The operator welcomes participants to The J. M. Smucker Company's Fiscal 2025 First Quarter Earnings Question-and-Answer Session. Crystal Beiting, Vice President of Investor Relations and Financial Planning and Analysis, introduces the call and reminds participants to limit themselves to two questions. She also mentions that forward-looking statements may be made and non-GAAP financial measures will be used. Mark Smucker, CEO, and Tucker Marshall, CFO, are participating in the call. The first question is from Andrew Lazar from Barclays, who asks about the company's moderating full-year 2025 comparable sales growth by 1 point.

Mark Smucker, CEO of Smucker Company, is pleased with the company's growth in volume, sales, and earnings per share in the last quarter. However, there has been a shift in consumer behavior, particularly in the convenience channel, where there has been a decrease in shopping frequency due to less discretionary income. This has impacted the sales of sweet baked goods and dog snacks, which are two categories that Smucker Company over-indexes in. The company's previous outlook for comparable sales growth was based on both positive volume and price, but it remains to be seen how these metrics will contribute to their 1% full-year growth outlook.

Tucker Marshall, speaking to Andrew Lazar, discusses the company's outlook for 9% year-over-year growth at the midpoint, with net sales growth of 2.5% after accounting for non-comparable aspects and the impact of pet co-manufacturing sales. This is a change from the previous outlook of approximately 3%. The growth is mainly driven by a 50 basis point volume/mix growth and a 2 point increase in pricing, due to ongoing green coffee cost increases. In response to a question from Ken Goldman, Tucker explains that the reduction in the topline outlook is partly due to softness in the sweet baked goods category, but they are still anticipating a similar contribution to sales from Hostess. The change in outlook is equivalent to approximately $80 million, with $40 million coming from Sweet Baked Snacks, mainly in the first half of the year. The softness in the category is seen in the convenience channel, leading to a derisking in the back half of the year.

The guidance for the company has been adjusted due to lower than expected sales and the impact of green coffee inflation and price elasticity of demand. The company is still seeing growth and volume despite the challenging consumer environment. The expected accretion from Hostess has been revised to a dilutive state, but synergies are coming in better than expected. The analyst asks if the 100 basis point cut is enough in this environment.

The speaker discusses the company's recent 9% growth, which was driven by success in certain product lines such as frozen handhelds and peanut butter chocolate. However, there has been a slowdown in the pet snacks and sweet baked snacks categories, leading to a more cautious outlook for the rest of the year. The company is still confident in its overall portfolio, but there are external factors affecting certain aspects of their business.

The speaker mentions that they are still confident in their portfolio and have taken time to make it strong. They are especially pleased with Hostess and plan to fully integrate it within a year. They also mention that marketing spending will be slightly up overall, with a focus on promoting Uncrustables, Jif peanut butter chocolate, Milk-Bone, and Hostess. However, they note that Hostess will not receive as much marketing support until the back half of the year due to new creative work and brand positioning. They also mention that their marketing to net sales ratio is just below 5.5%.

In response to a question about their marketing and fiscal 2026 plans, Mark Smucker and Tucker Marshall reaffirmed their commitment to the company's earnings growth algorithm for next year. They also acknowledged that external factors are affecting the category and channel, but they are still delivering business momentum and healthy profits. Tucker Marshall provided additional information on the gross margin, mentioning a decrease in green coffee costs and a steady cadence for the rest of the year.

The company has revised its outlook for gross profit margin due to an increase in green coffee inflation. They have seen strong margins in other areas of the business and expect to see a slight improvement in the second quarter before a significant decrease in the third and fourth quarters. The company is confident in their modeling of elasticity and have multiple levers to manage the volatility of the coffee market.

The company has the ability to adjust formulas and prices to maintain a consistent consumer experience. They are also confident in the long-term potential of the sweet baked goods category despite current challenges. The company is taking actions to address the weaker consumer environment and channel shift, and overall, snacking remains a strong category.

The speaker discusses the success of Uncrustables as a snack and the potential for growth in the future. They mention expanding distribution, innovating, and investing in advertising. They also address concerns about GLP-1 drugs and state that the brand is still performing well despite a soft market due to economic factors. The speaker confirms that the plan is to continue growing Uncrustables by $100 million each year, but there is potential for even more growth.

The company had a successful quarter with double-digit growth and is committed to reaching a $1 billion goal by the end of fiscal year 2026. They are expanding production capacity and introducing new flavors. The Uncrustables platform is performing well and contributing positively to the company's outlook. The company has seen a return to pre-pandemic levels of promotional activity and focuses on allocating their marketing dollars strategically.

During an earnings call, a representative asked about the anticipated increase in coffee pricing in October and how it would affect different channels, brands, and formats. The company could not provide specific details but stated that the increase would be across the entire portfolio, including roast and ground and single-serve options. The representative also asked about the recent slowdown in dog snack sales, specifically for Milk-Bone, and if there were any indicators that could have predicted this. The company responded that while overall dog snack sales were down, Milk-Bone saw modest growth in volume due to continued brand support and a diverse product range.

The company remains confident in their Hostess brand and its potential for growth, despite disappointing topline results. They believe they have the right brand and portfolio in the Sweet Baked Goods category, and the acquisition is on track. The decline in topline is attributed to the overall category and the convenience channel, but the company continues to perform well within the category.

The speaker is confident in the company's portfolio due to opportunities for growth in traditional retail, the Away From Home channel, and synergies between businesses. They are also calling down $40 million, with $25 million in the first half, due to uncertainty and competitive dynamics affecting Dunkin' brand. The speaker expects stabilization in Dunkin' brand over time.

Rob Dickerson from Jefferies asks a question about the sustainability of the profitability of the pet portfolio for the rest of the year and into the next fiscal year. Tucker Marshall responds that the strong performance in the first quarter is due to positive volume/mix momentum, stabilization in the supply chain, cost and productivity savings, and steps to remove stranded overhead. He expects the profitability to continue in the 25% range, possibly slightly better, and will provide updates as the fiscal year progresses. The lower EPS is not significantly lower.

The speaker is trying to understand the reasons for the lower EPS and is asking about the impact of slower sales in Hostess and dog snacks, as well as higher green coffee costs. They also want to know if the company is treading carefully on pricing in the coffee category due to the consumer environment. The speaker breaks down the $0.20 change in the midpoint of the previous guidance range and notes that it is largely due to a $0.25 reduction in net sales and a $0.35 gross margin impact, primarily from the coffee portfolio.

The speaker discusses the financial impact of rising costs in the coffee industry, mentioning a $0.40 offset from administrative support and marketing. They also mention a price elasticity of demand and the need for additional pricing to recover costs. In response to a question about dog treats, the speaker mentions a slowdown in sales due to consumer pressure on discretionary income, but no significant reduction in retailer inventory.

The economic environment and lower discretionary income have led to a 3% cut in topline expectations for Hostess. While the front half of the fiscal year is expected to be flat to down, the back half is expected to have some growth. This gives the company confidence in their portfolio, as they are in the right category and are working towards integration and improved merchandising and distribution in traditional retail channels.

The speaker discusses the company's strong first quarter results and their confidence in their strategy and portfolio. They also mention the upcoming Barclays Global Consumer Staples Conference and thank their employees for their contributions. The call concludes with a reminder to disconnect from the conference.

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