SJM - Earnings call transcript Q3 2022 | The J. M. Smucker Company

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Operator

Good morning and welcome to The J.M. Smucker Company's Fiscal 2022 Third Quarter Earnings Question and Answer Session. [Operator Instructions] I will now turn the conference over to Aaron Broholm, Vice President, Investor Relations. Please go ahead, sir.

Aaron Broholm

Thank you, Kevin. you session. our thank quarter XXXX and question-and-answer earnings morning for fiscal joining third Good everyone had release hope corporate detailed remarks I has are website in results review which this as at our jmsmucker.com. morning's on press available and pre-recorded a management's our chance to

We post replay an of the call at will of this also conclusion morning's audio this Q&A session.

estimates future rely call, that differ to reflect expectations and about statements on may may statements our These forward-looking plans actual make we performance. materially During risks today's and results and and assumptions current due uncertainties.

on non-GAAP Financial evaluate measures call read non-GAAP statements Officer. President Smucker, Additionally, Chief results we Executive are you concerning details encourage and internally. in to this use and Mark full forward-looking this disclosure Tucker Chief to Marshall, today and performance morning's our I Officer, press on the Available release.

question. the open We queue please will call up Operator, now for questions. up first the

Operator

Barclays. [Operator Instructions] question from is coming Our Lazar first from Andrew

Your now line live. is

Andrew Lazar

below as much. so need any real thanks look marketing mention a constraints in partly early sales I even line year. guess, mentioned But, Company's range to presumably the sort this X% to such, to some well. as manage to capacity households of stage. could bit I spend, to to on much. if some company, at that so year step marketing I'm levers to expected due realize about bit partly in this? of outlook you I I discuss for is have remarks of specifically, comps, the expect too within X% next Great, not but the forward pet due as X.X% other more up current-year and about 'XX SD&A detail up likely marketing leverage year market fiscal you face know still food spend it's on you prepared want a you from, in possible, there Thanks and as do thinking to so, lower, new still pressure get retaining to item that bump many think, you will the to capacity presumably the target are back when to the We lean And the into this have where of

Mark Smucker

Mark. Good Andrew. morning, It's

Andrew Lazar

Good morning.

Mark Smucker

Thank you for question. the

resources of in grow to can we and I is really to recent We of our down brands our to maintain we spend, the, environment that very dollars so shifting clear as to maintaining are to inflationary we of so and committed clearly are calls our to and requisite that our little will working, growth brands more support we been continue our last efficient much our in brands to have we've you just now but that have what or strategy to the quarter the committed and assured couple share terms get will but spend great, did all years is opportunities committed this a brand. rest our the very we're very better that I we over two-thirds want our highest committed have ongoing. a for comments and on we over much lower in sales highlight to committed percent makes on previous the going lower and spending look invest would we continuing two inflation forward, our with our bit there of continue the of are and be had we in only investors our to the momentum, of able been much remain or our against marketing so also bang become fact but that more spend has have and buck

Andrew Lazar

cost, profit expected thank And hit then had rapid anticipate a enough you will through and in for stronger despite do closer-in-time headwind Great, the bit coffee of to in coffee XQ, the pricing you XQ that. I rise quite guess, we profitability sort of modeled to on would came than coffee more think frame? you you. it in incremental in in or in is manage Thank this the be a fiscal

Tucker Marshall

good Andrew, morning.

that in fiscal inflation throughout but onward in have our that up pricing we fiscal on green dollar experienced to have dollar recover cost into next then actions taken We quarter and we and coffee significant the fourth known for continue the will year inflation cost our step green occurs necessary cost entire basis a have inflation coffee year.

Andrew Lazar

you much. Thank it. very Got

Mark Smucker

Thank you.

Operator

you. Thank

Next is Ken from Goldman from coming question today JPMorgan.

Your line live. is now

Ken Goldman

guidance, of of is divestitures? some other the the terms incremental of your EPS but I being impact - a to the in little it's how by, it I much newer and maybe guess, the reduction versus parse is difficult, merely to bit know much inflation driven is mathematical out how possible Tucker, headwinds

Tucker Marshall

Ken. morning, good Yes,

So, top At I'd start to and change line. divestitures guidance reflects our top our to predominantly bottom two the we through quarter. third like that the the then in in line follow line, on the completed

a and quarter top still the organic our third from previous the anticipated With into guidance That's taking call call. expenses we and our the respect guidance at range to $X.XX, be underlying of year. full growth quarter the X.X% additional quarter, primarily some into coming our SD&A pet fourth of previously timing lastly, was marketing consistent the have for out as the line $XX quarter to currently essentially are approximately of our of to $X.XX is So, year-over-year to inflation delivered over of is bottom by quarter out of third to expenses second some that timing midpoint third due coming which due the line, $X.XX on gross the portfolio, and that is in the due the about $X.XX then fourth within quarter, primarily impacting incremental of $X.XX profit in dollars million is $X.XX of fourth divestiture, we cost our quarter, that SG&A to noted. I giving is back fourth impact then third

