J M SMUCKER Co Q3 2026 Prepared Remarks 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 2026 third 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, 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 2026 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, which management uses to evaluate performance internally. I encourage you to read the full disclosure concerning forward-looking statements and details on our non-GAAP financial 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 third quarter results and outlook for the full 2026 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. Good morning, everyone. In the third quarter, the company's positive momentum continued. Our results exceeded our expectations. We delivered another quarter of strong top-line growth, driven by the ongoing demand for our leading and iconic brands and higher growth brands as we continue to realize the benefits of our transformed portfolio. Our bottom-line performance reflects disciplined cost management. We delivered sequential improvement in adjusted earnings per share. As we look ahead, we are focused on three distinct objectives. First, we will continue to advance our long-term growth strategy and further the momentum of our portfolio of leading brands. Second, we are highly focused on improving profitability and driving earnings growth across the company.

Third, we remain committed to a disciplined capital deployment model that prioritizes organic growth opportunities, debt paydown, and shareholder return in the form of dividends and share repurchases while maintaining our current investment-grade debt ratings. Each of these objectives builds on how we have transformed our portfolio through a focused strategy centered around engaging and delighting consumers by participating in attractive categories, building brands consumers love, and being everywhere consumers shop. This approach has created a complementary and cohesive portfolio across the company, supported by our enterprise-wide marketing capabilities, disciplined commercial execution, and a connected manufacturing and supply chain network. Our third quarter results continue to demonstrate that our strategy is working. Total company comparable net sales increased 8%, and when excluding contract manufacturing sales related to the divested pet food brands, net sales increased 9% versus the prior year.

Nearly two-thirds of our portfolio is growing or maintaining dollar share, while more than three-fourths is growing or maintaining volume share in measured retail channels. We are focused on continuing this momentum by prioritizing resources towards our largest growth opportunities, the Uncrustables, Café Bustelo, Milk-Bone, and Meow Mix brands. I'll dive deeper into each of these. Starting with the Uncrustables brand, which grew net sales 10% at the total company level. This fiscal year, we expect to achieve our $1 billion annual net sales aspiration for the Uncrustables brand. The brand has added approximately 3.5 million new households over the past year and continues to over-index to households with kids and Millennials. With household penetration at just 26%, we continue to see a long runway for growth. We are fueling this momentum through consumer-led innovation and being everywhere the consumer shops.

In innovation, we recently announced fridge-friendly Uncrustables sandwiches, which will be available across all flavors starting this summer. Now, in addition to being kept in the freezer, all Uncrustables sandwiches will be able to be kept fresh in the fridge for up to 5 days, making it easier to enjoy at a moment's notice, increasing convenience and expanding usage occasions. We are also expanding into morning occasions through our Uncrustables sandwiches that offer 12 grams of protein, Up & Apple and Bright-Eyed Berry. These new varieties access an entirely new day part for the Uncrustables brand, focused on breakfast and morning snacking, while also meeting the needs of consumers who are increasingly prioritizing protein throughout the day. These new varieties are off to a strong start, recently achieving $1 million in weekly measured retail dollar sales.

We will build on this foundation and plan to expand the platform this spring with a new blueberry flavor. As we look to expand availability, the convenience channel offers a unique opportunity for an immediate consumption occasion. While still early, we have tripled monthly measured retail dollars sales for the Uncrustables brand in this channel versus the prior year. Uncrustables sandwiches are in the top 10% of fastest growing brands in dollars and units across all categories in the convenience channel over the past year. We expect to significantly expand distribution over time. We are building a truly iconic brand with widespread multi-generational appeal, which we expect to become a top three brand in the total freezer aisle. Our next key growth platform, the Café Bustelo brand, continues to deliver strong results and remains one of the fastest growing brands in the at-home coffee category.

The brand gained both dollar and volume share in every segment in which it competes, including the mainstream, pre-pack, one cup, and instant categories in the latest 13-week period. Net sales for Café Bustelo increased 46% within our U.S. Retail Coffee portfolio, including a 20% increase in volume mix. Growth has been driven by expanded distribution and increased marketing investments. The brand is resonating particularly well with Gen Z and millennials and is further supported by our innovation strategy. Last summer, we introduced new roast profiles to expand the brand from its traditional espresso brew to blends that can be brewed more easily in traditional drip brewers, appealing to younger, more diverse buyers while remaining inspired by its Latin roots. Through our brand-building efforts, we continue to see strong growth in brand awareness and household penetration, both of which have significant runway for continued growth.

This fiscal year, we expect the brand to surpass $500 million in net sales, an increase of more than $100 million versus the prior year, driven by both volume and pricing. We continue to make progress on our ambition to make Café Bustelo a top four brand in the at-home coffee category. For the Milk-Bone brand, net sales increased 3% in the quarter within our U.S. retail pet portfolio. In the latest 13-week period, the brand grew in both volume and household penetration. Growth was supported by our strategy to maximize and win everyday treating, amplify brand love with new pet parents, and expand consumption through impulse opportunities across innovation and seasonals. As the leading brand in dog snacks, we are fueling the humanization trend through innovation, premiumization, and evolved messaging.

We are strengthening our core business value proposition with updated packaging to highlight protein and other functional benefits while expanding premium offerings through the Milk-Bone Peanut Buttery Bites platform. This collaboration between the number one dog snacks brand and the number one peanut butter brand has been highly successful. Milk-Bone Peanut Buttery Bites was the number one dog snacks launch over the past four years, and we are excited to expand the platform with Peanut Buttery Cups launching next month. In cat food, the Meow Mix brand continued to see strong growth with both net sales and volume mix increases in the quarter. In dry cat food, the Meow Mix brand continued to outpace the category in sales and drove incremental household growth in the latest 13-week period. Growth continues to be supported by distribution gains, innovation, and marketing investments behind our multi-year Meow Mix Remix campaign.

