticipate gross profit margin of 37.5% to 38%.
As DNA expenses are projected to increase approximately 1% to 2%, reflecting a desire to balance reinvestment and return throughout the remainder of the year.
Total marketing spend is projected to remain in the range of 6% to 6.5% of net sales with a step up from the first quarter to occur in the second quarter.
Other items that are unchanged from our prior guidance include.
Underlying momentum for the business, including continued double digit growth for the Smuckers Uncrustables brand.
Coffee growth led by the Duncan and Cafe, Bustelo brand and continued strength for dog snacks and cat food.
The discontinuation of just power ups, which contributed 20 million of net sales in the prior year.
A 20 million dollar sales decline related to distribution contraction for private label dog food.
And effective tax rate of approximately 24% and a weighted average share count of approximately 114 million.
Taking all these factors into consideration, we anticipate adjusted earnings per share in the second quarter to be flat to down slightly reflecting the low single digit sales growth and a step up in SDMA expenses.
For the full year adjusted earnings per share is expected to range from $8.20.
$8.60 and a full year free cash flow to range from $925 million to $975 million with capital expenditures of 300 million.
In closing, let me reiterate marks opening comments first quarter results exceeded expectations as the team continues to execute during this dynamic time.
And we remain committed to maintaining financial discipline that will deliver long term value to our shareholders.
Thank you for your time, we will now open the call to your questions.
Operator, please queue up the first question.
Thank you. Good question answer session will begin at this time.
Speakerphone, please pick up the headset before proceeding numbers.
A question Please press star one.
If you wish to withdraw your question Please press star too.
Operator assistance, you May press Star zero.
As a reminder, please limit yourselves to too close to the stores accumulate.
Should you have additional questions you may recall with a company, we'll take questions as time allows.
Yes, Thats star one place in the question.
Please standby for the first question.
First question today comes from Andrew is our from Barclays. Your line is that a lot.
Thanks, very much good morning, everybody.
There.
You are expecting continued momentum into fiscal twoq on the topline.
To get a sense, if that's now primarily going to be due to elevated consumption levels or if there is some impact from from ongoing retailer inventory feel as well I guess I'm trying to get a sense of weather.
You would expect sort of consumption scanner data to better approximate what to Q sales would look like.
Thanks, Andrew it's Mark.
I would say largely the bulk of the inventory restocking is behind us it will probably be.
Potentially moderating, but we are seeing that trends in consumption.
Continue.
We commented in the prepared remarks, specifically about peanut butter and the latest for we're seeing our share come back so for that for the vast majority of our of our brands, we are seeing pretty decent consumption take away.
Our focus is just going to remain largely on supporting our customers and our consumers.
As long as we continue in this environment, that's really our number one priority to make sure that we're getting.
Our products, our brands and in a large assortment of them to the shelves.
Thanks for that and then.
Thinking out a little bit.
A bunch of packaged food companies that are now really just admittedly beginning to talk a little bit about taking some of the learnings from the pandemic and sort of making some longer term structural changes as a result of it.
Some of clearly stated that they're not going back to a sort of pre pandemic cost structure.
I realize it's still early in your all still managing through.
This crisis.
I guess.
I had the opportunity to take a bit of a fresh look maybe at its cost structure and if so maybe even if it's just kind of thinking through what maybe some of the bigger potential buckets of.
Opportunity might be that you could sort of target as a result that maybe some of the learnings right that you're getting out of sort of going through all of it.
Maybe too early but to Dimensionalize, maybe the magnitude of some of those potential opportunities.
<unk>.
Yeah, Andrew it's Mark again.
Clearly we have maintained.
Really good.
Cadence of cost discipline throughout this and I think one of the things at the pandemic has taught us.
Is that we can and will be agile and very focused on those things that are really going to drive the business.
So.
Just our ability to adapt the partnerships that we strengthened with our customers.
The ways in which we are targeting and reaching our consumers I think we've learned that we can do those things and remain and remain extremely focused on on where we're going to to find growth.
As it relates specifically to our cost structure.
