J.M. Smucker Company (The) (SJM) Q1 2027 earnings call transcript

I will now turn the conference call over to Crystal Biting, Vice President, Investor Relations, Financial Planning and Analysis. Thank you. You may begin. Good morning, and thank you for joining our fiscal 2027 first 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 jmsmucker. 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. These statements rely on assumptions and estimates, and actual results could differ materially due to risks and uncertainties.

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 Participating on this call are Mark Smucker, Chief Executive Officer, President and Chair of the Board, and Tucker Marshall, Chief Financial Officer, Executive Vice President, Frozen Handheld and Spreads and Sweetbaked Snacks.

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

Andrew, good morning. Yes, we did receive an 84-cent benefit from tariff refunds in our first quarter, and we are choosing to reinvest a portion of that in SDNA expenses, largely coming through administrative expense, along with some incremental marketing spend and advancing pre-production expenses associated with our McCullough, Alabama facility, all in support of the Uncrustables brand. And then acknowledging, too, that we would use the balance of earnings or cash to pay down debt.

Andrew, it's Mark. Thanks for the question. You know, you are correct. Because the commodity has continued to be very volatile, which particularly this time of year is not unusual, We just feel that it's prudent, given not only the commodity but category dynamics and the consumer environment, to just think about the coffee business from a prudent perspective. I would highlight that, as you pointed out, great results in the quarter on all three of our key brands with Bustelo growing, supported by the Game Face campaign around soccer, and then Dunkin' having relative pricing in line with where it needs to be. All of that has been supportive, but it's just, again, making sure that we're thinking about the go-forward from a prudent perspective.

Peter, it's Mark. So, as I just mentioned, you know, this time of year and obviously speculation around weather and so forth is not unusual. And we had contemplated a list price decline at the end of the fiscal and wanted to just acknowledge that the commodity, the base commodity is down versus last year. But we have not crossed key thresholds that would actually justify, nor have we seen sustained deflation at this point. So having not crossed key thresholds, we won't take a list price decline at this point. But we have passed along some of that deflation to consumers in the form of trade using those levers, which is pretty normal. You know, we will continue to watch the crop.

The indications are having essentially finished the harvest that the crop is healthy and there could be a surplus. But at this point, since we have not seen that flow through, we'll just, you know, pause and continue to watch where the commodity goes and, again, take a prudent approach.

Peter, good morning. You know, we remain committed to a balanced capital deployment model where we can reinvest in the business and also return capital to shareholders. So we are on the journey to pay down about $500 million of debt this year and achieve the three times leverage ratio, which candidly we did in this first quarter. So we're a little ahead of expectations, and we remain committed to the quarterly dividend, which we recently announced an increase, and we now have the flexibility to begin contemplating share repurchases as we move forward.

Yeah, we are experiencing mid-single-digit inflation as you isolate the effects of green coffee tariffs and tariff refunds. And when you think of that sort of underlying mid-single-digit inflation, we're seeing an increase from our initial expectations coming into the year, largely driven by freight and some commodity and other ingredients. And that's been factored into our guidance for the balance of the year.

I guess, how sustainable do you think about the margins we've been seeing lately in this business, and at what point do we really start to see the pre-production costs that McAllen become a factor?

Yeah, we delivered a nice first quarter, both from a top-line momentum standpoint and also the profitability flowed through as well. As we think about the business, we continue to support growth. We now expect sort of high single-digit growth for the Uncrustables brand, Total Company, Total Venture. And as we move forward, we'll continue to support the portfolio with ongoing marketing advancements and also ensuring that we continue to bring production along as we support demand.

And as you can see, or you may have read, we are increasing pre-production expenses for the year in support of the McCullough, Alabama facility. And so the margin profile may take a slight step back in our next few quarters, but the profile continues to remain strong.

Sure, Rob. It's Mark. Actually, really solid quarter on dog snacks, and in particular, pepperoni. We still feel that the category of dog snacks is a great one, so we do want to continue to participate with the brands we have. Pepperoni was up 5% in net sales and 7%, so it was a strong quarter, largely driven by some brand refat, Fresh, sharper marketing, and some specific events at some of our larger customers that were helpful.

And then Milk Bone also had a good quarter, returning it to volume growth that was supported by innovation, winning in the soft and chewy segment, good marketing there. I think we've said in quarters past that we continue to focus on continuing to stabilize the biscuit segment through messaging around dog enjoyment and functional benefits. So more to come on that, but ultimately very positive on the dog snacks category.

And then it goes without saying we had a solid quarter on cat food as well.

Jerky Treats was down.

Yeah, Chris, we do believe that there is ongoing business momentum as we head into our second quarter, and we continue to acknowledge that Coffee had great volume delivery in the first quarter, and that we are being very prudent in our volume assumptions in the next nine months on that portfolio. We're also sort of reversing a contemplated list price decline and bringing back the promotional activity to get to those right price points within coffee.

We see ongoing momentum in the frozen handheld and spreads portfolio, largely driven by the Uncrustables sandwich. And then really the rest of the businesses are doing what we anticipated coming into this fiscal year. And so we believe that Q2 really is coming in line with sort of the expectations and has enabled us to support sort of our guidance revision for the year.

