Q4 2024 J M Smucker Co Earnings Call Q&A

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Operator: Good morning and welcome to the J M Smucker Company's fiscal 2024 fourth quarter earnings question and answer session. This conference call is being recorded, and all participants are in a listen-only mode. Please limit yourself to two questions and re-cue if you have additional questions. I'll now turn the conference call over to Aaron Broholm, Vice President, Investor Relations.

Speaker Change: Good morning, and welcome to the J M Smucker company's fiscal 'twenty 'twenty four fourth quarter earnings question and answer session.

Speaker Change: This conference call is being recorded an all participants are in a listen only mode.

Speaker Change: Please limit yourself to two questions and re queue. If you have additional questions.

Speaker Change: Now I'll turn the conference call over to Aaron brought home Vice President Investor Relations. Please go ahead Sir.

Aaron Broholm: Good morning, and thank you for joining our fiscal 2024 fourth quarter earnings question and answer session. I hope everyone had a chance to review our results as detailed in this morning's press release and management's prepared remarks, which are available on our corporate website at J M Smucker dot com. We will also post an audio replay of this call at the conclusion of this morning's Q&A session. During today's call, we may make forward-looking statements that reflect our current expectations about future plans and performance.

Speaker Change: Good morning, and thank you for joining our fiscal 'twenty 'twenty four fourth quarter earnings question and answer session. I Hope everyone had a chance to review our results as detailed in this morning's press release and management's prepared remarks, which are available on our corporate website at J M. Smucker Dot com, we will also.

Speaker Change: So post an audio replay of this call at the conclusion of this morning's Q&A session.

Speaker Change: During today's call we may take make forward looking statements that reflect our 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. Additionally, we use non-GAAP results to evaluate performance internally I incur.

Aaron Broholm: These statements rely on assumptions and estimates, and actual results may differ materially due to risks and uncertainty. Additionally, we use non-GAAP results to evaluate performance internally. I encourage you to read the full disclosure concerning forward-looking statements and details on our non-GAAP measures in this morning's press conference. Participating on this call are Mark Smucker, Chairman of the Board, President and Chief Executive Officer, and Tucker Marshall, Chief Financial Officer. We will now open up the call for questions. Operator, please queue up the first question.

Speaker Change: Bridge you to read the full disclosure concerning forward looking statements and details on our non-GAAP measures in this morning's press release.

Speaker Change: Participating on this call are Mark Smucker Chair of the Board, President and Chief Executive Officer, and Tucker Marshall Chief Financial Officer.

Speaker Change: We will now open up the call for questions. Operator, please queue up the first question.

Operator: Thank you. The question and answer session will begin at this time. If you're using a speakerphone, please pick up the handset before pressing any numbers. Should you have a question, please press star one on your telephone. If you wish to withdraw your question, please press star 2. For operator assistance, please press star zero. As a reminder, please limit yourself to two questions during the Q&A session. Should you have additional questions, you may recur, and the company will take questions as time allows. Our first question today is coming from Andrew Lazar from Bark. The Laser Line is now live.

Speaker Change: Thank you the question and answer session will begin at this time, if you're using a speakerphone. Please pick up the handset before pressing any numbers.

Speaker Change: Did you have a question. Please press star one on your telephone.

Speaker Change: If you wish to withdraw your question. Please press star two.

Speaker Change: For operator assistance, Please press star zero.

Speaker Change: As a reminder, please limit yourself to two questions. During the Q&A session should you have additional questions you may re queue and the company will take questions as time allows.

Speaker Change: Our first question today is coming from Andrew Lazar from Barclays. Your line is now live.

Andrew Lazar: Thank you. Good morning, everybody. Morning, Andrew. Hi.

Andrew Lazar: Thank you good morning, everybody.

Andrew Lazar: Maybe to start off, in your slide presentation, you mentioned your expectation for both positive volume and pricing in fiscal 25. And I realize some of the pricing factor is the pass-through nature of coffee, but it's still, you know, the positive volume and price combination is not something that we're obviously seeing or hearing a lot of, at least yet, from a number of others in the packaged food space. So I guess I'm just trying to get a sense of, as you sort of put together your plan for the coming fiscal year. I guess what gives you that level of visibility, that underpins it? The, particularly on the volume side, um, given that you're also expecting some positive price.

Andrew Lazar: Good morning, Andrea Hi, Hey, maybe to start off I'm in the slide presentation, you mentioned your expectation for both positive volume and pricing in fiscal 'twenty five and.

And I realize some of the the pricing factor is the pass through nature of coffee, but its still the positive volume and price combination is not something that we're obviously seeing or hearing a lot of at least yet from a number of others in the packaged food space. So I guess I'm just trying to get a sense of as you sort of put together your your plan.

Andrew Lazar: <unk> for the coming fiscal year.

Speaker Change: What gives you that level of visibility that underpins the particularly on the volume side and you know given that you're also expecting some positive pricing.

Mark T. Smucker: Andrew, good morning. As we noted in our prepared remarks at the midpoint of our guidance range, we're demonstrating comparable growth of 2%, and included in that 2% comparable growth year over year is a one point pet contracting pet contract manufacturing headwind. So we really see base business growth around 3%. And within that, we're seeing two points coming from volume X and one point coming from price. And when you think about the momentum of our portfolio, we continue to see great growth in the frozen handheld aspect of the portfolio, led by Uncrustables.

Speaker Change: Andrew Good morning.

Speaker Change: As we noted in our prepared remarks at the mid point of our guidance range, we're demonstrating comparable growth of 2%.

Speaker Change: Inclusive in that 2% comparable growth year over year as a one point that.

Speaker Change: Contracting contracts manufacturing headwind, so we really see base business growth around 3%.

Speaker Change: And within that we're seeing two points coming from volume mix and one point coming from pricing.

Speaker Change: And when you're thinking about the momentum of our portfolio. We continue to see great growth in the frozen handheld aspect of the portfolio led by our Crystal balls, we continue to see momentum in cat food led by Meow mix and also a momentum in dog snacks with no firm.

