Good morning, and welcome to the J. M. Smucker Company's fiscal 2022 third quarter earnings question- and- answer session. This conference is being recorded and all participants are in listen only mode. Please limit yourselves to two questions and re-queue if you have additional questions. I will now turn the conference over to Aaron Broholm, Vice President, Investor Relations. Please go ahead, sir. Thank you, Kevin. Good morning, and thank you for joining our fiscal 2022 third quarter earnings question- and- answer session. I hope everyone has had a chance to review our results as detailed in this morning's press release and management's prerecorded 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. Available today on this call are Mark Smucker, President and Chief Executive Officer, and Tucker Marshall, Chief Financial Officer. We will now open up the call for questions. Operator, please queue up the first question. Thank you. The question and answer session will begin at this time. If you're using a speakerphone, please pick up your handset before pressing any numbers. Should you have a question, please press star one on your telephone keypad. If you wish to withdraw your question, please press star two. For operator assistance, please press star zero. As a reminder, please limit yourself to two questions during the Q&A session. Should you have additional questions, you may re-queue, and the company will take questions as time allows. Please stand by for our first question. Our first question is coming from Andrew Lazar from Barclays. Your line is now live. Great. Thanks so much. I know it's too early to discuss fiscal 2023 outlook in any real detail at this stage, but I guess in thinking about marketing spend specifically, I realize the current year marketing spend is a bit lower, partly due to comps, partly due to capacity constraints and such. As you look forward to next year when the company presumably will wanna lean into retaining, you know, as many new households as possible, presumably have more capacity, and not to mention likely needing to step up market pressure on pet food as well, would you expect marketing to sort of bump back up to within the company's target range of about 6.5%-7% of sales from, I think you mentioned in the prepared remarks, a bit below 6% expected this year. If so, are there the other levers that you have to still manage SG&A for the year where you could still get some leverage on that line item even in the face of this? Thanks so much. Good morning, Andrew. It's Mark. Morning. Thank you for the question. We are very much committed to continuing to invest in our brands. That, as we have over the last two years and going forward, we will remain very committed to spending the requisite dollars against our brand. I would highlight couple of our previous comments on our more recent calls that we have become more efficient in our spend, and we have been able to get better bang for our buck on our marketing spend. Also just the fact that there's been so much inflation makes the percent of sales look lower. In terms of what we're committed to, we did have a little bit of a down quarter, but wanna be very clear with all of our investors that we are committed to maintaining the momentum. We've, you know, well over two-thirds of our brands continue to grow or maintain share. Our strategy clearly is working, shifting, you know, our resources to the highest growth opportunities. In this inflationary environment, there's really only so much you can spend. Rest assured that we are committed, and we will continue to support our brands, now and ongoing. Great. Thank you for that. Then, coffee profitability came in quite a bit stronger than we had modeled, and I guess, you know, despite the rapid rise in coffee costs. Would you anticipate more of a headwind on profit in fiscal 4Q in coffee? Or has the incremental pricing expected to hit in 4Q, do you think it'll be enough to sort of manage through this in the closer in timeframe? Thank you. Andrew, good morning. We have experienced green coffee cost inflation throughout our entire fiscal year, and we have taken the necessary pricing actions to recover on a dollar for dollar basis that cost inflation. We have known that the significant step up in green coffee cost inflation occurs in our fourth quarter and then will continue onward into next fiscal year. Got it. Thank you very much. Thank you. Thank you. Next question today is coming from Ken Goldman from J.P. Morgan. Your line is now live. Hi, thank you. Tucker, in terms of the reduction to your EPS guidance, I know it's difficult, but is it possible to maybe parse out a little bit how much is being driven by, I guess, inflation and some other incremental headwinds versus, you know, how much is merely the mathematical impact of the newer divestitures? Yeah. Good morning, Ken. I'd like to start on the top line and then follow through to the bottom line. At the top line, our change in guidance. Predominantly reflects the two divestitures that we completed in our third quarter. Underlying organic top line growth is still anticipated to be 4.5% year-over-year for the full year. That's consistent coming out of our second quarter call and currently on our third quarter call. With respect to the guidance at the bottom line, taking the midpoint of our previous guidance range of $8.55, we over-delivered the third quarter by approximately $0.25. That