The J.M. Smucker Company 2027 Q1 Earnings Call

Good morning. This is Crystal Beiting, Vice President, Investor Relations and Financial Planning and Analysis for The J. M. Smucker Company. Thank you for listening to our prepared remarks on our fiscal 2027 first quarter earnings call. After this brief introduction, Mark Smucker, Chief Executive Officer, President, and Chair of the Board, will provide a business and strategy update. Tucker Marshall, Chief Financial Officer and Executive Vice President, Frozen Handheld and Spreads and Sweet Baked Snacks, will then provide a detailed analysis of the financial results and our updated fiscal 2027 outlook. Later this morning, we will hold a separate live question and answer webcast. During today's discussion, we will 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, please note we will refer to non-GAAP financial measures management uses 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. Today's press release, a supplementary slide deck summarizing the quarterly results, management's prepared remarks, and the Q&A webcast can all be accessed on our investor relations website at jmsmucker.com. We invite all interested parties to join us at 9:00 A.M. Eastern Time today for a live question and answer session with management to further discuss our first quarter results and outlook for the full 2027 fiscal year. Please contact me if you have any additional questions after today's question and answer session. I will now turn the discussion over to Mark Smucker.

Thank you, Crystal, and good morning, everyone. We delivered a strong first quarter that exceeded our expectations and demonstrated continued momentum across the company. Our performance reflects the strength of our differentiated portfolio, disciplined execution against our strategic priorities, and the investments we continue to make in our brands and capabilities. Importantly, net sales increased 5%, including a one percentage point contribution from volume mix, alongside improved profitability and strong earnings growth. Based on our first quarter performance and expectations for the balance of the year, we raised our full year outlook for net sales, adjusted earnings per share, and free cash flow. These results reinforce our confidence in the business and demonstrate continued progress against our three strategic priorities: driving organic volume growth across our key platforms, improving profitability and accelerating earnings growth for the company, and maintaining a disciplined approach to capital deployment.

Let me begin with our first strategic priority, driving organic volume growth across our key platforms. We delivered volume growth across the Uncrustables, Café Bustelo, Meow Mix, and Milk-Bone brands. We continue to prioritize resources behind these platforms, which represent our largest growth opportunities. Beginning with Uncrustables, the brand delivered 12% net sales growth at the total company level, driven by a double-digit increase in volume mix. The brand achieved record quarterly volume, net sales, and household penetration, reflecting the strength of our proven brand-building model, continued distribution gains, and consumer-led innovation. Our newest innovation, fridge-friendly Uncrustables sandwiches, is resonating with consumers, and we are beginning to support the launch with a robust marketing campaign across social, influencer, and digital channels. We are also building on the strong momentum of our morning protein platform with the recent launch of two new flavors, Beamin' Berry Blend and Burstin' Blueberry.

These varieties are driving incremental growth and further expanding the Uncrustables brand's presence in the morning occasion. Momentum for the Uncrustables brand remains strong, and with household penetration of 27%, we continue to see significant runway ahead. To support this growth, we are accelerating our plans to bring the second phase of our McCalla, Alabama facility online toward the end of this fiscal year. Our next key growth platform, the Café Bustelo brand, delivered another quarter of strong growth, with net sales increasing 23% at the total company level, including an 8% contribution from volume mix. Café Bustelo continues to be one of the fastest-growing brands in the at-home coffee category and is now the sixth largest brand in the category.

Supported by our brand-building efforts, Café Bustelo is resonating with Gen Z and millennial consumers and delivering strong growth in household penetration, reinforcing our confidence in the opportunity ahead as we advance our ambition to make it a top four brand in the at-home coffee category. Next, the Meow Mix brand continued to deliver strong results in the quarter, including volume growth. As the leader in dry cat food, the brand is benefiting from durable category tailwinds, including a growing cat population being fueled by younger generations of pet parents. Our actions to meet the evolving needs of these consumers continue to drive results. Consumer-led innovation remains a key driver of this performance. Meow Mix Gravy Bursts was the leading innovation in dry cat food last year, and we continue to see opportunities to address emerging consumer trends.

Looking ahead, our ambition is to build on our leadership in dry cat food while expanding the brand's presence in other attractive segments of the cat category, including wet food and treats. Finally, the Milk-Bone brand returned to volume growth, reflecting the impact of the actions we are taking across the brand. The brand is delivering strong double-digit net sales growth within soft and chewy snacks, highlighting the opportunity to bring more premium and differentiated offerings to pet parents, as demonstrated by the success of Milk-Bone Peanut Buttery Bites. At the same time, we are continuing to strengthen the core biscuit business through improved communication of functional benefits, stronger marketing, and a compelling consumer value proposition. The momentum across our key growth brands underscores the strength of our strategy and the quality of our portfolio.

