Good morning, welcome to The J. M. Smucker Company's Fiscal 2023 Third Quarter Earnings Question and Answer Session. This conference call 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'll now turn the conference call over to Aaron Broholm, Vice President, Investor Relations. Please go ahead, Aaron. Good morning, thank you for joining our Fiscal 2023 Third 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, 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, Chair of the Board, 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. Certainly. The question and answer session will begin at this time. If you're using a speakerphone, please pick up the 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. Our first question today is coming from Peter Galbo from Bank of America. Peter, your line is now live. Hey, Mark and Tucker. Good morning. Thanks for taking the question. Morning. I was wondering if we could just start maybe on the gross margin. You know, the implied acceleration into the fourth quarter is pretty meaningful, just to hit kind of the full year number. I think, you know, north of 35.5% in Q4. Just one, I feel like that's maybe being driven by coffee. I just wanna understand kind of what are the drivers of that in the fourth quarter, but then also just as we think about that exit rate into 2024, you know, if there's any considerations there as using that as kind of a base, as we get into next year? Peter, good morning. As you know, in our prepared remarks this morning, we reaffirmed an approximate 33.5% gross profit margin for the full fiscal year. We have seen sequential improvement in our gross profit margin each of the consecutive or sequential quarters, with the fourth quarter being our strongest. Yes, you are correct, that is largely due to us getting into the coffee best margin of its four quarters in the fourth quarter. As it relates to next fiscal year, you know, we have talked a little about what the puts and calls are as it relates to margin improvement. I guess what I would just say is this. One, is we'll continue to see the benefits of volume mix going forward. We will see the benefit of lapping the Jif peanut butter product recall. We will also see moderation of cost inflation as a benefit, along with stabilization and supply chain and manufacturing environments, along with benefits coming from our transformation office. Also, over time, the benefit of the divestiture after addressing stranded overhead. Got it. Thanks, Tucker, for that. Then maybe just as a follow-up, you know, Mark, I guess in cat food in particular, it seems like, you know, you would have grown more if not for some of the Meow Mix supply chain constraints. I think that maybe was new this quarter. It seems like maybe you're through the worst of that, but was just hoping you could address, you know, the comments and the prepared remarks and just what you're seeing with Meow Mix kinda go forward. Thanks very much. Sure, Peter. Yeah, you know, as we've been pretty consistent over these past couple years of talking about the supply chain in general, our strong ability to manage through some of the disruptions and just acknowledging that, the supply chain still is a bit fragile, and it varies by quarter or month in terms of where some of the fragility might be. We have experienced some supply disruption in our Meow Mix business, which we are working through, you know, in the third quarter as well as the fourth quarter. We do acknowledge it's also temporary, and that we will work through that. You know, we would have expected to continue with the double-digit run rate growth on Meow Mix. Again, just reiterating that it is temporary and over the next several months, we should be able to work through that. Peter, in support of what Mark shared, you know, Meow Mix for the quarter was up 6%. As you said, we would have anticipated, absent the manufacturing disruption, to be up double digits. I do wanna acknowledge that the wet portion of the portfolio continues to perform quite well and grow. The disruption right now is on the dry cat food side of the portfolio. Great. Thank you. Thank you. Next question is coming from Andrew Lazar from Barclays. Your line is now live. Great. Thanks. Good morning. Morning. I guess to start, you know, your full year gross margin outlook of 33.5% is still some, call it 450 basis points below pre-pandemic levels. Some of this is clearly the mechanical impact of pricing on gross margin. Perhaps you could quantify maybe some of the key buckets as we think about sort of gross margin recovery moving forward. Andrew, good morning. While I won't quantify the buckets, what I do wanna is lay them out for you as we think about gross margin improvement, not only have we seen that sequentially in each quarter this year, but also as we think about next fiscal year and onward. You know, we see the benefits from volume mix within the portfolio. We see