J M Smucker Co (SJM) 2026 Q2 法說會逐字稿

Good morning, and welcome to the J.M. Smucker Company's fiscal 2026 second quarter earnings question-and-answer session. This conference call is being recorded. (Operator Instructions) I will now turn the call over to the Crystal Beiting, Vice President, Investor Relations and Financial Planning and Analysis. Thank you. You may begin.

Good morning, and thank you for joining our fiscal 2026 second 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 may 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 press release.

Participating on this call are Mark Smucker, Chief Executive Officer and Chair of the Board; and Tucker Marshall, Chief Financial Officer. We will now open the call for questions. Operator, queue up the first question.

Thank you. The question-and-answer session will begin at this time. (Operator Instructions)

Andrew Lazar, Barclays.

Great, thanks so much for the question, and good morning, everybody. Maybe I wanted to start off with a question on Sweet Baked goods if I could. Organic sales in that segment came in better than I think most street expectations. Trying to get a sense from you is, how much of this do you see as sort of sustainable improvement versus maybe just easier year ago compares or any transitory benefits.

Good morning, Andrew. It's Mark.

Good morning.

Thanks for the question. First, we are very pleased with the progress that we're making on Sweet Baked Snacks and the Hostess brand. As you noted, we are seeing sequential improvement. Notably, we're seeing improved performance in c-store. Our volume shares are improving.

We've had -- our focus on a more focused portfolio has been helping. You'll recall that we had a three-pronged plan where we're strengthening our portfolio by actually eliminating 25% of the skews and we've seen really strong flowback into our core brands, notably the number one brands of donuts -- donuts, and [cupcakes], which each of those are the number 1 in their respective segments. And so that has been great.

We recently re-launched Suzy Q's after they've been out of the market for many years and that has been off to a pretty good start. And then just, elevating our execution around sales, we're streamlining our operations, the Indianapolis closure should be complete by the fourth quarter and then continuing to invest in the brand.

So long and short of it is, the plan we put in place, decisive actions are working and we just need to continue to do what we're doing over subsequent quarters and we do expect to see acceleration over the next couple quarters as well.

Got it. Thanks for that. And then maybe Tucker, how much of the $0.50 tariff impact this year is specifically coffee related such that if tariff policy remains sort of unchanged from here going forward, how much of a benefit we could or should expect this to be to fiscal '27. Thanks so much.

Andrew, good morning. The predominance of the $0.50, if not all, is related to green coffee tariffs. And so therefore stepping into FY27, it should be viewed as a tailwind while in FY26, it continues to be a headwind.

Tom Palmer, JP Morgan.

Good morning. Thanks for the question.

Good morning.

I wanted to follow-up on coffee as well. You noted not taking the third round of pricing as an incremental earnings overhang in the prepared remarks for this year. You've provided some really helpful bridges in terms of other items such as the tariff impact. I was wondering if you could maybe quantify how much that might have impacted your outlook, the decision not to take pricing, and then just given the tariff guidance was kind of unchanged, is should we think about tariffs flow through your P&L throughout fiscal '26 or is there a point where we start to see relief this year? Thanks.

Good morning. As you think about this fiscal year as we came out of our first quarter earnings call, we called out a net $0.50 impact as a result of tariffs, and that net $0.50 impact was receiving the benefit of recovering dollar for dollar cost inflation due to tariffs through an early winter pricing action.

And then ultimately making an assumption around a price elasticity of demand factor. That was all embedded in the $0.50 as we came out of the first quarter earnings call. We have essentially added that back as a result of being in a tariff-off environment moving forward.

However, we have made the decision not to take pricing through US retail coffee in early winter. So we will be absorbing about $75 million of tariff-related costs incurred to date that we will realize, as I've noted in our third quarter, which coincidentally is $0.50, which is why we're calling it out. Therefore, an impact to this fiscal year but a tailwind to next fiscal year.

Understood. Thank you. On the SG&A side, there was the guidance reduction now flat year-over-year, a couple pieces. One is there a segment where that's going to be most evident and then any update on marketing plans, maybe I missed it. I think they were previously expected to be up around $40 million year-over-year, any change there. Thank you.

So Tom, let's begin with marketing. We remain committed to investing in the long-term health of our brands, and so marketing absolute dollars will be up year-over-year and we're projecting that to be about 5.5% of net sales, which is pretty consistent throughout the year.

We have sharpened the pencil as it relates to SG&A spend not only throughout the entire network but also as we think about discretionary spend. And we've also sharpened the pencil in certain areas as it relates to marketing, but we're still committed behind our growth brands and you will see an increase year-over-year.