Mark T. Smucker: We continue to see momentum in cat food led by Meow Mix and also in dog snacks with Milkbong. We're also seeing a level of opportunity or growth in our away-from-home channel as well, and those really have begun to be the key contributors to that top line performance.

Speaker Change: We're also seeing a level of of.

Speaker Change: Opportunity or growth in our away from home channel as well and those really began to me the key contributors to that top line performance.

Andrew Lazar: And then I'm just a quick one, you finish the year with EPS around $9.94, and at the midpoint, you're looking for EPS around $10, so close to flat-ish year over year. Call out a 35 cent headwind from investment in uncrustables, a 40 cent benefit from the recapture of hostess dilution, so those largely upset each other, and you mentioned no impact to So I guess the net of the one-off items seems relatively neutral to EPS and 25.

Speaker Change: Thank you for that and then.

Speaker Change: Just a quick one you finished the year with EPS around 90, 94 and at the midpoint, you're looking for EPS around $10, so close to flattish year over year.

Speaker Change: You called out a 35 cent headwind from investment during festivals 40 cent benefit from the recapture of hostess dilution. So those largely offset each other and you mentioned no impact to EPS growth year over year from stranded costs. So I guess, the the net of the one off items seem relatively neutral to EPS in 'twenty five.

Andrew Lazar: So I'm trying to get a better sense of, I guess, why the EPS would be flattish despite you're looking for a solid comparable sales growth that would include also some volume and price. So I'm just curious if I have that right and sort of what would be driving a more flattish EPS growth outlook in light of that.

Speaker Change: So I'm trying to get a better sense of.

Speaker Change: I guess the.

Speaker Change: Why the EPS would be flattish despite.

Speaker Change: You're you're looking for a solid comparable sales growth.

Speaker Change: That would include also some volume and price. So I'm just curious if I have that right and sort of what would be driving a more flattish EPS growth outlook in light of that thanks. So much.

Tucker H. Marshall: Andrew, the way that you've outlined the formula for year-over-year growth is correct, and it doesn't imply flattish-based business growth. We are going to see a level of growth in our pet portfolio and our away-from-home and international portfolio, but that's really being offset by some softness that we're seeing in the coffee and peanut butter aspects of our portfolio, and so that's demonstrating the impact on the flattish year-over-year business.

Tucker H. Marshall: Thanks so much. Yeah, Andrew

Andrew Lazar: Yes, Andrew the way that you've outlined the formula for year over year growth is correct and it doesn't imply flattish base business growth, we are going to see a level of growth out of our portfolio in our away from home and international portfolio, but that's really being offset by some softness that we're seeing in the coffee and peanut butter.

Andrew Lazar: Aspects of our portfolio and so that's demonstrating the impact to the flattish year over year base business.

Speaker Change: Thank you.

Operator: Thank you. The next question today is coming from Ken Goldman from JP Morgan. Your line is now live.

Speaker Change: Thank you. Your next question today is coming from Ken Goldman from Jpmorgan. Your line is now live.

Kenneth B. Goldman: Hi, good morning, and thank you. And Aaron, thanks for all your help over the years. We will miss you for sure.

Kenneth B. Goldman: Hi, good morning, and thank you.

Aaron: Aaron Thanks for all your help over the years, though we will Miss you for sure.

Kenneth B. Goldman: I wanted to ask a little bit about the comment that 2025 will be an investment year, just trying to dig a little bit deeper into what these investments are. You did mention the $0.35 for Uncrustables. I was curious if we could learn a little bit more about, you know, what some of those are and how recurring they are. And then, just to broaden it out, it seems that marketing as a percentage of sales will be very similar year on year. I'm just curious why it wouldn't go up a little bit more, you know, given what you're saying about it being an investment year and what you said previously about ramping up hostess ad spending.

Kenneth B. Goldman: I wanted to ask a little bit about the comment that 2025 will be an investment year, just trying to dig a little bit deeper into what these investments are you did mentioned that 35 for an across the board I was curious if we could learn a little bit more about what some of those are and how recurring they are and then just to broaden.

Speaker Change: It out it seems that marketing as a percentage of sales will be very similar year on year I'm. Just curious why it wouldn't go up a little bit more given what you are saying about it being an investment year and what you said previously about ramping up hostess AD spending thank you.

Mark T. Smucker: Hey Ken, it's Mark. Good morning.

Mark T. Smucker: Hey, Ken its mark good morning.

Mark T. Smucker: So just a couple of things, you know; we have been consistent over the last couple of years talking about our aspiration to continue to invest in our brands. Tucker can speak specifically to total marketing, but it will be up slightly as a percent of sales this year, but I would call out that the investment is largely in Uncrustables, right? And the way I would encourage us all to think about that is that we are moving from a.

So just a couple of things you know we have been consistent over the last couple of years talking about our aspiration to continue to invest in our brands Katherine can speak specifically to.

Speaker Change: The total marketing, but it will be up slightly.

Mark T. Smucker: As a percent of sales this year, but I would call out that the investment is largely an on kras the bulls right and the way I would encourage us all to think about that is we are moving from a supply driven growth.

Mark T. Smucker: Supply-driven growth to demand-driven growth, which requires brand building, and so we are now fortunate to be able to turn on brand building, and those investments in uncrossables are largely supporting the brand through marketing, which is a national television and digital campaign to really drive household penetration and trial. There is a component that is in promotion and merchandising; this is not price, but it is really to support uncrossables down the frozen aisle to drive awareness and trial, and ultimately household penetration, and then there's another component that's just related to startup expenses at the McCalla, Alabama facility.

Mark T. Smucker: Two demand driven growth, which requires brand building and so we are now fortunate to be able to turn on our brand building and.

Mark T. Smucker: And so those investments in unprofitable are largely.

Mark T. Smucker: Supporting the brand through marketing, which is a national TV and digital campaign to really drive household penetration and trial. There is a component that is.

Mark T. Smucker: In promotion and merchandising that is not price, but it is really to support unprofitable down the frozen aisle.

