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

Speaker 6

Good morning and welcome to The J.M. Smucker Co.'s fiscal 2026 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 Beiting, Vice President, Investor Relations and Financial Planning and Analysis. Thank you. You may begin.

Speaker 5

Good morning and thank you for joining our fiscal 2026 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&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.

Speaker 6

Thank you. The question and answer session will begin at this time. If you're using a speakerphone, please pick up a headset before pressing any numbers. Should you have a question, please press star one on your telephone. If you wish to withdraw your question, please press star two. For operator assistance, please press star zero. As a reminder, please limit yourselves 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. Once again, that's star one to be placed into question queue. Our first question is coming from Andrew Lazar. From Barclays, your line is now live.

Great, thanks so much. Good morning, everybody.

Speaker 7

Morning.

I think last quarter, Smucker mentioned that the pricing would benefit the coffee segment sales by about 20% for fiscal 2026. With new tariff headwinds since that time, what would your updated expectation on pricing benefit in this segment be now? Was that included as part of the August price increase, or is there still more likely to come?

Andrew, good morning. Yes, the current outlook for pricing in the coffee segment is going to be in the mid-20% now. That would include additional pricing actions in the early winter associated with the increased tariff rates that we're experiencing on green coffee. 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.

Great. Really helpful. Last quarter, the company mentioned that first quarter EPS would be the softest quarter and that Q2 and Q3 would be consistent with each other. Now I think the second quarter decline is expected to be greater than the first quarter decline and maybe more muted than Q3. 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.

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. That benefit is being offset by increased tariffs that we're experiencing since our original guidance. 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 to 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.

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.

Great. Thanks so much.

Speaker 6

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 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. Netting about $0.05 worse. I was just hoping maybe you could help us gross that up to the top line level. I think from an elasticity perspective, you were assuming about a 0.4 or 0.5 before. Just want to understand kind of where that number on a holistic basis has moved to now.

Speaker 7

Sure. I think if we 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. Likely in the early winter, there will be a third action as well. What we did coming into the fiscal year is, on average across our entire portfolio over an entire fiscal year, was about a 0.5 elasticity. 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 million. We've taken that assumption throughout the balance of the fiscal year, which is really enabling us to call up coffee about $100 million 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. Any future pricing actions that we would take in early winter 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-20%. Hopefully, that helps.

Yeah, no, thanks for the clarity there. 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. I just want to understand if that comment was really driven by just some of the comparers 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.

Speaker 1

Sure, Peter. Yeah, you are correct. 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, you know, tactically sharpen some specific price points or use promo where we need to. We still have high confidence in the brand, but acknowledge that because the consumer 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.

Because of all of the actions that I just highlighted and the continued, you know, 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 will continue to support it all the way through the fiscal year.

Speaker 6

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

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 notice any mention of the SKU rationalization impacting the volume. I wanted to know if that impacted it as well. 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? What do you expect to get out of it? Thanks.

Speaker 1

Sure, Rob. It's Mark. First on the sales, we have a dedicated convenience store sales force, which we've had from the outset, and that obviously is a core competency of the business. More broadly, in totality, a dedicated sales force functions similar to our total sales force. It's just focused. 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 the store shelves. As it relates to the SKU rationalization, we won't be through the work of rationalizing those SKUs through the second quarter. We do expect that over time, the remaining portfolio will continue to replace those sales and overall improve profitability in the segment.

Finally, I might just add that although it wasn't a prepared remark, 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. Overall, the focus that we're bringing to the portfolio over time will benefit the brand. Finally, I think one of the highlights is donuts and the fact that the breakfast occasion continues to be strong. We have seen good growth out of our donuts brand.

Did the rationalization impact volume in the first quarter?

Speaker 7

It did not.

Okay. All right. Thank you.

Speaker 6

Thank you. Next question today is coming from Tom Palmer from J.P. Morgan. Your line is now live.

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. You reiterated the annual address, 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.

Speaker 7

Yeah. 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, yet experiencing a positive $0.20 tailwind associated with favorable elasticities. Really what we're doing is 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.

Understood. Thank you. On the sweet-baked snacks, the SKU reduction, when do the actions you're taking start to impact the earnings line? Is that we should look for a sequential improvement as we move through the second half of fiscal 2026, or is it more a consideration for fiscal 2027?

Yeah. We've outlined a $30 million savings benefit associated with SKU rationalization and the closure of our Indianapolis bakery. We'll begin to see about $10 million of that benefit flow through our fourth quarter, with the balance, or $20 million, impacting or benefiting fiscal year 2027. 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.

Got it. Thank you.

Speaker 6

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

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 2027. Just given that we're one quarter into fiscal 2026, can you talk about the level of confidence or visibility you have for that at this stage?

Speaker 7

Our visibility into next fiscal year continues to be sort of a work in progress. 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-20%. You'd have a nice exit rate within your green coffee portfolio or your overall coffee business. As you see the ongoing benefits of the stabilization efforts within the Hostess portfolio, 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. We also continue to navigate the overall tariff environment.

