The J.M. Smucker Company

And welcome to the J.M. Smucker Company's Fiscal 2021 Fourth Quarter Earnings Conference Call. This conference is being recorded and all participants are in 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 conference over to Aaron Broholm, Vice President, Investor Relations. Please go ahead, sir.

Good morning, and thank you for joining us for our fiscal 2021 fourth quarter earnings conference call. In a moment, Mark Smucker, president and CEO, will give an overview of the quarter's results and an update on our strategic initiatives. Tucker Marshall, our CFO, will then provide a detailed analysis of the financial results and our fiscal 2022 outlook. During today's call, we will 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. I encourage you to read the full disclosure concerning forward-looking statements in this morning's press release, which is located on our corporate website at jmsmucker.com. We also posted a slide deck summarizing the quarterly results, including additional information regarding net sales by segment and cost of products sold for fiscal 2021. Included in the slide deck are schedules summarizing net sales, including divestitures for fiscal years 2019 through 2021. The slides will be archived on our website along with a replay of this call. Additionally, Please note we use non-GAAP results to evaluate performance internally as detailed in the press release. 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. Fiscal 2021 was a year like no other. In the face of unprecedented challenges, we delivered outstanding results. Moreover, we believe the business is at an inflection point, and we are delivering against our strategic and executional plans. We are emerging from the pandemic, along with Recent Strategic Actions, a much stronger company. From the outset of the pandemic, we prioritized the well-being of our employees, funded relief activities for our communities, and produced a record amount of product for consumers and their pets. Our people are resilient and moved with speed and agility to adapt our business, all while executing our consumer-centric growth strategy and making progress toward our four execution priorities. These are driving commercial excellence, streamlining our cost infrastructure, reshaping our portfolio, and unleashing our organization to win. These priorities are essential to position our company for sustainable long-term growth. I'll first share some examples of the progress we are making toward our priorities before turning to a few highlights from the fourth quarter and our fiscal year 2022 outlook. Our first execution priority is driving commercial excellence. Throughout the past year, significant changes in our industry demanded a rethink of CPG commercial models. We adapted our approach to deliver what customers and consumers need and want more efficiently. These changes included standing up a new sales model with two distinct teams, one focused on PET and the other on our consumer foods and coffee businesses. The benefits from improved in-store execution and leveraging insights combined with additional advertising and improved reach through new digital media models have been a driving factor for our market share gains. Our new commercial delivery model also includes an increased focus on e-commerce, which for the full year accounted for 12% of our U.S. retail net sales. These investments in our commercial capabilities provide a competitive advantage as we partner with retailers. They also enable seamless and highly targeted consumer experiences from awareness to purchase and strong repeat purchasing. Consumers remained loyal to our brands as we maintained the 1 million net new households gained in the prior year while dollars per buyer increased 10%. Over the past year, we increased our marketing investment by nearly $40 million, or 8%. Most importantly, we significantly improved our market share performance, where today 55% of the brands in our portfolio are growing market share, versus 26% 18 months ago. This is the sixth quarter of sequential share performance improvement for our portfolio. We also made significant progress on our second priority to increase focus on profitability and cost discipline. We restructured our corporate support functions, leading to a more lean and agile organization while continuing to optimize our supply chain and maximize network production efficiencies. Full implementation of these initiatives will deliver $50 million of incremental cost savings in each of the next three fiscal years. One example where we are driving efficiency in our supply chain is with our high-growth Dunkin' Coffee. The pandemic-driven surge in demand required us to increase agility and decrease production downtime and changeover. This led to operational efficiencies and incremental capacity for our coffee production, which supported 21% sales growth for the brand this year. Our third execution priority to reshape our portfolio supports our strategy of leading in the best categories. We made excellent progress