Chris, it's Mark. The performance on Hostess in the quarter was essentially right where we expected it to be. So making progress on the stabilization journey, recognizing the journey itself is, you know, it's slow and steady. But we do feel good about the progress we made. And there were a couple bright spots. Honestly, Donets has been performing really well, outperforming particularly in the larger bag size, as well as some innovation on like the mini churro donuts.

Also, you know, the morning time occasion seems to be very strong, and that performance on Donets was supported largely in the U. S. retail channels. We do recognize that the convenience channel as a whole continues to be challenged in terms of traffic, and we have not lapped skew rationalization. So that might be a little bit of what you're seeing, but we do.

And then some innovation, like on Suzy Q's also performing well. So a couple bright spots, and then our goal is just to continue to make incremental progress quarter over quarter.

Nick, I like that point. I do think there's an opportunity, and we've been pretty consistent in talking about this. More than 70% of cups consumed are consumed at home, and the fact that our portfolio meets a variety of value points for the consumer. And so we agree with you. We do think that will continue to be an opportunity.

I would note Folgers, being one of our more affordable brands, had some great performance around America 250. There was some specific SKUs that we supported over the holiday period in July. And so I appreciate the feedback.

Well, it's a good question. Strategically, we have considered over time where can we play and where can we win, and I would say our priority is going to remain on consumables, things that dogs eat and cats eat. So, not that we wouldn't continue to think about that, but I would say right now it's really focused on dog snacks and cat food.

Dave, it's Mark. Yeah, we have been very disciplined in terms of where we spend dollars. And we have tools that enable us to evaluate how much bang for the buck we get and where we're going to get incremental ROI. I am a CEO of the J. M. Smucker Companyoli, and with Katie Williams on board as our new chief marketing officer, she brings to bear also a lot of expertise in that area, along with all of our marketers that support each of our brands. I feel pretty confident that we can be choiceful and prudent with the dollars and put them where we actually going to get a meaningful return And, you know, when we look at the dog treats data, peanut butter data, those are two areas that I would say you're going to want to stabilize going into next year.

Dave, we remain committed to advancing all of our brands. And as you noted in Dog Treats, it's important for us to continue to build the brand Milk Bone and continue to advance its relevance in the treating occasion. And we will continue to do that. And it's certainly in our plans and has been an objective since we stepped into this fiscal year. It's important that we demonstrate our leadership in the spreads category, in particular with peanut butter and fruit. And then as you think about Uncrustables, it continues to be a great story. It's going to demonstrate another year of growth. It continues to demonstrate growth in traditional U. S. retail channels and also in the away-from-home channel.

We're also acknowledging that we're bringing along innovation. We're supporting brand building, and we are increasing capacity and support of ongoing demand. So it continues to be a good story, and much of what you're asking is built into our outlook and is a part of our, you know, so to speak, blocking and tackling as we build these brands and deliver organic growth.

It's a great follow-on from David. Yeah, Uncrustables, I would sum it up this way. All the fundamentals are right. In other words, we've got new marketing, the launch of fridge-friendly, so obviously you can keep the Uncrustables thawed in your fridge for five days. So instant consumption, if you will. Price pack architecture is right. So just competitively, I think we're sort of in the sweet spot there. The breadth of our offerings, whether that's new flavors, some of those flavors are limited time offerings. Obviously, hitting on day parts with the higher protein offerings as well.

And so just the combination of all of those things has led to also stronger distribution gains and our way-from-home business is performing well, still building out our C-store presence with the larger chain customers. So I would just say it's a tale of just doing all of the important things right.

Yeah, our comment around just the promotional is really thinking about the full year, right? And so, you know, we have, because it's a pass-through category, wanting to make sure that customers and consumers are benefiting from a deflationary commodity, even if we're not crossing thresholds that would dictate a list price decline. So it's a bit of both, right? There is some opportunity to hold prices at a slightly lower level, but also enhance promotions.

And Max acknowledged that in the first quarter, soldiers did grow, and it effectively was sort of in line with flattish vol mix. And we continue to be very prudent in our volume mix assumptions for the coffee portfolio as we move forward. And we've been taking that approach consistently over the last several fiscal years.

Okay.

I'll start. The traffic dynamic seems to be somewhat persistent. It's hard to really pin down exactly what's driving it, but I would submit that gas prices are part of that, right, where folks are filling up their tanks but not necessarily continuing on into the store. I think that is part of the dynamic on the traffic. So I do think we are maybe cautiously optimistic that an improvement or reduction in prices at the pump might lead to better traffic, but I think it remains to be seen.

And with respect to the top line, on a four-year basis, we're probably advancing that business to being down low single digits, and that was as expected as anticipated. Your first two quarters are going to be down more than that, largely driven by lapping the skew rationalization of a year ago, and therefore your back half is going to feel more flattish in terms of the cadence of top line flow.

