SJM - Earnings call transcript Q3 2018 | The J. M. Smucker Company

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Operator

Good morning and welcome to The J. M. Smucker Company's Fiscal 2018 Third Quarter Earnings Conference Call. This conference is being recorded and all participants are in a listen-only mode. At the request of the Company, we'll open the conference up for questions after the prepared remarks. two have the additional to re-queue session yourself you if questions. limit questions Q&A during and Please I will now Aaron Broholm, turn the conference President, Relations. call Investor Vice over to Please sir. go ahead,

Aaron Broholm

thank call, particularly morning. earning the our and Good to us call, of later given for CPG a quarter conference third this number early on of morning earnings fiscal you our XXXX due time joining releasing companies

our provide morning strategic our Snacks; and U.S. we Steve be initiatives Mark Dunaway, President, Beverage; will the CAGNY Barry International and update will and prepared Chair As quarter and in Wednesday, this provide CEO; Chair Canada Pet and Conference Food participating Q&A Oakland, and Food full Mark third Dave specific on and CFO on President, are Lemmon, comments Pet our year will an comments. focused and our on and and Smucker, Away Also Vice Vice at results President, Belgya, outlook. Home. From President U.S.

today's website statements and at the corporate about to performance. due may risks Company's materially and statements encourage jmsmucker.com. future located I disclosure and plans we this current our These that reflect on differ will press read in During release on and actual the morning's expectations assumptions to estimates results forward-looking make you full concerning uncertainties. rely forward-looking call, statements which is

detailed internally please the non-GAAP note performance to release. as in Additionally, the uses Company press evaluate results

call. a this to be the on our We through link be XXXX of our can slide will summarizing this outlook, accessed posted deck, the quarterly have our fiscal call These results replay and website to archived supplementary and a the website. of slides webcast which

me. Smucker. after today's have I Mark the turn additional contact you call If over the will please call, now questions

Mark Smucker

Good Thank joining morning you for thank everyone us. Aaron. and you,

and delivered brands growth to helped costs business benefits strong discipline quarter. tax growth. Initial ongoing sales year-over-year per share fuel pay by continue driven key business off efforts earnings to in EPS Our growth. growth this our for of position and every achieved We reform adjusted

We map, a bottom of and supporting and top focus will brand by customer guided on growth strategic portfolio road our insights. leading consumer continue to by and and deliver deep executing emerging long-term a line

we demonstrating our presentation, our four for reflected more in brands This for provide strong let digit a CAGNY We During -- investments, pillars results. next cost strategic progress week, to the for ability our of and Milk-Bone. key update in This in me savings leading will acquisitions. of and performance, third on and our win thorough today’s innovation, foundational the quarter, highlight Spreads Smucker's roadmap achieved morning our Fruit sales quarter the sales environment. Jif, growth leading brands mid-single included is

by and K-Cup These Natural the gains Folgers, returned Café Folgers growth Crisco reflecting all increases From brands. and in Bustelo business. grew for our in Coffee Net our were achieved Donuts driven with continued our reduced related Home quarter for quarter. loss double-digit addition, partially of U.S. for a Dunkin' growth sales low-single at gains In Balance. the deliver K-Cups to portfolio to customer, for timing digit decline and for offset brand key distribution a the by we Away sales XX% K-Cups

and sales up continues. Keurig is increase also In XX% strong brand grocery accelerating Uncrustables into of company-wide Green driving benefits quarter significantly Momentum premium Nature's benefiting consumer for mass with brand margins the growth. year on channel advertising another third food remain sales national quarter dog enhanced momentum despite and and year takeaway, of were third up our brand of Smucker the for pace double-digit We're reflects XX% improved the our addition, a from and Net our the a XX% on Recipe which brand activity. sales of and which now all in for competitive year-to-date, K-Cups rollout the in awareness Mountain. with the campaign partnership

sandwich forward level When from significant will innovation net Meow introduced quarter. our of quarter sharing past next have Colorado In products we total, sales reach continue extend the new such $XXX a our of Mix brands. E-commerce Cold this year. remains place we contributed We complete in to two is opportunity more including new XXXX, focus, addition, our X% look to to for on cat strategic third growth Innovation fiscal Dunkin' million introduction on Coffee we product platforms growth expect we businesses. week of the track. the sales. double effort project fiscal area recent Servings brands facility also In and net Uncrustables Jif Donuts in the accelerate Longmont, as further food as launches, our and current in the that to sales iconic including in to across construction delivered three years of emphasis of the as capacity and on Folgers Brew

as U.S. purchases. sales sales up small channel more for the are the of still and These for year-to-date, of in fastest-growing While base well XX% subscription retail up with suited represent coffee were a two XX% repeat pet business a categories model in our they e-commerce food than brands e-commerce, doubling.

to to earn Although shift of consumers continue we share purchases. our incremental, online as fair all sales not these are

key for margin is of Another line our generating and top to component growth strategic investments provide fuel in cost map expansion. the savings road

management are strengthen to new our $XXX drivers savings organization. the I $XXX million to synergies, the million initiatives as the our progress key programs, cost costs this with In we fully make that to our achieving year, K-Cup in million $XXX addition of along benefits earlier related throughout by program projected we spoke These year, realized in you agreement other our expect to fully earlier in XXXX. our savings continue part discipline to realizing pet to including cost food on cost

annual reform, nearly in XXXX. is from in fiscal tax the full provide U.S. also realized which programs, to of to savings $XXX our our be half cost where course cash earnings an fuel addition million of invest in expected increased In support and year shareholders. in we with recent benefit estimate increase including a XXXX, savings marketing to to tax innovation, they opportunities initiatives communities to investing the incremental to work, return These and our of while employees upcoming growth benefit

call clear cost and by have delivering our delivering me my reiterating we of we the thank three line to earnings ensure against their on significant efforts company. growth strategic key for path collectively would continued that our to top success to growth per now employees financial turn our of share dedication comments in all I Let of with long-term savings will out stated they close Mark. and are executing are that set as objective. the a achieving over the to I priorities roadmap like line driving