Robert Moskow, TD Cowen.

Hi, I want to know, Tucker, about the profit results and sweet baked snacks. Was that also in line with your expectations because sequentially it's a step down, and it generally, when you have these SKU rationalizations, it improves the profitability of the business because you get rid of some waste. Is there a reason why that's not happening in 2Q?

Rob, good morning. So the second quarter top-line for Sweet Baked Snacks did exceed our expectations. The bottom line did not meet our expectations. We had anticipated sort of in line with Q1 to maybe slightly better in our second quarter. And as you've noted, we were just over $20 million. We do expect both the third and fourth quarters to get better. So that we get back toward our outlook for the full fiscal year with respect to segment profit.

And I would say that the second quarter shortfall to expectations really had much to do with the transition of our bakery network or environment and just more cost that we absorb through our supply chain, whether that be absorption, overhead, just the timing of transition. So we do expect benefit as we step into the third and fourth quarters.

And I would also remind you in our fourth quarter we should benefit about $10 million from the closure of the Indianapolis facility, which is estimated to be a $30 million annual run rate impact, of which $10 million effects or benefits our fourth quarter of this fiscal year.

Okay, and maybe a follow-up on pet treats. In the commentary, you described the category, dog treats is getting better, your business is still down. What should we expect in the back half? I know there's some very easy -- I think some easy comparisons to some disruption last year. But are there marketing plans also to improve market share and what -- I guess is an improving category overall?

Robert, It's Mark, and you actually are correct. You stated it, we are expecting a really strong lap, particularly as we get into this third quarter. So you will see milk bone getting back to growth, which is great news and it's not only the lab, but I would just highlight it's all the work that we've been doing and it is marketing.

We have continued to push on our campaign which is called More Dog and so you've probably seen that in various media channels that's been helping, just the, again, what we always remind you guys is just the spectrum from value-based biscuits all the way to premiumization was the consumers are looking for different things from their dog treats, the Milk-Bone brand is definitely there delivering.

And then just the innovation on peanut buttery bites has been very successful and as we referenced in the prepared remarks, we are going to be launching another innovation after the beginning of the calendar year, which is also standing on another collaboration between the Jif brand and the Milk-Bone brand.

So that including seasonal items which we referenced as well. There's a lot of really strong innovation and that category depends a lot on news for growth. So feeling really good about Milk-Bone and the trajectory of the brand and then just overall our pet business, and the growth that's going to be driven by Meow Mix, we expect to continue as well.

Rob, in support of your question, we are anticipating low single-digit growth for our pet portfolio in the third and fourth quarters behind the momentum of Milk-Bone and Meow Mix.

Yasmine Deswandhy, Bank of America.

Hey, guys, thanks so much for the question. Just on the reduced net sales expectation for a frozen handheld and spreads, I know that spreads, particularly peanut butter was challenged in the second quarter, and the expectation is for that to continue for the balance of the year. So I'm asking around the reduced net sales expectation, is that simply flowing through the week or 2Q, or is that also -- spreads being enough of an offset that Uncrustables accelerating to double-digit growth won't be enough to offset the unforeseen weakness.

Yeah, yes, good morning. As it relates to frozen handheld and spreads, we're really calling down that business a little over $80 million on a full year basis. You're kind of seeing half of that come through the second quarter and the balance will come through the back half of the year.

Much of that is driven by the spreads portfolio, and we really haven't taken up the outlook on the Uncrustables brand. But I can tell you that it still demonstrates growth and it is demonstrating a path or trajectory to being $1 billion brand by the end of this fiscal year.

And yeah, if I may, just add a little bit of color on a couple of these items. So on Uncrustables, Tucker just highlighted, still going to be $1 billion brand. The reason, overall we saw 7% for the total company away from home has been extremely strong. We did see growth in retail as well, maybe not as much as we would have expected because we were lapping a very strong Q2 last year with really strong merchandizing and promo.

But we do expect Uncrustables to get back to double-digit growth in the back half of the year, obviously supporting that billion dollars ambition and innovation is playing a key role, right? So where -- a couple of years ago when we had been capacity constrained, we weren't able to innovate.

Now we're launching seasonal flavors. The new one that just came out is this peanut butter and chocolate. It's called PB Choco Craze, and then we've got two new higher protein items that are meant to target sort of a morning depart or breakfast depart, and the uptake on those from our retail customers has been great as well.

And then just on spreads because we were expecting the question, I might just highlight peanut butter. Again, there is a very big lap against last Q2 we had multiple tropical storms in the Caribbean and that drove a lot of stock up.

