SJM Q1 2025: EPS down 22%, trims FY EPS by $0.20 on coffee costs
- Strong Brand Momentum and Market Leadership: The company’s flagship brands—such as Uncrustables, which is on track to exceed $1B in net sales and has been delivering double‐digit growth for 12 consecutive years, and Cafe Bustelo showing robust sales growth—demonstrate solid consumer appeal and market penetration.
- Effective Cost Management and Operational Improvements: Initiatives like SKU optimization for Hostess and the closure of a manufacturing facility designed to deliver approximately $10,000,000 in cost savings in Q4, along with the realization of $100,000,000 in transformation synergies, support enhanced margins and operational efficiency.
- Improved Financial Outlook through Free Cash Flow and Deleveraging: An updated free cash flow projection of approximately $975,000,000 and plans to aggressively reduce net debt by paying down about $500,000,000 per year over the next two years underline the company’s strong balance sheet and commitment to creating shareholder value.
- Rising commodity costs and tariff pressures: The company noted an increased tariff impact on green coffee costs and emphasized that green coffee is an unavailable natural resource. These factors, combined with continued inflationary pressures, could potentially squeeze margins if the firm struggles to fully pass on these costs.
- Weak performance in certain segments: The discussions highlighted declines in pet foods (‑8% net sales drop) and Sweet Baked Snacks (up to 24% decline), indicating potential weakness in segments that may not easily recover, which could adversely impact overall performance.
- Margin pressure and earnings challenges: The prepared remarks referenced adjusted earnings per share declining by 22% and detailed negative impacts from unfavorable volume mix and increased marketing expenses. This margin compression, coupled with the noncomparable impact of divestitures, presents a risk to future earnings.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Net Sales | FY 2026 | no prior guidance | 3% to 5% increase, with comparable net sales 5.5% at the midpoint | no prior guidance |
Adjusted Gross Profit Margin | FY 2026 | no prior guidance | Approximately 35% to 35.5% | no prior guidance |
SD&A Expenses | FY 2026 | no prior guidance | Increase of approximately 3% | no prior guidance |
Total Marketing Expense | FY 2026 | no prior guidance | Estimated at about 5.7% of net sales | no prior guidance |
Net Interest Expense | FY 2026 | no prior guidance | Approximately $380,000,000 | no prior guidance |
Adjusted Effective Income Tax Rate | FY 2026 | no prior guidance | 23.8% | no prior guidance |
Weighted Average Share Count | FY 2026 | no prior guidance | 106,900,000 | no prior guidance |
Adjusted EPS | FY 2026 | no prior guidance | Guidance range of $8.50 to $9.50 | no prior guidance |
Free Cash Flow | FY 2026 | no prior guidance | Approximately $975,000,000 (increased by $100,000,000) | no prior guidance |
Capital Expenditures | FY 2026 | no prior guidance | $325,000,000 | no prior guidance |
Depreciation Expense | FY 2026 | no prior guidance | Approximately $350,000,000 | no prior guidance |
Amortization Expense | FY 2026 | no prior guidance | Approximately $200,000,000 | no prior guidance |
Share-Based Compensation Expense | FY 2026 | no prior guidance | $35,000,000 | no prior guidance |
Other Non-Cash Charges | FY 2026 | no prior guidance | $110,000,000 | no prior guidance |
Net Sales (Quarterly) | Q2 2025 | no prior guidance | Anticipated to increase in the low single digits | no prior guidance |
Comparable Net Sales (Quarterly) | Q2 2025 | no prior guidance | Anticipated to increase in the mid single digits | no prior guidance |
Adjusted EPS (Quarterly) | Q2 2025 | no prior guidance | Expected to decline approximately 25% | no prior guidance |
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Reduction in Full-Year Sales Guidance
Q: Why did you reduce your full-year sales growth outlook?