Mark T. Smucker: To drive awareness and trial and ultimately household penetration and then there's another component that's just related to startup expenses at the Macao, Alabama facility.

Tucker H. Marshall: And Ken, with respect to marketing, our outlook for marketing year-over-year is up $50 million at the total company level. About $20 million of that is a base business increase year-over-year, largely led by Uncrustables growth or investment. And then the balance of that is just the inclusion of Sweetbakes snacks on a full-year basis, as you think about that year-over-year marketing change. That's helpful, I

Speaker Change: And Ken with respect to marketing.

Speaker Change: I'll look for marketing year over year is up $50 million at the total company level.

Speaker Change: Around $20 million of that is base business increase year over year, largely led by the hospital's growth or investment.

Speaker Change: And then the balance of that is just the inclusion of sweet baked snacks on a full year basis.

Speaker Change: As you think about that year over year marketing change.

Speaker Change: That's helpful. I guess my follow up would be.

Kenneth B. Goldman: You know, given that you are raising prices for coffee, given that overall your pricing will be up, and we're in somewhat of a challenging consumer environment, I think it's fair to say, "Is it enough, right?" Do you feel that you are investing enough in pet food marketing, coffee marketing, and peanut butter? And I'm asking because some of your peers have talked about investment years also. It just feels to me like it's a little more focused where you're putting your advertising in 25. And, you know, maybe just curious how you feel about that level, given those things.

Speaker Change: Given that you are raising prices in coffee given.

Speaker Change: That overall your pricing will be up and we're in somewhat of a challenging consumer environment. I think it's fair to say is it enough right do you feel that.

Speaker Change: You are investing enough in.

Pet food marketing and coffee marketing.

Speaker Change: Peanut butter and I'm asking because you know some of your peers have talked about investment years also it just feels to me like it.

Speaker Change: It's a little more focused where you're putting your advertising in 'twenty.

Speaker Change: Five and you know maybe just curious how you feel about that level given those consumer issues we're facing.

Mark T. Smucker: Yeah, great. A great question, Ken.

Speaker Change: Yeah, Great. Great question can I focus is a good word I might use the word balanced.

Mark T. Smucker: If focus is a good word, I might use the word balance. You know, just making sure that, as you point out, consumers in certain segments, particularly like coffee and peanut butter, have been seeking a bit of value, and so that has created some competitive environments, which we think will likely normalize over time, but we view it as our responsibility to be prudent and balanced in terms of where we invest in supporting the brands.

Speaker Change: You know just making sure as you point out consumers in certain segments, particularly like coffee and.

Speaker Change: And peanut butter had been seeking a bit of value and so that has created some competitive environments, which we think will likely normalize over time, but we view it as our responsibility to be prudent and balanced in terms of where we invest supporting the brands. Obviously, we just had a very.

Speaker Change: Significant innovation, that's now in market with them.

Mark T. Smucker: Peanut Butter Chocolate Jif. And we're supporting that with a national advertising campaign. And so just again, you know, we want to make sure that we're taking the high road and that our investments in our brands are balanced, and we feel very confident that our marketing plans are solid for the full year.

Jeff: Peanut butter chocolate, Jeff and we're supporting that with a national advertising campaign.

Jeff: And so just again you know we want to make sure that we're taking the high road and that our investments and our brands are balanced and that and we feel very confident that our marketing plans are solid for for the full year.

Jeff: Yeah.

Operator: Thank you. The next question is coming from Peter Galbo from Bank of America. Your line is now live.

Speaker Change: Thank you. Your next question is coming from Peter Galbo from Bank of America. Your line is now live.

Peter Thomas Galbo: Hey guys, good morning. Maybe to start, I think if I go through the guidance, particularly as it relates to Hostess, I think what's embedded in there is that Hostess actually grows sales for the year, at least embedded in the guidance. And just kind of given where sales have been trending through the first quarter, that would seem to be maybe a bit of a challenge. So maybe you can help us reconcile that, either through phasing or just how you're thinking about specifically the Hostess piece of it within the guide for the year.

Peter Thomas Galbo: Hey, guys good morning.

Speaker Change: Good morning.

Peter Thomas Galbo: Maybe to start I mean, I think if I go through the guidance, particularly elegant.

Speaker Change: Relates to host it.

Peter Thomas Galbo: I think what's embedded in there is that hostess actually gross sales for the year at least embedded in the guide and just kind of given where sales have been trending through the first quarter that that would seem to be maybe a bit of a challenge. So maybe you can help us reconcile that are either through phasing or just how youre.

Peter Thomas Galbo: Looking about specifically the hostess piece of it within the guide for the year.

Tucker H. Marshall: Yes. So Peter, we called out about a 9% contribution from hostesses to our FY 25 top line outlook. And when you do the math, it's going to imply that Hostess is going to be around $1.4 billion in top line sales in fiscal 2025. And so as we see that in our first couple of quarters, it'll be sort of around flattish to slightly up. And then as we get into the third and fourth quarters, you'll see some continued growth year over year or quarter over quarter.

Speaker Change: Yes, so Peter we called out about a 9% contribution from hostess to our FY 'twenty five top line outlook.

Speaker Change: And when you do that when you do the math, it's going to imply that hostess is going to be around $1.4 billion of top line sales in fiscal 'twenty 'twenty five.

Speaker Change: And so as we see that in our first couple of quarters will be sort of around flattish to slightly up and then as we get into the third and fourth quarters, you'll see some continued growth.

Speaker Change: Year over year or quarter over quarter.

Tucker H. Marshall: As we think about the portfolio, we're still very pleased with the acquisition, not only strategically but the way that it's contributing to some of the near-term objectives that we have. And as we see the pattern of growth over time, not only as a little bit of stabilization and maybe restoration in the convenience channel, but our ongoing work with our traditional U.S. retail partners to continue to support that portfolio, and then continued opportunity and optimism around just revenue synergies in fiscal 25 and beyond, I think will continue to be positive for the overall momentum of Hostess.

Speaker Change: Think about the portfolio, we're still very pleased with the acquisition not only strategically.