We have exercise.
Hi degree of cost discipline, but I wouldn't stop short of.
Going any further in that and we may potentially discussed that a bit at our investor day in October.
Thanks, so much everybody.
Thank you next question.
From.
From Deutsche Bank. Your line is not a lot.
Hi, good morning warning.
I wanted to talk about.
Business first.
I know you had talked about potential.
In this quarter.
Wanted to see if.
That happened this quarter.
Acting any de stocking in the rest.
And then I was also curious on channel dynamics.
So.
That overall E commerce was 12% of sales I'm wondering how much of that Pat.
How those sales trended versus in the specialty.
Pfizer This is talk or I will start as it relates to your question around Destock and then Mark will take some of the channel dynamic.
Portion of the question as relates to the first quarter. We did anticipate that there would be some destocking within Pat the answer. The question is yes. However, it came later in the quarter.
The month of May was a particularly strong month for us as it relates to our pets or business across both cat snacks and dog it began to moderate across all three as the quarter went on and we'll continue to moderate into the second quarter, but big picture the destock did occur.
Yeah. This is mark just to comment a little bit on the channel dynamics, what we have seen is the pet specialty channel.
Continues to exhibit some softness.
But there continues to be.
As a general shift consumers going to E commerce.
One thing that was unique just to build on.
Tucker's comment is the total dog category was actually down in the quarter largely because of the destock thats. The first time in a very long time that you would see the dog food category, having been down.
As I said in in my last comment we do view that that that has.
We're largely through much of that.
But I think the important point to note is that our total pad business is up and we've we've seen great growth in both cat and pet snacks and so that has.
Clearly been a positive as well as performance for our innovation.
Okay. That's really helpful can you.
I'm just curious how much.
What.
And in pad are now.
[music].
Adds roughly it depends on the cat on this segment of that.
Category.
The about 15% to 20%.
We can get the more accurate number and give that to you offline.
Thank you so much.
Thank you My next question today's coming from Ken Goldman from JP Morgan. Your line is that a lot.
Hi, good morning.
To clarify I think you said Kobe contributed two thirds of the sales growth this quarter and that included.
Consumer demand and the retail or replenishment I may have missed it. So did you break down what that two thirds was between heightened demand from the consumer and what the the retail load might have been.
Okay and good morning, and this is talker, we did not isolate the breakdown of the two thirds component between.
Consumption and retailer inventory replenishment.
I think thats pretty hard for us at this point to sort of my slate.
But what we do see is obviously continued momentum due to coded, but we also see underlying momentum in the business as well.
Okay.
A follow up offline on that one and then just for my follow up any.
Implications in your guidance.
From school closures excuse me on any particular part of your business just thinking uncrustables, maybe some other areas just trying to figure out what you're factoring in your guidance versus maybe some of the risks out there from some demand being a little bit less than what you might have expected a year ago at this time.
Can I would respond in saying that we have not factored anything into our guidance due to school closures. Obviously back to school is is a component of our of our fiscal year, we feel very comfortable with the way we've approached back to school.
Both at plan and where we stand today and the away from home business as you may recall, it hasn't uncrustables component and that Uncrustables component does service schools.
And we continue to provide product to those schools because they are feeding America.
Despite the fact that those school districts may be closed.
Thank you.
Thanks, Ken.
Thank you next question to these coming from David Driscoll from DD Research. Your line is that a lot.
Great. Thank you and good morning, good morning, David Good morning.
Wanted to start off back with the topline sales numbers the sales growth. It can they asked it but like it was she was asking about the two thirds of the cool, but can you just simply say what the retail inventory replenishment contributed to the topline in the quarter I mean is it like half the number 'cause.
So between the scanner data and today's results really large so I know, there's an ecommerce piece in here that's not measured there's other on measured channels, but my guess is that that the retail inventory replenishment like like half the difference between consensus expectations and what what happened Taco.
Can you comment on that.
David I again, we have.
Quantify that we believe two thirds of the.
