J M SMUCKER Co (SJM Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Continued strong start to fiscal year despite supply chain disruptions, which have been resolved.
• Adjusted earnings per share exceeded expectations, leading to raising full-year adjusted earnings per share and free cash flow guidance.
• Uncrustables brand saw 15% net sales growth, with full-year expectations over $900M; new products like Peanut Butter and Raspberry Spread performing well.
• Café Bustelo brand grew 15% in the quarter, with plans to expand nationally, launch new roast profiles, and enter single-serve ready-to-drink format.
• Milk-Bone had supply chain issues but back to full production; Meow Mix contributed positive volume/mix with innovation like Gravy Bursts.
• Hostess facing challenges due to consumer spending and distribution, with a strategy to return to growth including new packaging, marketing, and innovation.
• Coffee segment navigated green coffee costs with price increases, showing resilience.
• Frozen Handheld and Spreads grew 2% led by Uncrustables, with national marketing campaign for peanut butter and jelly.
• Pet Foods recovering from supply chain issues, with confidence in Milk-Bone and Meow Mix brands.
• Focus on debt reduction, planning to pay down over $800M this fiscal year and $500M annually for next two years.

Segment Performance

• Uncrustables: Net sales grew 15% at the total Company level in the quarter. Anticipates full-year net sales over $900 million. Contributes to growth via national advertising, distribution gains, and new merchandising.
• Café Bustelo: Grew net sales by 15% in the quarter, with double-digit growth momentum. Expanding nationally and broadening consumer audience through marketing and innovation.
• Milk-Bone and Meow Mix: Milk-Bone had supply chain disruptions but back to full production; Meow Mix contributed positive volume/mix. Milk-Bone led category in innovation, with products like Peanut Buttery Bites. Meow Mix is leader in dry cat food penetration and volume share.
• Hostess: Comparable net sales decreased 8% due to consumer spending selectivity and distribution/merchandising issues.
• Coffee: Net sales increased 2%, with price increases due to green coffee costs.
• Frozen Handheld and Spreads: Net sales grew 2%, driven by Uncrustables, partially offset by decreases in fruit spreads and Jif peanut butter.
• Pet Foods: Reported net sales down 9% due to supply chain and divestitures; excluding those, up low-single-digits. Anticipates full distribution in Q4.
• Sweet Baked Snacks: Comparable net sales decreased 8% due to consumer spending and category recovery.
• International and Away From Home: Comparable net sales grew 5%, but revised expectations due to supply chain, sweet snacks, and foreign currency exchange.

Guidance

• Raised mid-point of adjusted earnings per share guidance range to $10.00, reflecting improved gross margin expansion and earlier synergy realization.
• Increased free cash flow guidance to $925 million for full year, a $50 million increase from previous expectations.
• Full-year net sales expected to increase approximately 7.25%, reflecting full-year Hostess Brands acquisition and base business growth, with comparable net sales up ~0.75%.
• Adjusted gross profit margin anticipated to be approximately 38%.
• Full-year adjusted earnings per share range set at $9.85 to $10.15.
• Projected free cash flow of approximately $925 million, with capital expenditures of $400 million for the year.

Risks

• Supply chain disruptions that impacted results in prior quarters, though now resolved.
• Consumer spending selectivity negatively impacting the sweet baked goods category and Hostess brand performance.
• Unfavorable foreign currency exchange rates affecting international and away-from-home sales.
• Hostess brand underperformance due to distribution, merchandising, and competitive issues.
• Debt leverage risks, though planning to reduce debt through divestiture proceeds and annual payments.

Question and Answer

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