Ken Goldman

conclude Great, the Nutrish. then impairment or of results you guess, be or can now you this rather, does business you're year turn was what you. what previously your to the to but I in lower than and regular for why And growth with reevaluation new timing thinking your expected, clear. to that's that would appreciate my analysis plans next ad revaluations you that this charge the words, in the of drove campaign? around discuss Thank I follow-up, reviews, the, the I guess other new change

Tucker Marshall

the what of planning momentum portfolio a food within Ken, continue we reaffirmed So, food through process, around year complete our usually dog pet intention it accelerate is in cat snack go and strategic to growth, portfolio. long-term to that the we and this annually, time growth improve maintain

best we sales net performance we food to reallocation our overall our that's a and dog within our moderated toward and our the or for high brand long-term that dog there, portfolio. of primarily overall portfolio a strategic of the portfolio we result, committed dry are of return As by outlook reduced the to food driven Nutrish of still resources that but and for resources snacks improving growth in reallocating the cat are result use as component, in

Ken Goldman

Tucker. Great, thanks

Operator

Thank you.

from from Laurent is Guggenheim. Grandet question coming Next

live. now is line Your

Laurent Grandet

everyone. good Yes, morning

Mark Smucker

Good morning.

Laurent Grandet

me. two questions for So, morning. Good

is and The line outside Nielsen in that we, this if line XX% issues seeing Uncrustables, and as XX%, should in year but we growth on your that in any well are you grow you I'm get That's 'XX running? still 'XX, in is year question. first from and constraint is new correct potential the mean, first term so continue capacity as the should there will to lines ramp-up fiscal of strong my coming, coming seeing up fiscal or, and new I product

Mark Smucker

Obviously, Mark, quarters double-digit of two quarters. but Uncrustables, for question. the those growth, maybe incredibly one we're pleased with XX thanks of Laurent, in or all its consecutive

$X.X our So, early. a have and or target more less we year then billion sales essentially hit

So, XX-month a and run basis, that goal we on you have already correct. achieved are rate

either. ground about only of we penetration, We couple totally in demand, to we are of take our lower of an clearly unlocked is adding parts it's which growth. that Away demand come in you going increased in we will think some Truly marketing area confidence Alabama, course that making high turned before online years household would haven't the capacity for new From see have at constraint, will Colorado double-digit but online and is capacity we we we in Canada the are fact then facility that broke have point on channels investments the Uncrustables and future, is if not the to capacity a on of channel, Home the marketing, support and continue

we that focus possible the our is in ramp there is quickly the just as continuing a see capacity growth. lot So, make tailwinds to that to sure and of right now up support double-digit as we future

Laurent Grandet

Mark, more were acquisition envisaging of helpful. a communications I business departure mean, previous you from in businesses. M&A, tuck-in about you to CAGNY was then, least, core that mentioned And on thinking your cat outside mean, do very the at larger your Thanks, M&A the and table was I in a terms you at doing where were existing

of a negative there on speaking when with bit comment. that post was So, investor CAGNY, kind

- give you you comfort core trying investors your on should you some a businesses could rationale more could go what's and pretty the that? could to maybe what So, explain outside more three to bit do

Mark Smucker

a departure to like what from clarify stated M&A first guess not is that I our Sure. is would it I strategy.

talked targets just have us. our were there always important years, years affordable that It many acquisition for divestitures couple about or we've the part acquisition M&A of had so We a been interest targets meaningful and happens that growth. of haven't of last very to being in

we at just what to emphasize like look would So, M&A. continue to that is I

reshaping and be we looking not small round made play meaningful unlikely small those or latter a emerging existing a gives that Other brands. only acquisition new and would category bolt-on a of than new us we to category helps don't us categories invest We is to in little position do that that we we The that see comments new currently but M&A. different entering M&A might brand growing at - in are be emerging to our one categories our you a in. a will in look with strides a potentially two great leadership won't out M&A that in We've portfolio. nuance would that continue be

Laurent Grandet

it pass I Thanks, clarification. Thank Mark, on. the you. for

Mark Smucker

Thank you.

Operator

Thank you.

Chris Next is Growe Stifel. from from today coming question

line now Your is live.

