Q3 2025 J M Smucker Co Earnings Call - Q&A
Speaker Change: reproduction of Plangolch's banjo by Presentation of Emeralds with the incredible power of plastic from these pilgrims from the various parts of the world presented by Irene
Speaker Change: Good morning and welcome to the J.M. Smucker Company's fiscal 2025 third quarter earnings question and answer session. This conference call is being recorded and all participants are in a listen-only mode.
Speaker Change: Please limit yourselves to two questions and re-cue if you have additional questions.
Speaker Change: I'll now turn the conference call over to Crystal Beiting, Vice President, Investor Relations and Financial Planning and Analysis. Thank you. You may begin.
Crystal Beiting: Good morning and thank you for joining our fiscal 2025 third quarter earnings question and answer session.
Crystal Beiting: 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 jmsmucker.com. We will also post an audio replay of this call at the conclusion of this morning's Q&A session.
Unknown Executive, Crystal Beiting
Crystal Beiting: During today's call, we may make forward-looking statements that reflect our current expectations about future plans and performance.
Crystal Beiting: These statements rely on assumptions and estimates, and actual results may differ materially due to risks and uncertainties.
Crystal Beiting: 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 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.
Crystal Beiting: We will now open the call for questions. Operator, please queue up the first question.
Crystal Beiting: Thank you the question and answer session will begin at this time.
Speaker Change: Should you have a question, please press star 1 on your telephone keypad.
Speaker Change: If you wish to withdraw your question, please press star 2.
Speaker Change: As a reminder, please leave yourself to two questions during the Q&A session. Should you have additional questions, you may re-queue and the company will take your questions as time allows.
Speaker Change: Our first question today is coming from Andrew Lazar from Barclays, your line is now live.
Great. Thanks so much. Appreciate it. Maybe to start.
Speaker Change: Comparable sales in fiscal 3Q declined a bit more than 1%.
to hit the revised 25 sales target.
Speaker Change: Obviously, you see improvement in PET as the disruptions are now behind you. It seems that sweet fake snacks will probably decline at a somewhat similar rate maybe as the third quarter. So, I guess I'm trying to get a better sense of where else you're seeing improvement that underpins the expected sequential sales improvement in 4Q.
Unknown Executive, Crystal Beiting
Unknown Executive, Crystal Beiting
Speaker Change: Andrew, good morning. You did lay that out correctly. We do align with your math, but I do want to share that we do see the sequential improvement on a comparable basis, largely driven within our pet portfolio, as you have noted, along with better-than-expected outlook within our coffee portfolio as well.
Unknown Executive, Crystal Beiting
Speaker Change: Yes, Andrew, our guidance revision from 8% at the midpoint on a reported basis down to seven and a quarter percent at the midpoint of the new guidance range, that change reflects about $60 million.
Speaker Change: And really what it relates to are two things. First, it largely is driven by the miss in our second or third quarter, excuse me, the net $20 million miss. And then also the call down and hostess by approximately $20 million in our fourth quarter as well.
Got it. Great. Thanks so much.
Unknown Executive, Crystal Beiting
Speaker Change: Thank you. Next question is coming from Ken Goldman from JP Morgan. Your line is now live.
Speaker Change: on Goodwill as well as a $200 million dollar impairment charge.
Speaker Change: And that's, you know, that's approaching 20% of the price you paid for hostess. So I wanted to back up a second, you know, over the years, you've had some very successful acquisitions, right, including Folgers.
Speaker Change: You know about a little bit about the process of some of your acquisitions and you know, no one bats a thousand But as you progress further with your ownership of this hostess asset
Speaker Change: That can it's Mark. Thanks for the question. You know, we remain very confident in the hostess acquisition.
Speaker Change: Right, we still believe that it was the right acquisition driven by obviously an iconic brand. It's a leading brand the underlying trends in snacking and specifically sweet snacking still bode well for
Speaker Change: the category. I think, you know, as we talked at Cagney last week,
Speaker Change: It's fair to say that we recognize that the performance has not been where we wanted, primarily driven by two things. One, the category temporarily being down driven by
a bit more selective consumer.