was primarily due to SG&A expenses and some timing of marketing from the third quarter into the fourth quarter. We are essentially giving back $0.30 in our fourth quarter. Of that is $0.05 due to divestiture, $0.20 due to incremental cost inflation, which is impacting gross profit dollars of about $30 million, primarily within our pet portfolio. Lastly is a $0.05 impact to additional SG&A expenses in the fourth quarter. Some of that is timing coming out of the third into the fourth, as I previously noted. Great. That's clear. Thank you. Then for my follow-up, can you discuss the, I guess the timing of the impairment charge to Nutrish? I appreciate these re-evaluations rather, you know, the result of regular reviews. What was new in your analysis or your thinking that drove you to conclude that growth would be lower than what you previously expected? I guess, in other words, why now? Does this change your plans to turn around the business next year, with that new ad campaign? Ken, annually we go through a long-term strategic planning process. We usually complete that around this time of year. What it reaffirmed is our intention within the pet portfolio to accelerate snack growth, maintain momentum in cat food growth, and continue to improve the dog food portfolio. As a result, we are reallocating our resources within that portfolio toward snacks and cat. As a result of that reallocation of resources to our high and best use of return for our strategic growth portfolio in there, we moderated or reduced the long-term net sales outlook for the overall Nutrish brand, and that's primarily driven by the dry dog food component. We still are committed to improving the performance of our overall dog food portfolio. Great. Thanks, Tucker. Thank you. Next question is coming from Laurent Grandet from Guggenheim. Your line is now live. Yes, good morning, everyone. Two questions from me. Good morning. Good morning. The first is on Uncrustables. Still seeing strong growth coming from that line, and we are seeing this as well in Nielsen. As your new line is coming, if I'm correct, end of fiscal year 2023, is there any potential issues in terms of capacity constraints in fiscal year 2023? Or I mean, the ramp up, should you continue to grow 30%-40% in that product and be okay till the new line's up and running? That's my first question. Laurent, it's Mark. Thanks for the question. Obviously, we're incredibly pleased with Uncrustables, you know, 31 consecutive quarters of growth, double digit in all but maybe one or two of those quarters. We essentially hit our half a billion dollar sales target more or less a year early. On a 12-month run rate basis, we have already achieved that goal. You are correct. We are adding capacity in Colorado, and we broke ground on the facility in Alabama, which is gonna take a couple of years before it's online. The investments we are making in capacity will clearly support increased demand, and we have high confidence that we will continue to see double digit growth. Truly, capacity is the only constraint. If you think about demand, lower household penetration, the fact that we haven't totally unlocked new channels or parts of our away from home channel. Canada is an area that would come online at some point in the future. Then, of course, marketing, we have not turned on marketing for Uncrustables either. There's a lot of tailwinds that we see in the future, and our focus right now is just continuing to make sure that we ramp up capacity as quickly as possible to support the double-digit growth. Thanks. Thanks, Mark. Very helpful. Then, I mean, in terms of M&A, at CAGNY, you mentioned you were envisioning to do a larger M&A outside your core business, at least, I mean, the card was on the table. That was a departure from your previous communications, where you were more thinking about doing acquisitions in existing businesses. When speaking with investors post-CAGNY, I mean, there was kind of a bit negative on that comment. Could you explain maybe a bit more what's the rationale on trying to go outside your core industry businesses? What could give some probably more comfort to investors should you do that? Sure. You know, I guess what I would like to clarify first is that it is not a departure from our stated M&A strategy. We have always, for many years, talked about M&A being a very important part of our growth. It just so happens that in the last couple years we've had divestitures. There haven't been meaningful acquisition targets or affordable acquisition targets that were of interest to us. What I would like to just emphasize is that we continue to look at M&A. We will continue to look at M&A. We've made great strides in reshaping our portfolio. The only nuance that might be a little different is that we would be unlikely to do a small M&A emerging brand in a category that we currently don't play in. Other than that, we would be looking to invest in meaningful M&A that potentially gives us a leadership position in a new and growing category, or a bolt-on acquisition that helps round out one of our existing categories. Those latter two comments are not new, but you won't see us entering new categories with small emerging brands. Thanks, Mark, for the clarification. I pass you, Tom. Thank you. Thank you. Thank you. Next question today is coming from Chris Growe from Stifel. Your line is now live. Hi, good morning. Morning. Good morning. I had a