Mark Belgya

additional everyone. Mark. I in by providing color results third start reported quarter. our will on you, items Good significant Thank morning included two for the

summarize benefits U.S. the on First, legislation recently the tax our provision. let income enacted tax of me

liabilities, offset the recognized our the our earnings. This excluded related third results I transition of share we to discuss from re-measurement adjusted non-recurring that reflects was $XXX in undistributed slightly net tax earnings benefit the the assets expense quarter, tax has will benefit moment. per on by primarily foreign tax been During a a of million. and which the net deferred benefit This from tax

tax include to did a rate year-to-date result share, Third quarter truing benefit tax reform. our of approximately a of as adjusted up per earnings tax share a $X.XX however income related

rate tax of effective This rate of fiscal we the tax resulted year-to-date in on for to XXXX, effective an adjust in down rate For the year XX%. XX%. expect third basis quarter a to full XX.X% order

For from tax our effective a fiscal XXXX, rate we to will reflecting further project XX%, year full reform. tax benefit income decline

provide our when fiscal year-end we estimate XXXX call this will any earnings June. during to issue update We in guidance,

the share The business impairment food tax modeled, goodwill as quarter to with of a outlook $XXX second and trademarks in previously non-cash item food next from reflects in pet million another With primarily release. to adjustments over this charge sales quarter the excluding summarize press organic project morning's the the segment. an third reduction earnings the five third impacting was certain now that within quarter, long-term per notably non-cash charge X%. charge we of food $X.XX the impairment The income net earnings what our pet years background, X% overview results. non-GAAP was GAAP me let for growth benefits, provide one-time pet attributable in

Third note quarter adjusted as an was $X.XX, increase earnings share per XX%. of

currency notably to X% compared As noted an an earnings to per earnings current in was tax $X.XX increased sales includes related income compared year, for $XX quarter. prior as to to net freight quarter, neutral in exchange adjusted reform, both by the prior oils. XX.X% with per year, volume benefit year. reflecting $X.XX reflecting decline or in of lower increased volume adjusted volume Net food, X% the profit pet an higher but impact Adjusted related and Net expense. mix, quarter price line of were and realization pricing also the the inventory quarter. favorable prior margin food charge neutral Adjusted of million the in cost increase mix previously, share the approximate share gross higher the mostly $X X% or to third the in reflecting or year, partially million million was coffee and obsolescence mix prior gross in the projection was X% offset to $XX due compared pet, with higher foreign

the as compared increase marketing an of Company's from program XXXX. $XX compared reflecting increase million associated in cost refinancing were of SD&A income, the to freight X% prior of the fourth margin increased to third a operating activities interest and third to expenses, a operating XX U.S. in in offset within income activities actual cost Factoring $X year well industry. million million and in expense in due partially operating in was transportation for with forecasted with this all in the reduction fiscal debt exchange or X% our the or than by average X% quarter the outstanding, expense. the ongoing administrative foreign lower operating rates the quarter points than offset impact our in driving increase a basis as selling change the was weighted Although, resulting executed increased and favorable tax million greater a charges $X currency repurchase saving lower primarily challenges other by we adjusted $X lower million shares adjusted $X expense. due in increase more by Below XX%. anticipated quarter, quarter share and expense, X% This XXXX, to decreased

pricing to now sales up in the for January turn the coffee. for prior a on the in ground X% price was competitive coffee. sequential the Folgers the were third compares X% the X% quarter. first decline sales be offset results impact Sales X% strong declined segment-specific notably the continue investments performance. increase X% lower year XX% beginning to -- most in quarter Dunkin' K-Cup realization roast representing sales of improve me quarter as in by net price Net from and quarter, brand with decline for Let least trade X% the Donuts to increased on a Net and improvement last

sequential a upcoming expense Bustelo, ground net as behind and partially with Café represented of well X%, quarter anticipated profit the for Coffee of margin K-Cup our offerings. offset to XXX from significant XX.X% associated in basis expectations with coffee cost due marketing and XX% quarter increased would consistent roast as quarter start sales Segment volume third of factors XX.X%. was For lower points input primarily increased higher the second both and mix growth margin and cost, up the profit favorable third by improvement these innovation. segment as

we club pricing. mix brands Uncrustables in while Sales sandwiches X%, X% was X% higher third segment to a Foods at Sales brand key in both mostly prior realize margin for cost. Jif the benefiting coffee oils the as increased green effective strategies our year the quarter. declined volume lower lower Smucker's late channel, the in the prior despite reflecting X% Foods, to chain of year continues and in X% profit costs. freight net impact the compared costs. compared lapped to Profit the Consumer in further from improve the and supply the profit growth third execution XX% reflect successful frozen by Crisco growth and We retailer associated decline were was increased partially of of distribution fourth higher which up brands down quarter In expect with segment offset Consumer spreads. the the we volume loss manufacturing as sales management pricing benefit mix quarter for fruit and to business

food, XLives also increased Recipe X% by X by brands sales partially realization. the brand. $X Pet decline. Nature's offset to This which slightly Higher food, for mainstream X% X% dog Pet primarily driven lower shipments obsolete Mark prior segment, Pet decreased to increased freight to to was by premium food million the volume brand pet increase Turning points. and Balance marketing contributed fourth of price than XX% the Food year. sales increase begun expense which including our This net compared to compared year. were as due contributed is the costs reverse Meow to driven prior decreased the Natural mix XX% within inventory – for in the Cat the certain an in Sales the approximately X% the higher to up the Milk-Bone snack net a both profit And the already for sales was in retailers profit increased prior charge year, related for In quarter. that X% in discussed. in quarter. to is sales food Mix and segment growth lastly, percentage timing

increased growth. to volume mix sales in price was our by favorable Home sales increased and benefit year X% mix this with to of Segment compared increases contributing somewhat the currency growth the marketing currency away business foreign across Lastly net and The including segment, home and partially mix, factors. International with expense several significant volume the these industry categories broader distribution both contributing. Away exchange volume lower as foreign equally the realization exchange gains. prior From all offset a outperform driven profit net of continues U.S. from the XX% Lower

to non-recurring In $X a disposal. addition, charge prior an million year's related segment included asset profit

from $XX was $XXX the Turning of was CapEx quarter, of benefit fund year-to-date pension now million our capital in million increase by previous in year compared $XXX an our $XXX assuming million taxes, $XXX in million million Factoring of of working to capital project portion contribution full quarter cash reduced a The third the of million, cash third $XX slight of well in which flow, as the reduction used flow total We free in operations of free prior of incremental million. $XXX million to as reflects the guidance projection. to provided bringing the $XXX year. the to flow was expenditures $XXX cash cash XXXX million.