Speaker Change: And then, although the integration or the cut over itself went very well, acknowledging that we've had some executional missteps.
Speaker Change: that are less related to the integration and more related to distribution, merchandising, and just the way that we executed our normal playbook not being quite up to our own standards.
Speaker Change: That said, you know, obviously going back to our confidence in the brand, you know, we outline five
and in the prepared remarks as well as last week.
Speaker Change: I very specific actions that we're taking to stabilize the brand.
Speaker Change: And obviously, this morning announcing some new leadership changes, which are really intended to accelerate the pace of implementation on those five pillars that we discussed.
Speaker Change: and very confident in in that team and that that leadership to continue to drive that and use our proven commercial playbook.
Speaker Change: to to continue to stabilize that business. So although we, you know, we haven't given timeframes and so forth in terms of returning to growth.
We still do feel very bullish about
Speaker Change: The brand and obviously, you know, part of that was the portfolio evolution of getting more focused on hostess divesting.
Speaker Change: the value brand as well as Vortman. So still feel very good about it. Appreciate the question and
We'll continue to report back to our shareholders.
Speaker Change: on the progress of those five pillars and how the leadership is delivering it.
against it.
Unknown Executive, Crystal Beiting
Speaker Change: And thank you, Mark, for that transparency. I really do appreciate it. Tucker, if I can ask a different question quickly. You talked last week at Cagney how
Speaker Change: Fiscal 26, too early to obviously give any numbers, but you said you're hoping for or you were you would expect it to be above algo Before the impact of elasticity related to green coffee inflation I think there were some questions coming out about you know again in light of or with
Speaker Change: With respect to the fact that you can't give exact numbers, would you expect to be more on ALGO, below ALGO, all in, or is it just too early to say at this point?
Unknown Executive, Crystal Beiting
Unknown Executive, Crystal Beiting
And thank you.
Speaker Change: It's it's too early to call it right. We're in the early innings of our planning phase for next fiscal year.
Speaker Change: What we wanted to do last week at Cagney was outline the elements that we were considering.
Speaker Change: And we did share that we could see a path to an above algorithm year for adjusted earnings per share.
Speaker Change: However, due to green coffee inflation, and the impact associated with price elasticity of demand, it will be a meaningful headwind as we enter into FY 26. And it's just too early to call whether there'll be a level of earnings growth or not.
Speaker Change: Thank you so much, and if I may just on coffee, you know, I think.
Speaker Change: We've been pleased with the performance of the coffee business in total and the consumer response to obviously pricing, but of course our support of the brand, our merchandising, our marketing as well.
and just reminding ourselves.
Speaker Change: that at-home coffee is still very healthy in terms of consumption and also being by far the most affordable way to consume coffee compared to all other channels or other formats.
Speaker Change: I think, you know, just given the fact that we play across the value spectrum and we and we do offer the consumer a range of choice and value, we still feel very good about the coffee category overall.
Unknown Executive, Crystal Beiting
Unknown Executive, Crystal Beiting
Peter Galbo: Thank you. Next question is coming from Peter Galbo from Bank of America. Your line is now live.
Hey guys, good morning. Thanks for taking the questions.
Speaker Change: Mark Tucker, just just going back to the comments from last week.
Speaker Change: Just curious if there's anything more you can share with us, you know, post the June and October price increases, when we might think about seeing an additional price increase and any parameters you want to put around potential magnitude, just as we begin to contemplate both the fourth quarter and 26.
Speaker Change: Yeah, Peter, we haven't laid out any specific timing, but as you as you will recall, we take pricing when our physical costs.
dictate that. So, you know, we're using all of our
in the next fiscal year, probably in the first half.
Unknown Executive, Crystal Beiting
Unknown Speaker I guess I just wanted
Speaker Change: understand kind of the dynamics of obviously taking the impairment relative to
Speaker Change: Yeah, Peter, the impairment charges that we announced today and recognized really relate to the recent underperformance of the hostess brand and the overall portfolio.
Speaker Change: As you know, we stepped into this fiscal year with an outlook for $1.4 billion of top line for that portfolio.
Speaker Change: and we shared on our prepared remarks that the outlook is now 1.2 billion.
