The J.M. Smucker Company

Good morning and welcome to the J.M. Smucker Company's fiscal 2021 first quarter earnings conference call. This conference is being recorded and all participants are in a listen-only mode. We will open the conference up for questions and answers after the prepared remarks. Please limit yourselves to two questions during the Q&A session and re-queue if you have additional questions. I will now turn the call over to Aaron Broholm, Vice President, Investor Relations. Aaron, please go ahead, sir.

Good morning and thank you for joining us for our fiscal 2021 first quarter earnings conference call. After this brief introduction, Mark Smucker, President and CEO, will give an overview of the quarter's results and an update on our strategic initiatives and fiscal year priorities. Tucker Marshall, CFO, will then provide detailed analysis of the financial results and our updated fiscal 2021 outlook. During today's call, Thank you for joining us. Thank you, Aaron. Thank you.

Good morning, everyone, and thank you for joining us. Our nation, families, and colleagues have experienced unprecedented events and challenges over the past six months. The COVID-19 pandemic has upended our way of life, and societal awareness about racial injustice has been magnified. Companies like ours, as corporate citizens, have a responsibility to lead and act to help overcome these challenges. I am proud of our employees who have served our constituents, produced record volumes while maintaining high quality and safety standards, and delivered exceptional results, all amidst many personal sacrifices. I am incredibly thankful for their dedication and continued commitment to each other and our shared values. At Smucker, we pride ourselves on living and applying our basic beliefs which include people and ethics as guideposts for everything we do. We advocate for the mutual respect of every individual while remaining steadfast in our commitment to a positive and inclusive work environment for everyone. With our shared values and history as a foundation, we know more needs to be done, which is why we have accelerated our inclusion and diversity efforts with several new initiatives, including signing the CEO Action for Diversity and Inclusion Pledge to show our support for marginalized groups, introducing unconscious bias training for our employees, Committing $500,000 to organizations that advocate for inclusion, racial justice, and the advancement of underrepresented people. Participating in the Stop Hate for Profit social media advertising movement and designating Juneteenth as a company-paid holiday beginning next year. We are committed to building on these initiatives to become a more inclusive and diverse organization while supporting efforts to ensure our communities become more equitable and just. The global COVID-19 pandemic has made the operating environment dynamic and challenging to predict. We have built an organization well prepared to adapt to this period of rapid change and our employees continue to execute at a high level, supporting an approximately $400 million year over year increase in net sales over the past two quarters, resulting in adjusted EPS growth over 30%. In the first quarter, net sales increased 11% versus the prior year, with each business outperforming our expectations. In the coffee, consumer foods, and international retail businesses, demand remained elevated throughout the quarter, driven by increased at-home consumption and retailers rebuilding inventory levels that were depleted in March and April from consumer stock-ups. Results in the pet food and snack segment were slightly better than expected. with consumption growth continuing for our cat food and pet snacks brands while some pantry destocking was evident for dog food. Finally, declines for the away-from-home business moderated ahead of our expectations as reopenings occurred earlier than anticipated. Adjusted earnings per share was $2.37, an increase of 50%. Benefiting from increased sales volume, improved profit margins related to mix and operating leverage, and reduced SD&A expenses. Due to stronger than anticipated first quarter results, along with revised assumptions for the remainder of the year, we have increased our full year expectations to include net sales flat to up 1% versus the prior year, and adjusted earnings per share of $8.20 to $8.60. On our fourth quarter call, I highlighted that to effectively build on our long-term strategy to lead in the best categories, build brands consumers love, and be everywhere, it was imperative to deliver against four specific priorities for this fiscal year. These priorities are first, drive consistent net sales growth. Second, increase focus on financial discipline with an emphasis on maintaining or improving our strong profit margins and cash flow generation. Third, harness our full suite of capabilities to strengthen our commercial execution and build competitive advantages. And fourth, maintain our commitment to our company's purpose of Feeding Connections that help us thrive. Now, more than ever, we need to strengthen our connections with