the lapping of the Jif peanut butter product recall as a benefit. We also see some moderation in cost inflation and stabilization in both our supply chain and manufacturing environments, along with benefits coming out of our transformation office, and then the benefit of the divestiture after addressing stranded overhead. That will all help us continue to support the gross margin restoration. You got it to low double-digit year-over-year decrease in EPS for fiscal 3Q, and obviously results came in better than that. With organic sales and gross margin roughly in line with Street forecast, seems the bulk of the upside came from SD&A. What drove the favorability there, at least versus Street estimates, given it looks like marketing spend for the full year is expected to be on track with your initial estimates? Thank you. Andrew, our third quarter came in about $0.15 better to our expectations, and largely that was due to base business momentum, some cost favorability and some timing of costs transferring from the third quarter to the fourth quarter. As you can note in our raise of guidance at $0.10 at the midpoint, we therefore have shifted $0.05 into the fourth quarter. Got it. Thank you. Thank you. Next question is coming from Ken Goldman from JPMorgan. Your line is now live. Hi. Thank you. You know, you posted a good free cash flow number in the third quarter. You talked about how fundamentals were, you know, came in, better than you expected, but you didn't adjust your outlook for free cash flow for the year. I was just curious, if there's any read into that, if there's any particular reason why maybe that wasn't raised. You know, it does imply that in the fourth quarter it'll be the lowest number for Smucker, you know, in any fourth quarter since 2013. I'm just curious if there's any conservatism in there. Ken, we have a commitment to a $1 billion free cash flow target annually, We are below that target this year, largely due to the Jif peanut butter product recall, but also due to the impact of increased capital expenditures associated with our Uncrustables facility. We are maintaining our capital spend at $550 million in support of that core growth. As you think about free cash flow, we haven't raised the estimate largely this year due to some additional cash tax payments that have come through this fiscal year, in support of some restructuring that we've done, along with the Jif peanut butter product recall. Got it. Just to build a little bit on the question about SG&A, it implies, if I'm doing the math correctly, that it'll be a little bit over $400 million in the fourth quarter. It's only been that high one time in the history of the company. I just wanted to dig a little bit further into what is the, if there is something, discrete headwind or investment that you're making in the fourth quarter in SG&A that will drive it up that high. Just again, using just the rough math that you've provided. Ken, directionally, you are correct for the fourth quarter implied and really the buckets that are within there are, one, continued support of marketing across the portfolio. Two, is there some administrative costs in there associated with wage inflation and filled positions. There's operating support in there, which is our continued investment on Uncrustables around pre-production expenses that are driving that year-over-year increase in SD&A. Thank you. Thank you. Thank you. Next question today is coming from Christopher Growe from Stifel. Your line is now live. Hi, good morning. Morning. Hi. I just had a question for you, as we think about this sequential gross margin improvement, Tucker, is there a division or divisions that are helping support that? Coffee's one where you've had, you know, some cost inflation. Is there a pricing cost, you know, kind of imbalance that's taking hold that's gonna support a stronger gross margin in the fourth quarter, if you could call out a division or two? Chris, good morning. You know, the sequential improvement in gross profit margin is really across the entirety of the portfolio. You know, as we continue to see a bit of stabilization and overall cost inflation, as we begin to see the benefit of lapping price increases, and as we continue to operate under the general business momentum, that is enabling the margin to improve each quarter. Really it's coming through most elements or all elements of the portfolio. Okay. Thank you for that. Just one other question. There was a note you made in your prepared remarks about 54% of categories gaining market share, and that's a good number, but it's down a bit from where it was. Not to pick on that because you're still showing really good growth and market share performance for your big brands. I guess I want to get a sense of how much is there capacity driven limitations? Thinking about businesses like, you know, like Meow Mix, where it's kinda limiting your ability to gain share in