Speaker Change: But the way that it's contributing to some of the near term objectives that we have and as we see the pattern of growth over time, not only as a little bit of stabilization and maybe restoration that convenience channel, but our ongoing work with our traditional U S. Retail partners to continue to support that portfolio and then continued opportunity in.

Speaker Change: Optimism around just revenue synergies in fiscal 'twenty, five and beyond I think it will continue to be positive for the overall momentum of hostess.

Mark T. Smucker: I might add, Peter, it's Mark, just the integration is going very well. Obviously, we still remain really excited about the brand. It's obviously a leading brand in Sweetbake Snacks. Also, just a comment that Sweetbake Snacks is still performing a little better than overall snacking.

Mark T. Smucker: Might add Peter it's Mark just the integration is going very well, obviously, we still remain really excited about the brand. It's obviously, a leading brand in sweet baked snacks also just a comment that sweet baked snacks.

Mark T. Smucker: Still performing a little better than overall snacking and so you know that trend along with obviously brand support merchandising support our innovation pipeline.

Mark T. Smucker: And so, you know, that trend, along with obviously brand support, merchandising support, our innovation pipeline, and Tucker's alluded to some joint merchandising with other brands and just expanding the brand into some of our existing channels, all bode well for that brand over time. So, just still feeling very positive about that. And the cultural fit between our two businesses has been great, and again, the integration is going very well.

Speaker Change: And Chuck alluded to some joint merchandising with other brands and just expanding the brand into some of our existing channels all bode well.

Speaker Change: For for that brand over time, so just still feeling very positive about that and that the cultural fit between our two businesses has been great and again the integration is going very well.

Peter Thomas Galbo: Okay, thanks for that. And then maybe Mark, I think in your prepared comments, there was a line about kind of being above the algorithm from a growth perspective on EPS and fiscal 26. Just maybe, if you could kind of unpack what gives you the confidence that, you know, after an investment year here, you're going to be able to be kind of above a longer-term algorithm as you get into fiscal 26. Yeah, Peter, as we

Speaker Change: Okay. Thanks for that.

Speaker Change: And then maybe Mark I think in your prepared comments.

Mark T. Smucker: There was a there was a line about kind of being above algorithm from a growth perspective on EPS in fiscal 'twenty six I'm. Just just maybe if you can kind of unpack what gives you the confidence that you know after an investment year here that youre going to be able to be kind of above our longer term algorithm as you get into fiscal 'twenty.

Tucker H. Marshall: Yeah, Peter, as we think about fiscal 26, what gives us confidence in that outlook is just ongoing base business momentum. We think about the opportunity to advance cost and productivity savings, to get another year or full realization of synergies from the hostess acquisition, to get beyond or relieve stranded overhead, and also see the ability to pay down debt as a way to continue to give us growth and EPS confidence for fiscal 26.

Speaker Change: Yeah, Peter as we can.

Peter Thomas Galbo: Think about fiscal 'twenty excellent gives us confidence in that outlook is just ongoing base business momentum.

Peter Thomas Galbo: We think about the opportunity to advance cost and productivity savings.

Peter Thomas Galbo: To get another year or full realization of synergies from the hostess acquisition.

Peter Thomas Galbo: To get beyond or are we leaving stranded overhead and also see the ability to pay down debt.

Peter Thomas Galbo: As a way to continue to give us growth and EPS confidence for fiscal 'twenty six.

Operator: Thank you. The next question is coming from Chris Carey from Wells Fargo Securities. Your line is now live.

Speaker Change: Thank you. Your next question is coming from Chris Carey from Wells Fargo Securities. Your line is now live.

Christopher Michael Carey: Hi, thank you for the question. So just first, and then I'll have a follow-up on the outlook for gross margin. You should see some tailwinds for the removal of the contract manufacturing and yet a 38% gross margin outlook for the full year. Can you just unpack your expectations there?

Speaker Change: Hi, Thank you for the question.

So just first and then I'll have a follow up on the outlook for gross margin you should see some tailwind for the removal of the contract manufacturing and you're at 38% gross margin outlook for the full year can you just unpack your expectations there.

Tucker H. Marshall: Yeah, so our outlook for fiscal 25 gross margin is 38% on average for the full year. We are seeing the benefits of our cost and productivity savings. We're seeing the benefits of some early synergies. For example, we have begun to relieve and address stranded overhead. Obviously, the divestitures have been supportive of gross margin, but I want to acknowledge that gross margin is a little bit muted this year because of the implications of price and cost in our coffee portfolio as we've been recovering inflation through green. And secondly, we're also seeing a bit of an impact on the uncrustables portion within frozen handheld and spreads, largely due to bringing on the McCalla facility. And so we exited with a 28 margin, which

Speaker Change: Yes, so our outlook for fiscal 'twenty five gross margin is 38% on average for the full year, we are seeing the benefits of our cost and productivity savings. We're seeing the benefits of some early synergies we have begun to relieve an address stranded overhead.

Speaker Change: Obviously, the divestitures have been supportive to gross margin.

But I want to acknowledge that the gross margin is a little bit muted this year because of the implications of price and cost in our coffee portfolio as we've been recovering inflation through green and secondly, we're also seeing a bit of an impact come through the on cross the bowls portion within <unk>.

Speaker Change: Rosen handheld and spreads largely due to bringing on the Mccall.

Speaker Change: Call of facilities.

Speaker Change: And so we exited with a 28 margin, which was better than anticipated in fiscal 'twenty, four and we're carrying that into fiscal 'twenty five.

Speaker Change: Excuse me just as a clarification 38%.

Christopher Michael Carey: Yeah, okay, very clear. And then just to follow up on the coffee and pricing. Can you expand on what's embedded for copy pricing?

Speaker Change: Yeah, Okay, very clear and then just a follow up on the on the coffee pricing can you expand on what's embedded for a coffee pricing the size of the pricing and perhaps the scope of the pricing in your portfolio. For example is this only on.

Our roasting ground or is it across your entire coffee business and including single serve them and the rest.

