Good morning, everybody. Welcome to the 2025 iteration of the B of A Consumer Conference. We are in Miami for the third year in a row. My name is Peter Galbo. I am the packaged food analyst for B of A. I want to welcome everybody to the conference this year. We are delighted to have the folks from the J.M. Smucker Company back with us this year. Last year, Mark, I think you were receiving an honor in Congress, or you were bestowing an honor in Congress?
One of our retiring government relations leader was getting an honor from Congress.
We're glad you're back.
That's pretty cool. Thank you.
Glad to have you back in Miami, but that's a cool—that's definitely a very cool honor there. With us today, we have Mark Smucker, Chairman and CEO, as well as Tucker Marshall, CFO, both back with us this year. Guys, thank you again for being here. We really appreciate it.
Our pleasure. Thanks for having us.
Mark, maybe just to kick off, you just reported your third quarter. You raised guidance on earnings. You're kind of back to where you thought you'd be from an EPS standpoint at the start of the year, around $10 a share. Tucker, you gave some kind of helpful puts and takes on fiscal 2026 back at CAGNY, some additional thoughts a few weeks ago. We'd just love to get kind of both of your perspectives coming out of the quarter just as a starting point of the discussion.
Yeah, sure, Peter. You know, obviously, we've been in the public here several times over the last several weeks with earnings and CAGNY and what have you. We're actually very pleased with our results. I mean, if you look at, we've delivered both organic net sales growth in total with some net also supported by some pricing growth. We've had strong earnings that have been supported by just disciplined cost management. We've continued to support our brands through our marketing efforts. We are very pleased with the performance. It's mostly driven by our growth brands: Uncrustables, Café Bustelo, Milk-Bone, Meow Mix, and the like. Overall, when you look at our legacy portfolio, it really is supporting growth and the company on Hostess. Obviously, we've been pretty clear that we haven't been satisfied with our performance on Hostess.
Some of that has been some challenges in the category in total, some with our own execution. We feel very good about the plans we have in place and the five pillars that we've outlined to get that brand back to growth and at least starting with stabilizing it. Overall, portfolio is in really good shape. We've worked really hard to get this portfolio where it is today. Now supporting it and growing it is obviously the number one goal.
Yeah, Peter, we outlined at CAGNY our perspectives for next fiscal year. That was in the spirit of being very visible and transparent about the elements that we were considering, particularly on the bottom line, because we have a lot of belief in the fact that we can deliver an above-algorithm year as you consider base business momentum and you work through the benefits of cost and productivity and realize synergies and mitigate stranded overhead and pay down debt. We are also acknowledging that we continue to live and operate in a highly inflationary environment with green coffee costs. We are going to have to continue to navigate this environment through additional pricing actions while also navigating the price elasticity of demand factors that will be a headwind to volume growth year over year.
That was really just in the spirit of outlining how we were thinking about next year. Great, thanks. We are going to get to coffee in a bit. I am sure we will have a lively discussion there. Mark, two kind of higher-level topics I just wanted to touch on with you. First one is tariffs, right? Obviously, it has been in the news quite a bit. Just a broad update in terms of how you are thinking about tariff news, any sort of reciprocal tariffs. You have a not insignificant-sized business in Canada. Just in how those discussions and how you have been thinking about it.
Yeah, so you know I think with any action that would impact us from a government perspective, or regulators, or the current administration, we monitor it all the time. It's changing daily. You know I think we have some exposure, honestly, but at the end of the day, I think we feel confident in our ability to manage through whatever comes our way. I would say that who knows what's going to happen. I think there's a bit of hope that some of the tariffs might be temporary in terms of trying to get countries to come to the table. You know I think we want to manage it prudently. As tariffs do come, not necessarily jump to conclusions right away, but make sure that we're monitoring how the discussions are going between various parties and make sure that we're taking the right actions to support our portfolio.
We might have to take pricing, but until we see, I guess, tariffs that are truly sticky, I think it is going to be—I think we just need to tread carefully before we start to take actions. We want to make sure that we understand what is really coming and what really impacts us before we react.
It's a little bit too early to call it.
It's a little too early to call.