those categories, just so you can give a sense of how much that's kinda limiting the categories gaining market share. Yeah, Chris, it's Mark. You know, we're very pleased with our progress this quarter. I mean, if you look at every business grew, in coffee, every brand grew and, you know, in pet, every brand essentially grew as well. We saw good growth, of course, in Uncrustables with 38% growth, then, you know, continuing to gain share on Jif. You know, we tend to target around 2/3 of maintaining and growing. We're really pleased with the performance. The number that you referenced is largely driven by some of the supply chain challenges in Meow Mix, and we do feel confident that over time, as we manage through that, we'll get back to where we expect to be. Okay. Thank you very much for your time. Thank you. Thank you. Next question is coming from Robert Moskow from Credit Suisse. Your line is now live. Hi. Just a few small ones. When you're thinking about fiscal 2024, Tucker, can we assume that all of your segments will have positive volume? I mean, I think Jif peanut butter, it's pretty obvious, but are you expecting positive volume in cat food, dog snacks or snacks in general and coffee? Secondly, on free cash flow, is it possible that free cash flow is above normal in 2024 because of a working capital benefit as your coffee costs are falling? I have a quick follow-up. Rob, good morning. We're early innings of our planning process for next fiscal year. But as we outlined at CAGNY last week, we do expect some volume mix tailwinds in the portfolio through momentum across the Uncrustables portfolio or brand, and as we think about other elements of the portfolio within coffee and within pet. We'll have the opportunity to share more of that on our fourth quarter earnings call here in June. As we think about free cash flow, as you know, we have a $1 billion target or ambition. We may trend a bit low to that free cash flow target because we continue to have accelerated or elevated capital expenditures associated with our ongoing investment for capacity with the Uncrustables brand. Got it. Maybe you've answered this before, but the $700 million in cash you'll get from the dog food divestiture, do you intend to spend all of that on share repo? We anticipate using the $700 million to replace the divested earnings per share. Okay. Vague, but we can follow up. All right. Well, thank you. Thank you. Next question is coming from Steve Powers from Deutsche Bank. Your line is now live. Thanks, and good morning. Morning. Maybe just to go back to the Q3 versus Q4. Correct me if I'm wrong, but I think you had said last quarter that you expected the fourth quarter EPS to be up about 10% year-over-year. I think the guidance implies now kind of a range of two to 11. The $0.05 you called out that shifted from Q3 to Q4 equates to about 2% of that. I'm just if you put those numbers in context and, you know, 'cause I'm struggling to understand the full drivers of the now wider range in Q4, acknowledging the $0.05 shift. Yeah. I think one of the things that you have to consider is the supply chain disruption, primarily in the pet portfolio associated with the Meow Mix brand. That might leave you a little bit short in your model from both the top line and bottom line standpoint. Okay. Okay. The other, the other question, unrelated, is just on the Dunkin' brands, where you cited, you know, greater elasticity in that premium segment. Maybe just a little bit more commentary around what you've, you know, what you've seen so far and how you expect that to improve going forward, 'cause the commentary suggests you do expect it to improve. Just wanted to hear a little bit more on that. Sure. you know, I think, just a macro comment, first of all, Steve, is that it validates our quote, "full portfolio strategy," you know, participating in all the segments. Obviously, where there is a little bit of shifting, Folgers clearly benefited, this quarter. It validates the fact that we're playing in all of these segments, you know, broadly across the value spectrum of the category. That's definitely a good thing. The other thing that's good is that although the growth is a bit more modest in the last two quarters, the brand still grew, and, so which is great news. I think we referenced last quarter, just there was just some relative pricing, relative price points, that we have worked to correct. Over the next couple quarters, we would expect to see, the growth on Dunkin' continue to accelerate. Okay. Thank you. That's confirming. Appreciate it. Thank you. Thank you. Next question today is coming from Pamela Kaufman from Morgan Stanley. Your line is now live. Hi, good morning. Just a question. Morning. I just have a question on marketing spend, which was up 10% in the quarter versus last year. Where have you stepped up marketing spend, and what are your plans going forward? Over time, are you still planning