J M SMUCKER Co Q4 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 fourth quarter earnings. 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 in our fiscal year 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. During the fourth quarter, the company completed its annual evaluation of operating segments and, as a result, the away from home business met the criteria to be presented as a reportable segment. The company has updated its presentation of segment results accordingly, and prior year amounts have been modified to reflect this change. Today's press release, a supplementary slide deck, 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 fourth quarter results and next year's outlook for fiscal year 2027. I will now turn the discussion over to Mark Smucker.

Thank you, Crystal, and good morning, everyone. We are pleased with our fiscal year 2026 results, as we have exceeded the midpoint of our original guidance for the year while effectively navigating a dynamic external environment. These results highlight the strength of our focused strategy and portfolio optimization efforts, which have fundamentally transformed the company and underscore the differentiated portfolio we have built. Notably, in fiscal 2026, we delivered 5% comparable net sales growth. This is our seventh consecutive year of comparable top-line growth when excluding contract manufacturing sales related to divested pet food brands. Approximately 2/3 of our portfolio is growing or maintaining dollar share in measured retail channels. We have renewed our focus on innovation and delivered approximately $300 million in net sales this fiscal year from new products launched this year and last, an increase of approximately 40% versus the same timeframe in the prior year.

We exceeded our free cash flow expectations, generating $1.2 billion, which enabled us to pay down more debt than originally anticipated. We will continue to prioritize disciplined capital deployment, and as we reduce debt, we will evaluate opportunities for share repurchases. Our strategy is working, and the strong foundation we have established gives us a high level of confidence in our ability to create shareholder value. We are carrying meaningful momentum into fiscal year 2027 with strategic priorities that position the company to deliver strong near-term results while driving long-term growth. Before outlining our fiscal year 2027 priorities, let me discuss our strong fourth quarter performance. Total company net sales increased 6%, driven by growth in the coffee, away from home, pet foods, and frozen handheld and spread segments. We also delivered segment profit growth across all of our reportable segments, reflecting disciplined execution and cost management.

As a result of our net sales and profit growth, adjusted earnings per share increased 20% versus the prior year. In coffee, net sales increased 12%, reflecting the continued strength of our portfolio. We have demonstrated our ability to recover increased commodity costs through responsible pricing. Due to higher costs and the pass-through nature of the coffee category, we implemented price increases in May and August of calendar year 2025. Since then, price elasticity trends have been favorable relative to our initial expectations, reflecting both the strength of our portfolio and the resilience of the at-home coffee category. We are now beginning to see moderation in the green coffee commodity, supported by positive early indications for this year's crop. As we have done historically, we will adjust pricing as our cost structure improves to continue to deliver value to our consumers.

We have started to lower prices through trade investments. In a sustained deflationary environment, we have planned a list price decrease. In frozen handheld and spreads, net sales increased 1%. Net sales for the Uncrustables brand accelerated sequentially, increasing 8% in the quarter, its strongest quarterly growth rate this fiscal year. Net sales for our spreads portfolio declined in the quarter, reflecting our decision not to repeat certain promotional activity, as well as broader category dynamics. In spreads, we are sharpening our focus on the highest return opportunities and being more selective in our promotional investments. As we look ahead, we remain focused on continuing to scale the Uncrustables brand as a key growth platform while driving profitability in our category-leading spreads business and advancing its modernization through innovation and brand building.

In pet foods, net sales increased 2%, driven by continued momentum in cat food, partially offset by a decline in dog snacks. The Meow Mix brand accelerated in the quarter, delivering 8% net sales growth. In dry cat, which represents approximately 85% of our cat food portfolio, we continued to gain dollar share in the growing category, further reinforcing our leadership position. In dog snacks, net sales declined 1%. We are beginning to see stabilization in the Pup-Peroni brand as we sharpen its positioning, focused on highlighting its differentiated high-quality offering and expanding household penetration through marketing and increased trial. The Milk-Bone brand declined in the quarter, primarily driven by softness in biscuits. Milk-Bone remains a key focus area. We are taking actions to return the brand to growth, which I will outline in a moment.