Speaker Change: and the Vortman impact or the Vortman divestiture is only $65 million of that change. It's just a demonstration of the impacts that we're seeing not only in the category, but also across execution that Mark spoke to.
Our focus today is the leadership changes that we've announced.
Speaker Change: and eventually returning the portfolio to growth over time. Currently, we have not walked away from our long-term outlook of 4% for the business. But right now the focus is on stabilization and advancing through those pillars.
Unknown Executive, Crystal Beiting
Great, thank you.
Unknown Executive, Crystal Beiting
Speaker Change: Thank you. Next question is coming from Chris Carey from Wells Fargo. Your line is now live.
Unknown Executive, Crystal Beiting
Unknown Executive, Crystal Beiting
Speaker Change: Unknown Speaker Hey, good morning, everyone. I'm going to have a confirmation like a question to confirm, you know, Ken Goldman's question and then a second follow up. So just on the response that Ken's question around,
Speaker Change: Are you the the comment that you made when you say a level of earnings growth?
Speaker Change: Are you saying you're unclear as to whether you will grow earnings in Fiscal 26?
Any context there might be helpful that I follow up.
Press.
Speaker Change: It's difficult to call FY 26 Outlook today. We can certainly do that on our fourth quarter earnings call as we walk through our and complete our planning process.
Speaker Change: What I want to acknowledge is that at Cagney we outlined the elements that we were considering for our earnings and for our top line.
Speaker Change: and in that we saw the opportunity to be above algorithm growth for FY26.
Speaker Change: But what we've also shared is that the green coffee commodity continues to trade at record highs and will be a meaningful headwind to our financial outlook for next fiscal year.
And that's where we stand today.
Speaker Change: Okay, yeah, I realized that was kind of an unfair question, but I figured I'd ask. Regarding the coffee business,
Speaker Change: In your prepared remarks, you said that elasticities were actually trending in line or better than your expectations. I think in the quarter, it was a bit worse than.
Speaker Change: Unknown Speaker 0.5. Can you maybe just unpack that comment and
Speaker Change: How the cough at home coffee performs at being a very affordable, you know, a fraction of the cost of other channels, right? So
Speaker Change: versus say a coffee shop or an energy drink, for example, coffee is
a brewed cup of coffee, even a K cup.
Speaker Change: is a fraction of the cost. So it is very affordable.
Speaker Change: Consume coffee and We remain very confident in our ability to to continue to invest in the brands Offer the consumer a range of options from value to premium and choice
Speaker Change: And we do expect from a coffee commodity perspective that, you know, these things are cyclical and although we are at, you know, higher costs, we do expect the commodity over time to normalize.
Unknown Executive, Crystal Beiting
Speaker Change: Yes, if I might just add one comment is that, you know, we manage.
Speaker Change: through as a leader, you know, we're we always as we think about taking price we want to
and to the extent that we support margins, it's
Speaker Change: Pulling the other levers at our that are available to us
Speaker Change: Unknown Speaker such as price pack architecture, our hedging strategy, formulation, flexibility, those types of things. So from a pricing perspective, again, it's just, you know, recovering dollar for dollar, but then supporting our margin through those other levers.
Okay. All right. Thanks, guys. Appreciate it.
Unknown Executive, Crystal Beiting
Unknown Executive, Crystal Beiting
Unknown Person: Thank you. Next question today is coming from Robert Moscow from TD Calendar. Your line is now live.
Unknown Executive, Crystal Beiting
Unknown Executive, Crystal Beiting
Unknown Person: Hi, thanks for the question. I guess I'll ask fiscal 26 in a different way and Tucker, maybe you could answer it differently or not, but I would imagine by division.
Speaker Change: Unknown Speaker And then, you know, sweet fake snacks. I mean, I, I would imagine you could have profit growth because of these synergies.
Speaker Change: Unknown Speaker But then again, I don't know if it's going to get reinvested. And I also don't know if the synergies all flow through to that segment or not. So if there's any way you could maybe just address more broadly on those three, I'd appreciate it.
Speaker Change: Rob, it's it's difficult to give you the puts and takes by business for our financial plan for next fiscal year when we haven't completed that journey.
