The J.M. Smucker Company

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

Good morning and thank you for joining us for our fiscal 2021 second 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. Please note the company uses non-GAAP results to evaluate performance internally as detailed in the press release. We have posted a supplementary slide deck summarizing the quarterly results. These slides can be accessed on our website and will be archived there along with a replay of this call. If you have additional questions after today's call, please contact me. I will now turn the call over to Mark Smucker.

Thank you, Aaron. Good morning, everyone, and thank you for joining us. First, I want to acknowledge that the COVID-19 pandemic continues to impact our everyday way of life, making the operating environment dynamic and difficult to predict. I'm incredibly proud of our employees who have worked tirelessly to deliver exceptional operational and financial results, and I would like to recognize our suppliers and retail partners. who have supported us during this unprecedented time. As we are entering the winter months and are experiencing a nationwide surge in COVID-19 cases, we remain committed to prioritizing the safety and wellbeing of our employees, supporting the communities where we do business and providing a steady quality supply of food for consumers and their pets. In the second quarter, Net sales increased 4% versus the prior year and was slightly ahead of our expectations. At-home consumption remains elevated as sales in our coffee, consumer, and international retail businesses collectively grew 10%. Sales in the pet food and snack segment were in line with expectations as continued growth for cat food and dog snacks were offset by anticipated softness for dog food. Finally, the away-from-home business continued its sequential improvement from the fourth quarter last fiscal year when many of our customers were either closed or shut down. Adjusted earnings per share was $2.39, an increase of 6%, benefiting from increased sales volume, improved profit margins, and reduced interest expense, Partially offset by increased SD&A expenses. Due to stronger than anticipated results through the first half of the fiscal year and updated assumptions for the second half of the year, we have increased our full year expectations to include net sales growth of 1% to 2% versus the prior year and adjusted earnings per share in the range of $8.55 to $8.85. This updated guidance does not include the impact of the pending CRISCO divestiture. Tucker will provide more details regarding the inputs informing our fiscal 2021 guidance. This fiscal year, we have been focused on four specific priorities. Driving consistent net sales growth, increasing our focus on financial discipline, with an emphasis on maintaining or improving our strong profit margins and cash flow generation, strengthening our commercial execution and building competitive advantages through harnessing our full suite of capabilities, and living up to our commitment to our company's purpose of feeding connections that help us thrive. The execution of these priorities will help us to continue delivering on our long-term strategy to lead in the best categories, build brands consumers love, and be everywhere. At the halfway point of the year, I am encouraged by the progress we have made against these priorities. We will continue to execute against these priorities in the back half of the year while furthering our focus on the brands and categories that have the greatest growth opportunities over the long term. We continue to benefit from strong demand due to incremental at-home consumption related to the pandemic and achieved a third consecutive quarter of net sales growth above our expectations. Key metrics for consumers purchasing our products improved in the quarter with household penetration Repeat purchasing rate and dollar spent per buyer all having increased versus the prior year and sequentially from the first quarter, showing that many of the new consumers gained during the initial phases of the pandemic have remained with our brands. We continue our efforts to retain these consumers and anticipate many will remain loyal consumers of our brands beyond the pandemic. In the second quarter, we are pleased to have increased our dollar market share in core consumer and coffee segments as well as our cat food business, highlighting the strength of our broad brand portfolio in these categories. In aggregate, we grew share for brands representing roughly half of our sales, and we grew retail dollar sales for over 80% of the portfolio. Thank you for joining us. As consumers are increasingly adopting and maintaining online grocery shopping habits, our sales performance across the company has been supported by the outstanding work our teams are doing to maintain high levels of production. While we are adequately maintaining production to meet customer demand, we are producing at or near capacity at many of our plants. We have experienced an uptick in customer orders over the last two weeks with the resurgence in COVID cases, and we continue to monitor potential supply chain limitations and are taking proactive measures to minimize any potential disruptions that may be caused by a shortage of materials, reliable transportation, or increased