In terms of the over delivery is associated with coded again, a portion is consumption portion of it is inventory rebuilds that retailers are we do see continued positive scans across our coffee and consumer business.
There's elements within pass that continue to perform there is some softness as mark talked about and dog, but I think what we would guide you to is to make your own estimation as it relates to what our performances and then what you're seeing both in and consumption as well, it's our best look, but we just don't feel comfortable quantifying that impact at this time.
Okay.
On the guidance first quarter beach by like 70 cents versus consensus full years raised 30 cents why doesn't the full year go up by the magnitude of the beat and Mark It sounds like you're more optimistic on a year, but yet just mathematically the final three quarters or a little bit.
Less than what we all previously had because the nature of.
The magnitude of the once you beat so just hoping you guys could just talk a little bit about that I mean, I feel like there's an element of conservatism is just a really hard environment I respect that but would appreciate your comments.
Yeah, David as it relates to the approximately 79 sent over delivery from.
The prior year about 15 cents or that was anticipated or plan.
The balance a half of it is due to the increased at home consumption the retailer replenishment better performance and our away from home business in the quarter and so we are taking that portion which is about 30 to 35 cents feeling comfortable.
To put that into our guidance range, the remainder which is about 30 cents or so really reflects favorable SDN expenses across the company are consistent and most all businesses that we are anticipating to come back into the second quarter and beyond.
Thats largely driven by timing on example would be marketing that we did not spend in the first quarter that we anticipate in the second quarter and then additionally, some promotional activity and other reinvestment consideration. So that's really where the breakdown of the 79 cents year over year or roughly your Saturday sensors as you asked the.
Last comment I would make as it relates to guidance is that we are very focused and making sure that we are providing visibility and transparency about our results.
Quite strong for the quarter again, what we're seeing for the second quarter and again the back half remains uncertain for the obvious reasons or just living through a pandemic and so as a result of that we will just continue to provide updates as we get through each subsequent quarter on income through the totality of the fiscal year.
That was super helpful. Thank you and I'll pass it along.
Thank you My next question today coming from Chris Growe from Stifel. Your line is alive.
Thanks, Good morning, Good morning, Chris Hi, I'm, just kind of a question a bit of a follow on to earlier questions in relation to your sales growth outlook for the year. So think about your.
Outperformance or that's just of the growth in revenue in the first quarter, it largely equals $185 million headwind you've outlined from the prior year comp.
I'm just curious there for that you're looking therefore, it seems like it more modest sales growth in Q2 in Q3 I want to make sure. We look out the proper way and then also understand kind of what's behind that or what you see happening as we progressed through the quarters in terms of you don't have at home food consumption and then of course, we've talked a lot about inventory any further inventory changes.
So Chris Big picture I think the perspective that you've taken as quick as correct or we are beginning to see a moderation of growth, particularly into the second quarter within our coffee and consumer business. We're also experiencing that within our pet business and I would also remind you that even at even though we did perform better than anticipated in our away from home.
Business in the first quarter, we do anticipate significant an extended declines in that business for Q2, three and four and then as you noted we do have that comp in the fourth quarter that we do need to lap and then further isn't back to the comment I provided the David is that we're still working through what the back half truly looks like and we'll have a better.
Ability to that as the as amounts in the quarters go buy but but I think big picture you framed it incorrectly.
Okay. Thank you for that and then just a question on on your is with your debt level now moving below your target I'm just trying to think about the cash priorities for the are you a very strong free cash flow outlined for the year.
Maybe you could just give a quick thought on like the M&A environment and kind of how that pipeline looks or it has been affected by cobot I guess and then then just think about other areas of cash use obviously debt reduction, but also share repurchase activity. Thank you.
Yes, I'll I'll address the capital deployment aspect of and I'll ask Mark to comment on the on the broader M&A market as it relates to our capital deployment or cash deployment for the fiscal year, we remain committed to generating that approximate.
925 down or $75 million worth of free cash flow, we are prioritizing continuing to pay quarterly dividends. We did just increase the quarterly dividend in the month of July.