reshaping our portfolio this year, having completed our exit of the U.S. baking category with the sale of the oils and shortening business following prior divestitures of the U.S. baking mix and condensed milk businesses. In the pet business, we divested the specialty channel exclusive Natural Balance brand. These decisions show our commitment to divesting brands and businesses that are no longer consistent with our long-term strategic focus. In turn, this allows us to optimize assortment to maximize productivity, reduce complexity, and shift resources to our fastest growing opportunities. We continue to evaluate opportunities to increase our portfolio's focus in the pet food, coffee, and snacking categories. Further, acquisitions will remain a part of our strategic growth, and we will be prudent when considering them, ensuring we focus on appropriate multiples paid and financial returns in their evaluation. Our fourth execution priority, unleashing our organization to win, powers the first three priorities. The strength of the Smucker culture has always been a unique differentiator in achieving growth and is a critical component of our future. With the impact of my new leadership team and through the additional organization changes implemented this past year, we are more lean, agile, and focused on delivering with excellence and winning in the marketplace. We're also increasing our focus on becoming a more inclusive and diverse company at every level of the organization. These four priorities are critical to ensuring we maintain our momentum, and we're critical to our record fiscal 2021 results with full-year net sales increasing 3%. Net sales grew 5% when excluding the prior year sales for divested businesses and foreign currency exchange. Fiscal 21 adjusted earnings per share was $9.12, an increase of 4%, exceeding our most recent guidance range of $8.70 to $8.90. Free cash flow was $1.26 billion. above our most recent expectations of $1.1 billion. Our strong financial performance accelerated elements of our capital deployment strategy to support increased shareholder value. We returned $1.1 billion of capital to shareholders this year in the form of dividends and share repurchases. We increased our dividend for the 19th consecutive year and through share repurchases, reduced our shares outstanding by approximately 5% on a full year basis. And we repaid over $860 million of debt during the fiscal year, strengthening our balance sheet to provide flexibility for a balanced approach to reinvesting in the business and returning cash to shareholders. Turning to the fourth quarter, We delivered results ahead of our expectations while accelerating investments for future growth. Net sales declined 8% versus the prior year. Excluding the non-comparable net sales from divestitures and foreign exchange, net sales decreased 3% due to lapping the initial stock-up surge related to the COVID-19 pandemic. As we are lapping the COVID-19 related demand in the prior year, we believe evaluating results over the prior two-year period is more meaningful. Adjusting for divestitures, net sales grew at a two-year CAGR of 4%, demonstrating growth across all three of our US retail segments. Fourth quarter adjusted earnings per share declined 26%, primarily driven by the decreased sales, $40 million of incremental marketing investments, and higher costs, partially offset by higher pricing. Turning to our segment results, in pet food, we anticipated sales to be down due to lapping stock-up purchasing in the prior year. Net sales, excluding sales for the divested natural balance business, decreased 6%, and demonstrated growth on a two-year basis. While pet food consumption was not materially impacted by at-home versus away-from-home eating trends, as in other categories, the pandemic did impact how consumers shop for their pets, such as accelerated growth in e-commerce channels. Also, the total U.S. pet population grew by an estimated high single-digit percentage this past year, with new pet parents showing a willingness to spend more for their pets compared to historical trends. We expect top-line growth on a comparable basis for the pet business in fiscal 22, supported by higher pricing, category growth, continued marketing support, and innovation for our leading treats portfolio and premium food offerings. Turning to our coffee business, Net sales were comparable to the prior year, despite lapping the COVID-19 stock-up purchasing, and demonstrated growth on a two-year basis. Consumer adoption of K-Cups continues to grow, with 3 million incremental households purchasing a Keurig machine last year. In the last 52 weeks, retail sales of our brands grew 17%. This was over twice the category rate, and we gained over a point of share. Our share gains further accelerated in more recent periods as all our brands continued to grow, including Folgers. Café Bustelo and Dunkin' are the two fastest-growing brands in the coffee category. Over the last 52 weeks, Café Bustelo retail sales grew 21% and Dunkin' grew 16%. The Duncan brand, representing $1 