Christopher Growe

Hi, good morning.

Mark Smucker

morning. Good

Christopher Growe

I margins a it you division pricing volume saw teens. was I where down on moved to performance the and Good nicely weakened while and division pretty is the we accelerate profit morning, a question low for Pet the and the just, had down,

get ultimately coming does it sense, incremental that to a kind quarter? So, fourth inflation the margin quarter. I pricing better, through some this I - I how guess, in get gets Tucker, through I'm worse coming that want in the and the inflation mentioned offset gets can into you fourth before that incremental know get of of timing just help

Tucker Marshall

most our rounds and So, inflation have persistent recover Pet experienced, throughout taken the to pricing year businesses as have and experienced has multiple inflation. ongoing they that of cost of

pricing now. we will recover also the so dynamics two we that recovery are secondly The into costs well. and coming are third timing and cost have what fourth to incremental And as both inflation experiencing of cost that or are against quarters

So, still envision business. to to continue as margin productivity we up support will Pet and that see we down would some time to continue - the the pricing but inflation that see advance catches over will

Christopher Growe

in of a you. hedged, I want that was is one and division, in the the a that then I quarter had in you bit there that's given increasing rate does in a sense maybe inflation more And a what been obviously that, the curious get division pretty seeing just that to to hedges historically where Coffee but, quickly well just inflation thank Okay, you've we see to we're similar is where that in run market? significant you of, costs, of volume question, on also have a the input spot should cause through strong performance sequentially fourth division, then

Tucker Marshall

entire coffee positions, but hedging I on offered the have inflation earlier our year. our that green disclose fiscal was throughout don't we call we what experienced Chris,

inflation. fourth on We actions significant to quarter a taken quarter, we onward dollar dollar for continue that this up will step to continue inflation have green recover that and address the our coffee will in that and in and costs pricing most basis occurs

Christopher Growe

Okay. Thank you that. for

Operator

you. Thank

next Bank. question Powers from coming Your Deutsche is from Steve

live. now is line Your

Steve Powers

that fourth and incremental thanks. chain quarter, in topic, challenges inflation to terms you're materials of just costs mix parse is of the is that costs expecting costs incremental the Hi, incremental and on the what Sticking you inflation raw is? packaging is supply that, that in the that other can or related out,

Tucker Marshall

that in So, predominantly to that additional previous primarily in our portfolio is manufacturing side impacting the our fourth new packaging news see continue and ingredient Pet inflation transportation, quarter, is from in what we our guidance QX. is

Steve Powers

in elasticity your quarter, Okay. pricing or bit on? anticipating observed the terms And little based on embedded as assumptions anticipated the, layered of you on you've elaborate you incremental that then elasticities elasticity trends that is are fourth in a date to the baked more can is

Mark Smucker

Mark. it's Steve,

start pricing year, even our have productivity and pricing in even actions pricing the weeks. include different. as all include just no me Let and recent would have cost that dollar taken, are we with which now general have does last adjusted so dollar we is statement to we well some recover for that initiatives as few actions a And

offset maintain and the to of is So, brands investment the momentum the of including inflation. our goal course

historical better our of realistic so forward category, I In that this, or last our I of that from last matter industries moderation, And our industry sure standpoint, an does fairly we're what the the a and and a, think forecast ubiquitous are how for but approach sure be inflation elasticities we're and it to investors terms just enjoyed that make we make could that single are make that very business. but even would industry, the what we just it every and, raise as across elasticity, prudent remind boats keep to guess into building know the comment on as taking to there but field that and whole the question within all want than we we've does elasticities level. been experiencing are think pretty playing I have prudent ourselves is a sure forecasting we bit we make to forecast does do all tide the since

Steve Powers

Yes.

elasticity though, you're, what you. by to most baked of what recently, And you've enjoyed a kind just is, you're, as thank that back Okay, fair to you've in historical anticipated informed so, more play is that is opposed statement?

