Morning, and welcome to The J. M. Smucker Company's Fiscal 2026 Second Quarter Earnings Question and Answer Session. This conference call is being recorded and all participants are in a listen-only mode. Please limit yourselves to two questions and re-queue if you have additional. I will now turn the call over to Crystal Beiting, Vice President, Investor Relations and Financial Planning and Analysis. Thank you. You may begin.

Good morning, and thank you for joining our fiscal 2026 second quarter earnings question and answer session. I hope everyone had a chance to review our results as detailed in this morning's press release and management's prepared remarks, which are available on our corporate website at jmsmucker.com. We will also post an audio replay of this call at the conclusion of this morning's Q&A session. During today's call, we may make forward-looking statements that reflect our current expectations about future plans and performance. These statements rely on assumptions and estimates, and actual results may differ materially due to risks and uncertainties. Additionally, we use non-GAAP results to evaluate performance internally. I encourage you to read the full disclosure concerning forward-looking statements and details on our non-GAAP measures in this morning's press release. Participating on this call are Mark Smucker, Chief Executive Officer and Chair of the Board, and Tucker Marshall, Chief Financial Officer. We will now open the call for questions. Operator, please queue up the first question. Thank you.

The question and answer session will begin at this time. For operator assistance, please press 0. As a reminder, please limit yourselves to two questions during the Q&A session. Should you have additional questions, please re-queue. Our first question today is coming from Andrew Lazar from Barclays. Your line is now live.

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

Morning, Andrew. It's Mark. Morning. Thanks for the question. First, we are very pleased with the progress that we're making on Sweet Baked Snacks and the Hostess brand. As you noted, we are seeing sequential improvement. Notably, we're seeing improved performance in convenience stores. Our volume shares are improving. Our focus on a more focused portfolio has been helping. You will recall that we had a three-pronged plan where we're strengthening our portfolio by actually eliminating 25% of the SKUs, and we've seen really strong flow back into our core brands, notably the number one brands of donuts and cupcakes, which are each number one in their respective segments. This has been great. We recently relaunched SuzyQs after they've been out of the market for many years, and that has been off to a pretty good start. Elevating our execution around sales, we're streamlining our operations. The Indianapolis closure should be complete by the fourth quarter. And then continuing to invest in the brand. So long and short of it, the plan we put in place, decisive actions are working, and we just need to continue to do what we're doing over subsequent quarters, and we do expect to see acceleration over the next couple of quarters as well.

Got it. Great. Thanks for that. And then maybe, Tucker, how much of the $0.50 tariff impact this year is specifically coffee-related, such that if tariff policy remains sort of unchanged from here going forward, how much of a benefit we could or should expect this to be for fiscal 2027? Thanks so much.

Andrew, good morning. The predominance of the $0.50, if not all, is related to green coffee tariffs. So therefore, stepping into FY 2027, it should be viewed as a tailwind while in FY 2026, it continues to be a headwind.

Thank you. Our next question today is coming from Tom Palmer from JPMorgan. Your line is now live.

Good morning. Thanks for the question. I wanted to follow-up on coffee as well. You noted not taking the third round of pricing as an incremental earnings overhang in the prepared remarks for this year. You've provided some really helpful bridges in terms of other items such as the tariff impact. I was wondering if you could maybe quantify how much that might have impacted your outlook to decision not to take pricing? And then just given the tariff guidance was kind of unchanged, should we think about tariffs flow through your P&L throughout fiscal 2026? And or is there a point where we start to see relief this year?

Good morning. As you think about this fiscal year, as we came out of our first quarter earnings call, we called out a net $0.50 impact as a result of tariffs. That net $0.50 impact was receiving the benefit of recovering dollar-for-dollar cost inflation due to tariffs through an early winter pricing action and then ultimately making an assumption around a price elasticity of demand factor. That was all embedded in the $0.50 as we came out of the first quarter earnings call. We have essentially added that back as a result of being in a tariff-off environment moving forward. However, we have made the decision not to take pricing through US retail coffee in early winter, so we will be absorbing about $75 million of tariff-related costs incurred to date that we will realize, as I've noted, in our third quarter, which coincidentally is $0.50, which is why we're calling it out. Therefore, an impact to this fiscal year but a tailwind to next fiscal year.

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

So, Tom, let's begin with marketing. We remain committed to investing in the long-term health of our brands. Marketing absolute dollars will be up year over year. We're projecting that to be about 5.5% of net sales, which is pretty consistent throughout the year. We have sharpened the pencil as it relates to SG&A spend, not only throughout the entire network but also as we think about discretionary spend. And we've also sharpened the pencil in certain areas as it relates to marketing. We're still committed behind our growth brands, and you will see an increase year over year.