We also are prioritizing continue to pay down our term loan that continues to position us for strength across the balance sheet and then we do need to keep our eyes open opportunistically as it relates to how and where and when we bring back share repurchases to support shareholder value and then also how we consider the deployment of cash into it.
Today opportunities and I'll hand, it to mark to talk a little bit about the M&A front.
Yes, Chris.
Just on the M&A front as you know we always are.
Have lines in the water, if you well and just you know making sure that we.
Our seeing and have access to some of the opportunities that may be out there I would say generally speaking in relatively light, but as Tucker pointed out we are getting ourselves into a position where we could participate in the M&A market. If the right opportunity came but at this point.
It really has no no new news to report and we will just continue to monitor.
Thank you.
Thank you next question today is coming from Rob.
Jefferies. Your line is alive.
Great. Thanks, so much.
Okay.
I think I heard you see marked and over time, the CHRW financial discipline right.
Sounds like there was a little in there.
As pricing margin management.
So maybe you can you just provide a little bit.
Additional color on that just around the bigger brands focus like better margin there are potential at Celtic, there's some potential for strategic pricing.
Although I also heard you say you know the marketing or just kind of probably just throughout the year.
And it also there could be some increased promotional activity. So just trying to get to rightsize.
That margin <unk> margin trajectory for the year.
Going around pricing margin mix inclusive of promotional activity in marketing.
Rob Thanks for the question you're right financial discipline is one of our foundational priorities, particularly for this year as it would be for any year, but we really are focused on it this year that they're already spoke to obviously debt and and just our cash generation, but we are.
Very focused on our margin profile, making sure that we can maintain and ultimately improve our margins and that really.
Comes from a continuous improvement mindset, which we have done a great job just in terms of our margin management from a cost.
Internal cost standpoint on the we will continue to be very focused on strategic pricing and our recent actions in peanut butter support that.
We mentioned briefly in the script that we have.
We did add we have seen some cost increases in peanuts, largely because of crop quality, but we were able to partner very closely with our retail customers in order to manage that in a very judicious.
Way, making sure that we are able to pass along.
Our costs.
In an appropriate way of course, so those will all be components of how we continue to manage our profitability going forward.
Okay, and then I guess secondly, just called pet.
I think your prepared remarks or at least you stay there potentially some increased trade spend.
In pet food and then you also stated.
As you know improving competitive positioning maybe in some of your premium brands.
Maybe if you could just kind of.
Dimensionalize kind of.
What that increase trade spend was for a and then why you see the competitive positioning within premium improving that's it. Thanks.
Right so in our and our pet business, you know I would say from a macro perspective, Rob we're seeing the pet category.
Reform largely as it normally does you know Pat I've said this before pets always eating at home. So the so the increase from stay at home consumption is largely focused on human so the pet category itself I would just I would say is largely continues to too.
The dynamics are very similar to what they normally would be a pre or post cove. It.
It's it's a competitive environment on nutritious specifically you know our our net pricing is down from a year ago, which was part of our targeted actions to improve outperformance of that brand.
But increased trade in general I think is is.
We're not seeing that largely across the entire pad portfolio.
Okay got it thank you so much.
Thank you.
Thank you next question today is coming from Jason English from Goldman Sachs for why there's a lot.
Hey, good morning folks warning Jason.
Thank you for Saudi Man I want to come back at two topics that have already been discussed versus decoding the scanner data and trying to bridge it to your your sales.
You gave us the comp growth figure of 70% quick back to be able to math suggest it's adding around 500 basis points sales growth.
We assume that that that that 70% not already captured in Nielsen at least apart. So question. One is that the case can we actually looked at 70%.
Oh, that's incremental to what we're seeing in the Nielsen data or I write down.
Jason This is Tucker I think it's.
I think it's fair to say that the ecommerce channel is predominantly benefiting our pet business and so therefore, when you look at the measured channels and then think of ecommerce is sort of a non measured channel. You can go ahead make your estimation there and then as you want to extrapolated across the rest of the portfolio you can't but obviously the magnitude comes through.
Pat.
