The J. M. Smucker Company - Earnings Call - Q1 2026 [Q&A]

Executive Summary

• Net sales were $2.11B (-1% YoY); comparable net sales rose 2% excluding divestitures/FX, while GAAP diluted EPS was ($0.41) and adjusted EPS was $1.90.
• Gross margin compressed sharply (22.5% GAAP vs 37.5% in prior year; adjusted GP margin 35.2%), driven by higher commodity costs and unfavorable derivative impacts; adjusted operating margin fell to 17.5% from 21.1%.
• Management raised FY26 net sales growth guidance to 3–5% (from 2–4%) and lifted free cash flow guidance to $975M (from $875M), with adjusted EPS unchanged at $8.50–$9.50.
• Wall Street consensus for Q1 2026: revenue was essentially in line (estimate $2.114B*, actual $2.113B) and adjusted EPS slightly below (estimate $1.93*, actual $1.90); Q4 2025 saw an EPS beat and revenue miss* [GetEstimates].
• Potential stock catalysts: guidance raise on sales/FCF, clarity on tariff/coffee pricing elasticity, and progress on Hostess SKU rationalization and bakery closure savings ramp.

What Went Well and What Went Wrong

• What Went Well

  • Coffee price realization drove a 15% sales increase in U.S. Retail Coffee; CEO emphasized “continued momentum” and “discipline” in execution.
  • International and Away From Home posted 7% sales growth and 35% profit growth on pricing and lower SD&A.
  • FY26 net sales and free cash flow guidance raised; CFO flagged durable FCF tailwinds and deleveraging path to ~3x by FY27.

• What Went Wrong

  • Gross profit fell 40% YoY (GAAP), with material headwinds from commodity costs and net unfavorable derivative impacts; operating income down 87%.
  • Volume/mix declined across coffee, dog snacks, sweet baked goods, and fruit spreads; Pet Foods net sales down 8% and segment profit down 12% YoY.
  • Sweet Baked Snacks sales down 24% YoY and segment margin down 880 bps; rationalization benefits only begin in Q4, with majority in FY27.

Transcript

Operator (participant)

Good morning and welcome to The James Smucker Company's Fiscal twenty twenty six First 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 questions. I'd like to turn the conference call over to Crystal Beiding, Vice President, Investor Relations and Financial Planning and Analysis. Thank you. You may begin.

Crystal Beiting (VP - IR & FP&A)

Good morning, and thank you for joining our fiscal twenty twenty six first 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 and 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.

Operator (participant)

Thank you. The question and answer session will begin at this time. Session. Our first question is coming from Andrew Lazar from Barclays. Your line is now live.

Andrew Lazar (Managing Director)

Great. Thanks so much. Good morning, everybody.

Mark Smucker (CEO & Chair of the Board)

Good morning.

Andrew Lazar (Managing Director)

I think last quarter Smucker mentioned that the pricing would benefit the coffee segment sales by about 20% for fiscal twenty twenty six. With new tariff headwinds since that time, I guess what would your updated expectation on pricing benefit in this segment be now? And was that included as part of the August price increase? Or is there still more likely to come?

Tucker Marshall (CFO)

Andrew, good morning. Yes, the current outlook for pricing in the coffee segment is going to be in the mid-20s now. That would include additional pricing actions in the early winter associated with the increased tariff rates that we're experiencing on green coffee. And then furthermore, we would likely see an impact to volume in the low to mid teens, therefore, having kind of a low to mid teens overall growth for the segment year over year.

Andrew Lazar (Managing Director)

Great. Really helpful. And then last quarter, the company mentioned that first quarter EPS would be the softest quarter and that 2Q and 3Q would be consistent with each other. And now I think the second quarter decline is expected to be greater than the first quarter decline and maybe more muted in 3Q. So I'm just curious kind of what changed there, to sort of cause that shifting in what appears to be a shift in sort of phasing?