Tucker H. Marshall: Yeah, you know, just staying at the highest level, we have seen inflation in green coffee prices, both within the Robusta bean and also the Arabica bean. We've largely taken pricing on more of the mainstream aspect of our portfolio. It doesn't necessarily include the premium or single serve side of the portfolio. And again, it's a recognition of the increase in our cost basket and the way that we pass along pricing in both inflationary and deflationary environments.

Speaker Change: Yep.

Speaker Change: Staying at the highest level, we have seen inflation and green coffee both within the robust today and also the arabica beam.

Speaker Change: Largely taken pricing on more of the mainstream aspect of our portfolio. It doesn't necessarily include the premium or single serve size of the portfolio and again, it's a recognition of the increase in our cost basket.

Speaker Change: We pass along pricing in both inflationary and deflationary environments.

Speaker Change: Okay. Thank you.

Speaker Change: Yeah.

Operator: Thank you. The next question today is coming from Robert Moskow from TD Cowen. Your line is now live.

Speaker Change: Thank you. Your next question today is coming from Robert Moskow from TD Cowen. Your line is now live.

Robert Moskow: Hi, I have a question about coffee. I think you're guiding coffee to a down year for profits, and you also called out some competitive intensity in Folgers. You know, typically, you manage your profit pool pretty stable. You know, prices go up in line with the underlying commodity costs. Is it fair to say that profits have to be down in fiscal 25 because the competitive environment has become tougher? You know, why would profits be down this year?

Speaker Change: Hi.

Robert Moskow: A question about coffee I think you're guiding coffee to a down year for profits and you also called out some competitive intensity.

Speaker Change: In Folgers.

Robert Moskow: You know typically you managed your profit pool pretty stable prices go up in line with the underlying commodity costs is it fair to say that that caught that profits have to be down in fiscal 'twenty five because the competitive environment has become tougher.

Speaker Change:

Speaker Change: Like why would profits be down this year, you know typically you've you've managed coffee profits flat.

Robert Moskow: Yeah, so Rob, from a year over year perspective within the coffee segment, we are going to see top line growth largely driven by the pricing action, volume volume will be sort of softer year over year as we think about just overall profitability in the portfolio we are seeing it sort of around flattish that's largely just driven due to the dynamics of increased costs and the price recovery and then the impact of elasticity and then we continue to support the portfolio through marketing over time as well and that kind of frames in a little bit of sort of a year over year change I'll just pause and let Mark talk to some of the category dynamics yeah sure Rob just a couple things, Number one, just acknowledging that the consumer is behaving a bit more cautiously. There's been some trade around, if you will, up and down in the category.

Speaker Change: Yeah, so rob from a year over year perspective within the coffee segment.

Speaker Change: We're gonna see topline growth largely driven by the pricing actions.

Speaker Change: Volume volume will be sort of softer year over year.

Speaker Change: As we think about just overall profitability in the portfolio.

Speaker Change: We are seeing it sort of around flattish that's largely just driven due to the dynamics of increased costs and the price recovery and then the impact of elasticity.

Mark T. Smucker: And then we continue to support the portfolio through marketing over time, as well and that kind of frames out a little bit of sort of a year over year change I'll, just pause there and let mark talk to some of the category dynamics, Yes sure Rob.

Mark T. Smucker: Just a couple of things.

Number one just acknowledging that the consumer is behaving a bit more cautiously theres been some trade around if you will up and down and in the category.

Robert Moskow: The cautiousness of the consumer has, and will continue to shift our portfolio to growth just like we did with moving into K-Cups and the partnership with Keurig and now focusing a bit more on some of our liquid and cold offerings. We're going to continue to do those things and again allow our portfolio to provide consumers with what they need across the entire spectrum of value. And regarding the comparison in the second quarter to the $39 million penalty that you absorbed, supplier penalty, is that an easy comparison in the second quarter coming up, or is it kind of like a cost of due? Yes, we.

Mark T. Smucker: The causes of the consumer has seems to have have activated a bit more competitive intensity in the category.

Mark T. Smucker: But again as my earlier comments, we're going to continue to do what we think is right for the category feel that that type of activity will will will normalize over time as it usually does.

Mark T. Smucker: And we will continue to do what we need to do which is invest in the business support our brands raise prices in a cautious and prudent way when we need to and continue to shift our portfolio to growth just like we did with moving into K cups in the partnership with <unk>.

Mark T. Smucker: <unk>.

Mark T. Smucker: And now.

Mark T. Smucker: Focusing a bit more on some of our liquid and cold offerings, we're going to continue to do those things in and again allow our portfolio to provide consumers with what they need across the entire spectrum of value.

Speaker Change: Okay and regarding.

Speaker Change: The comparison in second quarter or $2 million to $39 million a penalty that you absorbed a supplier penalty is that an easy comparison in the second quarter coming up or is it kind of like a cost of doing business.

Speaker Change: Yeah, we.

Tucker H. Marshall: When we experienced the one-time supplier payment in the second quarter of last fiscal year, we really offset that with other levers in the portfolio in support of delivering the full fiscal year. And so it really doesn't have a material benefit as we move forward. It just enables us to restore some of that spend that we pulled back against in order to absorb that impact in FY24.

Speaker Change: When we experienced a one time supplier payment in the second quarter of last fiscal year, we really offset that with other levers in the portfolio in support of delivering the full fiscal year and so it really doesn't have a material benefit to this fiscal year as we move forward.

Speaker Change: It enables us to restore some of that spend that we pulled back against in order to absorb that impact in FY 'twenty four.

Speaker Change: Thanks for the clarity.

Speaker Change: Thanks, Rob.

Operator: Thank you. As a reminder, that's star number one to be placed in the question queue. Our next question is coming from Matt Smith from Stiefel. Your line is now live.

Speaker Change: Thank you as a reminder, that star one to be placed in the question queue. Our next question is coming from that Smith from Stifel. Your line is now live.