full now Let year conclude with earnings an of sales and outlook. our me update

excludes agreement guidance previously post-closing impact any Our potential the on announced require for brands. Wesson

Trade we information transaction, Federal waiting from after still Wesson additional the are second Regarding for approval the provided U.S. process. for having Commission, request

which share prior Operator, the forecast With on We sales your year to this thank for of quarter's full our earlier. question. we to in expected open confident please earnings, time flat The in in this me charge by in up freight be reiterate in now morning to guiding to points. previous compared increase call be and to pleased to earnings the obsolescence Factoring of that compares now headwind, is reflects spoke partially prior last we from incremental slightly continue the inventory year. up the We could an guidance are feel the to two range queue full to margin the your I $X.XX. these let reform, year the down tax net adjusted XX to you fourth guidance project the first gross now income the of benefit results quarter with our be previous will year. line with full basis in per you delivering to $X.XX of offset if $X.XX, closing, range regard year, the and for $X.XX continue items, range our of you increase year will In this to up and to questions. we of we're the to the

Operator

from from Citigroup. question-and-answer begin The you. David Thank [Operator this Driscoll time. question will comes first Our session Instructions] at

Your line is now open.

David Driscoll

to Nielsen, a so be the question. the Couple that you my executed you as plans coffee? questions bit Would data time But can are the new you Nielsen would that coffee. just bit kind guys the see. with things like like really -- spend to describe to here, little starting numbers That and just hear single-serve Folgers, like on talk They of in more good. just a more single-serve we the on about It of little looks little will contract? corner. look about maybe in how turn You on a about you first can progress bit first advantage opportunity this of

Steve Oakland

this about segment and XXs, that breaks how one really to quarter showed business you the we down David, journey and to think that cup go the if data down And we'll business time with we're at Sure, it XX% maybe XXs, category back at across first high hi, back-to-school, Oakland. a show breaks business how our category our the the the single-serve To XX% was Steven the we coffee graphically. different broke the on, We down, high time. and time. was maybe XX% remember in our that’s

knew was premium ourselves but us. to also was thing us biggest we of et for in Yes, So, position category. is in that the front that most growth opportunity cetera, that in important coffee the there

quarter were in business driven biggest Bustelo. that’s quarter, So saw quarter about by the growth category growth for for our one but our we because in, Dunkin' double rates clearly, the group the great with

growth really, Bustelo we're pleased legacy on by So business. digit grow and brand mid-single our continues our to Folgers,

more much yes, our advance lot how contract, you a were. I about I today more a better and are advantage, talked about its that lot economics talked the compared sizes, mean it's think that I better. have and think channel we pack mentioned and we as don’t pricing, I far advantage, competitive So much as how unbound unrestricted we and either as given items by customers, is channel, our we're What but customer. or as given as put I many far that more access as in we is to far

brand. some combine the So the saw season. We platform that think frankly, growth. retailers those holiday the things, quite we've strength had of behind when of I you all And the get over

we all will double next to and they the that that So continue the into expect a led quarter. growth together things category I those think of about

David Driscoll

quarter, the you half fourth with year, up. for In expectations net up Just to are those pretty as the Can follow notably you had profitability? well. all expectations that guys that coffee pleased the of third just confirm that big you're of and particularly quarter coffee, back being the direction although

Mark Belgya

this Mark called green in we Yes, the the Belgya. one benefit fourth of aligned I is coffee. David, that we're the our come comments, with still more In out. scripted from that, think quarter, will

If to a was period fourth year's that of kind high quarter a you of a still ago compare cost.

So the is line. else benefit quarter. we get Everything coming this in

David Driscoll

for question Last me.

think said you flat. I Can the margin, now it's gross that used gross describe the Just margin? to profit you be XX. factors at affected It have

Mark Belgya

is I'd increase. ongoing Yes, the, of the out. impact just The we three. freight to continues call that called the It one out

it's the probably it year little end of given the And bit the mix. across thing our exceeded was I'd COGS nearby charge. organization the Obviously, range We through obsolescence We hasn't plan costing obsolescence flows gross up second in say we've and through of affects really The changed. just although every margin. a at where in the and expect set thus terms we quarter. of third year so our that, just by

mixed Some the mix changed say, a higher down I would and bit. has little some of just have the come estimates of

biggest those So, drivers. the probably three are

Operator

you. Thank

from comes Chris from Stifel. Our Growe next question

Your open. is line

Chris Growe

to want about are it, Mark bottom - those in reinvest through in ahead guidance, a we the of trying talk business? coming yet? in going without Mark think So desire to of quick behind that is of terms ourselves will are Belgya that the We but flow think of to reform all line, question. that some about to here A should you Belgya. benefits back about it's your Chris, Or you get benefits terms how let the fiscal tax XXXX just and the

and we're rate. with are blended obviously, like not other end that companies up we that end calendar will So year

So and the what but quoted increase our and next well, our I this back said comments release at to by to against we charitable comment spend on would our as CAGNY, some spend also we we’re business, in our we'll spend back both going in employees back more are going say, that we're week against giving. using,

XXXX. more be the more in obviously again particularly still same a two we And next be will specific, to a innovation spend step color. we'll our much in up nice invest We that, are but the and to get marketing platforms pretty to in going growth support significant week able about at XXXX talk time

Chris Growe

you And related pet the to obsolescence then division, just had charge. the

an have recently to for expense think I recall in Is color that that you likely more if quarter, you've a had around recall? well. as the any and that relation fourth