Thank you. Next question is coming from Robert Moskow from TD Cowen. Your line is now live.

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

Rob, good morning. The second quarter top line for Sweet Baked Snacks did exceed our expectations. The bottom line did not meet our expectations. We had anticipated sort of in line with Q1 to maybe slightly better in our second quarter. As you've noted, we were just over $20 million. We do expect both the third and fourth quarters to get better so that we get back toward our outlook for the full fiscal year with respect to segment profit. I would say that the second quarter shortfall to expectations really had much to do with the transition of our bakery network or environment and just more costs that we absorb through our supply chain, whether that be absorption, overhead, just the timing of transition. We do expect benefit as we step into the third and fourth quarters. I would also remind you in our fourth quarter, we should benefit about $10 million from the closure of the Indianapolis facility, which is estimated to be a $30 million annual run rate impact, of which $10 million affects or benefits our fourth quarter this fiscal year.

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

Rob, it's Mark. And you actually are correct. You stated it. We are expecting a really strong lap, particularly as we get into this third quarter. You will see Milk Bone getting back to growth, which is great news. It's not only the lap, but I would just highlight it's all the work that we've been doing, and it is marketing. We have continued to push on our campaign, which is called More Dog. You've probably seen that in various media channels. It has been helping. Again, what we always remind you guys is just the spectrum from value-based all the way to premiumization. So as consumers are looking for different things from their dog treats, the Milk Bone brand is definitely there delivering. The innovation on peanut buttery bites has been very successful. As we referenced in the prepared remarks, we are going to be launching another innovation after the beginning of the calendar year, which is also standing on another collaboration between the Jif brand and the Milk Bone brand. That, including seasonal items, which we referenced as well, there's a lot of really strong innovation in that category. It depends a lot on news for growth. So feeling really good about Milk Bone and the trajectory of the brand. Then just overall, our pet business and the growth that's gonna be driven by Meow Mix, we expect to continue as well.

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

Next question is coming from Yasmeen Deswande from Bank of America. Your line is now live.

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

Yes. Good morning. As it relates to frozen handheld and spreads, we're really calling down that business a little over $80 million on a full-year basis. You're kinda seeing half of that come through the second quarter, and the balance will come through the back half of the year. Much of that is driven by the spreads portfolio, and we really haven't taken up the outlook on the Uncrustables brand. I can tell you that it still demonstrates growth and it is demonstrating a path or trajectory to being a billion-dollar brand by the end of this fiscal year.

Yeah. If I may, just add a little bit of color on a couple of these items. So on Uncrustables, Tucker just highlighted it's still gonna be a billion-dollar brand. The reason we saw 7% for the total company away from home has been extremely strong. We did see growth in retail as well. Maybe not as much as we would have expected because we were lapping a very strong Q2 last year, really strong merchandising and promo. We do expect Uncrustables to get back to double-digit growth in the back half of the year, obviously supporting that billion-dollar ambition. Innovation is playing a key role. A couple of years ago when we had been capacity, we weren't able to innovate. Now we're launching seasonal flavors. The new one that just came out is this peanut butter and chocolate. It's called PB Choco Craze. We also have two new higher protein items that are meant to target a morning daypart or breakfast daypart. The uptake on those from our retail customers has been great as well. On spreads, because we were expecting the question, I might just highlight peanut butter. There is a very big lap against last Q2; we had multiple tropical storms in the Caribbean, and that drove a lot of stock up. We are seeing the Jif peanut butter business being down in the quarter, but regardless, it's generally holding share. We feel good about spreads making sure that we're optimizing our strategy.

Okay. Great. And if I could just squeeze another one in. I think the previous expectation was for sweet baked snacks for SKU rationalization to be isolated to the second quarter. Now that it's extending into the third quarter, is the expectation still for top-line stabilization in the second half? And I guess asked another way, given the expectation for sequential improvement, could Q3 be flattish in Q4 grow? Or is there still a possibility for March to be down?

I would say that one, the SKU rationalization is back to sort of single digits of growth.

Oh, your microphone is off.

Sorry. Yes. I'm sorry. We had a technical difficulty here. But to your question, I just want to acknowledge that Q3 will be the completion of the SKU rationalization associated with the closure of the Indianapolis bakery. With respect to your question on growth, we should be flat to slightly down in the third quarter on a comparable basis. Demonstrating a level of growth on a low single-digit basis in our fourth quarter for Sweet Baked Snacks. Thank you.

Our next question is coming from Megan Klatt from Morgan Stanley. Your line is now live.