to come back to your targets for 6.5%-7% of sales, or do you think that the current levels between 5%-6% of sales are more appropriate? Sure, Pam. It's Mark. we have continued to invest broadly across our portfolio in supporting all of our brands. There was a step up a bit in the third quarter because we've turned on new advertising on Nutrish, which has actually been supporting the brand and the growth of that brand. That's, that's been positive. You may also recall that as we've talked about our marketing as a percent of sales, we've continued to invest in our brands, but because of inflation, that percentage has fluctuated a bit this year. Over time, we would anticipate continuing to target, say, above a 6-ish% of net sales on our marketing broadly across the entire portfolio. Thanks. Then on pricing in the coffee segment, how are you thinking about it over the next several quarters, given green coffee costs have moderated significantly? When would you consider lowering coffee prices? I guess I would just start by saying that coffee costs have not moderated significantly over the past couple quarters. We did see a dip, as you highlight in spot prices when we were experiencing some volatility. As you know, we buy coffee and hedge our coffee position to make sure that we can achieve our financial plan. You know, the coffee markets in, particularly in the last several weeks, have rebounded, and we've continued to see that there is some inflation, and you know, more elevated coffee costs. As always, we will adjust our pricing, whether that's list or using other levers, to the extent that our physical position would dictate so. I can't really give you any more than that, but we will be responsible and prudent and pass along price changes effectively over the coming quarters. Great. Thank you. Thank you. Next question is coming from Cody Ross from UBS. Your line is now live. Hey, good morning. Thank you for taking our question. A couple questions here. Morning. First one on pet. Some of your key competitors announced pricing actions effective in February on their pet businesses. Do you plan to take another round of price this fiscal year as well, or will you wait until the asset is sold to Post? Similarly, do you have any pricing plans in place for the remaining pet food business that you'll retain? Cody, we actually have taken pricing for the benefit of our portfolio, and that is a forward-looking comment as well. We have effectively already done our pricing activities in pet. I'm sorry, the second part of your question, I think I missed it. Could you repeat that? Yeah, I was just asking if you have any pricing plans in place for the remaining of your pet food business or pet business that you'll retain. I have a follow-up. Yeah, I think I already answered that. Yep. Then just last question, just surrounding your capital allocation. As we look over the past decade, you've turned over a meaningful portion of the business, adding higher performing assets and shedding some non-core assets. What have you learned from acquisitions over the past decade that you believe will enhance your capital allocation, you know, going forward? Then similarly, is there anything you would have done differently? Thank you. Yeah, Cody, thanks for the question. You know, over a couple decades plus, we've been a very acquisitive company, that has really helped increase our stature in the industry and with our customers, we're very proud of the trajectory that we're on. We've also been very clear in the last several years about portfolio reshape. Although there's been some divestitures, predominantly in the most recent years, that is all in service of executing our strategy and consumer shift over time, which dictates that our portfolio needed to shift over time. The decisions that we've made of late really reinforce that our strategy is right and we're focused on the right brands. As we've talked about acquisitions, we still want acquisitions to play an important role in our growth story. We will make sure that as we think about future acquisitions, that we're very prudent and responsible and that we go for acquisitions that are going to enhance our existing portfolio or possibly provide a meaningful position in a new and growing category at a responsible price. Thank you. Our next question is coming from Rob Dickerson from Jefferies. Your line is now live. Great. Thanks so much. Might be two questions for Tucker, sorry, Mark. Tucker, you know, it just kinda looks like pre-pandemic, when I look at your SG&A line, kinda normally, let's say, it used to be a little first half weighted. You know, I'm assuming driven somewhat by seasonality. Obviously, last year it was lower for obvious reasons. This year you're ramping more in the back half to get, I would assume, back to kinda more steady state. I realize you're not giving guidance for next year, but kinda as we think through that