Matthew Edward Smith: Hi, Mark. You talked about shifting the Encrustimals brand into a demand-driven growth environment versus a supply constraint. We've seen a fairly linear growth pattern as supply comes on to support the growth, and as you look to add, call it, $200 million in revenue over the next two years, should we think about that being fairly steady, or is there some growth phasing as you build up the investments around creating that demand-driven environment

Speaker Change: Hi, Good morning, Mark you talked about shifting the <unk> brand into a demand driven growth environment versus supply constraint. We've seen a theory, a fairly linear growth pattern as supply came on supporting the growth and as you look to add call it $200 million in revenue over the next two years.

Speaker Change: Should we think about that being fairly steady or is there some growth phasing as you build up the investments around creating that demand driven environment.

Speaker Change: Yeah.

Mark T. Smucker: Yeah, Max, our view is that it will be relatively steady. You know, we have brought on capacity and will continue to do so, which will support largely in line with our demand growth. And then our investments in the brand are really aimed at, again, increasing awareness and household penetration. There still is runway there.

Max: Max we have our.

Speaker Change: Our view is that it will be relatively steady.

Speaker Change: We have brought on capacity and we'll continue to do so which will support largely in line with with our demand growth and then our investments in the brand are are really aimed at again, increasing awareness and household penetration there still has runway there.

Matthew Edward Smith: You know, it's always surprising to us to hear that some consumers still don't know what an uncrustable is. And so there is opportunity to continue to reach new consumers through some of the traditional brand building and merchandising tactics. And that's really what we're aiming to do.

Speaker Change: It's always surprising to us to hear that some consumers still don't know what an impressive list and so there is opportunity to continue to reach.

Speaker Change: New consumers through some of the traditional brand brand building and merchandising tactics and that's that's really what we're aiming to do.

Tucker H. Marshall: Thanks, Mark. And Tucker, you talked about a follow-up question on lower contract manufacturing sales for PET.

Speaker Change: Thanks, Martin and took a you talked about.

Speaker Change: Follow up question on the lower contract manufacturing sales for pet you talked about a one point drag for the year, that's about $75 million or so if $35 million in the first quarter can you talk about the phasing of the remaining $40 million as we move through fiscal 'twenty five.

Matthew Edward Smith: You talk about a one point drag for the year, that's about $75 million or so. You have $35 million in the first quarter. Can you talk about the phasing of the remaining $40 million as we move through fiscal 25?

Speaker Change: It's a little more indexed in the first six months or the first half of the year and then it sort of levels off in the back half of the year. So I would say your predominant is going to come in the first half and then the balance will come in the second half.

Tucker H. Marshall: It's a little more indexed in the first six months or the first half of the year, and then it sort of levels off in the back half of the year. So I would say your predominance is gonna come in the first half, and then the balance will come in the second half.

Speaker Change: Thanks, Tucker I'll pass it on.

Operator: Thank you. The next question today is coming from Tom Palmer from the City of Atlanta. It is now live.

Speaker Change: Thank you next question today is coming from Tom Palmer from Citi. Your line is now live.

Thomas Hinsdale Palmer: Good morning, and thanks for the question. I wanted to actually follow up on kind of your two answers to Ken earlier. I think if we look at the Uncrustables investments, the $0.35 works out to roughly $50 million, and then you indicated that the base business marketing would be around $20 million. So, could we just bridge what kind of the difference is between the $50 million in Uncrustables versus, you know, total marketing being up by 20? And then you've noted $40 million in Uncrustables investments around startup in fiscal 24. Is there a point where some of these costs start to unwind, perhaps in fiscal 26? Thanks.

Thomas Hinsdale Palmer: Good morning, and thanks for the question I wanted to actually follow up on kind of your two answers to Ken earlier.

Thomas Hinsdale Palmer: I think if we look at the unprofitable investments of 35 works out to roughly $50 million and then you indicated that the base business marketing would be around $20 million. So could we just bridge what kind of the differences between the $50 million in across the bowls.

Thomas Hinsdale Palmer: Total marketing being up 20 and then.

Speaker Change: You've noted 40 million in and cross the malls investments around startup in fiscal 'twenty. Four is there a point where some of these costs start to unwind, perhaps in fiscal 'twenty six.

Thomas Hinsdale Palmer: Sure.

Tucker H. Marshall: So Tom, as you think about that 35 cent investment directionally, you're correct that it would equate to about $50 million. There are really sort of three areas that we continue to support. One is the manufacturing aspect, which is two components. It's the startup or pre-production costs along with the unabsorbed overhead. And so that's one component. The second component is the increase in marketing to support the brand development of Uncrustables that Mark spoke about.

Thomas Hinsdale Palmer: So Tom as you think about that 35 signed investment Directionally, you're correct that it would equate to about $50 million.

Speaker Change: Sort of three areas that we continue to support one is the manufacturing aspect, which has two components, it's the startup or preproduction costs, along with the unabsorbed overhead and so that's one component.

Speaker Change: Second component is the increase in marketing to support the brand development of on cross the bowls that Mark spoke to and then the third is as all around this merchandising promotion and trial net Mark also shared as well and that that's really what's driving the $50 million or 35 investment.

Tucker H. Marshall: And then the third is, is all around this merchandising, promotion, and trial that Mark also shared as well. And that's really what's driving the $50 million or 35 cent investment. We will continue to invest behind this brand in fiscal 26 and beyond. But what happens is, we begin to get favorable manufacturing absorption or contribution margin coming from the McCulloch plant as we get more saleable sandwiches, as we bring production online, and it helps us absorb those costs. Okay, thank you for that. Um, and then just wanted to ask about kind of COGS and pricing outside of coffee. Anything notable?

Speaker Change: We will continue to invest behind this brand in fiscal 'twenty, six and beyond but what happens is as we begin to get favorable manufacturing absorption or contribution margin coming from them or call a plant as we get more salable sandwiches as we bring production online and it helps us absorb those.

Speaker Change: Costs.

Speaker Change: Okay. Thank you for that.

Speaker Change: And then just wanted to ask on Contra Cogs and pricing outside of coffee anything notable to call out in terms of Cogs and then any any kind of pricing actions to consider elsewhere in the portfolio or not maybe not.