We continue to anticipate that each of these brands will deliver volume growth in fiscal year 2027. Importantly, this momentum is being accompanied by meaningful progress on our second strategic priority, improving profitability and accelerating earnings growth for the company. Adjusted gross margin increased 760 basis points in the first quarter. Excluding the impact of tariff refunds, adjusted gross margin increased 240 basis points, reflecting strong underlying improvement. Adjusted earnings per share increased 71% compared to the prior year, reflecting both the benefit from tariff refunds and business momentum. Finally, our third strategic priority is maintaining a disciplined approach to capital deployment. We remain focused on prioritizing investments in organic growth opportunities, reducing debt, and returning capital to shareholders through dividends and share repurchases while maintaining our current investment-grade debt ratings. A key component of our capital deployment model is the dividend.

In July, we announced that we increased the dividend for the 25th consecutive fiscal year. We will also continue to balance debt repayment and share repurchases. In the first quarter, we paid down approximately $230 million of debt. Combined with EBITDA growth, this enabled us to achieve our leverage target of at or below three times net debt to EBITDA earlier than anticipated. We remain committed to paying down at least $500 million of debt in fiscal year 2027 while maintaining the flexibility to evaluate share repurchases. Overall, the actions we are taking across each of our strategic priorities continue to translate into strong results. Let me now provide additional perspective on the first quarter performance of our businesses. In coffee, net sales increased 13%, reflecting higher net price realization and volume mix growth.

Net sales growth was driven by increases across all brands, demonstrating the strength of our portfolio, which includes three of the top six brands in the at-home coffee category. Net price realization benefited from the price increases implemented in August of the prior fiscal year, partially offset by increased trade investment. During the first quarter, we began passing lower green coffee commodity costs back to consumers through these investments. As we have done historically, we will continue to adjust pricing as our cost structure evolves. Green coffee prices remain volatile, we continue to demonstrate our ability to navigate the commodity environment effectively. In a sustained deflationary environment, we would consider additional pricing actions as lower costs flow through our results. Excluding tariff refunds, we continue to anticipate segment profit margin in the high 20s for the fiscal year.

In frozen handheld and spreads, net sales increased 3%, driven by double-digit growth for Uncrustables sandwiches, partially offset by decreases for Jif peanut butter and Smucker's fruit spreads. Net sales growth for Uncrustables sandwiches was primarily driven by a 10% increase in volume mix. We remain focused on scaling the Uncrustables brand as a key growth platform while driving profitability and modernizing our category-leading spreads business. For the Jif brand, we recently introduced the first major update in its iconic identity in more than 30 years. We are building on this refresh with a new snacking-focused campaign that showcases modern, accessible ways to enjoy peanut butter and inspires consumers to consider Jif peanut butter across more eating occasions. We have also expanded the portfolio with Jif Simply, which combines the strong equity of the Jif brand with a simpler recipe and a taste consumers love.

Together, these actions are strengthening and modernizing our spreads portfolio to meet evolving consumer needs through innovation and brand building. In pet foods, net sales increased 1%, driven by continued momentum in cat food, partially offset by a decline in dog snacks. The Meow Mix brand delivered 4% net sales growth, reflecting strong performance in dry cat food. In dog snacks, net sales decreased 2%, driven by a decline in the Jerky Treats brand, partially offset by growth for the Pup-Peroni brand. Excluding shipment timing related to the Jerky Treats brand, dog snacks net sales were flat compared to the prior year. We remain confident in the long-term potential of the dog snacks category, supported by favorable pet population trends, the continued humanization of pets, and the growth of e-commerce.

Within our portfolio, the Milk-Bone brand returned to volume mix growth during the quarter, although lower net price realization resulted in flat net sales. We are also beginning to see stabilization in the Pup-Peroni brand, which grew net sales 5% in the quarter, reflecting the actions we are taking to sharpen the brand's positioning, highlight its differentiated offerings, and expand household penetration. In sweet baked snacks, net sales decreased 7%, primarily reflecting the continued impact of prior year SKU rationalization and declines in the convenience channel, partially offset by growth in U.S. retail channels. We are encouraged by the recent performance of our sweet baked snacks business in U.S. retail channels, where net sales increased low single digits, driven by double-digit growth for the Hostess Donettes brand. This performance reflects our strategic focus on the brand, supported by expanded distribution, innovation, and improving base business trends.

We are leveraging our deep retail relationships to expand the presence of the brand while building on promising results from recent innovations, including Donettes Churro Mini Donuts and a new Donettes sharing size offering. Our larger pack sizes continue to perform well and demonstrate faster purchase cycles than traditional sizes, reinforcing the opportunity to drive incremental consumption and offer increased consumer value. We see continued opportunity to grow both our offerings and distribution. The convenience channel remains challenged as traffic continues to be pressured. Despite this backdrop, the Hostess Donettes brand continues to outperform the broader sweet baked goods category in this channel, reinforcing the brand's relevance within the A.M. snacking occasion, where consumers are seeking quick, convenient, and satisfying options. We remain focused on strengthening the brand's performance across channels while positioning it to benefit when convenience traffic improves.