Maybe, Mark, just the second kind of turning more broadly to the rest of the consumer. I mean, we're getting—it feels like a lot of mixed signals across companies in general, some resiliency, some weakness. Just maybe your thoughts on where we are from the overall consumer standpoint in the U.S. and maybe specifically just on the low-income consumer as well.
Yeah, we do view that the consumer continues to be relatively cautious. I think they're being careful in terms of how and when they spend their money. They're being choiceful about the brands they buy. I think we feel really good about our portfolio because we play across the value spectrum. I mean, if you look at pet and coffee, Hostess, all of these categories have products or brands that actually reach a value consumer as well as more premium consumers. Even coffee, I know we're probably going to talk about it in a minute, but coffee is still affordable when you brew it at home versus buying it out at a coffee shop. We do think that our portfolio is really well positioned, but we have continued to see consistency in that cautiousness of the consumer.
I wouldn't say the consumer is struggling necessarily, but it's just being more prudent about how they're spending their dollars, their discretionary dollars.
On the low income, are you noticing any kind of discernible difference overall?
I think it's a little early to tell. I think with gas prices having come down a little bit, it will potentially support a bit of shift with some discretionary impact coming potentially back into snacking. Cautious in terms of predicting that that's going to happen, but I would say we're cautiously optimistic.
Got it. That is maybe a good segue into coffee. It has probably been the most topical area of the business, maybe outside of Hostess. Tucker, we have spent a lot of time talking about flexibility for further pricing with where green coffee costs have moved. Maybe a sense of kind of the building blocks of where we are in coffee, how we should be thinking about it conceptually next 12 to 18 months. Mark, if there is any update in terms of the crop that you have seen coming out of Brazil, that would be helpful to discuss as well.
Yeah. Peter, we continue to navigate an inflationary environment with green coffee. We took two significant price increases in this fiscal year. As we think about next fiscal year, we will have to take additional pricing actions to recover green coffee costs.
Our strategy has always been that we will recover the cost for the dollar cost inflation first because of the nature of the pass-through category. We have consistently done that over the years, both in an inflationary and deflationary environment. For next fiscal year, you can probably expect some net pricing growth at the top line. We are going to see an impact at the volume level just because of the associated price-associated demand factor. Historically, we have been about a 0.5, and we have performed around a 0.5 elasticity. As we move forward, we may have to consider a higher factor just by the nature of this ongoing inflation. We really believe what is driving it are the supply and demand fundamentals with the associated commodity. It is about a fifth-year tight stocks or supply against continued ongoing global demand for coffee.
We do not see any structural changes with the underlying crop. We believe that this is truly cyclical, cycle back over time. Our outlook is not for deflation in the near term, rather continuing to live and operate in this inflationary environment.
Mark, maybe to step a little bit outside of that, I mean, is there a different—there has been obviously a large discussion about cocoa costs, but the coffee farmers, I think, are paid a bit differently. Is there typically a pretty fast supply response from coffee-growing regions when the price does get this high? You will see the farmers kind of plant more quickly.
No. What I would say, coffee trees, right, they do not bear fruit for five years after being planted, right? It is a little bit like grapes, wine, whatever. They are different. If you look at Brazil, Brazil is obviously the largest coffee producer. It is the only country that has large-scale farms that have mechanical harvesting. Everywhere else in the world is all generally small farms. About a hectare is kind of an average. They are very small, and everything is hand-harvested. It is a very manual crop. The supply chain is very long. Obviously, being a traded commodity, there are many factors that obviously drive the price. We have seen usually over our winter months, we see speculation, which is not driven by fundamentals. We are starting to get into a period as the harvest is coming in where fundamentals theoretically drive more of the markets, the market pricing.
Because it is such a long supply chain, it is hard to read. We are waiting to see how the crop continues to come in. Some of the mixed signals that we were getting around the crop are obviously led by Brazil. Those signals were they got the rain that they needed, but the rain came too late. That is what drove some of the coffee trading houses predicting lower crops. We are at a point now where we need to get deeper into the harvest to really understand the absolute size of the coffee crop. I think Tucker touched on this. It is important for us to continue to use all of the financial, the derivatives, the futures, to use all the financial instruments available to us to manage our actual coffee costs so that we can deliver our financial results.