consumers, customers, suppliers, employees, communities, and our shareholders. While there is still work to do, we are off to a great start in delivering against these priorities. Let me provide some examples from the first quarter. We capitalized on the increased demand Thank you for joining us. when our on-shelf assortment was limited. Other highlights include net sales growth of over 50% for the Crisco brand and 35% for Smucker's Uncrustables in the consumer food segment. And the Folgers, Dunkin', and Cafe Bustelo brands each grew double digits in the coffee segment. We expect the consumer and coffee momentum to continue into the second quarter as we maximize production and add more variety back to shelves. We also delivered another quarter of net sales growth in pets, led by the continued strong performance for our cat food and dog snacks portfolios, which grew 13% and 9% respectively. We continue to take actions to improve our competitive positioning in the dog food category, primarily for our premium brands. Across our entire portfolio, we are adapting brand-building activities to attract and retain new consumers. Key metrics for consumer purchasing behavior were positive in the quarter, including household penetration growth of over 1.6 million households versus the prior year, a nearly 150 basis point improvement in repeat rate, and a high single-digit increase in dollars per buyer. This means more consumers are purchasing our brands, they are repeating purchases at a higher rate, and they are spending more than before. Our second fiscal 2021 priority is an increased focus on financial discipline. We are partnering with our customers to manage pricing where appropriate, such as in peanut butter, where a reduction in crop yields has resulted in increased cost. We have also optimized planned marketing spend for several brands by reallocating resources to brands with capacity for faster growth, such as Folgers, which grew 13% in the U.S. retail coffee segment in the quarter. A new advertising campaign for Folgers is beginning to air this week, with content relevant to the current environment focused on attracting new consumers. We firmly believe the current environment will translate into long-term structural changes in consumer behavior and continued growth opportunities. Finally, we continue to sharpen our focus on productivity and efficiency of our spend as SD&A expenses declined 6% in the quarter. The pricing discipline, reprioritization of marketing spend across categories, and continued productivity focus are just a few examples of our margin management activities. When considering these activities and a focus on execution, we were able to deliver sales and profit growth for the quarter. We look forward to providing more information about our margin management program during our upcoming Investor Day in October. An example of how we leverage our capabilities to improve commercial execution and build competitive advantages are the investments that we have made in our e-commerce capabilities to support our strategic growth imperative to be everywhere. In the first quarter, our total e-commerce sales grew over 70% and represented 12% of our U.S. retail sales. We anticipate e-commerce growth to remain sticky as consumers are increasingly adopting and maintaining online grocery shopping habits as a result of the pandemic. including many first-time online grocery shoppers that discovered the convenience and benefits of pickup and delivery options. Fourth and finally is the continued commitment to our purpose. The actions I previously mentioned around inclusion and diversity are an example of some of the work our teams are doing and I believe through the passion of our employees we will continue to make continued progress throughout the year. In summary, I would like to reinforce a few key points. One, our business performed very well this quarter and we exceeded our expectations in a uniquely challenging period. Two, we remain confident in our consumer-centric growth strategy and have significantly improved performance across many of our categories. Three, we continue to adapt and be agile in this changing environment Focused on maintaining and growing our consumer base and growing our categories and market share. And four, while there will always be more work to do, our strong start and continued business momentum has put us in a position to deliver our financial commitments for the fiscal year. Before turning it over to Tucker, I want to again recognize our Vice Chairman and former CFO, Mark Belja. who will retire September 1st, and Katherine Dindo and Gary Odey who both retired from our board of directors last week. I am grateful for the counsel they have provided and thank them for their continued commitment and contributions to our company. We wish them all the best in the future. Finally, we are excited to welcome Susan Chapman Hughes and Jody Taylor who were elected to our board of directors last week. We look forward to the expertise and oversight Susan and Jody will provide in critical areas that support our company's future growth. I'll now turn the call over to Tucker.