Sure. So we do still, you know, we're confident in our spreads business, both peanut butter and fruit spreads. We do consider them, if you think holistically, with our frozen handheld, right? You know, PB&J sandwiches, it's all part of the same occasion in many cases. And the softness in peanut butter in the category we don't believe is structural. And we still have, you know, a lot of activity on JIF. We recently have refreshed the packaging on the brand. We just launched some new marketing that's only a few weeks in market that is really focused on expanding usage occasions, largely around snacking. It's pretty heavy on social right now, but there will be some broadcast media there as well.

And so continuing just to lead with brand building and share a voice is important. And then addressing consumer trends like shorter ingredient decks. We just launched GIF Simply, which is actually performing very well. It's a two to three ingredient offerings of GIF, right? Very simple formulas. And then we also have four of the top five natural brands. So we still feel very good about peanut butter and then fruit spreads. We have acknowledged there's been some competitive activity, but we're at the beginning stages of a brand refresh on fruit spreads as well, starting with packaging, and that is going to extend over a couple years.

Yes, Steve, good morning. We continue to see benefits from our transformation office. The excellent work that the teams continue to do, deliver cost and productivity, and also advanced ways of working, it very much resonates in our P&L. And it also supportive in terms of helping deliver earnings It supportive in helping offset cost inflation And it also supportive in reinvesting in key platforms of the company You know Rob under his leadership now he will continue to advance the transformation efforts We will provide updates over time And likely in future events and forums we can continue to bring you and others along in those efforts Okay very good Thank you And if I could ask another follow on Uncrustables the strength seems broad I just curious if there are particular pockets whether retail away from home et cetera where the business is particularly ahead of your expectations more so than others And is it that demand side of the equation that's prompted you to accelerate phase two of McCullough, or is it just the mere fact that you have a little bit more financial flexibility to accelerate it?

Steve, we continue to be pleased with the momentum on that brand. Uncrustable is coming into the fiscal year, total company, total venture. We had an outlook of sort of mid-single digits after achieving the billion-dollar ambition last fiscal year. We've increased that outlook to sort of high single digits, really largely driven through the U. S. retail channels, but also acknowledging away-from-home channel as well has improved. And our ability to continue to support the growth in that business, we have made the decision to advance some pre-production expenses to start up capacity earlier in McCall, Alabama.

Yeah, in the quarter, Frozen Hand-Owned Spreads has a little bit of lower marketing spend. That was largely driven by the timing of GIF, but we've remained committed to the marketing spend for the full year.

Scott, it's Mark. We have not made any statements about how far beyond a billion we believe the brand can go. I think we're just right now focused on continuing to deliver. As time goes on, we may update our projections, but having come into the year, as Tucker just highlighted, with mid-single and now seeing some momentum, That is largely driven by all of our fundamentals being right and then just continuing to invest behind the brand. But I would just pause on making any future projections, but very, very comfortable with confidence in the continued growth of that brand and there being some really nice runway ahead, both in household penetration and just addressable market.

Sometimes it's been a little bit lumpy, so I wouldn't necessarily take the 23% as necessarily a slowdown, but there's a ton of runway on Bustelo. We do aspire. It's now a number six brand in the category. We aspire to get it into the top four. As you point out, there is distribution expansion opportunities. We continue to expand the brand in central and western regions.

We've launched new roast profiles. Those have performed very well. And then recently, just some other ready-to-drink options. And so the authentic Latin heritage of that brand has really unlocked something unique with Gen Z and millennial consumers that are looking for something that's a little different. And I would say I mentioned our Game Face marketing campaign around the soccer event during the summer that really helped to drive sales as well. So just a really exciting brand that we continue to invest in.

If you had to prioritize the top sort of things that could surprise positively or negatively, what would those be?

Alexia, you know, we feel that our top line and bottom line guidance ranges are balanced. But as you think about opportunities, it would be ongoing momentum in your coffee portfolio where we've been conservative on volume mix assumptions.

Better than expected sort of volume assumptions across your frozen handheld portfolio. Maybe better than anticipated sort of expectations in your pet portfolio as well. I think some of the downside would be consumers' reaction to the ongoing dynamic environment by which they live. I think also you've got the ongoing cost inflation environment that we continue to navigate as well would be another area of potential downside.

But those would be the drivers to the up and maybe some of the drivers to the down.

Hey, Rob, it's Mark. The this phase of the Alabama facility, it's a second phase. It's already been built out. Basically, turning it on requires us to staff it, right, and then activate it. But it is focused on base, our core format of crimped soft bread uncrustables.

Nothing specific to call out, but a resounding yes in terms of making sure that we are taking advantage of the key promotional periods, holidays, and so forth. So, you know, we'll, as stuff comes into market, we'll be sure to point that out to you guys.

I will now turn the conference call back to management to conclude. Thank you for joining us this morning. As we have shared in our prepared remarks, Our fiscal year 2027 first quarter results highlight the strength of our differentiated portfolio, disciplined execution against our strategic priorities, and the investments we continue to make in our brands and capabilities. Our strategy is working, and the strong foundation we have established gives us confidence in our ability to deliver long-term growth and increase shareholder value. We hope many of you will be able to join us in Boston at the Barclays Global Consumer Staples Conference in two weeks.

A live webcast of our presentation on September 8th at 12.45 p. m. Eastern can also be accessed from our Investor Relations website. Have a great day.