Overall, we are seeing favorable category dynamics in pet, with strong momentum in cat food and early signs of improvement in the dog snacks category. In sweet baked snacks, fourth quarter net sales exceeded our expectations, driven by a faster-than-anticipated return to production following the February fire at our Emporia, Kansas, manufacturing facility. Additionally, we saw strong performance from Hostess Donettes, which grew net sales 13% in the quarter, driven by both net price realization and volume mix growth. The brand represents approximately 40% of the sweet baked snacks portfolio, underscoring its importance as a key driver of the segment. We continue to execute on our sweet baked snack stabilization plan and are encouraged by the improvement in profitability this quarter, driven by the actions we are taking across the business. We remain focused on enhancing margins and positioning the Hostess brand for sustainable growth.

Finally, in our Away From Home business, we saw double-digit net sales growth, largely driven by our coffee portfolio and Uncrustables sandwiches. Given the continued strength and scale of the business, Away From Home is now a reportable segment. Over time, we have built a strategically positioned portfolio in the channel, supported by our leading national brands that represent trust and quality with both operators and consumers. As a result, we have consistently delivered above-average industry growth across our categories. Our business primarily operates across schools, workplaces, lodging, healthcare, convenience stores, and restaurants. Within these channels, we hold leading positions in key categories, including frozen sandwiches, on-demand dispensed coffee, and portion control fruit spreads, nut butters, and syrups. We also maintain a favorable position in roast and ground coffee, where we continue to see meaningful growth opportunities.

Our Away From Home business has proven to be durable across economic cycles with a mix that enhances resilience, limits exposure to restaurant-specific pressures, and positions us to consistently deliver results. Our fourth quarter results reflect the strength of the differentiated portfolio we have created and our ability to execute effectively in a dynamic external environment. Importantly, we are carrying this momentum into fiscal year 2027. Looking ahead, we will continue to amplify what is working to position the company for sustained growth and long-term shareholder value creation. For fiscal year 2027, we are focused on three priorities. Driving focused organic volume growth across our key platforms, improving profitability and accelerating earnings growth for the company, and maintaining a disciplined approach to capital deployment. I will walk through each of these priorities.

Thank you, Mark. Good morning, everyone. I'll begin by giving an overview of our fourth quarter results, then I'll provide additional details on our financial outlook for fiscal year 2027. In the quarter, net sales increased 6%. Comparable net sales also increased 6%, which exclude prior year sales related to the divestiture of certain sweet baked snacks, value brands, and foreign currency exchange. Comparable net sales includes a $7 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 and sweet baked goods. Comparable net sales also reflects a 4 percentage point decrease from volume mix, driven by decreases for coffee and sweet baked goods, partially offset by an increase for Uncrustables sandwiches.

Adjusted gross profit increased $31 million, or 4% compared to the prior year. The increase reflects higher net price realization, partially offset by higher costs, inclusive of commodity costs and tariffs, and unfavorable volume mix. Regarding tariffs, we realized approximately $23 million in expense in our fourth quarter, which primarily impacted our U.S. Retail Coffee segment. Adjusted operating income increased $60 million or 14%, reflecting increased gross profit and favorable SG&A expenses. The favorability in SG&A was driven by lower marketing spend and distribution costs, partially offset by higher general and administrative expenses. Below operating income, net interest expense decreased $6 million, driven by reduced debt outstanding. The adjusted effective income tax rate was 24.5% compared to 23.9% in the prior year.

Factoring in all these considerations, along with weighted average shares outstanding of 106.9 million, fourth quarter adjusted earnings per share was $2.77, an increase of 20% versus the prior year. Turning to our segment results, in the U.S. Retail Coffee segment, net sales increased 12% versus the prior year. Net price realization increased net sales by 21 percentage points, driven by higher net pricing across the portfolio. Volume mix decreased net sales by 8 percentage points, reflecting decreases for the Dunkin' and Folgers brands, partially offset by an increase for the Café Bustelo brand. U.S. Retail Coffee segment profit increased 1%, reflecting higher net price realization and lower marketing spend, which was mostly offset by higher costs inclusive of commodities costs and tariffs, and unfavorable volume mix. In U.S. Retail Frozen, Handheld, and Spreads, net sales increased 1% versus the prior year.