Thank you, Mark. Good morning, everyone. I will begin by providing detail on the non-cash impairment charges reflected in our third quarter GAAP results. We recognized a $508 million impairment charge related to the goodwill of the Sweet Baked Snacks reporting unit and a $454 million impairment charge related to the Hostess brand indefinite live trademark. These impairment charges are reflective of both near-term underperformance and a revised long-term expectations for both net sales and segment profit. Our updated assumptions, in conjunction with the underperformance of the sweet baked goods category, led to a reduction of the projected long-term growth rate to 2% for the reporting unit, as well as the decision to begin amortizing the Hostess brand trademark in the fourth quarter. We remain focused on stabilizing performance and improving profitability in the Sweet Baked Snacks segment over time.

Now, I'll provide an overview of our third quarter results, then give additional details on our financial outlook for fiscal year 2026. In the quarter, net sales exceeded our expectations, primarily driven by the strength of our U.S. Retail Coffee portfolio, partially offset by lower than anticipated net sales and Sweet Baked Snacks. Net sales increased 7%. Comparable net sales increased 8%, which excludes prior year sales related to the divested businesses and foreign currency exchange. Comparable net sales includes a $6 million headwind from lapping contract manufacturing sales related to the divested pet food brands in the prior year. The increase in comparable net sales reflects a 10 percentage point increase from net price realization, primarily driven by higher net pricing for coffee.

Comparable net sales also reflects a 2 percentage point decrease from volume mix, primarily driven by decreases for sweet baked goods and fruit spreads and lapping contract manufacturing sales related to the divested pet food brands in the prior year, partially offset by an increase for Uncrustables sandwiches. Adjusted gross profit decreased $28 million or 3% compared to the prior year. The decrease reflects higher costs, inclusive of commodity costs and tariffs, unfavorable volume mix, partially offset by higher net price realization. Regarding tariffs, we realized approximately $79 million in expense in our third quarter, which primarily impacted our coffee portfolio in U.S. Retail Coffee and International and Away From Home. Adjusted operating income decreased $32 million or 7%, reflecting the reduction in adjusted gross profit and lapping favorable property taxes, partially offset by lower SD&A expenses.

The decrease in SD&A expenses was driven by lower marketing and distribution expenses, partially offset by higher selling expense. Below operating income, net interest expense was comparable to the prior year as the impact of reduced debt outstanding was offset by higher overall interest rates. The adjusted effective income tax rate was 24.3%, compared to 23.7% in the prior year. Factoring in all these considerations, along with weighted average shares outstanding of 106.9 million, third quarter adjusted earnings per share was $2.38, a decrease of 9% versus the prior year. Turning to our segment results, in the U.S. Retail Coffee segment, net sales increased 23% versus the prior year. Net price realization increased net sales by 23 percentage points, reflecting higher net pricing across the portfolio to recover increased costs.

Volume mix decreased net sales by 1 percentage point, reflecting decreases for the Dunkin' and Folgers brands, partially offset by an increase for the Café Bustelo brand. U.S. Retail Coffee segment profit decreased 5%, primarily reflecting higher commodity costs and tariffs, unfavorable volume mix, and lapping favorable property taxes in the prior year, partially offset by higher net price realization. In U.S. Retail Frozen Handheld and Spreads, net sales increased 2%. Net price realization increased net sales by 2 percentage points, driven by higher net pricing for Uncrustables sandwiches, partially offset by higher trade spend for peanut butter. Volume mix was neutral to net sales, reflecting an increase in peanut butter, mostly offset by a decrease in fruit spreads.

U.S. Retail Frozen Handheld and Spreads segment profit increased 4%, reflecting higher net price realization and lower pre-production expenses, primarily related to the new Uncrustables sandwiches manufacturing facility, partially offset by higher costs and unfavorable volume mix. In U.S. Retail Pet Foods, net sales decreased 1% versus the prior year. Volume mix decreased net sales by 2 percentage points, driven by lapping contract manufacturing sales related to the divested pet food brands in the prior year, and a decrease for dog snacks, partially offset by an increase for cat food. Net price realization was neutral to net sales, reflecting higher net pricing for cat food, mostly offset by lower net pricing for dog snacks. U.S. Retail Pet Foods segment profit increased 4%, primarily driven by lower marketing spend.

In the Sweet Baked Snacks segment, net sales decreased 19%, excluding non-comparable net sales in the prior year related to the divested Voortman business and certain Sweet Baked Snacks value brands, net sales decreased 11%. Volume mix decreased net sales by 10 percentage points, reflecting decreases for snack cakes, donuts, and breakfast. Net price realization was neutral to net sales. Segment profit decreased 78%, primarily reflecting higher costs, unfavorable volume mix, and higher marketing spend. In International and Away From Home, net sales increased 12%. Excluding $2 million of favorable foreign currency exchange, net sales increased 12%. Net price realization contributed 11 percentage points to net sales, primarily driven by higher net pricing for coffee.

Volume mix was neutral to net sales, as increases for Uncrustables sandwiches and coffee were mostly offset by decreases for fruit spreads, portion control products, cat food, and peanut butter. Net sales for the Away From Home business increased 15%, primarily driven by coffee and Uncrustables sandwiches. Net sales in the international business increased 6% on a comparable basis, primarily reflecting an increase in coffee. International and Away From Home segment profit increased 17%, reflecting higher net price realization, partially offset by higher costs, tariffs, and unfavorable volume mix. Third quarter free cash flow was $487 million, compared to $151 million in the prior year, reflecting the increase in cash provided by operating activities and a decrease in capital expenditures as compared to the prior year.