question for you on the pet division, and it is the division where we saw pricing accelerate pretty nicely. While volume was down, the profit performance weakened and the margins moved down to the low teens%. I know that, Tucker, you mentioned some incremental inflation coming through in the fourth quarter. I just wanted to get a sense of does that margin get worse before it gets better? I guess I'm ultimately getting to kind of the timing of pricing coming through and how that can help offset this incremental inflation in the fourth quarter. Pet has experienced, as most of our businesses have experienced throughout the year, persistent and ongoing cost inflation, and they have taken multiple rounds of pricing to recover that inflation. What we are experiencing are two dynamics now, the timing of pricing against cost recovery or cost inflation, and secondly, incremental costs that are coming into both the third and fourth quarters that we will also have to recover as well. We would envision that Pet will still continue to see some down margin, but over time, as pricing catches up to the inflation and we continue to advance productivity, that will support the business. Okay. Thank you. Then I just was curious on the coffee division, a bit of a similar question, but in that's the division where you have historically been pretty well hedged. There obviously is significant inflation in the input costs. I just wanna get a sense of you've had, you know, a strong volume performance in that division. Has that, you know, caused you to maybe to run through hedges more quickly? Then is that also one where we should see that sequentially increasing rate of inflation in the fourth quarter given what we're seeing in the spot market? Chris, we don't disclose our hedging positions, but what I offered earlier on the call was that we have experienced green coffee inflation throughout our entire fiscal year. We have taken pricing actions to recover on a dollar-for-dollar basis that inflation, and that our most significant step up in green coffee costs occurs in the fourth quarter, this quarter, and will continue onward, and we will continue to address that inflation. Okay. That's correct. Thank you for that. Thank you. Our next question is coming from Steve Powers from Deutsche Bank. Your line is now live. Hey, thanks. Sticking on the inflation topic, in terms of the incremental costs that you're expecting in the fourth quarter, can you just parse out, you know, is that incremental, you know, raw materials and packaging costs, or is that other costs related to supply chain challenges and what the mix of that incremental inflation is? In our fourth quarter, what is new news from our previous guidances is that we continue to see additional inflation primarily in the ingredient, transportation, packaging and manufacturing side that is predominantly impacting our Pet Portfolio in Q4. Okay. In terms of elasticity assumptions embedded in the fourth quarter, can you elaborate a little bit on the anticipated elasticities that you've baked in? Is that based on, you know, observed trends to date, or are you anticipating incremental elasticity as more pricing is layered on? Steve, it's Mark. Let me just start with a general statement, which is, you know, as we have all year, we have adjusted our pricing to recover dollar for dollar cost, and that does include some productivity initiatives as well. That would even include pricing actions that we have taken even in the last few weeks. The goal, of course, is to maintain the momentum of our brands, including investment, and offset the inflation. In terms of elasticity, you know, we have enjoyed better than historical elasticities, but we've been very prudent as we forecast forward, to make sure that we're building into our forecast what we think are realistic elasticities. There could be a bit of moderation, but we wanna make sure and make sure that our investors know that we are taking a prudent approach to how we're forecasting the business. I guess the last question or the last comment I would make, just from an inflation standpoint, the whole industry and all industries for that matter are experiencing this. Even within our industry, just to remind ourselves that the tide does rise all boats. Since it is pretty ubiquitous across every single category, I think what that does do, it does keep the playing field fairly level. Yes. Okay. Thank you. Just to play that back, though, so your what you've baked in is more informed by kinda historical elasticities as opposed to what you've enjoyed most recently. Is that a fair statement? You know, Steve, what we have done is we have built our forecast on recovering the cost inflation and the timing of covering that cost inflation from pricing actions while putting our best estimate in for the impact of price elasticity of demand. We have done that consistently throughout our fiscal year and as we've taken additional waves of pricing throughout our fiscal year. What Mark has acknowledged is that those elasticities have performed better than historical. We would acknowledge that we'll continue to monitor as we move through our fourth quarter and into our next fiscal year. I would also acknowledge to a previous question that we are still calling for underlying organic top line growth year-over-year of 4.5%, which is consistent coming out of our second quarter and currently on this call. Okay. Very good. Thank