Got it that is that it's helpful. But that obviously implies that the restock was fairly substantial on the coffee and view the consumer side of.
Switching gears to the promotional environment.
You guys finished last year with trade and Merck spend I think it at a record high 39% of net sales.
How is it tracking so far since we're now kind of two quarters into koby 19 as that figure come into substantial amount. It it is there opportunity to.
To have this proved to be a more permanent reset those that are really sort of ratchet that trade spend back down to the him to the low to mid Thirtys you're out just a couple of years ago.
You know, Jason I think as it relates to the promotional environment. We continue to work through that on a on a couple of dimensions one.
Promotional activity did change as we came into coded promoting was reduced as it relates to pretty much coffee and consumer.
And so now we need to think about how we're bringing those promotional activities and when we do a back across both coffee and consumer and then a recognition that we also because of either input costs or otherwise just making sure that we have the right price.
Reflected on shelf is well across our entire portfolio. So I think there's.
Maybe a little bit to what you're sharing and asking but I think we're still working through what what pricing and promotion mean, both coming into the environment of of Cobot, 19, and coming out of it as well Jason as Mark I would just reinforce a comment I made earlier just to respond to your comment about the restart the restack was.
Clearly largely fell in our first quarter and it was more specific of course too.
Consumer and coffee and.
As I said earlier, we are largely through that and in the most recent share information you would see Oh gosh, our share, particularly in consumer.
Coming back and and and seeing some share growth coffee, it's been pretty much strong throughout the quarter.
Yeah sure improve but do you have the absolute level of measured growth.
Massively pales in comparison to the type of sales you put up so if most of the if most of the on measured channel growth is coming in pet.
My conclusion, as we should probably look to have the the measured sales growth mean river kinda closer to net sales growth.
For the rest of year, which would suggest sharp deceleration.
Tell me if I'm off based on any of that.
Yes first of all there's been significant ecommerce growth in coffee.
So there has been a market shift for a coffee being purchased in the ecommerce Chino. So from an unmet or standpoint, you you definitely wouldn't be seeing that coffee AD growth there either.
Okay. That's helpful guys. Thank you very much thanks.
Thank goodness question today is coming from Robert Moskow from Credit Suisse. Your line is that a lot.
Hi.
Thank you two questions just to clarify first of all on ecommerce growth that 70% does that measure a direct to consumer shipments or does it also include any a click and collect and at the grocery stores that would be both.
Okay. So if includes the click and collect at the grocery stores, it's quite possible that it's showing up in the retail Nielsen data maybe.
I would say some of it probably is it's hard it's hard to know if all of it would be that but yes.
Okay.
Second question is more broader about product innovation and SKU rationalization, Mark I think you rationalize the peanut butter line up dramatically. So I was hoping you could tell us like how many skews are you now producing for peanut butter, what were you producing before and this is really a broad.
Just a question for for innovation philosophy, but.
How many of these do you want to bring back what were your innovation strategy be.
Do you want to be less aggressive than than you were in the past merely because you have productivity benefits from having a streamlined lined up maybe the consumer is because these reverting back to trusted brands, maybe not experiment thing as much.
Well I'm focusing on peanut butter, but was wondering if you could kind of like a broader statement about.
Innovation overall.
And so much rationalization. Thanks.
Oh, absolutely Rob Thanks for the question on on peanut butter, there hasn't been any significant rationalization of skews. So.
As we were trying to point out a little bit in the script you know when we wouldn't covered was really at its peak and we were asked by our customers to focus on the most important skews we did just that.
And so some of the share shifting that we saw in and three or four months ago was really a result of the fact that we were selling every thing we can make we were selling more peanut butter and than anyone else out there.
But it was a limited assortment now that we are able to we're still running essentially full out in our in our two key peanut butter plants, we have actually been able to.
Restock the if the more full assortment and so that fuller assortment is actually now getting on shelf and that is why in the latest for.
You would start to see or our share starting to grow go back to towards where it was before so.
Significant SK you rationalization as a result of Cove Ed.
I'm not a lot.