A: The company lowered its full-year sales growth guidance by 1 percentage point due to softer consumer spending impacting discretionary categories like sweet baked goods and pet snacks ** **. Specifically, they saw decreased consumer frequency in convenience stores, which over-indexes for their Sweet Baked Snacks and Hostess brands ** **. -
Impact on Hostess Earnings
Q: How will Hostess contribute to EPS this year?
A: Initially expecting Hostess to be accretive by a few cents, the company now anticipates a dilution of $0.05 to $0.10 per share due to top-line softness ** **. However, synergy realization is ahead of expectations, supporting the overall profit profile . -
Coffee Price Increase and Margins
Q: What effect will coffee price increases have on margins?
A: Due to rising green coffee costs, the company is implementing additional pricing across its coffee portfolio ** **. This has led to a reduction in the gross profit margin outlook from 38% to 37.5% for the full year . The margin impact will be more pronounced in the third and fourth quarters . -
Sustainability of Pet Food Margins
Q: Will high pet food margins continue?
A: The pet portfolio showed strong profitability, supported by positive volume/mix, supply chain stabilization, and cost savings . The company expects pet food margins to remain around 25% or slightly better moving forward . -
Marketing Spend Reduction
Q: Are you reducing marketing spend, and which brands are affected?
A: Marketing spend as a percentage of sales will be just below 5.5%, slightly down from expectations . The company is delaying increased marketing for Hostess until new branding efforts are completed in the back half of the year ** **. Overall marketing spend will be up slightly versus the prior year . -
Confidence in Sweet Baked Goods Category
Q: What actions are you taking to improve Sweet Baked Goods?
A: Despite current category softness due to lower discretionary income, the company plans to expand distribution, innovate, and increase advertising ** **. They remain confident in the category's long-term growth potential of 4% . -
Uncrustables Growth Outlook
Q: What are your growth expectations for Uncrustables?
A: Uncrustables continues to demonstrate double-digit growth and is on track to achieve $1 billion in sales by fiscal year 2026 . The company is adding capacity and launching new products like a raspberry flavor . -
FY26 Earnings Outlook
Q: Are you maintaining your FY26 earnings expectations?
A: The company remains committed to its FY26 earnings growth outlook, driven by base business momentum, cost savings, synergy realization, and debt reduction . -
Dog Snacks Slowdown
Q: What caused the slowdown in dog snacks, and how are you addressing it?
A: The slowdown is primarily due to lower consumer discretionary income, leading to reduced purchase frequency ** **. Milk-Bone grew modestly by 2% in volume, supported by innovation and brand strength . The company hasn't seen meaningful inventory reductions from retailers . -
Dunkin' Brand Performance
Q: Is there an issue with Dunkin' coffee brand performance?
A: Dunkin' is facing competitive dynamics impacting its performance . The company expects stabilization as category pricing normalizes and plans to continue supporting the brand . -
Promotional Activity Plans
Q: Are you increasing promotional activity to drive volume?
A: The company observes that promotional activity has returned to pre-pandemic levels . They focus on allocating funds where they can make the most impact, leveraging revenue growth management capabilities . -
Response to Coffee Price Elasticity
Q: How sensitive are consumers to coffee price increases?
A: The company has modeled price elasticity closely and feels confident in its estimates . They offer a range of options from value to premium and have seen competitors follow their price increases . -
Gross Margin Trends
Q: What is the expected gross margin trend this year?
A: Gross margins are expected to be around 37.5% in Q2, then significantly below that in Q3 and Q4 due to coffee pricing and elasticity impacts . -
Marketing Strategy for Hostess
Q: Why delay increased marketing for Hostess?
A: New creative work and brand positioning for Hostess won't be ready until the back half of the year, so marketing ramp-up is deferred ** **. -
Factors Impacting EPS Guidance
Q: What led to the reduction in EPS guidance?
A: The $0.20 reduction at the midpoint is due to lower net sales ($0.25 impact) and gross margin ($0.35 impact), primarily from coffee . This is partially offset by $0.40 in SG&A favorability .
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