Tucker Marshall (CFO)

Andrew, so as you know, our outlook for the full year has not changed at the midpoint. We still have a $9 midpoint guidance range. We do see favorability coming through our fiscal year as a result of better than anticipated price elasticity of demand assumptions through our coffee portfolio. But that benefit is being offset by increased tariffs that we're experiencing since our original guidance. And then to your point, in our first quarter, we did experience some additional coffee costs greater than we anticipated.

We always knew that the first quarter was going be our highest coffee cost quarter, came in a little higher than anticipated. The outlook also anticipates that in our second quarter, just due to the timing of our hedging activity along with the physical receipt of green coffee, we'll have some additional costs in the second quarter that is causing our outlook change for the second quarter. But overall, we do see coffee in line with profit expectations coming into the fiscal year based on where we stand now after absorbing the incremental tariffs.

Andrew Lazar (Managing Director)

Great. Thanks so much.

Operator (participant)

Thank you. Next question is coming from Peter Galbo from Bank of America. Your line is now live.

Peter Galbo (Director & Head - US Consumer Staples Equity Research)

Hey, guys. Good morning. Thanks for taking the questions. Tucker, I was hoping maybe we could pick up on the coffee piece there. The elasticity I think that you've assumed now is about $0.20 better than you had at Q4 with the additional $0.25 on tariffs, so netting about $05 worse.

I was just hoping maybe you could help us gross that up to the top line level. I think from an elasticity perspective, were assuming about 0.4 or 0.5 before. Just want to understand kind of where that number on a holistic basis has moved to now?

Tucker Marshall (CFO)

Sure. So I think if we took a take a step back, we really have several pricing actions that are flowing through our fiscal year. The first was in the May timeframe, the second is in the August timeframe and then likely in the early winter, there will be a third action as well. And what we did coming into the fiscal year is on average across our entire portfolio over an entire fiscal year was about 0.5 elasticity. And what we've experienced through our May pricing is a slightly better factor that enabled us to have a very strong first quarter within our coffee portfolio, kind of over delivering expectations of about $50,000,000 We've taken that assumption throughout the balance of the fiscal year, which is really enabling us to call up coffee about $100,000,000 on a full year basis due to the implications of price elasticity of demand factors.

Our August pricing, we're still kind of keeping at that 0.5 factor, which is the historical elasticity. And then any future pricing actions that we would take in early winter, that would largely be at a greater elasticity factor than historical just due to the timing and nature and also the fact that we're taking so much pricing in one fiscal year as we just called out in Andrew's question kind of in the mid-twenty percent. Hopefully that helps.

Peter Galbo (Director & Head - US Consumer Staples Equity Research)

Yes. Thanks for the clarity there. And then Mark, as a follow-up, I think in your prepared remarks, you talked about Milk Bone returning to growth in the second half of this fiscal year. And I just want to understand if that comment was really driven by just some of the compares and some of the one offs that happened in the second half of last year? Or if your expectation is that consumption in Milk Bone actually returns to positive growth in the second half as well?

And maybe you can just remind us again on some of the dynamics on the year over year? Thanks very much.

Mark Smucker (CEO & Chair of the Board)

Sure, Peter. Yes, you are correct. There are that we will have some strong comps in the back half which will help. What I would highlight about Milk Bone is that the brand we continue to support the brand obviously through advertising, the innovation on the PB Bites, we have seasonals coming and we will tactically sharpen some specific price points or use promo where we need to. But we still have high confidence in the brand, but acknowledge that because the consumer on in discretionary categories continues to be a bit cautious.

We have seen the frequency of pet parents treating their pets go down a little bit. But because of all of the actions that I just highlighted and the continued support that we will provide to the brand, the fact that it has so many different varieties and plays across the value spectrum, we still have high hopes for that brand and we'll continue to support it all the way through the fiscal year.