Barry Dunaway

Hi Chris, it's Barry.

on to provide just issue about brought a when little we that. ago me Let this it week was Clearly, a about our color just learned attention.

independently concluded, But quickly abundance we that. product. FDA investigation. of did concerns. a volunteer Both concern, So, that an on with We pet health no safety of withdrawal we partnered were an out there implement the of began

be. of that's trying get So, now. that supplier look will with we to that a arms we're may still with right difference. and to cost was place be standpoint, Yes, who that cost There as we're would market our recover reflected work investigated our a Clearly, our timing around the in to any involved in situation, what working numbers. product we out not the costs. of From those retailers get

incur recovery, costs some depending this just it year be cost may and of those then issue. a timing the may on we So

So that. how that's, managing that's we're

Chris Growe

Is that his quarter? you in of through say obsolescence and one-time charges. you be for Mark the Okay then sort account just when to event for maybe go clear a obsolescence fact

Mark Belgya

Chris. points couple a Well, of

dollar mentioned, what we obsolescence of the it's impact. and depending So, any of say did only that on I as driver I not just and not Barry reasons. the time wouldn't board charge include reason And it amount. plan of a kind obviously said, a but also for the across what does valleys one-time it the the drive the thing, of peaks variety of

third So of it I situation wouldn’t P&L occurs. we through a anything, charge that call it whenever just it one-time review

Operator

you. Thank

Our from comes Morgan. JP from next question Kenneth Goldman

Your line is open.

Kenneth Goldman

morning, freight we that The All to margin see companies everyone's number obviously point did this reported how I And gross questions and missed bad that. three have they that but could on by wide food estimates the couple pretty on Street's a of margin. is,

First, food people, on here take in recent curious, I've is it to how had pass is? it's then manufacturer- know and power harder the past. And people, to stuff the from I'm related little already beyond some read retailer freight pricing harder that second, get cost? through been heard that along there your more some any yes, and no. you talked thought is lack from same of I sort freight a that the relationship? with you in past what

for the So of power I'm swing getting the is of if just relationship retailer. sort harder, curious if pendulum that

would be you that think how about helpful? Just

Steve Oakland

to it Hi, is today, to load. it's for a we have than freight regard I'll pay And a you can't more isn't it. because spot Steve. Ken, pass freight, predict if start. we going difficult load pay -- you’re significantly With contracted get to to it

customer coming brings DCs quicker So and than and freight get had what at planned, a we're be. the situation where all for Well, order or to multiple we between between go of to for a we charges right. of one us up our manufacturing when some into are used they those we moving a years, location system, that’s of our place spot in a sort freight a

tell So sometimes depending for on even is us cost, load be able the that you how impossible, what is busy to to going link. next to

our doesn’t like pretty a in us to distribution. our customer this wrong, -- have with special know is mean, to on keep spot. it contracted as sound difficult. keep really there request, something we we so plan comes it key we move I we a that load can, a doesn’t have lot, the That now something it industry but we tight system could happen, on is So to we the with that The and keep I goes or trucking breakdown forecasting customer our right tight. it's carriers, as we the

a a spot low is So do. difficult very to

But So a or with they hard discounters regard saw an issue. environment certain anything think make retailers wouldn't freight the key I customer, quarter the aggressively. I been in the the outlook to categories, very that took say wouldn’t very statements they've think larger or some seriously, that’s more I so, suggest customer. around I difficultly strong over last in we positioning And year anything with our the reflects

the have tiny is of the pretty sense, to that forward going there's to I be materials good and we our probably think we I as so a of a bit raw some be freight inflation looks something go industry in going think for near-term.

Mark Belgya

Hey Mark. Ken, this is

Just maybe to put some numbers behind the margins change.

billion the obsolescence it margin. accounted charge. quarter, the points inventory freight On sales for So the XXX for and X our out, basis items we called almost the of two

was two it driven those by So really factors.

Operator

Thank you.

Our from SIG. Zuanic Pablo next comes from question

Your line is open.

Pablo Zuanic

mass for had side food the pet I the market maybe question on on Barry.

single Big Heart, digit and I bought high you high. low when X% dog digit, So single mid cat, believe talk treats growth you about

has market other are more pretty lowered high pet you've But companies digits. Remind particularly to that, food X%. there changed? and premium, what to than X% in that growing us, natural much Now, those in single important the involved

of better not growth X%, double to improve to the pet food market about that when feedback I there's to this me is opportunity you and X% and from for necessarily on with business the it here brands have evaluation get mean and down seem think So profile and our X%. would brands, we an your your the from categories investors get guidance about to that we

can on comment and you move underlying Nature's The terms is food? It got happen to in you're And that? in Recipe the now extend comments. can the wet would going where very you out and been So very of you launch brands brand need you it's like the you or but if of cut that stores ask impressed how it related guidance I into quickly did successful all pet long-term that. question seems lapping treats? new the And Why sell-through has after does it limited. for there? what's are Where rate? the through there, you

Mark Belgya

Mark. is this follow I'll the the with first Pablo, Barry start up question with rest. and will

go where So turn Heart looked when we both years the back we a transaction, clock Big back, at performing. if the was industry and the few announced

as I call think well. you numbers the out

by So, that the of cat, was the averaging, really and could growth low that business the half they that managed owners digit base of about is the which being in single the drive invest other modest half profit business. dog and to was previous

snack half was team bit other both business, Big Heart that within which had specific, and the a a The skewed the little innovation forward. growth industry-wise brought Milk-Bone of a period of side to heavier of large the

And play and and decline we've a e-commerce I base so, whole but then there's not digits lastly, kind above that digits into has within of low of of lot certainly digits, much, have channel been reported the for variety as followed dramatically, as significant the high growth And single a that. just dog factors come others as and think as we've reported cat that of a especially industry growing the and single carry double channel, expectation we and was food. low

that change. it ladder of to in is most driven the had has been really challenges some arena. So that the snacks competitive There

that the you arrived some specialty in just industry to basically feel that don’t that, in how quoted. channel you particularly is if add, I comfortable just that Barry, know can but the X% of more with we And sort the we growth that reflecting I competitors, our at we rates So where just X% with quoted. was and think