you so much. Thank you. Thank you. Next question today is coming from Robert Moskow from Credit Suisse. Your line is now live. Hey, thanks. I'm just curious about the whole philosophy on providing quarterly guidance. You know, I'm looking at your past quarterly guidance in the last five or six quarters, and it seems like you've been beating it very consistently and to a very large degree. So I wanna know, you know, what's going right, I guess, on these quarterly cadences especially over the last two. Like, what surprised you positively? Like, for example, for third quarter, I could have sworn that there was gonna be a mismatch in coffee in third quarter. That was the expectation. Did that turn out better than you thought? Then going forward, do you think in this volatile environment that quarterly guidance is still possible to give? Rob, good morning. We are committed to providing the visibility and transparency needed on an annual basis for our long-term top line and bottom line guidance, and we will continue that path or avenue forward. You are correct, as we have come through the elements of a global pandemic, inclusive of a disruptive and uncertain supply chain and cost inflation, we have given a sense of direction for the upcoming quarters, primarily to make sure that we were in lockstep with how we were gonna deliver our fiscal year or deliver against that annual guidance. The second quarter was really favorable momentum that was coming through the business that resulted in top line and bottom line that exceeded expectations. As we've come into our third quarter, really the top line and bottom line have performed in line with expectations. We delivered ahead primarily due to favorability and SG&A expenses, inclusive of marketing. Some of that SG&A resets back into our fourth quarter, which we have acknowledged. Our fourth quarter is really coming in from a top line perspective as we anticipated from a guidance standpoint, after you isolate the effect of the two divestitures. We really believe that we have our arms around how we're thinking about guidance on an annual basis and delivering each quarter. Then lastly is if you really pull up kind of the 30,000 feet, you can see that our business is performing from a share perspective. Mark has talked about our commercial and operational excellence in order to deliver the business in this environment. That's how we're thinking about delivering the year. Okay. I appreciate it. A follow-up question, though. You know, most people would argue that inflation continues to rise from here, that we're not done with inflation, and supply chain disruption probably will continue as well. Given that, you know, you and the whole industry is really playing catch-up, is it fair to say that maybe the first half of fiscal 2023 will still be a catch-up period, in this dynamic? Rob, what I would acknowledge is that we will continue to navigate an inflationary environment and a disruptive supply chain as we move forward. What we need to do is continue to take the necessary actions to ensure stability within the supply chain, to ensure that we are recovering the cost inflation either through pricing actions or productivity savings. Thinking about advancing the ongoing momentum of our business, inclusive of at-home consumption and the growth or return to growth of our away-from-home business. Underpinning all of that, we will continue to make strategic investments in the business to support our coffee, pet, and consumer portfolios. Hey, Rob, it's Mark. I would just add one comment about the supply chain, and Tucker's right. We expect the disruption to continue. On a positive, we have made great strides in managing what we can control. You know, I've highlighted on the previous couple calls how our execution has been excellent and our people have. It's a tribute to our people that they've been able to stay focused on the day-to-day and the execution. Notably, one area that we have made some improvement is in labor. Labor being an area that we can control. Of late, we've actually made some headway there, and there are going to be things, just to acknowledge, some things will be out of our control. The fact that we've made improvements in staffing as well as expanding our supplier base over the last many months has definitely allowed us to manage our supply chain better. Okay. Thank you. Thanks. Thank you. Next question is coming from Peter Galbo from Bank of America. Your line is now live. Hey, guys. Good morning. Thanks for taking the question. Morning. Tucker, I just wanted to follow up actually on Rob's question. You know, thinking about the fourth quarter and maybe more of a clarification, if we just take kind of the inputs you've given us for 4 Q, you know, you end up more towards the high end of the revised range or the very high end of the revised range. Just I wanted to make sure if that math checked out or if, you know, what would cause you to deviate from that, just given what we know from you at this point. We feel very comfortable delivering the midpoint of our revised guidance range, which is around $8.50. Since we have found ourselves into the final quarter, you can acknowledge that $8.50 translates into approximately $1.85 for the fourth quarter. We feel comfortable where that sits today, knowing both the puts and takes to deliver our fiscal year. That is how I would probably answer your question. I don't know if that's