Hi, good morning, Mark, Tucker, thank you. Maybe another question, Tucker, on coffee. Can you talk a little bit about how you're thinking about the pacing of coffee margins in Q3 and Q4? The Q3 EPS outlook in the prepared remarks is a little bit softer than where the Street is. I assume most of that is just that you still have tariffed coffee flowing through the P&L that's sitting on the balance sheet today without the pricing. So is that the right way to think about it? And then do you still expect to get to mid-twenty percent margins in coffee in Q4? Or will there be a lingering kind of tariff impact there as well? Thank you.

Megan, good morning. We demonstrated an 18.2% second-quarter segment profit margin in coffee. I would anticipate a slight improvement to that in our third quarter, but it will not surpass 20%. As you step into our fourth quarter, we should move beyond 20%. I don't think that we'll get all the way to 25% just as we continue to digest a lot of cost and cost inflation. Acknowledging not taking pricing in early winter in our US retail coffee portfolio, absorbing the incurred coffee tariffs to date, which will be approximately $75 million in our third quarter. Some of that may go into our fourth quarter, but the predominance is in the third, to your question.

Okay. That's helpful. Thank you. And then maybe just putting together all of your comments on pet and sweet baked snacks and frozen handhelds. As you think about moving through the third quarter and the fourth quarter, you laid out for all segments an expectation for an acceleration in growth. As you think about the Q4 exit rate, I guess, how are you feeling about outside of coffee, the rest of the U.S. Retail portfolio contributing to or getting back to algo OSG as we finish the year? Thanks.

Megan, when you think of the midpoint of our guidance range today at the top line, it's 4% on a reported basis. Then you affect or isolate on a comparable basis divestitures and foreign exchange, and it's aligning to about 5.5% comparable growth year over year. Underpinning that, we've got about $38 million worth of co-manufacturing sales that we're lapping. So, all else equal, we're at 6%. On a comparable basis adjusted for the manufacturing sales for our outlook for this year. Yes, much of that is driven by our coffee portfolio. When you think about the balance of our portfolio, we're seeing tremendous momentum in the away-from-home aspect. We're seeing resilience and strength in our pet portfolio. We're seeing stabilization in sweet baked snacks. We obviously have great growth and momentum on Uncrustables. We're addressing things within our spreads portfolio. I don't want to promise sort of what the exit rate is. What we're acknowledging is that we do have great organic sales growth. On a comparable basis, our strategy is working, our execution is focused. We'll continue to drive the growth brands and support the balance of the portfolio.

Next question today is coming from Peter Grom from UBS. Your line is now live.

Great. Thank you. Good morning, everyone. I wanted to just ask a follow-up on the tariff commentary in 2027. I know you noted to both Andrew and Tom that this will be a tailwind to earnings. But I guess specifically, are you expecting those benefits to largely drop to the bottom line? Or would you look to maybe reinvest some of that upside?

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

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

Sure. Our current outlook for the coffee portfolio is 16% year-over-year growth. What's embedded in that is 22% pricing offset by a 6% down volume mix. That's an improvement to when we stepped into this fiscal year where we thought growth would be 11% against 22% pricing offset by negative 11% of volume mix. Our elasticity assumptions have improved from 0.5 stepping into this fiscal year to around 0.3 where we stand. That's on average over the year. Hopefully, that provides additional context as to the strength and resilience of our coffee portfolio.

Thank you. Our next question is coming from Matt Smith from Stifel. Your line is now live.

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

Yes. We demonstrated 7% growth in our second quarter, which is really good momentum as we continue to advance to the billion-dollar ambition. As we think about our third and fourth quarters, we would anticipate low double-digit growth on the way to that journey of being a billion-dollar brand by the end of this year. We will continue to ensure that we're supporting with marketing, we continue to support our recent innovation launch around protein. We continue to round out distribution and also ensuring that we have the right placement and promotion. I would acknowledge that about 80% of sales run through our US retail portfolio, and the balance of 20% flows through our away-from-home portfolio. We are seeing great momentum in away-from-home on Uncrustables. One example is the acceleration of growth in the convenience channel, not only due to our innovation behind the sandwich but also due to the capabilities that we acquired through the Hostess acquisition.

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

Yeah, Matt. A couple of things. First of all, you're right that we have seen obviously very strong performance on Bustelo and Folgers. The resilience of the category overall gives us optimism in terms of how consumers are still consuming coffee. Our brands are resonating with consumers, and the investments we're making behind these brands is working, notably Bustelo just had a phenomenal quarter. Dunkin' did see a bit of improvement in the quarter. We've highlighted competition pricing pressure that we have not overcome, but we continue to actually make surgical balancing and some surgical pricing investments. We're supporting innovation in terms of seasonals and so forth. The long-term story on Dunkin' is that it's a great brand. We love the brand, and we still think it has plenty of runway. As we would expect pricing to moderate competitively, that will support the brand overall.