Tucker Marshall

have forecast from fiscal that is, taken the as putting additional we while estimate for pricing throughout Steve, on done our timing our have inflation of built what fiscal year elasticity of cost throughout cost best covering we our that the inflations the of we pricing waves consistently we've our and have demand, in actions of impact done price year. and recovering

also those better we would through and call. acknowledge quarter has elasticities performed we would than of I into continue our a Mark we'll historical to acknowledged organic question year-over-year this then calling what think I coming monitor year. and is previous fiscal And is, currently out X.X%, our which is we to line that that have as quarter and consistent move top on our next growth still acknowledge second of are that underlying for fourth

Steve Powers

Okay, very you good. Thank much. so

Mark Smucker

you. Thank

Operator

you. Thank

today Robert question Credit Suisse. next Your is coming from Moskow from

live. now is line Your

Robert Moskow

the thought? a expectation, two, like going quarter, turn be did quarter, And give? sworn positively, in than six been the quarters and I just quarterly you surprised going guidance, was think it that to at possible degree seems about to you've looking quarterly this I'm have in so that past and want right, out to very especially still for and what's environment thanks. five beating guidance. Hi, to is for know forward, I going consistently last last very volatile do could the like that on coffee cadences, what third large over guess, a providing guidance philosophy it better in was like third these whole mismatch quarterly example I'm I quarterly in curious your the on or you that you there then

Tucker Marshall

morning. Good Rob.

to guidance our basis visibility or committed an are and and bottom avenue for top path annual needed that we providing transparency on long-term We line continue the line and will forward.

You are correct.

upcoming against direction annual through we were come inclusive guidance. pandemic chain cost the sense we disruptive we or make uncertain a have a for have year of and deliver we to that of supply our in of going with given the deliver global to were sure fiscal As lockstep and that elements primarily inflation, how quarters, a

was expectations. performed third line expectations resulted ahead and The line really line SG&A some second momentum marketing inclusive quarter bottom line as and expenses fourth quarter, of that bottom come due our primarily that business into quarter the to really in resets with exceeded SD&A have and have that delivered coming We we which the top favorability of back acknowledged. into our line top in was through we've favorable

quarter in from coming fourth standpoint top divestitures. really we you after isolate the as the from a Our line of a is effect two guidance perspective anticipated

around of believe really excellence delivering really on environment. share our guidance talked from and quarter. a is, we feet, kind lastly commercial up deliver that basis arms the about we business you each XX,XXX in we're can annual our this the And that is about to have then see how perspective. is Mark an pull So, performing our thinking has in you business operational and order if

thinking we're So year. the delivering that's about how

Robert Moskow

though, people continues that I continue Okay. follow-up will as disruption here, done with probably to catch to appreciate industry A catch-up most not argue given really that from inflation and that it. period well, is question supply will inflation rise we're fiscal it would a whole this 'XX fair say in you the that first still and be playing the of half is maybe dynamic? up, chain

Tucker Marshall

inflationary and inclusive Away will we to continue we continue we the Rob, But growth to and business the is business support recovering that, advancing what to coffee, underpinning continue about supply all of the I of inflation consumption to are growth then the ensure the we supply environment will consumer a to acknowledge ongoing chain, pet strategic pricing and From do momentum of the that thinking forward. and as move within our to chain actions and what navigate either take ensure savings make stability disruptive portfolios. to is return at-home investments an that in we through our need productivity our necessary to business or or Home actions of cost

Mark Smucker

Tucker chain I just one it's Hi, about supply add and is Rob, the would Mark. comment right.

the We expect control what the strides how excellent great couple our I we and calls in - made on of and people it's have they've area execution disruption the been highlighted a our I've labor. stay have managing that people have focused to we one positive, to previous tribute we and our in on what been day-to-day and some improvement is to on can that continue the has notably - a able execution made

So that as labor there area made we've out has our control, but definitely base that staffing control just the supply are well will actually us to going fact our we can being late, some many the manage things allowed of of to headway better. there. an things be chain acknowledge, some improvements made in expanding And supplier last over months we've as be to our

Robert Moskow

you. Okay. Thank

Mark Smucker

Thanks.

Operator

Thank you.

from is Bank Next from question coming Galbo Peter of America.

live. now is line Your

Peter Galbo

Hi guys, morning. the for good Thanks questions. taking

Mark Smucker

Good morning.

Peter Galbo

I of and from math if what we wanted to you the the I kind take if or revised from more checked up a maybe - revised just that, XQ, high Rob's follow you've we actually this make given you the given very end point? or thinking what the deviate just would quarter question, to just, clarification, to wanted cause of high on sure towards Tucker, us up you at know for fourth the of that about end and of more you've the just what range out given end inputs range,

Tucker Marshall

$X.XX. and where both the quarter, revised can we is into We that knowing the that Since comfortable our translates $X.XX to the fourth fiscal quarter, feel of ourselves final $X.XX guidance our feel we puts approximately comfortable year. range, today found the deliver which calls have around sits midpoint into for you acknowledge with delivering very

question, So know that your stand. is that's how that's I we would I where helpful if probably answer don't but