Operator (participant)

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

Robert Moskow (Managing Director )

Hi, thanks for the question. I was wondering in your discussion about Sweet Baked Snacks and explaining the volume decline in the quarter, I didn't mention I didn't notice any mention of the SKU rationalization impacting the volume. I wanted to know if that impacted it as well. And then secondly, can you give a little more detail on the dedicated sales organization that you're putting in place? How is it different from your go to market approach currently?

And what do you expect to get out of it? Thanks.

Mark Smucker (CEO & Chair of the Board)

Sure, Rob. It's Mark. First on the sales, we have a dedicated convenient store sales force, which we've had from the outset and that obviously is a core competency of the business. And then just more broadly in totality, a dedicated sales force, it functions similar to our total sales force, it's just focus. It's really all about making sure that we're focused on the right things and getting the execution that we need all the way down to store shelves.

And as it relates to the SKU rationalization, we won't be through the work of rationalizing those SKUs until through the second quarter. And we do expect that over time, the remaining portfolio will continue to replace those sales and overall improve profitability in the segment. And then finally, I might just add that although it was in the prepared remarks, I'd love to just emphasize that we are starting to see some green shoots as we are referring to them in terms of things like the convenience channel slightly improving in terms of health and traffic. We've had good share performance at some of our most important traditional retail and mass customers. I mentioned the profit performance and then just overall the focus that we're bringing to the portfolio over time will benefit the brand.

And then finally, I think one of the highlights is donuts and the fact that the breakfast occasion continues to be strong and we have seen good growth out of our donut brand.

Robert Moskow (Managing Director )

And did the rationalization impact volume in first quarter?

Mark Smucker (CEO & Chair of the Board)

It did not.

Robert Moskow (Managing Director )

All right. Thank you.

Operator (participant)

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

Tom Palmer (VP & Senior Equity Research Analyst)

Good morning. Thanks for the question. I wanted to follow-up on Andrew's question about the guidance and kind of implications for the cadence. So you reiterated the annual addressed maybe some incremental weakness for the second quarter. That would seem to suggest that maybe the back half of the year is a bit better than you previously anticipated.

I just wanted to clarify what's driving that improvement in the second half versus what you expected previously?

Tucker Marshall (CFO)

Yes. So I think there's a couple of factors. One is in the first half, we just have timing of coffee costs coming through our first and second quarters, but the profit outlook for coffee remains intact with our original expectations coming into the fiscal year after absorbing an incremental $0.25 of tariffs, but yet experiencing a positive $0.20 tailwind associated with favorable elasticities. And so really what we're doing is we're just shifting some of the profit to our third and fourth quarters, but we remain focused on the midpoint of our guidance range at this point in time.

Tom Palmer (VP & Senior Equity Research Analyst)

Understood. Thank you. And then on the Sweet Baked Snacks, the SKU reduction, when does the actions you're taking start to impact the earnings line? Is that we should look for sequential improvement as we move through the 2026? Or is it more a consideration for fiscal twenty twenty seven? Thanks.

Tucker Marshall (CFO)

Yes. So we've outlined a $30,000,000 savings benefit associated with SKU rationalization and the closure of our Indianapolis bakery. And we'll begin to see about 10,000,000 of that benefit flow through our fourth quarter with the balance or $20,000,000 impacting or benefiting fiscal year twenty twenty seven. And profitability in Sweet Baked Snacks should improve sequentially as we move through the fiscal year with the fourth quarter being our strongest and that would also track with the top line.

Tom Palmer (VP & Senior Equity Research Analyst)

Got it. Thank you.

Operator (participant)

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

Peter Grom (Equity Research Analyst)

Thanks, operator. Good morning, guys. In the prepared remarks, you touched on the sequential momentum that you're seeing that should set up for an on algorithm year or better in fiscal twenty twenty seven. So just given that we're one quarter into fiscal twenty twenty six, can you just talk about the level of confidence or visibility you have to that at this stage?