Barry Dunaway

question. half And second of your then me focus summary, the Great on let Mark. Pablo

First, portfolio still into in Milk-Bone think objective segments that take We iconic runway. think lot these particular, a of have have we brand of that into brands we about a some segments. our to growth is great of new

innovation really across we how the portfolio. efforts focus brand are into entire across our our snacks and on So areas growth to take

and dog Let me food referenced you talk about Nature's Recipe.

weeks, entire were our is portfolio outstanding. XX% at entire consumption, the you is across If the look And XX the for dog latest portfolio. up we that which across just

well we're so that our those in to and sharpen in nice all but portfolio about that trying a that Recipe can and take in support and brands quarter-over-quarter, learnings are manage with that portfolio, as those continue. last dollars, just year, with is are months, some of for XX% behind greater the support into marketing across that to we've drive as think big and to the brand. been we learnings up mainstream next we we even THIS to continue quarter performing Nature's our we're Nature's units that, So see to value, of the velocities the We're velocities fact entire market effectiveness the and so velocities going driver again based we go XX% manage that going marketing on behind this increase premium, and those brand,

and far snacks. as that As prioritizing when matter for just other And we yes, segments categories, to then make those and categories opportunities. been other do brands, far and portfolio absolutely we would into portfolio as Nature's in just can of look it's segments to brand that we across and a as of some adding us company move cat the like snacks, like continue we've in the approach taking an and brand we play food how acquisitive always Recipe will our sense think and into

we was under to wet to actually we early we’re start. early can place that to get to dog swap radar think returning. that offerings or be into going coming our refresh, this summer. We're the that’s right So some of we this packaging year fast going items other some thought wanted expand screen, And out we

brand, of going that So, to lot we that momentum into launch segments. a keep other look to and want then behind

Pablo Zuanic

there? talk in if that’s up hear and only shifting growth one Am you serving roast on Can there can about on swapping terms squeeze missing you're related talked That’s we for a Maybe for coffee? Is than and more little Steve, the premiumization I for to helpful. that get lower margin accelerate a still ground. Steve, of It is actually roast seems much about of just a swapping a K-Cups would and I serving dollars but to me into when K-Cups And in for Or we're faster concern please? exposure is on swap, and that roast I opportunity that, take my there and very realistic? ground. that something ground Dunkin roast to if ground category.

Mark Belgya

to premium a we both upgrade going Well, the gain. in Pablo. Certainly, We're in sector set in Dunkin. cat for show innovation new platform

flat we the us for X% K-Cup for profit to was and at at are quarter -- suggest And sales mix net have dilutive. look have that pretty that felt K-Cup X% that in you So that I not would would the we address had to good. volume quickly, if K-Cup XX.X% suggest

anytime flat obviously our we're I So, roast a in quarter, winning. have ground that. includes and we if slight mean declines model

it in slower improves decline decline than like model. did the or quarter, So don’t really when segment this the we

a you we’re So effort week to we investor things, on way premium. quarterly have frankly will K-Cup have going other coffee see the and in to and that larger is next those to we have in to doing fix premium next first, as you're presence on see

Mark Smucker

Pablo, Mark this Smucker. is

generally the and that margin is about all tell relates consistent and different single-serve. time, Just I they it that such at margins talk the dynamics I as to all the such across are way on in would profitable. are and all category should the segment our we mainstream those these what you premium the say in in we point categories this segments, all manage of business of are The that,

Barry Dunaway

Barry. is this Pablo,

see, where million potential we $XX is we fiscal want and specialty, still to that about the specialty the this over on up indication or into moving based in other it have made about be then at point brand to on brand, on just the just XX%. of retail strength and look Just year, about pre-launching and at sales retail were talking when have we're that of we one in as the other Nature's, I it projecting brand when should performance that pet mass was that just has. presence that by going We the brand that growth and we mass tremendous channel,

Operator

next Thank Wolfe you. Mushkin question from Scott comes our And Research. from

is open. line Your

Scott Mushkin

into move out your to this? kind for rolling as have on did I seeing What's accelerating question business, EBITDA investments your thoughts a CAGNEY do of actually move and tolerance and kind platforms. new we So your come we into as down just philosophical

Mark Belgya

if and welcome Scott, this back. is to chip Mark and anyone I'll wants welcome, in Belgya. start

we’re many profitability of I think at innovation, whether number the reform still CAGNEY, the We around it week give support beneficial peers said a of question segment the feel have and opportunity bit planning does our provide in an or investment is obviously certainly we’ll investments, reasons, also, that for grow even that as with our whole the through next going even earlier but little and it's our investment we marketing marketing process to tax but outlook. a to not investments for marketing. just XXXX want

So some we're in operating EBIT And little margin EBITDA going as move we hard are specific a again, to and we until our with continue June the grow and to forward. try to that. we're nice profitability it's reform utilize an tax but guidance, some from have do not support that growth, off necessarily backing it's to to flexibility of we perspective just EPS

Mark Smucker

the Scott Smucker. Yes, other Mark

this but year. out so, we so we a dealing would not does strategic where of we're example reform grow. well also areas foundation said, investments Just significant earnings need that have execute has us we grow expect an as know aggregate that have things to as and in will the cost to year to marketing some is our obligation where unique foods also order it our we as like an is doing like and we savings roadmap very and up I you that what that, in window. with to we prioritizing can where do -- on increased businesses those Uncrustables Obviously, I be in mean marketing get tax our give make and areas we this seen Consumer to the point But Mark are and we still those we been shareholders agree would really sure increased that. significantly Jif grow to obligation consumer, have a invest Mark. good has next have potentially

get really the maybe we we in can bang stock So, for think we some to our biggest deemphasizing invest buck. order where

Scott Mushkin

you a And Perfect. Pillsbury don't I then the guys have get quick comments one little been yield? that but just then all know you've and a trying any to on know bit follow-up, I if brand, moving