Peter Galbo

these of Okay. CAGNY, that I in capital clarify, if was of dilution think and just return from you at kind of that the kind or wasn't prepared mentioned any had morning's very wanted in comments, just divestitures into some help of And plan much. see last of the I the thing Thanks some year? to of the release buyback one I wanted earnings to XQ next and part still other or would offset this share week in post going

Tucker Marshall

Sure.

in So balance divested and do we deployment we we earnings. strong borrowings over along capital and and in that ensure have those how our will with remain replace with long-term the the we excess that sheet evaluate we strong here near-term balanced the committed model to cash to sheet deploy a short-term balance capital

Operator

you. Thank

next from from Sachs. English is Goldman coming question Your Jason

Your now live. line is

Jason English

for Hi, good in. morning slotting folks. Thanks

Mark Smucker

morning, Good Jason.

Jason English

in couple up true able price. that so hold A of or segment, bit to questions, the dollar-for-dollar coffee we increase of lag quick be quarter also been inflation the a dollar-for-dollar you increase you've will on in fourth in the mentioned as match cost in there with Will far commodities that step a there?

Tucker Marshall

We fourth have timed quarter. green in against coffee our pricing inflation actions the dollar-for-dollar

Jason English

Okay, that's helpful.

in of to increase is where stepping the as a somewhere up than call or expectation is this we price a out more guidance a yet which offset, sizable and volume fourth our in certainly where in was, seeing lower the lower level, now, erosion, step price our So sequential volume X% is more you sales for were around organic are contribution for implicit consensus up erosion growth, higher anticipating your then than would misplaced? quarter, substantial

Tucker Marshall

against have our have the inflation. our the throughout the we momentum for material of we we business quarter as impact price taken accounted in actions and underlying year What into also envision by would the elasticity and pricing material taking is have QX, of of impact account we that acknowledged taking fourth pricing fiscal to demand the we are

Jason English

I'll there. Okay, thank leave it you.

Operator

you. Thank

question from Kaufman Pamela from Morgan next coming Stanley. is Your

is line now live. Your

Pamela Kaufman

good Hi, morning.

Mark Smucker

morning. Good

Pamela Kaufman

existing comes experience this on brand? to follow in the you've there do had more and that with Nutrish would learnings you wanted are up or on to based when write-down M&A things ask it any to future your in if I just managing differently brands on broadly, or the the

Tucker Marshall

acquired recognize snacks did XX-week brand would category say number in has cat since and in changed that dry cat period that actually the we really the our that the strength we we Meow Pam, lot pet notably acknowledge and Yes, take one a in with is and position Mix. last food that I food

have that right and has just re-shape, learned, see dog of segment category resources where food the not spending gone category to we're and that the the most portfolio, committed of making So, dollars cat we I the remain fact against we and that our dog our and to the snacks dog stabilizing again sure and clearly the areas but fact growth strength Nutrish the portfolio absolutely, where to our food. how anticipating food in think we're are speaks going pet one will we lies the that food leaders our is and

Pamela Kaufman

for receptivity if that's you how prices expected, better And the can although can you demand than expect you further been talk needing thanks, has do helpful. future and price elasticity discuss anticipate right, outlook looks further pushback? you retailer All to then increases, about would to raise pricing and any

Tucker Marshall

earlier, coffee. prices, record may I highs. what coffee of costs coffee just, can't not highlight and Sure. the I lot bit would answer part And acknowledge the but about little same we a is gave at just a we've I talked anticipate answer would come. other the are commodity pricing

and we adjusting prices that. in our making ones cost for one the and so and a really sure prudent the that as that have year are even actions such most throughout have is costs just cost prudent no higher we seen a in how of justified been very been to successful have all have comment taken recent truly price The intent is pricing we recover data following point, really our are the increases the very and we but diligent have very we different. standpoint small and in those inflation inflation and So, been doing from

really, focused line great we've we the so remain brands on while offsetting our in increases. cost top momentum have And to got investing including we're the maintaining

work been that to - and earlier, experiencing the increases. forward on good, willing and every we're the passing is will cost focus best retailers and find has as so So remain us mentioned path ensure to our I that receptivity this, are justified everybody with

Pamela Kaufman

Thank you. it. Got

Operator

you. Thank

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

Tucker Marshall

say just in thank tremendous to really a Well, employees tuned, made great week, who business thank to and I to analysts, want has their our just possible, our investors, you listening. hope commitment of have these who all you our everyone our and you results for

Operator

Thank That and you. today's conclude webcast. does teleconference

may this line at disconnect your wonderful you We a day. You your participation thank and have for today. time

The J. M. Smucker Company (SJM) 1 Mar 222022 Q3 Earnings call transcript