And so we are seeing, the Jif, the peanut butter business being down in the quarter, but regardless, it's generally holding share. So overall, still feel good about spreads, making sure that we're getting our execution right, but that is obviously supportive of the Uncrustables business.

Okay, great. And if I could just squeeze another one in, I think the previous expectation was for in Sweet Baked Snacks for SKU rationalization to be isolated to the second quarter. And with now that extending into the third quarter is the expectation still for top-line stabilization in the second half, and I guess as another way, given the expectation for sequential improvement, could 3Q be flattished and 4Q grow or is there still a possibility for 3Q to be down?

I would say that -- one of the SKU rationalization really won't be (inaudible) back to sort of growth -- single-digits, slightly flat in the second -- third quarter or [snacks] on a comparable basis and then you should see a lot of (technical difficulty)

Your microphone is off.

Sorry, ye, I'm sorry, we had a technical difficulty here, but to your question, I just want to acknowledge that the Q3 will be the completion of the SKU rationalization associated with the closure of the Indianapolis bakery.

And then with respect to your question on growth, we should be flat to slightly down in the third quarter on a comparable basis and then demonstrating a level of growth on a low single-digit basis in our fourth quarter for Sweet Baked Snacks.

(Operator Instructions)

Megan Clapp, Morgan Stanley.

Hi, good morning, Mark, Tucker. Thank you. Maybe another question, Tucker, on coffee. Can you talk a little bit about how you're thinking about the pacing of coffee margins in 3Q and 4Q? The 3Q EPS outlook in the prepared remarks a little bit softer than where the street is, I assume most of that is just that you still have tariff coffee and flowing through the P&L that's sitting on the balance sheet today without the pricing. So is that the right way to think about it? And then do you still expect to get to mid-20% margins in coffee in 4Q, or will there be a lingering kind of tariff impact there as well? Thank you.

Megan, good morning. So we demonstrated an 18.2% second quarter segment profit margin in coffee. We would anticipate a slight improvement to that in our third quarter, but it will not surpass 20%. And then as you step into our fourth quarter, we should move beyond 20%.

I don't think that we'll get all the way to 25% just as we continue to digest a lot of cost and cost inflation, but just acknowledging not taking pricing in early winter in our US retail coffee portfolio and absorbing the incurred coffee tariffs to date. So the -- that will be approximately $75 million. In our third quarter, some of that may go into our fourth quarter, but the predominance is in the third to your question.

Okay, that's helpful, thank you and then maybe just putting together all of your comments on pet and Sweet Baked Snacks and frozen handhelds, as you think about moving through the third quarter and the fourth quarter, you laid out for all segments, an expectation for an acceleration and growth. So as you think about the 4Q exit rate, I guess how are you feeling about outside of coffee kind of the rest of the US retail portfolio contributing to or getting back to [Algo], OSG as we finish the year. Thanks.

Megan, I would say that when you think of the midpoint of our guidance range today at the top-line, it's 4% on a reported basis. Then you affect or isolate on a comparable basis divestitures and foreign exchange, and it's aligning to about 5.5% comparable growth year-over-year.

And then underpinning that we've got about $38 million worth of co-manufacturing sales that we're lapping. So all else equal, we're at 6% on a comparable basis adjusted for the co-manufacturing sales for our outlook for this year.

And yes, much of that is driven by, our coffee portfolio, but when you think about the balance of our portfolio, we're seeing tremendous momentum in the away from home aspect. We're seeing resilience and strength in our pet portfolio. We're seeing stabilization and Sweet Baked Snacks.

We obviously great growth and momentum on Uncrustables, and we're addressing things within our spreads portfolio. And so while I don't want to promise sort of what the exit rate is, what we're acknowledging is that we do have great organic sales growth on a comparable basis. Our strategy is working. Our execution is focused and we'll continue to drive the growth brands and we'll continue to support the balance of the portfolio.

Peter Grom, UBS.

Great, thank you. Good morning, everyone. I wanted to just ask a follow-up on the tariff commentary in '27, and I know you noted to both Andrew and Tom that this will be a tail end to earnings, but I guess specifically, are you expecting those benefits to largely drop to the bottom line or would you look to maybe reinvest some of that upside?

As it relates to tariff-based inflation and in a tariff-off environment, and not taking pricing for tariffs and in turn not experiencing tariffs in our next fiscal year, that should benefit our bottom line, which is why we're effectively saying it should be a tailwind to our coffee portfolio next fiscal year. So hopefully it helps provide a little bit of context about how we're thinking about tariffs stepping into next year.