Steve Oakland

Steve. is this Scott, Hi,

overall our things enroll declined volume may see there the see right. right, I our structures that some in and fruit great when numbers is there Jiff, performed Well, a consumer our there great cost right, segments and Mark mentioned I times mean brand. businesses and came comfort spreads, you those When example as think had that of when businesses, numbers are and what can -- are really when great the did well, operate business well. on you'll forecast from on baking on we pretty Uncrustables. foods had somewhere it on business, we are to

And this these for opportunity one the times those and they businesses may to of managed when was are there'll and for take those them with profit, the some opportunity we'll types. generate take to are there So, we opportunities. when fuel have times, grow be of other times

Mark Smucker

Smucker it's again. Mark Scott,

what just Pillsbury, I is. just on thing other point said on The out Steve to build

that that in -- we order competitive such conscious have decisions investment environment create profit might brand a in see the a is We made actually situation when challenged. is some just an too

case, of will. sort consciously That with we Pillsbury you deep, chose in that been coming do some we year. past think to I next Pillsbury nice on go have innovation this the said, out year, not the if

that but have we're that So, ignoring and do we it's it's nice innovation. it some stagnate, it not letting we're not just

business that forward. support going to that continue will We

Operator

with Goldman from you. our question Thank And Sachs. next English comes Jason

open. is line Your

Jason English

I bit a got little bit question distracted on on apologies on pet. a then jumped and coffee A My late.

move how And maybe cost? much disclosed this, in terms was the you related sort full scale Can of green unpack how expansion of new the at mount that lower Keurig now those contract? or coffee continue it to whether but already contract you've to margin as into whether by fourth So quarter? through you much benefits coffee. sequentially And of we will of driven on

Steve Oakland

the of about quarter. all leaned green, Mark say This things. comments to we get think it's of will know green Q&A I us Steve to quarter year. expensive said the We beginning as Jason, The that you. was Oakland. is Green -- We ground. green cycle in in Belgya forward. one as script for to flat or and the the for fourth the would went you those of on green, me our an that roast I pricing through Let do at try benefit and will I basically either the going talk

was a not green quarter. tailwind headwind this or So

look you the is is all K-Cup good, better. economics if better. and positive good really is volume mix our said the the Yes, the no across good I of and as was There but access earlier agreement K-Cup was question, volume on. think was I businesses, the component

So before. we we're able to put K-Cup into couldn’t some places

the the go So occurred let far would up say to the mix where things, hard we're, kind things all of look to out of next that added momentum forecast but of so quarter. it's into those that should next quarter, continue to all our like into for project it those coffee

Jason English

to since you November, the we kind flattening you less data, installed have across so see on premium Recipe. flat the the lining can getting for but of pet. mentioned Nature's Question same overtime? also we a of At do ramp the you're Or running thing we you growth? something velocity than well further as for under momentum half category velocity rate factor on you're some that velocity Barry Barry Do in like When the see and and market below more new see unpacked and the even see quarter-on-quarter. out sort relative brands, think them some index other distribution blue. you of you

Steve Oakland

message can some help in mentioned in that segments is how we more keep think competitor learned items we messages, as last we do and we're velocities slower on right those confident there Nature's, think the of that the a targeted on advertising competition as I no what Jason the can I hone moving items to Yes, replace that moving well. some But new little I direction, we doubt. where year, of those as bringing question continue to we're with those more over we're is there see no the without that some

right So, -- I direction. moving can the in continue get to velocities keep the we the

optimistic about were we So that.

Jason English

snacks was Nielsen. it mentioned you this Mark contrast at sharp snacks if Nielsen, in think to it And of are data? what X% what premiumization, we're I is largest grew donor. the food as that the pet did between going through share lot see the same of fragmentation disconnect a in in looks look What's I which Belgya, quarter, Mark And we like reporting what think that a lot Belgya you the thing seeing with you're and

Mark Belgya

Let there. me start

sales. with right, between things are you’re A we and was businesses significant and our that seeing customers channel. a and consumption with disconnect mind, measured couple great there we to and customers so First, of are channels have not keep in those some performance

some a metrics a some we're there dollars on so some in and issue down we area. and units was been has there relative had and of then behind businesses we our of that's So to stack year, market items. are where are compression think select about up, performance coupons intro couple timing made price Last but one the seeing terms investments as

our say, some major I look seeing that. distribution, today, be are the and where to would things of the we we're of nice increases of looking were be would their encouraged we next at those a as year a So retailers contributing couple that at assortments really for points number customers.

that. about enthusiastic we're So

sausage where but new bumped a of In kitchen accelerate increases in against we'd solid that we're the there out and launch item. under meats tremendous that's brand, We brand. growth item. recently segment to some, out new is think just as natural bringing in, June. of kind shipments and out acceptance some pepperoni coming, Had a of start early or launched lot going growth bringing we've have innovation some that accelerate going, to about it in, going bring the innovation Milo's and the meat where then that's good in the is to pepperoni We of We're some natural up across that we across segment acceptance some that. think we're of close pretty our segment, that. had some been Milk-Bone driving Normally We're going growth distributions.

disconnect So, the up you, with I some consumption seen numbers on based quarter, our things little of think the this sales match numbers. we're that of some I but yes closer that a will again, we've optimistic mentioned,

Jason English

Got Look it, you and guys Florida. lot. thanks in forward to a seeing

Mark Belgya

Thanks.