Net price realization increased net sales by 2 percentage points, driven by higher net pricing for Uncrustables sandwiches and lower trade spend for Jif peanut butter. Volume mix decreased net sales by 2 percentage points, reflecting decreases for Jif peanut butter and Smucker's fruit spreads, partially offset by an increase for Uncrustables sandwiches. U.S. Retail Frozen, Handheld, and Spreads segment profit increased 37%, reflecting lower marketing spend, higher net price realization, lapping equipment write-off charges in the prior year, lower costs, and lower pre-production expenses primarily related to the new Uncrustables sandwiches manufacturing facility, partially offset by unfavorable volume mix. In U.S. Retail Pet Foods, net sales increased 2% versus the prior year. Net price realization increased net sales by 3 percentage points, reflecting higher net pricing for cat food and dog snacks.

Volume mix decreased net sales by 2 percentage points, driven by a decrease for dog snacks and lapping contract manufacturing sales related to the divested pet food brands in the prior year, partially offset by an increase for cat food. U.S. Retail Pet Food segment profit increased 18%, reflecting higher net price realization and lower marketing spend. In the Sweet Baked Snacks segment, net sales decreased 5% versus the prior year. Excluding non-comparable net sales in the prior year related to the divestiture of certain sweet baked snacks value brands, net sales decreased 4%. Volume mix decreased net sales by 12 percentage points, primarily driven by decreases for snack cakes and breakfast, partially offset by an increase for donuts. Higher net price realization increased net sales by 8 percentage points, reflecting higher net pricing across the majority of the portfolio.

Sweet Baked Snack segment profit increased 45%, reflecting higher net price realization and lower marketing spend, partially offset by unfavorable volume mix and higher costs. Lastly, in Away From Home, net sales increased 15%. Excluding foreign currency exchange, net sales increased 14%. Net price realization contributed an 8 percentage point increase to net sales, reflecting higher net pricing for coffee. Volume mix increased net sales by 6 percentage points, driven by increases for Uncrustables sandwiches, fruit spreads, and coffee. Away From Home segment profit increased 21%, reflecting higher net price realization and favorable volume mix, partially offset by higher costs. Fourth quarter free cash flow was $484 million compared to $299 million in the prior year, reflecting the increase in cash provided by operating activities. On a full year basis, free cash flow was $1.2 billion, an increase of $340 million versus the prior year.

Leveraging our strong cash generation, we returned approximately $465 million of cash to shareholders through dividends in the fiscal year. We expect our board to maintain the company's current dividend policy, which is to return approximately 40%-45% of our annual adjusted earnings per share to shareholders, reflecting dividend growth consistent with future earnings. We paid down $720 million in debt in fiscal year 2026 and finished the year with a cash and cash equivalent balance of $59 million and a total net debt balance of $6.9 billion. Based on a trailing 12-month adjusted EBITDA of approximately $1.8 billion, our leverage ratio stands at 3.8x. We plan on continuing to prioritize debt reduction by paying down approximately $500 million of debt in fiscal year 2027.

With this anticipated deleveraging and overall business growth, we expect a leverage ratio around 3x net debt to adjusted EBITDA by the end of our fiscal year 2027. This level of debt provides financial flexibility for a balanced approach to capital deployment. Let me now provide additional color on our outlook for fiscal year 2027. We continue to operate in a dynamic and evolving external environment, including geopolitical, macroeconomic, and policy changes, as well as changes in consumer behaviors that could impact our fiscal year 2027 outlook. This guidance reflects the company's expectations based on its current understanding of these factors and does not assume any impacts from new or changes to existing tariffs or tariff refunds. We expect full year net sales to decrease 3%-4% compared to the prior year, driven by the impact of lower net price expectations as well as lower volume mix.