That is really what we remain focused on. We do have offices, coffee intelligence offices. They are not trading offices, but boots on the ground in both Brazil and Vietnam. We do, obviously, ear to the ground, trying to understand and work with the farmers, work with the trading houses to understand what the crop is really doing. At the end of the day, it is all about making sure that we are managing the cost to deliver our financial goals.
Mark, one of the interesting things that I think we looked at and have had conversations with Tucker and the team about in kind of the past two coffee super cycles, whatever you want to call them, in 2012 and 2023, that elasticity factor that Tucker mentioned kind of was the case. It was roughly a 0.5. I guess the question we get a lot of is, in these really inflationary periods of green coffee, do you see a lot of that trade-in from the away-from-home coffee to at-home? Has that been your experience in what you've seen in the data, or is that more of a predictive for this time around what you're expecting at all?
We haven't seen it in the data, but what is encouraging is that the amount of coffee that is consumed at home, the number of cups consumed, has been very consistent in that 70%-plus of cups consumed remain at home. I think one of the trends that we've been seeing, particularly with Gen Z and some millennials, is a tendency to actually try to replicate their favorite coffee shop drinks at home. If you look at some of our liquid offerings in Café Bustelo in particular and in Dunkin', those liquid offerings really support that trend because mixing pre-brewed liquid or cold coffee with creamer and sugar at home or even with frothed milk or cream is something that we are seeing consumers do at home because it's affordable. Now the tools and the pre-brewed coffee are available to them.
We feel very good that our portfolio continues to be positioned very well and to really capitalize on those trends and make sure that we can keep the at-home coffee consumer in our portfolio.
The most interesting one that we've seen recently is the ready-to-drink protein shakes being used as a creamer for the cold coffee. You get the protein in coffee, right? Like we're all trying to consume.
Sounds like something Tucker would do.
Yeah. Mark, that's a great segue maybe into Bustelo. It's been such a growth driver for coffee. Maybe you can just dig into why the brand is kind of seeing this level of growth and kind of the plans you have in place. I think you introduced some new innovation at CAGNY, but kind of how do you sustain the momentum for Bustelo?
Yeah, I mentioned the liquid. I think that's really important. Even the base business, we've quadrupled the brand since we acquired it in 2011. It's an amazing brand. The history, very briefly, is Cuban family here in Miami had the Pilon brand. They acquired the Bustelo brand from a family in New York. Bustelo began in New York. They did a nice job sort of establishing Bustelo and Pilon as a sort of a true Latino brand in both the Northeast and here in South Florida. What's special about Bustelo is the branding, the packaging, the retro feel, and the fact that it's rooted in that authentic Latin culture has really been the critical aspect of the brand.
I mean, the characteristics of the product are that it is very strong, very dark roasted espresso ground coffee that stands up to lots of cream and sugar. Just that authentic heritage with the bright yellow package and Angelina Bustelo, who is the character on the package, really speaks to younger consumers, particularly Gen Z and millennials. That is where we are seeing a lot of growth and then the multicultural as well. Having now begun to do real advertising, we have created an entire animated world where a very authentic Latin vibe exists, and that continues to push the brand out. All of the marketing is bilingual, so everything appears in Spanglish or in both Spanish and English. Really keeping the product true to its roots and the brand true to its roots is really what has helped to drive it.
Great. Maybe we can move on to Hostess. We talked a little bit about some of the executional issues as the integration has kind of been ongoing. Maybe, Mark, you can just talk a little bit about some of the learnings and what specifically you're kind of doing from an execution standpoint to drive improvement.
Yeah, sure. We talked a little bit recently on the call that we still feel really good about the brand and its potential. The divestiture of the Voortman business as well as the value brands of that portfolio allow us to focus, right? That was part of one of the pillars, evolving the portfolio really to maintain that focus on Hostess, on the brand. I mentioned earlier, we did see some softness in the category in total. The convenience channel was part of that. I will say that as we work very hard to stay with that brand, the integration is complete. Although we had some executional hiccups, we're largely through those, and we're continuing to make sure that our distribution network is solid. Expanding distribution, both in traditional grocery as well as convenience, has been important. Driving revenue synergies is important.