Tucker Marshall (CFO)

Our visibility into next fiscal year continues to be sort of a work in progress. But I think what we were trying to highlight is, as we think about the coffee portfolio, our strongest margins will be in the fourth quarter, which would be in the mid-20s. So you'd have a nice exit rate within your green coffee portfolio or your overall coffee business. Two is, as you see the ongoing benefits of the stabilization efforts within the Hostess portfolio And then you see the continued momentum of your growth brands around Uncrustables, Meow Mix, Milk Bone as well, which just enable us to give some point of view as it relates to how we're thinking about next fiscal year. And we also continue to navigate the overall tariff environment.

Peter Grom (Equity Research Analyst)

Great. That's super helpful. And then just a follow-up just in terms of phasing on the top line, but more how you see price relative to volume mix. I think the presentation shows an expectation for 10% price for the year and volume mix down 4%. So just curious how you see that evolving from here?

And then specifically on coffee pricing, 18% in expectation for mid-twenty percent for the year. Any thoughts you can share on what that ramp looks like given the August increase and now the potential winter increase as well? Thanks.

Tucker Marshall (CFO)

Yes. So coffee, let's begin with coffee. Coffee being in the mid-20s, we saw 18% come through Q1. You'll feel basically in the mid-20s, in your second and third quarter. And then your fourth quarter, you'd be slightly ahead of that as you think about the coffee portfolio.

And then just in terms of the overall sales ramp for the full fiscal year, just acknowledge that we continue to get sequentially better as we move through, the balance of the year.

Operator (participant)

Thank you. Our next question today is coming from Megan Klap from Morgan Stanley. Your line is now live.

Megan Clapp (Executive Director)

Hi, good morning. Thanks for taking our question. I wanted to ask about the increased free cash flow outlook. It seems like there's a one time benefit coming through this year. But just wondered if you could talk high level about that, how that what you're expecting to do with that increased cash, how we should think about maybe pace of deleveraging going forward? Thank you.

Tucker Marshall (CFO)

Megan, good morning. Yes, we did increase our free cash flow outlook from $875,000,000 to $975,000,000 for the full fiscal year. That increase of $100,000,000 is largely driven by the benefits coming through the One Big Beautiful Bill Act. And it is not a one time benefit. It will be an ongoing annual benefit as we move forward into subsequent fiscal years.

We plan to use the proceeds or the incremental cash to support our ongoing debt pay down efforts in order to achieve our three times leverage profile by the end of fiscal 2027.

Megan Clapp (Executive Director)

Okay, awesome. That's helpful. Thank you. And then maybe just on the 2Q comparable net sales outlook. I think in the prepared remarks you said mid single digit.

It's a bit above I guess where the scanner data has been tracking more recently. I know we'll get this August price increase in coffee which will help. But it does seem like there's maybe some dynamics with sweet baked snacks and the SKU reduction and maybe some sequential improvement in Pet. So just wondered if you could just help us unpack as we think about tracking the scanner data over the next couple of quarters, which segments we should expect to see kind of sequential improvement and how we should think about that in terms of the reported sales? Thank you.

Tucker Marshall (CFO)

Yes. You'll see continued momentum in coffee as we've discussed. Within frozen handheld and spreads, you'll see the momentum coming through the Uncrustables brand or portfolio. As you think about in our Pet segment, you'll see the ongoing momentum in our cat food portfolio. And then you'll see the ongoing kind of stabilization efforts coming through within Sweet Baked Snacks.

And then our away from home business continues to be a bright spot in our portfolio as well.

Megan Clapp (Executive Director)

Great. Thank you.

Operator (participant)

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

Alexia Howard (Research Analyst - US Foods)

Good morning, everyone.

Mark Smucker (CEO & Chair of the Board)

Good morning.

Alexia Howard (Research Analyst - US Foods)

Can I ask on coffee first of all, there was no mention of potentially pursuing tariff exemptions in the mitigating activities that you're pursuing? Is there a chance that application for exemption an exemption on the tariffs because obviously coffee can't be grown in The U. Could be a possibility further down the road?