But I will tell you on innovation, we still are committed to innovation as I spoke to I think in it in a quarter or maybe a quarter or two ago.
Innovation is going to remain very important it's a balance between platform innovation and.
No more common things like line extensions in the quarter innovation was new products for 5% of our sales.
And roughly $100 million. So we've been very pleased with our innovation I know theres been a lot of focus on just power ups and discontinuing that was the right decision, but even on something like 18 50, we recently gained quite a few new points of distribution.
You know.
Well in the thousands of new points of distribution and that brand. It online continues to to grow very very well. So innovation is going to continue to be a im very important we feel like we've had some success there and we will continue to drive a innovation as a.
As a one component of our topline growth.
Okay. Thank you.
Thank goodness question is coming from Pamela Kaufman from Morgan Stanley or like a lot.
Hi, good morning, good morning.
I was hoping that you can talk about your pricing strategy in coffee.
Based on the retail takeaway data suggest that you are being more competitive on price relative to competition, how should we think about pricing and go forward margins in coffee, given the inflationary coffee input costs and biotech.
Yeah Pamela Thanks for the question you know I wouldn't say, our our coffee pricing strategy, we're extremely disciplined.
You know.
The underlying green coffee costs have been somewhat volatile, but still at at historical lows.
There has been some uptick in the last few weeks, particularly on arabica and so we would expect to see some costs increase into the second quarter that said, we have multiple levers that we used to manage our our retail prices.
Sometimes its trade more recently, it's been more trade related than it has specifically pricing, but we will remain extremely disciplined on the pricing, Brian and ensure that our margins I'm, particularly on coffee and as as well as across our business, but on coffee, we've said before.
Or you know <unk>, maintaining those margins in the low.
Thirtyish percent is is a doable.
Got it thank you.
And then I just wanted to ask about the improved gross margin guidance for 2021, and the drivers behind that I guess digging into the details you previously cited headwinds from fixed cost de leverage in the foodservice business. Once you initially expected to decline by about 30%, So I guess what.
To your updated expectations for this business.
Have you seen any improvement and then I guess more broadly what does your outlook for commodity input prices on as it relates to the updated gross margin guidance.
Yeah. Thank you at a total company level, we feel that the gross profit margin again will range from 37.5% to 38%.
Throughout the fiscal year.
Largely driven by continued growth in the topline across our business. It's also supported by better than expected commodity costs at plan.
Bodies will be up year over year, though as a clarification and then as we continue to think about the away from home business to the extent that it can continue to outperform.
The current expectations that will also support the market as well.
Thanks, Tony I I've stated.
Specifics on the foodservice business in terms of your outlook for this year.
Yes, so the up as it relates to our away from home business, we did see a an improvement as it relates to our plan for the first quarter that was largely due to an assumption. We made about the timing of basically society reopening folks, leaving their homes and going out to two restaurants, and we did see that improvement.
However, on a full year basis, we still are pretty.
Cautious about how we're seeing that business. It's still is anticipated to be at a significant an extended decline and really what we're seeing here is that the office coffee portion with folks not returning to the workplace as quickly as offsetting some of the the momentum are positive that we're seeing for example in.
And restaurants or other venues like that but I would note that we continue to see great performance and the handheld aspect of the business. So again, we are remaining cautious but we're also remaining a bit optimistic that will do better in that business as well.
Great. Thank you.
Thank you.
We should have a question answer session, let's turn the floor back over to management for any further or closing comments.
Well first of all thank you all for listening. We appreciate the support obviously, we're very pleased with our results this quarter and and.
Our priorities to continue to support our customers and consumers and and really make these.
No this growth sticky as we regained a number of new consumers and then finally, just wanting to acknowledge that all of this is possible because of our fantastic employees and I'm, just a huge shout out to our employees because they're the ones that have really allowed us to deliver and we look forward to continuing to deliver in the core.
Just to come thank you.
Thank you let Doug.
But there wasn't already may disconnect. Your lines at this time another wonderful day, we thank you for your participation today.
[noise].