Mark Smucker

go we to the Before Mark next is Smucker. question, this

hour, we of calls, be couple Just time. off that them. of the the but like the have we We for answer other a we recognizing if of a continue, drop may at of more would earnings want to handful respectful several everyone's you to will questions know bottom

on, more take of So for a we you handful that stay will questions. those will

Operator

comes Thank from you. And our Jagdale next Akshay question Jefferies. from

open. line is Your

Akshay Jagdale

I coffee do ask question. to a you want

of you're can on your Keurigs of brands saw a you even base instead on a you building more in you good, K-Cups inflammation for public the there? -- lot brand forward. seen on results but first their the excitement K-Cups, seeing an stabilization from what growing like and now But a so the know and looks sales realm, I Folgers time hadn’t while being focused and of give and we know, in for share. with back from get terms installed So time, more them overall I'm and in it really a K-Cup There's some the base your an long them obviously you're installed we'll update give going us can sure seeing us update what

stabilize at just And opinion? just for we in sort brands a on. like of So this pass install all shake has of then your it market base steady there, the I state high a out share level in and will sort

Steve Oakland

do the And to Akshay, team see full And around if over factor entered think reached of able know we're an is lot not demographics, did decision the a for those, think think there machine do think to. new I so we and convenience think house I move with will is holiday. for penetration they for solid. net I change house regardless fact sell have few they I see next distribution I will this months consumer. saw the personally in we But that think still machine our of the in we important $XX small holidays. as is set we every it, and pretty hold. And important we the an agree step what and was I the know of over consumer the consumer that will machine price could a we would the $XXX lower right, you what, what

probably opportunity we're frankly broaden brands a will we aligned think there great We grew brands. they that why I think base very with, is they with saw is successful group our quite strong I really with very that’s the there directly we where with and install category. we're really and sell folder strong there with numbers, aligned aligned our where there, think those

one they been CAGNY we're good you next grow. to about week at show going in So change, the we I and we think to I ground we stabilization point, of going think We're feel said because at ground. roast see you see to Have kind that. some that, some show that think also what took will premium to also to excited we're continue step roost

green summer, category large I pretty the go. have better think coffee coffee next looks looks robust is getting pricing stable, to damage good year are so, dynamics year a we pricing, from the across of the the

next dynamics to I think So year. supply stable going the good have and over we’re pretty

Operator

you. Thank

from Our Robert comes from next Suisse. Credit Moskow question

open. Your line is

Robert Moskow

easy is list coffee competitors wanted as green rest imagine stable? any Is being there very, like goes as you're coffee your have be to that first that look do your stable the Do ground with and first decisions, may there to that’s have there to prices, a commodity think you year pricing jump But pricing you consider lower to low I seems are look well. compared position. And the lower. also, risk the it relatively does I private as a respect going to Or do half very then that think just fiscal 'XX reduction comp little might too? a kind you there in you consider? label price taking they on and coffee? at in I be to ahead at very to last of half

Steve Oakland

guide Obviously, low activity very premium tend anytime we pricing, because in to is tend be and this to long stream be branded potential premium supply have company chain to supply label much shorter, coffee is focuses private and on there The guys for coffee chain this the converse the competitive green be that. tend that longer, coffee. the just more main

beyond would it what that I I would I not funded by hurt and is to that. wouldn’t green any So margins, competitive mean activity be that expect right. with I that can

there margin. And K-Cups I grow a the and premium happening, small is costs green activity we dependent the coffee conversion by the less become if be green. another K-Cups, K-Cup think to is we've percentage on I really and competitive funded green, your as portfolio. category, The business, right. addressed as by of It's a of component in our So that. important are it'll wouldn't pricing it be we funded expect larger double dynamic the digits there's very

and our business year last stable I forward it going So, this was argue more would is year. than

Robert Moskow

of hang the of around can think to XX, you fair low that say so coffee XXs at here And kind do kind margin ongoing it's for margin?

Mark Belgya

Hey Yes, exactly that's Rob, right. Belgya. this is Mark

we realizing I basis quarter XX% as said low QX Steve on have think sort QX last comment that deliver over expectations we should than that back made comments forward we’re well segment XXs still all expected and XX%. reached we’ve profit. the we've our of then if give that we And had, that driven last mid by that quarter the below a we and

Operator

you. Thank

from Rob comes question next Dickerson Deutsche from Our Bank.

Your line is open.

Rob Dickerson

is there's taking One just, on seems it's it one quick if longer just bit very like normally much. you an a than does? update Thank Wesson,

Steve Oakland

provided Sure, that, I sure the don't the it's staffed. that wouldn't fact taking this little it organization information the they I I'm would in isn't know requested. which isn't into I We've a Oakland. that, fully request Steve longer, second involved anything read read that maybe into not more been process,

these things one can't know expect would just drive. to we we know So it’s we when of

So, as we you are anxiously awaiting their thoughts are.

Rob Dickerson

what's then guess coffee And enough. to back I fair of implied in kind Okay, QX. just and

point in saw year-over-year at tracking, the decline expect would QX implies how and you said I kind it's I to is coffee we year-over-year. for originally think profit maybe single some where it operating time year last like think I lower plus think when digit, XX% a low know, of XXXX, was getting don't that, I QX was which say, let’s as costs you

driven is just upon maybe this trying tailwind of QX in also yes, like right operating potential coffee we've implied it's coffee year-over-year to is am coming QX in K-Cup, the is to benefit uptick profit just I price by So size what, but from mix curious seen of -- little segment where cost what's a based what on coffee relative for there's the profit coffee? historically the

Mark Belgya

is again. this Rob, hey Mark Yes,

scripted So comments one is a you QX. we think would I comments, operating profit it that that your over was expect of couple sequentially QX call our segment as it in profit, be would up

new fourth benefit the year the with will to it benefits of we compared contract. quarter a so, And continue ago, of to out

saw seems basically of benefit continuation what in in we what the was the incremental QX green improvements QX impact and that that's is over you neutral a we'll call coffee. that QX. sort So QX. driving, that new will news It will of in that be The that sequentially of

Rob Dickerson

Okay, can and in how free on XXXX of then say we'll much just, flow. I'm terms you sure not or cash say

cash material provide not next guidance giving you You say 'XX, expectation where commentary it be in tax even investment but year? a Is And growth inventories fully with increase flow that seems I and increasing know cost. on your for XXXX, you're hopefully other cash we flow obviously lower or for the there be 'XX could flow investment? free cash given for understand like saw free that but could can this target any morning, you’re reform potential coffee free and over there

Mark Belgya

is year. year. Sure. guess you million what I Well, our expect obviously, what would be incremental equal, in until I of million I expectation. can't Obviously to but can update see that to that some coming material, go things of just just number to from is of hold the about because $XX to have you say and we definition the own XXXX, -- say that. the capital is, end more to with I is benefit can't incremental all will tax, the in working we $XX I increase and All that what over a just this on is, an give play of

So we would expect to be because of tax.