Okay, no that's helpful. And then maybe just on coffee, can you maybe walk us through what you're now expecting in terms of elasticity and I guess just as we think about modeling top-line growth through the balance of the year, can you maybe just understand how you see price versus volume at this stage, especially considering that you're not going to take that additional price increase for the winter. Thanks.

Sure. So our current outlook for the coffee portfolio is 16% year-over-year growth. And what's embedded in that is 22% pricing offset by 6% down volume mix. That's an improvement to when we stepped into this fiscal year where we thought growth would be 11% against 22% pricing offset by 11% of volume mix.

And so what you can see is our elasticity assumptions have improved from 0.5 stepping into this fiscal year to around 0.3% where we stand. And again, that's on average over the year. So hopefully that provides additional context as to the strength and resilience of our coffee portfolio.

Matt Smith, Stifle.

Hey, good morning. Wanted to dig in a bit on the Uncrustables sequential acceleration in the second half. Can you talk about some of the underpinnings to that acceleration, whether there's also unique comparisons there and how we should be considering pricing in frozen handheld and spreads in the second half. Is there potentially increased promotional support behind the Uncrustables to support that sequential acceleration. Thank you.

Yes. So we demonstrated 7% growth in our second quarter, which is really good momentum as we continue to advance to the billion dollar ambition. As we think about our third and fourth quarters, we would anticipate low double-digit growth on the way to that journey of being $1 billion dollar brand by the end of this year.

We will continue to ensure that we're supporting with marketing. We continue to support our recent innovation launch around protein. We continue to round out distribution and also making sure that we have the right placement and promotion.

I would also acknowledge that about 80% of sales run through our US retail portfolio and the balance of 20% flow through our away from home portfolio and we are seeing great momentum and away from home on our Uncrustables. And one example is the acceleration of growth in the convenience channel, not only due to our innovation behind the sandwich, but also due to the capabilities that we acquired through the Hostess acquisition.

Thank you. And Mark, as a follow-up to some of the coffee commentary, elasticities are better than expected on average but the performance by brand in the measure channel data that we see has varied for specifically for the Dunkin brand, elasticities have been softer than Folgers or Bustelo. Was that expected as you went into a more price intensive environment? Has the performance of Dunkin been different than what you anticipated coming into the year? Thank you.

Hey, Matt. A couple of things. So first of all, you're right that that we have seen obviously very strong performance on Bustelo and Folgers. And so the resilience of the category overall gives us optimism, right, in terms of just how we -- consumers still consuming coffee, our brands are resonating with consumers, the investments we're making behind these brands is working, notably Bustelo just had a phenomenal quarter.

And then Dunkin did grow in the quarter, so we did see a bit of improvement in Dunkin, but as we've highlighted in previous quarters, we've seen some competitive pricing pressure that we have not overcome, but we are continuing to actually make surgical balancing, some surgical pricing investments as well as supporting innovation in terms of seasonals and so forth.

So -- I think the long-term story on Dunkin is that it's a great brand. We love the brand and I -- we still think it has plenty of runway, but over time, as we would expect pricing to moderate competitively, that will support the brand overall.

Max Gumport, BNP Paribas.

Hey, thanks for the question. With regard to Uncrustables and the volume decline that we saw this quarter in the frozen handheld and spread segment, it sounds like you have plenty of confidence in the business. Distribution is gaining, innovation is working, and you still see long-term opportunities.

So I'm curious. Is the volume decline we saw in the quarter really just due to any lapsing items that you saw with the strong 2Q, a year ago, and then also could you comment on anything you're seeing from some of the new entrants in the space who have gotten distribution pretty quickly? Thank you.

Yeah, Max, it's Mark. It is largely the lab. So again that strong merchandizing and promo in the last Q2 last year, is what we're lapping. And as you highlighted both the innovations, Tucker in his previous answer talked a bit about the support that -- will be not out of the ordinary but solid merchandizing support coming into the back half is going to continue to support the acceleration of that brand.

And in broad strokes, we have seen some competition come into the category. I would say that's largely been supportive, over the longer-term, seeing a couple other brands, whether that might be private label and some of the variety that you're seeing in the category in terms of, and then pricing, should continue to support the brand. But I think overall, if you just think about the household penetration we've gained and the continued marketing investments, that's -- and the innovation will continue to drive growth.

Great, thanks. And then just to wrap it up with regards to the tariff impact, I just want to confirm the $75 million in tariff expense that you're referring to, is that the total amount you expect to see in an FY26 and it is essentially entirely due to copy tariffs?