Thomas Hinsdale Palmer: https://TheBusinessProfessor.com Thomas Mark No

Mark T. Smucker: Thomas, Mark, no, actually, it's really where we're seeing the activity and the volatility in the green coffee space. And at this point, you never say never. But what we're seeing is generally costs holding relatively steady over the coming months.

Mark T. Smucker: Tom It's Mark no actually it's really where we're seeing the activity and the volatility has been in that in the green coffee space and at this point.

Speaker Change: You never say never but what we're seeing is generally our costs are holding relatively steady over the coming months.

Mark T. Smucker: Yeah.

Alright, thank you.

Operator: Thank you. Our next question today is coming from Rob Dickerson from Jeffries. Your line is now live.

Speaker Change: Thank you. Our next question today is coming from Rob Dickerson from Jefferies. Your line is that why.

Robert Frederick Dickerson: Great. Thanks so much. Good morning.

Robert Frederick Dickerson: Great. Thanks, so much good morning.

Tucker H. Marshall: Hello, Tucker, maybe just a quick clarification question on the on the stranded overhead costs for the year. I feel like previously, right, there was like a discussion around, you know, let's say the potential for those costs, um to ease maybe as you get to the year right and there are certain areas you can control before you exit the co-manufacturing agreement um and then there are areas that you really can't I guess address or attack until after you exit it so I'm just curious as as we think about the full year um could there be you know less of those costs as we get through those, Excuse me, through the year, that's one.

Rob Dickerson: Hello.

Speaker Change: Tucker, maybe just to kind of work.

Speaker Change: Clarification question on the on the straight overhead costs for the year I feel like previously you're right. There was like a discussion around.

Speaker Change: You know what's the.

Speaker Change: Tensile for those cost.

Speaker Change: To ease maybe as you get through the year right. I mean, there are certain areas equal control before you exit co manufacturing agreement.

Speaker Change: And then the areas that you really can't I guess, the draft or attack until after you exited.

Speaker Change: Just curious as we think about the full year could there be a lots of those costs as we get through the.

Speaker Change: Excuse me through the year, that's one and then two is just.

Tucker H. Marshall: And then two is just, you know, could there be areas where maybe, you know, the cost you're speaking to today could potentially be a little bit better than you think now. That's all, thanks.

Speaker Change: Could there be areas such that maybe.

Speaker Change: They know the costs, you're speaking to today could potentially be a little bit better than you know.

Speaker Change: No that's all right.

Tucker H. Marshall: Rob, we outlined today in our prepared remarks that we have a net neutral impact on stranded overhead year over year. So the 60 cent impact from last year is the same 60 cent impact this fiscal year. About halfway through this fiscal year, we'll kind of move on from the transition services agreement with post holdings. And the area that we'll begin to address post that time frame is really around our distribution or network environment that enables us to really pull those levers to address stranded overhead for fiscal year 26.

Robert Frederick Dickerson: Well, Rob we outlined today in our prepared remarks that we are a net neutral impact of stranded overhead year over year. So the <unk> <unk> impact from last year is the same 60 impact in this fiscal year about.

Robert Frederick Dickerson: About halfway through this fiscal year will kind of move on from the transition services agreement with post holdings.

Robert Frederick Dickerson: And the area that will begin to address post that time frame is really around our distribution or network environment that enables us really to pull those levers to address stranded overhead for fiscal year 'twenty six.

Tucker H. Marshall: At this stage of the game, I don't see any sort of benefits to stranded overhead based on our outlook, that 60 cent impact this year, meaning a no impact year over year is really the best outlook. And it really aligns to how the teams will address stranded overhead for the benefit of fiscal year 20.

Robert Frederick Dickerson: At this stage of the game I don't see any sort of benefits to stranded overhead based on our outlook. That's 60 impact this year, meaning a no impact year over year is really the best outlook and it really aligns to how the teams will address stranded overhead for the benefit of fiscal year 'twenty six.

Robert Frederick Dickerson: Okay, got it. And then just the follow-up is, you know, as you spoke to 26, which seems a long way away, but not that far, you know, being potentially above the long-term algo, which I think is high school digit, you know, is that it's kind of a fair assumption there is that, you know, part of that, or let's just say the conviction to provide that comment would be driven partially by some benefit of the shared overhead relative to year plus outlook on the basis.

Speaker Change: Okay got it and then just a follow up as you know as you spoke to 'twenty six we're still long way away, but it's not that far.

Speaker Change: Being potentially above the long term algorithm, which I think is high single digit.

Speaker Change: It's kind of a fair assumption there is that part of that.

Speaker Change: Or let's just say the conviction to provide that comment would be driven partially by some benefit of the shared overhead relative to.

Tucker H. Marshall: Thanks. That's it. Rob, that's correct.

Speaker Change: Year plus outlook on the basis that's it.

Tucker H. Marshall: Rob, that's correct. As we think about fiscal year 26, a benefit or tailwind should be relieving stranded overhead.

Robert Frederick Dickerson: Rob that's correct as we think about fiscal year 'twenty six.

Robert Frederick Dickerson: Benefit or tailwind should be relieving stranded overhead.

Speaker Change: Super Thank you.

Operator: Thank you. The next question today is coming from Max Gumport from BNP Parabyte. The line is now live.

Speaker Change: Thank you. Your next question today is coming from Max comfort from BNP Paribas. Your line is now live.

Max Andrew Stephen Gumport: Hey, thanks for the question. With retail commentary over the last several weeks about pricing rollbacks, I was just curious if you could talk about what you're seeing on this front and how you'd characterize the pricing environment.

Max Andrew Stephen Gumport: Hey, Thanks for the question was retail commentary over the last several weeks about pricing Rollbacks I was just curious if you could talk about.

Max Andrew Stephen Gumport: What you're seeing on this front and how you'd characterize the pricing environment.

Mark T. Smucker: I'm not sure it's Mark and I was expecting that question. So, remember, you know, we've got really great partnerships with our retail customers and almost a dozen category advisorships across our categories, so generally speaking, we're seeing our relationships and our partnerships with our retailers sort of as business as usual and continuing to manage and use the levers that we have in front of us, whether that's, you know, different types of trade or merchandising or promotions, making sure that we're being transparent with those customers.