Thank you. Next question is coming from Max Comfort from BNP Paribas. Your line is now live.

Thanks for the question. With regard to Uncrustables and the volume decline that we saw this quarter in the frozen handheld and spread segment, it sounds like you have plenty of confidence in the business. Distribution is gaining. Innovation is working. You still see long-term opportunities. So I'm curious, is the volume decline we saw in the quarter really just due to any lapping items that you saw with the strong Q2 a year ago? And then also, could you comment on anything you're seeing from some of the new entrants in this space who have gotten distribution pretty quickly? Thank you.

Yeah, Max. It's Mark. It is largely the lap. That strong merchandising and promo in the last Q2 last year is what we're lapping. Both the innovations Tucker talked about in his previous answer will have solid merchandising support. Coming into the back half, that will continue to support the acceleration of that brand. In broad strokes, we have seen some competition come into the category. That's largely been supportive over the longer term, seeing a couple of other brands, whether that might be private label. The variety you're seeing in the category in terms of pricing should continue to support the brand. You can think about the household penetration we've gained and the continued marketing and the innovation will continue to drive growth.

Great. Thanks. And then just to wrap it up with regards to the tariff impact, I just want to confirm, the $75 million in tariff expense that you're referring to, is that the total amount you expect to see in FY 2026, and it is essentially entirely due to coffee tariffs.

Correct.

Thank you. Our next question is coming from Alexia Howard from Bernstein. Your line is now live.

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

Alexia, thanks. It's Mark. Yes is the short answer. Our pace of innovation has accelerated. I would say I'm very proud across the board, if you look at innovation on Hostess, innovation on pet, notably pet snacks, and more recently, the innovation on Uncrustables has all accelerated. The speed to which our teams have been able to get to market is as fast as we've ever done that. I think we're very proud of the work we've done. The Uncrustables innovations have been notable. I think we expect a little bit of a faster turnaround of both pet snacks and human snacks we've continued to deliver. Thank you for the call-out.

And then a question for Tucker on leverage. You've been hovering a little above four times net debt to EBITDA for the last couple of quarters, and you're talking about getting it down to three times by 2027. How quickly does that start coming down? Should we expect it to start coming down more substantially in the near term?

Alexia, we are committed to $975 million of free cash flow generation this fiscal year, which will support a half-billion dollars of debt pay down this fiscal year, and we anticipate the ability to pay down an additional $500 million in FY '27. As you think about the leverage profile this year, we'll probably hover around four times through the balance of fiscal year 2026. Then as we step into '27, we should begin to see the step down toward that three times amount in fiscal year 2027.

Thank you. Next question is coming from Scott Marks from Jefferies. Your line is now live.

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

Scott, thanks. This is Mark. I would say first and foremost, our portfolio is very broad. As we look at each category, the fact that we play across the value spectrum allows us to deliver varying degrees of value to the consumer. Think about Meow Mix as a mainstream brand that provides affordability for cat parents. Our Milk Bone brand, similarly, from base biscuits to more premium offerings like the peanut buttery bites, also ranges and provides affordability for the consumer. It goes without saying in coffee as well, despite the fact that we've seen significant inflation, we're glad the tariffs are off, and that affords us the ability to do the right thing for consumers, retail customers and hold our price. On coffee more broadly, history would show that over time, costs would moderate. Although we don't have a clear view on if and when that takes place as we get into a new coffee season, to the extent that we do see some meaningful deflation on the commodity, we would certainly pass that along to consumers. The headline is the portfolio itself offers a tremendous amount of options for consumers and notably value all the way to more premium offerings.

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

It's probably early to provide the FY '27 outlook. But the essence that we are trying to communicate is that with a stabilizing commodity environment and an off-tariff environment, as we continue to generate cash and pay down debt and we deliver a level of business momentum, there could be a path to that, and that's what we were trying to just lay out as you think about a $9 midpoint at this fiscal year. All of the puts and calls we've had to deal with in this fiscal year as we consider the future. Hopefully, that provides a little context. As we get to our fourth-quarter earnings call, we'll be able to lay out our outlook for FY '27.

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

First of all, I would just like to thank all of you for joining our call this morning. Our second-quarter results demonstrate that our strategy is working. We delivered sequential acceleration in comparable net sales growth, which we anticipate will continue into next quarter. Our bottom-line results reflect increased investments in our brands, disciplined cost management, and strong execution. Our business continues to build positive momentum, and we are confident in our ability to deliver our financial outlook for this fiscal year while advancing our long-term objectives to increase shareholder value. As always, I would like to thank our outstanding employees for their continued hard work and dedication to our company. We wish all of you a very happy Thanksgiving and a great holiday week. Have a great day.

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