But what I can offer is, is that, you know,
Speaker Change: Your framework is a framework, and you'll have to make your own estimates or assumptions. Two is I would just acknowledge that stranded overhead does impact PEP, but it impacts other elements of the total company.
Speaker Change: And I would acknowledge too that not all synergies flow directly to the Sweetbake Snacks segment. Some will flow into the corporate area as well.
Speaker Change: We did share on the Synergy Front that we are tracking toward the $100 million objective.
Speaker Change: by the end of fiscal year 26. We will probably exit this fiscal year with about 70 million toward that 100 million run rate, leaving about 30 million in 26. So hopefully those are just some additional points that will help your modeling.
Unknown Executive, Crystal Beiting
Speaker Change: It does. Thanks. And maybe a follow-up. For fourth quarter, you know, the guidance implies a pretty substantial decline in profit year-over-year. Is a lot of this happening in coffee because of the price-cost relationship or is it more spread out by division?
Unknown Executive, Crystal Beiting
Unknown Executive, Crystal Beiting
Hello.
Speaker Change: Yeah, so I think it's a couple of things as you walk through that. I just was checking the charts. Yes, you will see that coffee in the fourth quarter will step into its highest cost basket out of the four quarters. You will see continued investment and frozen handheld and spreads. And you see the continued call down and sweet baked snacks.
Unknown Executive, Crystal Beiting
Great. Okay. Thank you.
Unknown Executive, Crystal Beiting
Speaker Change: Thank you. Next question is coming from Tom Palmer from the city, your line is now live.
Speaker Change: Morning, thanks for the question. Maybe I could just open following up what you just said on frozen handhelds and spreads. I think at the start of the year you discussed around $50 million.
Speaker Change: or 35 cents earnings in kind of earnings overhang from startup costs and other investments.
Speaker Change: a year ago when you were going through the pre-production class, I think we've gotten some quantification by quarter. Just any help in terms of what we saw in the third quarter in terms of those investments and then maybe how to think about the fourth quarter. Thanks.
Speaker Change: Sure. So you are correct, Tom. We did call at the beginning of this fiscal year 35 cent.
Speaker Change: Headwinder investment within that portfolio really broken down into thirds. One was supporting promotion and merchandising.
Speaker Change: Two was supporting incremental marketing on the portfolio, and then three was just the ongoing McCullough manufacturing expenses, whether they be pre production expenses or just the overhead absorption.
Speaker Change: You know, as you think about sort of the the quarters, the fourth quarter really came in line with with the prior year, maybe slightly better, because pre prod did come in a little pre production expenses, excuse me, did come in a bit favorable.
Speaker Change: As you think about the fourth quarter, we're probably just slightly better year over year, but we will continue to see the elevated marketing as we support the brand.
Unknown Executive, Crystal Beiting
Speaker Change: Okay, thanks for that. And then on the on the pet segment, you had the comment about low single digit growth in the third quarter, excluding both the contract manufacturing and the disruptions. I just want to clarify.
Speaker Change: The disruption, do they linger into 4Q or should it be a clean quarter? And then, to what extent, if at all, did the disruptions cause you to pull back on merchandising and other brand support that might ramp in 4Q? Thanks.
Unknown Executive, Crystal Beiting
Speaker Change: Yeah, so you are correct. We did call out a $30 million supply chain disruption primarily impacting our U.S. retail pet food segment.
Speaker Change: That that did hit us in the third quarter, as I've noted, it is behind us. We do view it as one time.
Speaker Change: in nature. We are working through being back on shelf in stock, full distribution, primarily on the Milkbone brand. That did happen in the third quarter. There is some element of that in the fourth quarter, but nothing material or significant to call out.
Speaker Change: and I just would acknowledge that there's really, there's really no sequential or delay or incremental investment that we're going to see.
see you in the fourth quarter. I'm Pat.
Unknown Executive, Crystal Beiting
Unknown Executive, Crystal Beiting
Unknown Executive, Crystal Beiting
Speaker Change: Thank you. Next question today is coming from Alexia Howard from Bernstein. Your line is now live.
Good morning, everyone. I'm just coming back to host it.