That has a lot to do with Uncrustables and getting Uncrustables into convenience. That's going well early. Ultimately delivering the base business. I mean, at the end of the day, we have to continue to execute. We're turning on marketing in actually this month. I know you guys have seen some of that at CAGNY. It should be actually on air here in the next couple of weeks. Really continuing to support the brand and getting that brand stable. As we get into new, there's new mod resets coming in traditional grocery. That should also support the brand as well, along with innovation, limited-time offering. It's a lot, but it's kind of all of the above is going to be required to make sure we get that brand back to growth.
In terms of the leadership change that you've brought into Hostess, just what are the learnings maybe from the pet side that's being brought over to try and improve on Hostess?
The leadership change in a nutshell was all about driving execution across those pillars that I just mentioned. That's plain and simple. That's what it's about. When we transformed the pet portfolio, Judd was the Vice President of Marketing under Rob Ferguson, who's now on coffee. Those two individuals were instrumental in making the tough decisions required on the portfolio as well as the investment choices on pet to really get that brand back to growth and ultimately double the profitability, at least double the margins because of all of the decisions that we made. Given the track record that Judd has and the momentum that he has been able to sustain in pet, gave us the confidence that he is the right leader to manage through a lot of these issues on Hostess and really bring that brand back to growth.
Just on innovation that's coming, and I think you said you're going to turn on some marketing in Hostess, just kind of what expectations do you have for the new products with Hostess and kind of where are you kind of prioritizing the investments?
Yeah, innovation is really important on Hostess. One of the things that the Hostess team does really well is fast-cycle innovation. They have demonstrated an ability to lean in and get new innovation in a relatively short period of time, sometimes as short as six months from concept to commercialization. The mini cupcakes and the fritter rings are two of the ones we talked about. Obviously, the fritter rings is a play on donuts, but with sort of a country fair kind of vibe with the fritter rings, and they're really tasty. The mini cupcakes are great because it's about portion size. If people are seeking for a bit of something sweet, maybe don't want a whole cupcake, obviously the portion size plays to that.
We are really going to continue to drive that type of innovation because we think that the consumer is going to continue to seek smaller pack sizes.
Tucker, maybe just one last one on Hostess. On synergies, I think you are actually coming in this year higher than your initial expected $50 million. Maybe you can just remind us kind of on the cadence of synergies and how you think about the incremental opportunity next year.
Yeah, absolutely. We are on track to realize $100 million in synergies, which was our objective at the time of acquisition, which is great. At the end of this fiscal year, we will have achieved $70 million of that $100 million, so about $20 million more than we anticipated for this fiscal year, which will leave a balance of about $30 million for next year, fiscal year 2026.
Great. Okay, Mark, now on to everyone's favorite, Uncrustables. If you haven't seen, we do have some offerings in the back there, the chocolate hazelnut, the raspberry, the new innovations. The raspberry ones are.
Awesome.
If you haven't seen the photos of them in Mike Dick's Cagni email, I think that was everyone's favorite recap part of it. Mark, you know, look, the business is on track to do $900 million plus of revenues this year. I think we've talked about the opportunity for a billion next year now that the McCalla facility is up. Where do we kind of go from here? McCalla is only in phase one. What's the incremental opportunity once you get a phase two up? Any parameters we can put around kind of where that might be?
We definitely think there's growth beyond a billion. We have not laid out a number specifically on that, but I mean, I believe, I know the team believes there's significant upside. I think at some point in the future, we will provide a bit more clarity on that. What I will say about McCalla is that first phase is complete. There's a second phase planned. All of that supports growth beyond a billion. Obviously, the marketing, the advertising is new as of about a year ago, so that is clearly supporting the brand. Lots of new innovation. There's a mixed berry coming. I think we've talked about that publicly, which would be like a limited-time offering.
We are going to be able to cycle through potentially some LTOs as well as more permanent SKUs like the raspberry and really feel good about the potential for the brand, even in core peanut butter as the foundation of the brand. Still lots of growth in terms of the size of the shelf set, in terms of the top line growth. We have talked about how long it took us to figure out how to make these things in a profitable and mass-produced high-quality way. Now that we are doing that, we can really fire on all cylinders and drive the growth.