Great. That's super helpful. Just a follow-up, which is 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 down 4%. Just curious how you see that evolving from here. Specifically on coffee pricing, 18% in the first quarter, expectation for mid-20% 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.

Let's begin with coffee. Coffee being in the mid-20%. We saw 18% come through Q1. You'll feel basically in the mid-20% 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. In terms of the overall sales ramp for the full fiscal year, I just acknowledge that we continue to get sequentially better as we move through the balance of the year.

Speaker 6

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

Hi. Good morning. Thanks for taking our question. I wanted to ask about the increased free cash flow outlook. 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.

Speaker 7

Megan, good morning. Yes, we did increase our free cash flow outlook from $875 million to $975 million for the full fiscal year. That increase of $100 million is largely driven by the benefits coming through the One Big Beautiful Bill Act. 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 paydown efforts in order to achieve our three times leverage profile by the end of fiscal year 2027.

Okay. Awesome. That's helpful. Thank you. Maybe just on the Q2 comparable net sales outlook, I think in the prepared remarks, you said mid-single digit. That'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. It does seem like there's maybe some dynamics with sweet baked snacks and the SKU reduction, maybe some sequential improvement in pets. I just wondered if you could 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.

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. You'll see the ongoing kind of stabilization efforts coming through within sweet baked snacks. Our away-from-home business continues to be a bright spot in our portfolio as well.

Okay. Great. Thank you.

Speaker 6

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

Good morning, everyone.

Speaker 1

Morning.

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 an application for an exemption on the tariffs, because obviously coffee can't be grown in the U.S., could be a possibility further down the road?

Thanks, Alexia. It's Mark. We continue to monitor and assess any changes that we're seeing to trade policy and tariffs. 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. At this point, we don't have anything to report in terms of any further relief. If anything does come through, we would certainly reflect that in our guidance.

Thank you. As a follow-up, on the Hostess business, are you seeing any impact from GLP-1 drugs specifically? Should we be concerned that with pill versions coming out early in calendar 2026, there might be some incremental pressure over the course of next year?

Thanks, Alexia. I was expecting that question. We know, 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. You know, we update our outlook monthly on that. Up to this point, we still don't see any meaningful impact in our categories. 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. We feel like the portfolio is very well positioned to address those types of issues, and we'll continue to monitor.

Thank you very much. I'll pass it on.

Speaker 6

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

Hey, thanks for the question. Trying to get a better sense for on your updated coffee assumptions. It sounds like you now expect to see mid-20% pricing this year. You expect to see a volume impact 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, in line with what you expected before. I think it sounds like that's because earlier price increases are now better than expected. August will be roughly in line with the 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 $0.80 to $0.85 headwind to, or I guess it's 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?

Speaker 7

Yeah. Max, I think the way that you 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 million 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, that is a $0.20 benefit to your guidance range. Unfortunately, tariff rates have gone above 10%, and we have to react to that. 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.

We do view this as a good story in the resilience of the overall coffee category, the strength of our brands in the category. 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.

Right. Mark, going back to the last question on GLP-1 drugs and 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-1 drugs are eating less food, given we know these drugs are effective at reducing weight. 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.

Speaker 1

Yeah. Of course, Max. Thanks. First of all, the data that we look at is across a pretty broad variety of sources. As we all know, these drugs do reduce appetite and cause folks to eat less. I would highlight that our category is, you know, 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. Where you might see, you know, in our other frozen handhelds and spreads and Hostess, I think everyone likes to focus on Hostess. The fact is, you know, people who are consuming Uncrustables for the most part are athletes, families with kids, you know, universities. We're now in, you know, have really good performance in convenience stores. From an Uncrustables standpoint and a spread standpoint, we really haven't seen any impact at all from the GLP-1.

As you would expect on Hostess, because it's a sweet, people still do look to reward themselves with something small, potentially an indulgent, you know, throughout the day. The snacking trends still indicate that about 70% of consumers are still snacking twice a day. It might be salty, it might be sweet, what have you. 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.

Great, thanks very much.

Speaker 6

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

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

Speaker 1

You know, it's a combination. It is mostly long-tailed SKUs, and it is SKUs that are not generating the requisite profit impact, right? Really getting focused on the brands, the sub-brands, if you will, under Hostess 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. For example, Donuts is three times the size of the next closest brand, which is Cupcakes. With Donuts, growth there is good. Continuing to focus on the other occasions outside of breakfast will help us support brands like Cupcakes and Twinkies.

Understood. Thanks for that. Second question comes back to one that was asked earlier just around the tariff situation on coffee. If, for instance, some exemption does come through on that, how 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&L? Just trying to gauge what the impacts would be and how long they might take to show up.

Speaker 7

Yeah, Scott. 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 is very much a timing impact. 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. Secondly, we could also at that time then provide an update as it relates to how that would transition into FY27.

The thing that I want to caution is should you read of relief, you may not add back the $0.50 to the full fiscal year because of the realization and timing factors that we're experiencing today.

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

Speaker 1

Thank you.

Thank you.

Speaker 6

We reach the end of our question and answer session. Let's turn the floor back for any further closing comments.

Speaker 1

Thank 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. As always, I 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.

Speaker 6

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