Speaker Change: Unknown Speaker Perhaps due to GLP-1s or consumer interest in longevity and concerns about heavily processed foods and disease.
Speaker Change: Unknown Speaker Just curious about what it is about the data that makes you confident that this is just a temporary problem rather than something a little bit more more long term.
Speaker Change: There Alexia, you know, we from a GLP one standpoint, we update our data at least monthly.
Speaker Change: Right, and we look at trends and all the impacts on, you know, snacking generally and sweet snacking specifically, and we continue to not see material impact to the category. So I would.
Speaker Change: Discretionary change in their in their pocket. I think that is that is clearly part of it and so we don't see
We are not attributing to that.
Speaker Change: to the decline in the category to the GLP-1. And we do acknowledge our own
Speaker Change: Executional missteps, which we are obviously in the process of changing.
Speaker Change: and improving. I would also just highlight that donuts continue to perform very well and the breakfast occasion.
is performing well as well.
just to highlight that.
Unknown Executive, Crystal Beiting
Speaker Change: Yes, sure. GF is performing very well. We had a little bit of a down quarter. I would just remind you that we've had a really strong first half of the year.
Speaker Change: and so there's just a little bit of timing there but but we expect the GIF brand to continue to perform as it has.
Speaker Change: I wouldn't expect anything out of the ordinary and you'll see that the share, the share prices or the share performance has been pretty consistent. So feeling good about peanut butter in general, then on fruit spreads, as I think we've mentioned, we've had a bit of
Speaker Change: competitive activity. And we are now turning on back on some some pretty strong marketing and advertising and so would expect to see some stabilization in the fruits beds category as well in our brand.
Great. Thank you. I'll pass it on. Appreciate it.
Unknown Executive, Crystal Beiting
Unknown Executive, Crystal Beiting
Speaker Change: Thank you. As a reminder, that's star one to be placed into question Q.
Scott Marks: Our next question is coming from Scott Marks from Jeffries, your line is now live.
Scott Marks: Hey, good morning. Scott Marks here on for Rob Dickerson. Thanks for taking our questions.
Scott Marks: First one I wanted to ask, just turning back to the sweet snack category.
Scott Marks: I guess, given the current dynamics, everything that you've spoken to today, and certainly over the past few weeks,
Have you seen any maybe pushback from retailers?
just in terms of, you know, plan a grant.
Scott Marks: the new channels for speaking to any any hesitancy from from those folks to add more from the sweet snack category.
For more information visit www.fema.gov
Scott Marks: No, Scott, we haven't. In fact, we're working pretty closely with our retailers to
Unknown State of, State of Kansas City.
Scott Marks: the new fiscal year. So honestly, our our conversations and as you know, we get into the new mod resets in the in the coming months, we feel pretty confident about how we'll show up on shelf.
Unknown Executive, Crystal Beiting
Unknown Executive, Crystal Beiting
Unknown Executive, Crystal Beiting
Speaker Change: Got to appreciate that. And then second question from me, you know, I know there's been obviously a lot of a lot of discussion about coffee. Obviously, the inflation has been evident and, you know, tied into inflation.
Speaker Change: that we see also in COCO recently and just in terms of questions about sustainability of supply and
you know, stability of
Cocoa Growing Regions, let's say.
Speaker Change: Unknown Speaker Do you feel there's anything to that with regards to the coffee commodity, just in terms of, you know, maybe concerns about sustainability or need to kind of expand, kind of expand production more, more globally? Just wondering if you can kind of speak to that and what's what's been happening.
Speaker Change: Got it. If I understand your question, I think this really comes down to just
is the cyclical nature of the commodity, right? And what
Speaker Change: What you're seeing in the in the in the commodity is simply Fundamentals, we've had a supply deficit, you know, this is a fifth year in a row where there's been
Speaker Change: a relative undersupply. World demand for coffee continues to be strong. You know,
Speaker Change: But we do view that as we've been in the coffee, you know category for almost 50 years 15 years one five the the the commodity is cyclical and we do expect just as historical that over time that the commodity will moderate
Speaker Change: And there's been a significant amount of progress with ourselves participating both in
Speaker Change: supporting smallholder farmers and helping them improve their their crops in various regions around the world, as well as breeding programs that are looking at coffee.
