The operator welcomes participants to the J.M. Smucker Company's Fiscal 2024 Third Quarter Earnings Question-and-Answer session. The conference is being recorded and the call will be turned over to the Vice President of Investor Relations, Aaron Broholm. He thanks everyone for joining and encourages them to review the company's results and prepared remarks. He also mentions the use of non-GAAP results and the possibility of forward-looking statements. The CEO and CFO are participating in the call, and the operator opens the call for questions from analysts. The first question is from Andrew Lazar of Barclays, who asks about the company's 6% comparable sales growth in the third quarter and expectations for the fourth quarter.

In the second paragraph of the article, Tucker Marshall, a representative from the company, responds to a question from Andrew Lazar about the expected performance of Uncrustables in the fourth quarter. Marshall states that they are pleased with their third quarter performance and anticipate continued momentum in the fourth quarter. Lazar then asks about the significant growth in Pet Food sales in the third quarter and whether this trend will continue. Marshall explains that there was a normalization in the Pet supply chain in the third quarter and they still anticipate double-digit growth in the fourth quarter. The next question comes from Ken Goldman, who asks about the company's previous statement regarding marketing being a headwind to earnings next year.

The speaker is asking about the expected increase in marketing for the company due to the acquisition of Hostess. The CFO responds that there will be a step up in marketing in the coming quarters and that they have already factored this into their outlook for the fiscal year. They will provide more details on this in the next earnings call. The speaker also asks about the increase in transaction and integration costs, to which the CFO explains that it is a pull forward of expenses that were expected to occur in the next fiscal year. The overall outlook for transaction and integration expenses has not been changed.

Mark Smucker, CEO of The J.M. Smucker Company, responded to a question about the company's performance in the retail channel, specifically with their Uncrustables brand. He first highlighted the overall success of the company's strategic journey and the validation of their decisions and choices. He then mentioned the upcoming start-up of a new facility for Uncrustables and the difficult compare in the third quarter due to a completed plant expansion in the previous year. Despite this, the company remains confident in the brand and its potential for growth.

The speaker discusses the company's strong performance in the retail and Away From Home spaces, as well as their confidence in double-digit growth and reacceleration of the brand in the coming quarters. They also mention the success of their marketing and endorsements for the Uncrustables brand, as well as their continued distribution in various channels. The speaker then addresses the decline in contract manufacturing sales and states that they expect it to continue through the first half of the upcoming fiscal year.

Tucker Marshall and Tom Palmer discuss the impact of contract manufacturing sales and stranded overhead on the company's financial outlook. Contract manufacturing sales are expected to be $140 million this fiscal year with no profit, and will start to decrease in the next fiscal year. However, this does not address the issue of stranded overhead, which is estimated to have a net impact of $0.60 this fiscal year and will need to be addressed through right-sizing the company's network, particularly in distribution, as product volume decreases.

The speaker is discussing the costs and progress of the Uncrustables venture, mentioning three areas where there will be incremental costs. They also mention a step up in marketing for the brand. The speaker is unable to provide specific numbers but is willing to follow up with the questioner. The next question is about the performance of the Coffee segment, specifically the brands Bustelo, Dunkin', and Folgers.

Mark Smucker, the CEO of Smucker's, discusses the company's performance in the coffee category. He mentions that growth will be driven by Bustelo, Dunkin', and K-Cups, and that the company has gained share in the K-Cup market. They are also launching liquid coffee products for Dunkin' and Bustelo. Smucker feels optimistic about the coffee category as a whole and mentions that they will continue to shift towards where the consumer is headed. In terms of marketing expenses, the company plans to increase spending in Q4, with a focus on advertising for all of their brands.

The speaker discusses potential investments in marketing for the company's portfolio, with a focus on maintaining a reasonable level of spend to support brands. They also address questions about the pipeline for Hostess and the projected free cash flow for the year.

The speaker believes that the question is referencing Hostess' innovation, specifically their successful iterative innovation. They have been successful in seasonal and flavor variations. The speaker mentions that the Hostess team has complimentary capabilities and there are opportunities for continued growth through innovation. They cannot unveil anything today, but they are focused on protecting and fueling innovation. The speaker also addresses a question on Hostess' pricing strategy, stating that it is down in tracking data but there has been some favorability in earnings and working capital.

Mark Smucker and Robert Moskow discuss the company's approach to pricing and the importance of being responsible to consumers and shareholders. Smucker also mentions their plans to increase advertising and marketing spending for Hostess and expects this to be a multiyear process. Tucker Marshall confirms that their Pet sales growth includes co-manufacturing sales. Alexia Howard asks about the company's promotional activity.

Mark Smucker, the speaker, responds to a question about promotional activity in the business. He states that there is nothing abnormal in their promotional spend and that they are back to pre-pandemic levels. He also mentions that their categories have continued to perform well and that their product offerings across the value spectrum have served them well. He notes that they have a relatively low incidence of private-label competition and that even in areas where there has been some consumer shifting, their natural meat and pet categories have been affected.

Steve Powers from Deutsche Bank asks about the stranded overhead mentioned in the CAGNY deck. Tucker Marshall clarifies that the stranded overhead is a year-over-year impact and is independent from contract manufacturing. He also mentions that they are not providing an estimate for FY '25.

The company has a net impact of $0.60 on earnings per share due to stranded overhead costs, which includes the loss of income from transition services and reimbursement for utilization of infrastructure. The company is addressing stranded overhead this year, but certain activities cannot be addressed until the transition services agreement is completed and the distribution facilities are rationalized. Contract manufacturing is not included in the stranded overhead considerations.

Pamela Kaufman asked about the expected impact of stranded overhead costs on next year's earnings, to which Mark Smucker responded that it would be inappropriate to give a number until the planning process is complete. She also asked about the impact of Uncrustables start-up costs on 2025 earnings and for an update on the progress of the transformation office. Tucker Marshall answered that the start-up costs for Uncrustables are still being refined and that the transformation office has been successful in identifying cost savings and supporting earnings growth. Rob Dickerson from Jefferies was the next to ask a question.

Rob Dickerson asks a broader question about the coffee business and its historical strong performance with operating margins above 30%. He notes that the business seems to be in a good position with strong brands and volume, and wonders how the company is thinking about recovering to that 30%-plus margin profile. Tucker Marshall responds that the business continues to perform well and margins have improved as they have lapped larger cost baskets. They are pleased with the strength of the portfolio.

The company is focused on maintaining healthy margins and reinvesting in the business while also considering the volatility of the green coffee market. The Frozen Handheld and Spreads segment is expected to see a $100 million increase in revenue due to the success of Uncrustables, but there may be other factors that could contribute to even higher growth in the future.

The speaker discusses the company's focus on achieving their ambition and building distribution channels for their product. They also mention the performance of their coffee segment in the third quarter, with strong volume mix and deflationary impact from pricing. The speaker also mentions tailwinds and headwinds for their top line, including brand momentum and inflationary pressures.

The speaker addresses a question about the company's future guidance and mentions the strong portfolio investments and brand momentum that have been made in recent years. They also mention monitoring inflationary pressures but express confidence in continued growth and momentum for their core portfolio. The speaker thanks everyone for joining the call and acknowledges the hard work of their employees.

The speaker thanks their employees and welcomes the Hostess team and brands to their portfolio. They express optimism for the future and end the teleconference and webcast, thanking participants for their participation.

This summary was generated with AI and may contain some inaccuracies.