helpful, but that's where we stand. Okay. The one other thing I just wanted to clarify, I think last week at CAGNY, you had kind of mentioned, you know, capital return or share buyback would kind of help offset some of the dilution from earnings. That wasn't, you know, in this morning's release or in any of the prepared comments. Just, you know, post some of these divestitures, wanted to see if that was still part of the plan, you know, in Q4 and going into next year. Thanks very much. Sure. We remain committed to our balanced capital deployment model with a strong balance sheet, and we do have excess cash in the balance sheet along with strong short-term borrowings. We will evaluate how we deploy that capital here in the near term and over the long term to ensure that we replace those divested earnings. Thank you. Our next question is coming from Jason English from Goldman Sachs. Your line is now live. Hey, good morning, folks. Thanks for taking- Good morning, Jason. A couple quick questions. You mentioned that so far in the coffee segment, you've been able to match the dollar for dollar increase in commodities with a dollar for dollar increase in price. Will that also hold true as we step up on cost inflation in the fourth quarter, or will there be a bit of a lag there? We have timed our dollar for dollar green coffee inflation against pricing actions in the fourth quarter. Okay, that's helpful. Now stepping up to a higher level then, this would call for a substantial increase in price contribution in the fourth quarter. Yet your implicit guidance is for somewhere around 5% organic sales growth, which is certainly lower than we were at and lower than where consensus was. Where is the offset? Are you seeing more volume erosion, anticipating more volume erosion, or is our expectation of a sizable sequential step up in price misplaced? What we would envision in our fourth quarter is we're taking into account the pricing actions that we have taken throughout our fiscal year and the impact to Q4. We have also acknowledged the underlying momentum of the business, and we have accounted for the impact of price elasticity of demand by taking material pricing against material inflation. Okay. Thank you. I'll leave it there. Thank you. Our next question is coming from Pamela Kaufman from Morgan Stanley. Your line is now live. Hi, good morning. Morning. I wanted to follow up on the write-down on Nutrish and just ask more broadly if there are any learnings or things that you would do differently in the future when it comes to M&A or in managing your existing brands based on the experience you've had with this brand. Yeah, Pam, I would say that, you know, we recognize that the category has changed a lot since we acquired that brand and acknowledge that our strength is really in pet snacks and cat food. Notably, we actually did take the number one position in dry cat food in the last 12-week period with Meow Mix. So just have we learned? Absolutely, right? I think, anticipating how that the dog food category has gone and the fact that we are not one of the leaders in the dog food segment of the category speaks to the fact that, again, our portfolio reshaped, making sure that we're spending our dollars and resources against the areas where we're gonna see the most growth. We will remain committed to stabilizing Nutrish in our dog food portfolio. Clearly, where our strength lies is in pet snacks and cat food. Right. Thanks. That's helpful. Can you talk about the outlook for future price increases? Do you anticipate needing to raise prices further? Although demand elasticity has been better than expected, can you discuss how retailer receptivity to further pricing looks and if you would expect any pushback? Sure. Part of this answer is the same answer I gave a little bit earlier. Just, you know, we can't anticipate what other pricing may come. I would acknowledge, and we've talked a lot about coffee, and I would just highlight that coffee prices, coffee commodity costs are not at record highs. We have seen higher costs. That's just one small data point. The comment really is that we have been very diligent and prudent in adjusting our prices throughout the year for inflation. We have been very prudent in how we have taken those and really just following inflation and making sure that our price increases are truly justified from a cost standpoint. We have been very successful in doing that. The intent is to recover cost and all of the pricing actions, even the most recent ones, are no different. Really we have to remain focused on maintaining the great top-line momentum we've got, including investing in our brands while we're offsetting the cost increases. That will remain our focus. You know, the receptivity has been good. You know, as I mentioned earlier, everybody is experiencing this, and so retailers are willing to work with us to find the best path forward and ensure that we're passing on justified cost increases. Got it. Thank you. Thank you. We've reached the end of our question- and- answer session. I'd like to turn the floor back over for any further closing comments. Well, I just wanna say thank you to all of you who tuned in, our investors, our analysts, our employees who have made these results possible, their tremendous commitment to our business. I really just hope everyone has a great week and thank you for listening. Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.