Tucker, is there incremental CapEx we should start to think about conceptually for a phase two, or is that kind of in this year as we think about going forward on a phase two build?
Yeah, so when we laid out McCalla, it was an accessible $1 billion investment several years ago. We knew it'd be a multi-year journey as we built out not only the facility, but also the phases within the facility. As Mark acknowledged, we're finished with that first phase. When we think about capital, it's already been planned in our long-range plan and our commentary as well about it's going to take us several years to get down to that strategic objective of 3.5% of net sales was where our capital expenditure target. It will continue to be elevated in 2026 and 2027, but it will come down as a percentage.
Great. Mark, maybe just on the pet, I want to get perspectives on the treats category, which I think has been just weaker as a whole across the spectrum. Just what have you seen so far in terms of what's been effective to drive any sort of incremental purchases? What are your perspectives on just why the category has been as weak as it has?
Because it is discretionary, like human snacks, that is the primary reason why we have seen a bit of softness with the conscious consumer that we talked about earlier. That said, what has buoyed our business is innovation and the affordability of the base product. If you look at base biscuits, it is still a very affordable way to reward your dog. The innovation has performed very well. We have talked a lot about the Jif peanut buttery bites, which actually have real Jif in them. Those executions are great. If you think about all the different types of treats, Milk-Bone plays in just about every segment, whether that is the soft and chewy, the biscuits, the longer-lasting chews, all of those things are areas that Milk-Bone has the right to play and does.
I think just to acknowledge we had a bit of a softer quarter, but that was driven by some supply chain disruption that we had on the brand, which we're past now. We are back to production and getting back into full distribution in this quarter, which is our fourth quarter. All of that would continue to drive the brand. I still feel really good about Milk-Bone, even despite we're seeing a little bit of a cautious consumer. If we continue to execute on the fundamentals and innovate, we'll see that brand continue to grow.
Mark, maybe just to the other side of the portfolio, cat food's been a real point of strength. Opportunities that you kind of see still in expanding wet cat outside of the dry cat food business and just kind of how you can really tap into that further.
First of all, on Meow Mix, the base brand is doing exceptionally well. That's also just the base portfolio as well as innovation. The Gravy Burst we launched was sort of a play on both wet and dry together. That's actually performing very well in market. We do play in the wet cat space. Obviously, we're not the leader, so we do think there is growth on wet cat, and we will continue to drive that and continue to innovate as well in wet cat.
Just a few more before we, I want to make sure we have enough time for some questions. Tucker, at CAGNY, we kind of went back through the long-term algorithm, your free cash flow guidance. You're still sticking to the reaching kind of a billion free cash flow target. Just what kind of are the puts and takes there from a growth driver perspective, cost efficiency that's going to help you get there? And kind of how achievable is that goal just given all the uncertainty that we're seeing in the market?
Yeah, we remain committed to delivering a billion dollars more in free cash flow. That is all in support of reinvesting in the business and also returning cash to shareholders. When you think about the strength of our portfolio, what is going to drive that and give confidence is just, A, the base business growth or momentum. B, you have the opportunity to sharpen the pencil within working capital, improve turns. You also have the opportunity to see capital expenditures come down as we begin to get on the other side of capacity expansion for Uncrustables. As we return back to that 3.5%, that will all support free cash flow generation. I think too our priority in the near term is to support the quarterly dividend, but also strengthen the balance sheet through debt paydown while maintaining our current investment-grade debt rating.
Then over time, as we get beyond FY2027, where we realize that three times leverage or below, that also brings back the concept of share repurchases as well, which just inures to the balanced capital deployment model that we so desire to have.
As a reminder, Tucker, this year you're $800 million of debt paydown, and it's another kind of $500 million over the next couple of years?
That's correct.
Great. Mark, just last one. One of the big questions we get about the Smucker's portfolio, it's been this journey over the past five years to kind of optimize. You haven't been shy about moving, whether that's selling or acquiring. Do you kind of feel like now you have the right pieces in play? You're fully kind of transformed in the model you want to be? Do you see kind of further portfolio reshaping going forward?