Matt: Matt sure, it's Mark and Adam is expecting that question.

Matt: [laughter].

Matt: So.

Speaker Change #100: Remember, we've got really great partnerships with our retail customers and almost a dozen.

Speaker Change #100: Category adviser shifts across our categories. So.

Speaker Change #100: Generally speaking, we're seeing our relationships and our partnerships with our retailers sort of as business as usual and continuing to manage.

Speaker Change #100: And use the levers that we have in front of us whether that's different types of trade or merchandising and promotions, making sure that we're being transparent with those customers. Obviously, you've heard us talk a little bit about the price increase on coffee and then largely seeing our cost basket hold steady at.

Mark T. Smucker: Obviously, you heard us talk a little bit about the price increase on coffee and then largely seeing our cost basket hold steady, at least for what we can see over the next several months. So, from our perspective, it's really been business as usual, and we have not seen undue pressure to take additional pricing down because, quite frankly, the cost basket just simply doesn't justify that.

Speaker Change #100: Lease for what we what we can see over the next several months so.

Speaker Change #100: From our perspective, it's really been business as usual and we have not seen.

Speaker Change #100: Undue pressure to take.

Speaker Change #100: Additional pricing down because quite frankly, the cost basket, just simply doesn't justify that.

Max Andrew Stephen Gumport: Great. And then my follow up is trying to tie together a few of the last questions we've heard on the call, which which it's around the coffee lap in 2Q in terms of that $39 million impact and 29 cent impact to EPS. So it sounds like it's not an easy lap because, you also, https://www.youtube.com.au

Speaker Change #101: Great and then my follow up I was trying to tie together a few of the.

Speaker Change #102: Last question, so you've heard on the call, which which is around the coffee lap into Q in terms of that $39 million impact in 2009 cent impact to EPS it sounds like not an easy lap.

Speaker Change #102: Because you also.

Speaker Change #102: It can restore some marketing this year.

Speaker Change #103: That's the case why is the base business marketing of I think it was $20 million.

Speaker Change #104: Im not going up by even more is there anything I'm missing there in terms of as a.

Speaker Change #105: The restoration of coffee marketing is that also in that base business marketing number you've discussed thanks I'll leave it there.

Tucker H. Marshall: Yeah, Max, I think the framework that you have is correct. You know, we're definitely lapping the one-time supplier payment. We pulled levers in fiscal 26 to offset that for the benefit of delivering the fiscal year. Some of those activities or items are coming back this fiscal year, largely in support of the business. You know, coffee marketing will be sort of maybe flat to slightly up year over year. But I wouldn't necessarily read into that.

Speaker Change #106: Yeah. So Max I think the framework that you have is correct.

Speaker Change #107: We're definitely lapping the one time supplier payment.

Speaker Change #107: Pulled levers in fiscal 'twenty six to offset that for for the benefit of delivering this fiscal year some.

Speaker Change #107: Some of those activities or items are coming back in this fiscal year largely in support of the business.

Speaker Change #107: Coffee marketing will be will be sort of.

Speaker Change #107: Maybe flat to slightly up year over year I wouldn't necessarily read into that we always are sharpening the pencil on our marketing spend and making sure that it's the most efficient we have other investments that we do make within the portfolio as well and then lastly is as we continue to support the entire portfolio of the J M Smucker company.

Tucker H. Marshall: We are always sharpening the pencil on our marketing spend and making sure that it's the most efficient. We have other investments that we make within the portfolio as well. And then lastly, we continue to support the entire portfolio of the J M Smucker company in terms of reinvesting in our brands. And we're doing that, you know, throughout the portfolio. You'll not only see that in coffee; you'll see it in frozen handhelds and spreads for pets. And then you'll also see it in the sweet baked snack segment as well.

Speaker Change #107: In terms of reinvesting in our brands and we're doing that now.

Speaker Change #107: Throughout the portfolio not only see that in coffee, you'll see it in frozen handheld and spreads within pet.

Speaker Change #107: And then you also see that in the sweet baked snack segment as well.

Speaker Change #108: Thanks very much.

Operator: Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to you for any further closing comments.

Thank you we've reached end of our question and answer session I'd like to turn the floor back over for any further closing comments.

Mark T. Smucker: Well, thank you. And I just wanted to acknowledge we had a great year. And that has energized our teams, our people continue to do just amazing work. And we continue to remain in a very strong financial position to deliver profitable growth and increase shareholder value all the way through this year. And then, obviously, feeling good about the following year 26.

Speaker Change #109: Well. Thank you and just appreciate everyone. Joining us this morning, and I just wanted to know that we had a great year and that has energized our teams. Our people continued to do just amazing work.

Speaker Change #109: And we continue to remain in a very strong financial position to deliver profitable growth and increase shareholder value.

Speaker Change #109: All the way through this this year and then obviously feeling good about the following year 26, I did want to just take a moment to thank Aaron brought home.

Mark T. Smucker: I did want to just take a moment to thank Aaron Broholm. He has just been a fantastic partner over these many years, and so he will definitely be missed.

Speaker Change #109: He has just been a fantastic partner.

Speaker Change #109: Over these many years and so he will definitely be missed and we want to support Erin.

Mark T. Smucker: And we want to support Aaron in his future endeavors. So I just want to take a moment to thank Aaron and welcome Crystal, who is in the room today. Crystal is going to do a great job, and I'm just very pleased with this team, not just the team in the room, but every one of our employees and the work that they do every day. So, thank you, and have a great day, and I hope everyone enjoys their summer.

Speaker Change #109: And in his future endeavors. So just wanted to take a moment to thank Aaron.

Speaker Change #109: And welcome Crystal who is in the room today I'm, Chris who is going to do a great job and I'm. Just just very pleased with this team not just his team in the room, but every one of our employees and the work that they do every day. So thank you and have a great day and hope everyone enjoys their summer.

Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.

Speaker Change #110: Thank you that does conclude today's teleconference and webcast you may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.