line, you know, over the next six quarters or so, let's say, you know, is that kinda like a return to normal as we see in the back half of 2023, and then we think about 2024, that maybe it goes back to a bit more first half weighted or, you know, as we look at what you know, put up in Q3, maybe that's kind of like a decent proxy run rate to think about kind of in the steady state. Thanks. Rob, good morning. I would envision that the SG&A expenses are a little bit more level throughout the fiscal year as you think about forward planning. obviously there's nuances to this fiscal year. I think it's fair just for initial modeling assumptions to sort of level it out through the fiscal year, as you've noted. All right. Perfect. Thanks. Then I have a simple question. you know, Ken asked about free cash flow, you know, what could be implied for Q4. CapEx so far this year, though, through the three quarters would also imply kind of a material step up in Q4 relative to what we even saw in Q3, which was a step up from the first half. I just wanna make sure that, you know, that implied step up is right. Then maybe if you just comment quickly on, you know, why there's such a step up, like you're finishing certain projects or, you know, kinda almost there, and that should be done by the end of the fiscal year. That's it. Thanks so much. We still see the outlook for capital spend at $550 million for the full fiscal year. We will have a meaningful spend in the fourth quarter. The predominance of that continues to be the support of the McCalla, Alabama facility for Uncrustables and its building. Super. Thank you. Thank you. Thank you. Thank you. Next question today is coming from Alexia Howard from Berenberg. Your line is now live. Good morning, everyone. Morning. Two quick questions. You talked about the share trends being somewhat disrupted this quarter by supply chain challenges. Do you expect that those share trends are gonna bounce back sharply next quarter, or do we have to wait until we lap the Jif recall? Just wondering around those trends on the market share side. We would expect them to reverse over time, Alexia. I think, you know, as we talked earlier in this particular Q&A session, we're managing through the dry cat supply chain, which is gonna take a few months to manage through. There was a comment in the prepared remarks about fruit spreads, and we think that's largely behind us. Great. Thank you. Then just as a follow-up, just the peanut butter distribution trends. I know you've been working to rebuild that market share and distribution. Can we expect meaningful improvement over the next few months? I mean, I'm sure you've been working very hard to get it all back, but, is this the kind of run rate that we're at at the moment? Yeah. Alexia, thank you. you know, we've been really pleased with the return of Jif to shelves. In fact, we've commented last week at CAGNY that all of the SKUs of Jif are back on shelf, and our share is back north of 40% dollar share. really pleased with the execution there, and we would continue to see improvement over the next quarter or so. Great. Thank you. I'll pass it on. Thank you. Thank you. Next question is coming from Max Gumport from BNP Paribas. Your line is now live. Hey, thanks for the question. I realize you're divesting your dog food business. I was intrigued by the comment about Nutrish benefiting from shifts in the category. Is that primarily in reference to the longer term premiumization trend, or are there other shifts in the category that you're referring to there? Thanks. Max, it's Mark. You know, we've been on a journey with Nutrish over the last 18-24 months in terms of making sure that that brand is healthy, and it is now. You know, we spent a lot of effort trying to optimize the portfolio, making sure the assortment is more narrow and productive, you know, revitalizing some of the packaging. Most recently, launching some new advertising as we were preparing that business for sale. Really very pleased with the progress that we've made there and making sure that we leave that brand as well as the other dog food brands and 9Lives in good hands as those brands ultimately will transition to Post. Great. Thanks very much. I'll leave it there. Thank you. Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to management for any further closing comments. Thank you, Kevin. I would like to just first of all say that it was great seeing many of you at CAGNY last week and really appreciate your time this morning and joining us here. Really pleased with the quarter, and the momentum that we have been able to consistently deliver over the past several. Of course, all of that is really a tribute to our outstanding employees, just always wanting to take a moment to thank our employees for their hard work and dedication to the company. I hope all of you have a great day. Thank you. 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.