billion in all-channel retail sales dollars, was a top share gainer in the coffee category, growing nearly triple the total at-home coffee category rate in measured channels over the last 52 weeks. The Folgers brand gained 3 million new households at the height of the pandemic and has the highest repeat rate of any brand for new households gained during the pandemic. We will continue to build up this momentum with initiatives to reinvigorate the iconic brand rolling out in the second half of fiscal year 22. As new coffee habits form during the pandemic, we anticipate retaining a substantial portion of these new consumers for the long term. In our consumer foods business, Net sales decreased due to the Crisco divestiture and increased 1% on a comparable basis and reflected strong growth on a two-year basis. Smucker's Uncrustables frozen sandwiches continue to deliver exceptional growth, with net sales and household penetration each increasing 16% in the quarter. For our combined U.S. retail and away-from-home segments, The Incrustables brand delivered nearly $130 million of net sales this quarter, recording its 28th consecutive quarter of growth. The brand delivered over $400 million of net sales this year and is on track to exceed our $500 million target in fiscal year 2023. Across our retail businesses, we delivered strong financial results this year, while significantly increasing investments in our brands, strengthening our balance sheet, and returning cash to shareholders, all of which are key building blocks for supporting long-term growth and increasing shareholder value. I'll briefly touch on the current supply chain and cost environments. Our operations have run efficiently, and we have had no material disruptions to date. We continue to monitor global supply chain challenges, specifically as it relates to the availability of transportation, labor, and certain materials. Broad-based inflation is impacting many of the commodities, packaging materials, and transportation channels that are important to our business. We are mitigating the impact through a combination of higher pricing inclusive of list price increases, reduced trade, and net revenue optimization strategies, as well as continued cost management. We have recently implemented net price increases across all business segments, with most becoming effective during the month of July. Let me now provide additional details on our outlook for fiscal 2022. As the U.S. emerges from the pandemic, we believe elevated at-home consumption for our brands will continue into fiscal 2022. Our confidence is supported by the increased pet population, elevated work from home benefiting breakfast and lunch occasions, and consumers' investments in at-home brewing equipment. Lapping sales from divested businesses will have a material impact on year-over-year net sales growth in fiscal 2022. When excluding the non-comparable net sales, we anticipate top-line growth supported by higher net pricing, the continued momentum of our brands, and a significant recovery in our away-from-home business. Year-over-year earnings per share is expected to decline. The growth in comparable sales and benefits from cost savings programs are anticipated to be more than offset by the impact of higher costs and the timing of pricing actions, as well as the loss of earnings from divestitures. On a two-year basis, we expect growth for both comparable net sales as well as adjusted EPS as we continue to demonstrate underlying growth for the business. Finally, as we emerge from the pandemic with a heightened focus on health and wellness, we remain dedicated to having a positive impact on our employees, our communities, and our planet. This includes supporting the quality of life for people and pets, strengthening the communities we serve both locally and globally, and ensuring a positive impact on our planet with a focus on sustainable and ethical sourcing. We look forward to sharing more details, including the achievement of our 2020 environmental targets and information regarding our new ESG goals when we release our corporate impact report this summer. In summary, I would like to reinforce three key points. First, we continue to deliver strong financial results. and our actions to deliver our priorities are leading to improvement in key metrics, including market share, that position us well for the future. Second, we are reshaping our portfolio to increase our focus on faster growth opportunities within pet food, coffee, and snacking. And finally, we are sharpening our focus on cost management and becoming a more efficient and agile organization. We are exiting this pandemic a stronger company, and our actions taken over the previous year support consistent delivery of long-term growth and shareholder value. This will be achieved by leveraging our strong portfolio of brands and world-class commercial capabilities, all of which are powered by our unique culture and dedicated employees, who I would like to thank again for their outstanding contributions. I'll now turn the call over to Tucker.