I'd answer that in two ways. I would say, first of all, we're really happy with where our portfolio is right now. I mean, we've taken steps in each, if not all, but most of our core businesses in terms of getting that right. Really happy with the portfolio where it sits right now. Obviously, you've heard us talk about all the different things that we have in the hopper to continue to work on that, whether that's innovation and really continue to be focused right now on driving organic growth. That's where we need, obviously, we're fairly levered, which we're working really hard to de-lever. We're really focused on the organic growth at the moment. That's the first part of the answer. The second part is we're never done.
To the extent that we can continue over time and potentially a bit farther in the future to continue to add to our portfolio where it makes sense, we would consider that. Rest assured that for this moment in time, our focus remains on organic growth.
Great. We have a little over five minutes for questions. If anybody in the audience has any questions, please, there is a mic going around. I think Bryan is going to give us our first one.
All right, thanks. Thanks. I guess first question too, actually. One is just, Mark, there's been a lot of press covering the change in government administrations and maybe what the attitudes may be relative to the food industry. I don't know, early thoughts in terms of what you've seen and heard and should we be worried about things like ingredient changes or changes to government feeding programs? Just where does it stand on the risk spectrum?
The short answer is it's early, right? We don't know a lot, there hasn't been new regulations put out. We continue to engage with, obviously, the administration and the various regulatory bodies in Washington. I spend a fair amount of time in Washington. We have always had really good relationships with policymakers. I think I'm actually hopeful and I'm cautiously optimistic that continuing to nurture those relationships will allow us to work with the various bodies in Washington and come up with, I think there's a willingness on both sides to listen and to try to work together to come up with, if there are changes, things that make sense for both the consumer and our industry. We have a long history of working with policymakers and regulators. I feel that that constructive dialogue will continue.
Feel like there's opportunities for things to change, like putting aside nothing is perfect, right? Is this an opportunity to actually maybe change some things that you hadn't really thought of now that we're kind of opening the page?
You know, one of the things that we will continue to advocate for is if there are new rules or new regulations that we would really advocate for regulations at the federal level versus state by state, whether those are ingredients, labeling laws, whatever, anything like that. As you know, states often try to put out separate bills. I think what we're focused on as an industry and with the association, the Consumer Brands Association, is really trying to work at the federal level to get rules and regulations that apply across the country. I think that creates a much more level playing field and keeps costs manageable.
Thanks. That's helpful. Maybe just one last one. You think about the channels in the U.S. that are outperforming other channels, right? It's larger, it's Walmart, Costco, Kroger. The shift is to maybe larger, more efficient retailers and away from maybe some of the less efficient retailers, especially efficient in terms of your ability to serve consumers. To the extent that this changes, that open up more opportunities, whether it's in terms of working capital or cash flow or margins, if retailer is more efficient, is that a kind of a different world for you?
I don't know if you have anything. Yeah. We work really well with all of them. And we have really good relationships with our retail partners. I think you've seen, I mean, I think there was an article in The New York Times or in the Sunday Times about one of the larger ones, which we all know who that is, and their ability to strengthen an online business that is beneficial in terms of home delivery. I think there's been retailers that have succeeded in that home delivery model, I think have really done very well. And there's actually a few of them that are doing that very well. And then we want to try to work fairly with each of them. And obviously, we have an obligation to do that.
Where we can punch above our weight in terms of the brands that we have and the relationships that we can build, I think that allows us to be a better competitor and ultimately win in an industry that is ultimately super competitive. I think those relationships and really brand support and category expertise allow us to strengthen our relationship with all retailers.
Brian, I would add to one of our objectives every year is to build share-winning or gaining plans with each one of our retailers, right? You have got to sort of skate to where the consumer is shopping. That has always been a key component of our strategy. When we do that, it enables us to have the right partnership with the retailer and to make sure that we are managing both growth and cash flow for the company with said retailers. That has always been our strategy and will continue to be our strategy.
Great. We probably have time for one more if there's any other. Okay. We'll leave it there. Mark, Tucker, thanks guys for kicking off the conference. Really appreciate it.
Thanks, man. Thank you.