Mark Smucker (CEO & Chair of the Board)

Thanks Alexia, it's Mark. We continue to monitor and assess any changes that we're seeing to trade policy and tariffs and obviously, where we're really focused is working through our industry associations to advocate for policymakers and ultimately are really striving to get the best outcomes for our consumers. But at this point, we don't have anything to report in terms of any further relief. But as if anything does come through, would certainly reflect that in our guidance.

Alexia Howard (Research Analyst - US Foods)

Thank you. And then as a follow-up, on the Hostess business, are you seeing any impact from GLP-one drugs specifically? And should we be concerned that with pill versions coming out early in calendar twenty twenty six that there might be some incremental pressure over the course of next year?

Mark Smucker (CEO & Chair of the Board)

Thanks Alexia. I was expecting that question. As we've said in the past, we still monitor this and really take a close look at the impact of GLP-1s and what they're having on food generally and more specifically our business. And we update our outlook monthly on that. And to this up to this point, we still don't see any meaningful impact in our categories and we will continue to make sure that we're offering the consumer products and variants of products that they're seeking whether that could be reduced sugar or portion sizes and so forth.

So we feel like the portfolio is very well positioned to address those types of issues and we'll continue to monitor.

Alexia Howard (Research Analyst - US Foods)

You very much. I'll pass it on.

Operator (participant)

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

Max Gumport (Director - Equity Research)

Hey, thanks for the question. I'm trying to get a better sense for on your updated coffee assumptions. So it sounds like you now expect to see mid-twenty percent pricing this year. You expect to see a volume impact in the down in the low to mid teens resulting in sales in the low to mid teens. It sounds like overall, elasticity is still expected to be about 0.5x, so in line with what you expected before.

I think it sounds like it's because earlier price increases are now better than expected. August will be roughly in line with historical of 0.5 and then winter much worse. If that's all true, how do we square that with the commentary that the combined impact of coffee and tariffs is still going to be roughly 0.8 to $0.85 headwind to, or I guess no real change in the combined impact despite the fact that volume is going to be much worse than you expected before, it feels like. Can you just give a bit more color on that?

Tucker Marshall (CFO)

Yes. So Max, I think the way that you've framed in the pricing and the volume and the current outlook for growth for the business is correct based on, our prepared remarks and some questions I've already answered previously. I would say that what we're seeing is that coffee outlook has gone up by $100,000,000 for the full fiscal year. Much of that came through Q1 and much of that is sharpening the pencil on early pricing actions and the impact of price elasticity of demand. When you kind of factor that in, is a $0.20 benefit to your guidance range.

But unfortunately, tariff rates have gone above 10% and we have to react to that and we now have a net $0.25 impact, which is largely coming through our coffee portfolio, which is just basically bringing them back to their financial plan at profit for the year. So we do view this as a good story and the resilience of the overall coffee category, the strength of our brands in the category. But unfortunately, there's just factors beyond our control that are not enabling us to take either the profit up in the business unit or taking up our guidance as a result of increased tariff.

Max Gumport (Director - Equity Research)

Great. And then Mark, going back to the last question on GLP-one drugs in your monthly research showing no real impact so far. Can you provide a bit more color on what your studies are showing in terms of I assume they are showing that consumers on GLP-one drugs are eating less food, given we know these drugs are effective at reducing weight. But if that's true, why are you not seeing an impact? Are you saying that your categories are not the categories where consumers are reducing their food consumption?

Or are there other parts of this story that I'm missing? Just curious for a bit more color on what you are seeing given you are doing pretty detailed research on this topic. Thanks very much.

Tucker Marshall (CFO)

Yes.

Mark Smucker (CEO & Chair of the Board)

Of course, Max. Thanks. So first of all, the data that we look at is across a very pretty broad variety of sources. And as we all know that these drugs do reduce appetite and cause folks to eat less. I would highlight that our category is various parts of our category don't really fall into at all the areas that people might consume less, like coffee, beverages and, of course, pet.