Unknown Executive, Crystal Beiting
Unknown Executive, Crystal Beiting
Speaker Change: Thank you. Next question is coming from Max Gumpert from BNP Parabiner, Linus.Live.
Unknown Executive, Crystal Beiting
Crystal Beiting: Thanks for the question. Last quarter you discussed an expectation for coffee segment profit margin to be in a mid to low 20% range in the second half of this year. You just printed a 28% margin.
Speaker Change: Can you help frame what led to that much better than expected result? I think there was a call out on favorable property taxes, which I'm not sure would have been anticipated. But really, I'm looking for more color on the interplay of pricing, commodity inflation.
Elasticity, Deleverage, and then other cost savings. Thanks very much.
Speaker Change: Max Coffey had a nice quarter third quarter from a top line perspective and and that did materialize and in the margin
Speaker Change: and the margin did come in slightly better than we anticipated and it's largely due to the way that price elasticities are holding in and we're delivering, you know, volume mix.
Speaker Change: It's also the way that we continue to manage the cost structure of the overall business or portfolio. And so you're just seeing that favorability come through in the third quarter.
Speaker Change: We would just remind you that as you step into the fourth quarter, that will come down as we basically now have the highest cost basket in our fourth quarter, so we will see that come down for from the third to the fourth quarter sequentially.
Speaker Change: And that's largely just driven, again, due to the underlying green coffee commodity costs and also our continued price elasticity of demand factor.
Unknown Executive, Crystal Beiting
Speaker Change: Thanks. And then just going back to the billion dollar impairment charge for Sweetbake Snack. So it sounds like you mentioned that
Speaker Change: Your $1.4 billion sales target for this year has come down to $1.2.
Speaker Change: But I'm trying to get a better sense and also that you're still sticking to the 4% long term growth rate. I'm trying to get a better sense for them. But what is driving the billion dollar impairment charge doesn't feel to me like a.
Speaker Change: at $200 million cut to sales in one year would be the driver of that. And I think it's really much more based on your long term free cash flow expectations.
Speaker Change: for this business. So could you provide a bit more context on what has changed that has led to that impairment charge today? Thanks very much.
Speaker Change: Yes, Max. So the impairment charges are broken down into two components. The first component is the business unit charge.
Speaker Change: and the business unit charge really is impacted by the top line performance. So as you see the diminishing top line performance, it obviously impacts profit and the impairment charge associated with the business unit is at the profit level.
Speaker Change: to is is that we're not anticipating to recover that base. So we will be stabilizing from this reduced base and then growing at some point over time.
Speaker Change: And currently we do remain focused on the long-term 4% growth. And then at the brand level, that is all driven by sales. And so the sales performance is also getting caught up into that component of the impairment charge as well. Hopefully that helps.
Yep, thanks very much. I'll pass it on.
Speaker Change: Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over for any further closing comments.
Unknown Executive, Crystal Beiting
Speaker Change: Well, thank you all for your time and joining our call this morning. It was great to see many of you at Cagney last week where we were excited to share our strategy and why we are confident in the future of the company.
Speaker Change: And I think that came through loud and clear. Our legacy business continued to deliver positive results in our third quarter, building on our strong year-to-date performance.
Speaker Change: and we are taking action to return the hostess brand to growth, including leadership change we announced today and the progress we are making on advancing our Sweet Baked Snacks strategy.
Unknown Executive, Crystal Beiting
Speaker Change: We are delivering positive results in a dynamic operating and consumer environment.
Speaker Change: And I am confident in our strategy and believe that we continue to be in a strong position to deliver long term growth and increase shareholder value based on the continued momentum that you've seen and our ongoing portfolio reshape.
Speaker Change: All of this would not be possible without our outstanding employees. So as always, I would like to thank them for their continued hard work and dedication to our company.
I hope you all have a great day.
Thank you.
Speaker Change: Everyone, that does conclude today's conference call. You may disconnect and have a wonderful day. We thank you for your participation today.
Unknown Executive, Crystal Beiting
Unknown Executive, Crystal Beiting