Correct.

Alexia Howard, Bernstein.

Good morning, everyone. Can I start with the innovation and the pace of innovation. Are you able to quantify whether that's been accelerating? It sounds as though the pace has been picking up. Not sure whether you can give us numbers on percentage of sales from new products. And is that pace of innovation now where you want it to be across the portfolio, or are there pockets where you would like to increase that still?

Alexia, thanks. It's, Mark. Yes, is the short answer. Our pace of innovation has accelerated. I would say I'm very proud, both of, well, actually, across the Board, if you look at innovation on Hostess, innovation on Pet, notably pet snacks, and more recently, the innovation on Uncrustables has all accelerated.

The speed to which our teams have been able to get to market is as fast as we've ever done that. And so I think we're very proud of the work we've done. I mean the Uncrustables innovations have been notable. And then I think we expect a little bit of a faster turn out of both pet snacks and human snacks which we've continued to deliver again. So thank you for the call out.

And then question for Tucker on leverage. You've been hovering a little above 4 times net debt to EBITDA for the last couple of quarters, and you're talking about getting it down to 3 times by the end of '27. How quickly does that start coming down? Should we expect it to start coming down more substantially in the near term?

Alexia, so we are committed to $975 million of free cash flow generation this fiscal year, which will support a $0.5 billion of debt paid down this fiscal year, and we anticipate the ability to pay down an additional $500 million in FY27.

If you think about the leverage profile this year, we'll probably hover around 4 times through the balance of fiscal year '26, and then as we step into '27, we should begin to see the step down to that 3 times amount in fiscal year 2027.

Scott Marks, Jeffrey.

Hey, good morning. Thanks so much for taking our questions. The first thing I wanted to ask you about, we've heard some of your competitors, speak to the need to reduce prices to offer value for the consumer, and we obviously haven't heard your team talk about that much. So just wondering if you can share any thoughts around that and whether you see any opportunities with the portfolio where you think that might be required.

Scott, thanks. It's Mark. I would say first and foremost, our portfolio is very broad and so as we look at each category, our -- the fact that we play across the value spectrum actually allows us to deliver varying degrees of value to the consumer.

So you think about Meow Mix is a mainstream brand that that provides affordability for cat parents. Our Milk-Bone brand, similarly from base biscuits to more premium offerings like the peanut buttery bites also has a range and obviously provides affordability to the consumer. It goes without saying in coffee as well, despite the fact that we've seen significant inflation.

We're glad, of course, that the tariffs are off and that affords us the ability to do the right thing for consumers, frankly, and our retail customers and holding our price. I would say on coffee more broadly, history would show that over time coffee costs would moderate.

And so although we don't have a clear view onto if and when that takes place as we get into a new coffee season, to the extent that we do see some meaningful deflation on the commodity, we would certainly pass that along to consumers as well. So I think the headline is the portfolio itself offers a tremendous amount of options for consumers and notably value all the way to more premium offerings.

Appreciate that. Thanks. And the second question for me would be, you've made comments again today just about fiscal '27 in terms of EPS growth expectations for on Algo or better. Obviously, the tariff relief provides a significant tailwind. So just wondering maybe how we should be thinking about based business expectations for '27 if you're willing to comment on it. Thanks.

Yes, Scott, it's probably early to provide the FY27 outlook, but the essence that we're trying to communicate is that with the stabilizing commodity environment and an off-tariff environment as we continue to generate cash and pay down debt and we deliver a level of business momentum. There could be a path to that, and that's what we were trying to just lay out as you think about a $9 midpoint at this fiscal year and all of the puts and calls that we've had to deal with in this fiscal year as we consider the future. So hopefully that provides a little context again as we get to our fourth quarter earnings call, we'll be able to lay out our outlook for FY27.

Thank you. We reached the end of our question-and-answer session. I'd like to turn the floor back over for any further closing comments.

First of all, I'd just like to thank all of you for joining our call this morning. Our second quarter results demonstrate that our strategy is working. We delivered sequential acceleration in comparable net sales growth, which we anticipate will continue into next quarter. Our bottom line results reflect increased investments in our brands, discipline and cost management and strong execution.

Our business continues to build positive momentum and we are confident in our ability to deliver our financial outlook for this fiscal year while advancing our long-term objectives to increase shareholder value. As always, I would like to thank our outstanding employees for their continued hard work and dedication to our company. We wish all of you a very happy thanks giving and a great holiday week. Have a great day.

Everyone, this concludes our conference call for today. Thank you all for participating and have a nice day. All parties may now disconnect.