And so where you might see in our other fruit frozen handhelds and spreads and hostess, I think everyone likes to focus on hostess. The fact is people who are consuming Uncrustables for the most part are athletes, families with kids, universities, we're now in have really good performance in convenience stores. And so from an Uncrustables standpoint and a spread standpoint, we really haven't seen any impact at all from the GLP-one. And then as you would expect on Hostess because it's a suite, people still do look to reward themselves with something small potentially and indulgent throughout the day and the snacking trends still indicate that about 70% of consumers are still snacking twice a day. And that it might be salty, it might be sweet, what have you.

But at the end of the day, as we look at who is consuming our products, we have not seen a meaningful impact from these drugs on the categories that might be affected.

Max Gumport (Director - Equity Research)

Thanks very much.

Operator (participant)

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

Scott Marks (Equity Research - Consumer)

Hey, good morning. Thanks so much for taking our questions. Thing I wanted to ask about, just a clarification. The Hostess SKU reduction, it sounds like it's maybe some long tail SKUs, some smaller SKUs. Just wondering if you can clarify maybe how much in sales that represents of that part of the business and how we should think about the impact of that for this year?

Mark Smucker (CEO & Chair of the Board)

It's a combination. It is mostly long tailed SKUs, and it is SKUs that are not generating the requisite profit impact, right? And so really getting focused on the brands, the sub brands, if you will, in under hosted and the products that are going to drive both growth in top and bottom line are where we're focused. I would not spend too much time focusing on the sales because we do believe that we can offset the sales by growth in the more important sub brands. So for example, Donette is three times the size of the next closest brand, which is cupcakes.

And so with Donette's growth there is good and then continuing to focus on the other occasions outside of breakfast will help us support brands like Cupcakes and Twinkies.

Scott Marks (Equity Research - Consumer)

Understood. Thanks for that. Second question comes back to a one that was asked earlier just around kind of the tariff situation on coffee. If for instance, some exemption does come through on that, how maybe should we be thinking about the pricing actions that you mentioned in the winter? Or how long might that take to be reflective in your P and L?

Just trying to gauge what the impacts would be and how long they might take to show up.

Tucker Marshall (CFO)

Yes, Scott. So we now have embedded net $0.50 negative impact due to tariffs in our guidance range. That is a result of tariffs coming into place at the end of our last fiscal year, tariffs being in full year effect of this fiscal year and then tariffs going above 10%. There's very much a timing impact. So should we receive relief and whatever the definition of relief is on green coffee, we would come back and have to revise the impact of the $0.50 for the fiscal year just due to the fact we're realizing it now and timing associated with it.

And then secondly is we could also at that time then provide an update as it relates to how that would transition into FY 2027. But the thing that I want to caution is, should you read of relief, you may not add back to $0.50 to the full fiscal year because of the realization and timing factors that we're experiencing to date.

Scott Marks (Equity Research - Consumer)

That's helpful. Thanks for the clarity. Thanks for taking the questions.

Mark Smucker (CEO & Chair of the Board)

Thank you.

Operator (participant)

Thank you.

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

Mark Smucker (CEO & Chair of the Board)

Well, first of all, you everyone for your time and for joining the call this morning. Our first quarter results demonstrate our strategy is working and we continue to take actions to position the company for long term growth and manage the things that we truly can control and react to those which may be out of our control in a positive fashion. This includes making strategic investments in the business, launching consumer led innovation and continuing to shift our portfolio to growth. And as always, would like to thank our outstanding employees for their continued hard work and dedication to our company. We hope that many of you will be able to join us in Boston at the Barclays Global Consumer Staples Conference next week.

A live webcast of our presentation is on September 2 at 12:45 p. M. Eastern and can also be accessed from our Investor Relations website. Thank you.

Operator (participant)

Thank you. That does conclude today's teleconference webcast. You may disconnect.