Rob Dickerson

And might for pressure also tax quick number point gross Smucker. came U.S. number then a Ken's we feeling of earlier saying benefit I but to margin companies on, one last companies Mr. have of then backup. that we reinvest and a up

-- the over Does plan for marking have How that spending to that what out? just year next was investment more? does change be does play if general if that kind that building we to out I So total everybody the feel, industry, you. spend that in everyone look is that curious of where how just increase

Mark Belgya

specifically marketing asking you're On Rob.

Rob Dickerson

much you want Sure,yes, go given where just hopefully, I others see much to before our spend of we and well think than as you and focus. how as more spend, would categories each probably to going your or to think is we're there budget process

it's everybody remain it So casual in how I you it's am all if constant spends just do as relative? that, even then conversations. kind you does curious as think, it's

Mark Belgya

Clearly do, on going invest at to to the I day, I goal for of military me really is might comments, think end is come my can from. in but and our we back think the comment others earlier what to that it's very competitive as growth our think industry really hard the

And of the work so this, and positioned to those some we've diligent meet uniquely hopefully we're of are work we’ve lot consumer will how consumer very done consumer, you understanding and need done a what feel needs. will on

could choosing company other where to things invest those same the most we're to not doing probably is say. important it's but that I So say thing

invest in and more so broadly regain the for and you will if consumers it's think that in think good to brand food big continue quite think help trust industry it the And if its everybody we consumer, I I frankly I represent. because the

and invest obligation much age. I with in particularly an the digital as And consumers to we so to as think them possible communicate directly have to our

Operator

you. Thank

Aslam Our question next Farha Stephens. from from comes

is line open. Your

Farha Aslam

question just as to pricing last terms to you One form to on going marketing get do planning And color are answer. just to inflation? dollar? some spend, of your I of spend that offset consumer quick freight how the and increased you try follow-up a you're understand, much advertising, want to oriented pricing, that and to in where give take the slotting, marketing expect

Steve Oakland

all I’ll things. gambit at at freight Well, raw the look at pricing, freight, we We on whole the look piece. is cover Farha, materials packaging, we this look of at those look of Steve, When we cost.

to just and operate get and pricing under - applied price, you a makes point where we’ll is we we So have the if know price will do that sense, that. just today right, what we

our So of line on I think $XX our to not freight or that $X a dollars results that size, in to but across a $X us couple million, its over in business of business. quarter, don't billion million our material has pushed it's a sales material

So, we probably haven't gotten there yet.

Mark Belgya

the generally when cost Yes. intro we're answer we’ll be -- talk basically consumer. market, question. we to we're there'll aimed innovation about marketing Mark. be And trade, but directed Farha, guess will that type talking consumer marketing about talking Obviously, spend. your second related I it's to about We speak at the

Farha Aslam

media, could advertising be directly? advertising, digital media, So that experiential and mass mass consumer

Farha Aslam

But it's promotion. price not

Mark Belgya

and line customer a item that's trade statement. that's No, related the on income different and

Operator

final you. question Baumgartner will from come Fargo. our from Wells Thank And John

open. line is Your

John Baumgartner

maybe wanted to I peanuts. as been seeing Just apologize pricing mixes pertaining label higher ask consumer. gaining a but takeaway just I for looking some oils, about there and in the some of a baking this, at peanut drag bit share brands sharper, costs, looks a butter is in the spot though are Nielsen data, store private given kind if salad of missed we're concerns to the the

more anything strategic points you price just just in your into how commodity much fiscal kind past this bit of environment? going to you How relative about of what feel to the speak a you're XXXX? seeing can do So and is maybe

Mark Belgya

that we John, business peanut our we growth, We I solid. competitive economics plus so fruit nice little we've make a invested bit the did for see butter some in baking talked didn't spreads, sense, guess, is had too. activity

Uncrustables next You'll that And times. of that know, across growth, in the week. then I this see look some both number spoken Sahale, as pieces to other innovation think things that think a we I've the and Yes, two accelerate we and you o did.

discount see And change I don't key size. retailer to much price that, but have point are a a might our going stand think where think be we in dynamics we peanut wants wants to one, discount the is hard baking make us. a one that some of participate categories to I competitive for on those, there key some butter where that's baking, that

brand got I exceptional brand the for one we set, business, on understand to number we number understand that with competitive a there, in we've baking peanut the we're leverage we as two think multiplying merchandising, the those butter we merchandising. or we spreads, all the segments lot do, fruit do need of tiled

continue position I use set. and think competitor would label, to I positioned the within to well demographic marketplace, certain themselves expect to customer certain private so, against the we're that. within the retailer for the And

not prepared, world. we're that in that a strategy but compete to have different suggesting we change is So to we're going

Mark Smucker

Mark Smucker. is this John,

numbers IRI comment we last to Particularly in the Just the share share. data. on buy

that. see we private even that number brand a to seeing one tend labels push. particularly making what leading brand the think fair number when I is well, we're that reflects And

will our that number last in and three you one so down And see looks number particularly are spot. versus brands two of this in period brands this generally some

John Baumgartner

so little pressure of nothing overall ordinary. really but Okay bit a

Steve Oakland

synopsis. That’s a fair

Operator

management concluding Thank you. to for phone from call questions back our to And any I'm now showing lines, no like further conference I remarks. over turn would the

Mark Smucker

to day you. a time, appreciate of want busy thank their for for Just it’s most everybody

with reiterate is thing, seeing guys of to next you. lot we're about Just week all forward and year want in you making that and investing strong right past sharing sure so that foundation to time that you more sure this we been making CAGNY. our Thank it's look a at and

Operator

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

The J. M. Smucker Company (SJM) 16 Feb 182018 Q3 Earnings call transcript