demand. Turning to our segment results in pet food, our cat food and market-leading dog snacks business delivered another quarter of net sales growth. Sales for cat food, led by the Meow Mix and Nine Lives brands, grew 9%, representing the 13th consecutive quarter of cat food growth, and our market share improved by over half of a point in the quarter. The dog snacks category continues to experience growth related to increased treating occasions with pet parents spending more time at home with their dogs Translating to net sales growth of 3% for our brands led by Pepperoni, Rachel Ray Nutrish, and Milk Bone. Our dog food sales declined with the largest decreases attributed to Private Label and the Natural Balance brand. Nutrish dry dog food experienced anticipated weakness. However, we are confident that our actions will improve the trajectory of the brand. These efforts include increased marketing investments, enhanced packaging, and improved assortment through SKU optimization and unique innovation launching in the fourth quarter. As a total brand, nutrition sales were up low single digits in the quarter, as increases for wet dog food, dog snacks, and cat food and cat snacks offset the declines in dry dog food. Turning to our coffee business, we delivered net sales growth for all brands in our market-leading at-home coffee portfolio, as total segment net sales increased 9%. We increased our dollar share by a half point and now have over a 25-point share with three of the top 10 brands in the category. Growth was led by Duncan and Café Bustelo with both brands achieving 20% retail sales growth. In the K-Cup segment, we continued to grow at over two times the category rate and gained nearly two share points in the quarter. Over 1.5 million net new households consumed at least one of our coffee brands during the quarter. As new coffee habits have formed during the pandemic, we have the opportunity to retain a substantial portion of these new consumers for the long term. We will support continued momentum with increased marketing investments in the back half of this fiscal year. In our consumer food segment, growth across all categories drove a 12% increase in sales. In snacking, our Smucker's Uncrustables business continued to deliver exceptional growth. Second quarter net sales increased 16%, and the brand gained nearly a full retail share point. We remain on track to add capacity at our Longmont facility in early calendar year 2021, and we have accelerated future capacity plans. We are confident we will be able to continue this strong growth moving forward. In peanut butter, the Jif brand returned to market share growth and has now gained six share points since mid-May, due to replenished product assortment being back on shelf. Growth in the quarter occurred across both volume and dollars, inclusive of a list price increase in August to reflect higher peanut costs related to reduced crop yields. With our full assortment back on shelf, upcoming distribution expansion and innovation, and promotional and marketing programs returning, we anticipate further peanut butter share growth in the back half of the year. Underpinning the improvement in net sales and market share has been strong commercial execution and a continued commitment to financial discipline. Retailer inventories have improved, and we are resuming some investments in marketing and promotions that were delayed as consumer takeaway outpaced available production in certain categories. We plan to increase marketing investments in the second half of the year inclusive of mass media, targeted digital consumer engagement, e-commerce and click and collect programs. We continue to balance return with reinvestment to support our brands and to benefit from structural changes in consumer behavior. I want to highlight one additional critical area of our continued execution improvement during the quarter. While growth through acquisitions has and will continue to play a role in our strategy, we continually evaluate our portfolio and have been willing to divest businesses that are no longer consistent with our strategic focus. We did this with the divestiture of our U.S. canned milk and U.S. baking businesses the past few years. Furthering our plans to exit the U.S. baking category, a few weeks ago we announced the signing of a definitive agreement to divest the Crisco Oils and Shortening business. These divestitures underscore a commitment to further focus our resources on brands and categories with the greatest growth opportunities. As we move ahead, we will continue to evaluate all elements of the portfolio and make changes when necessary to align our portfolio for growth. In summary, I would like to reinforce a few key points. One, our business continues to perform well, and the actions we are taking to deliver our fiscal 2021 priorities are leading to improvement in key metrics, including market share, that position us well for the remainder of the year and beyond. Two, we continue to make progress against our consumer-centric growth strategy, including increased marketing investments to position us for sustained growth even with the future moderation of COVID-19 related demand. And three, I am incredibly proud and thankful to all our employees for their dedication and perseverance through this extraordinary time. I'll now turn the call over to Tucker.