The J. M. Smucker Company (NYSE:SJM) Q3 2023 Earnings Call Transcript

The J. M. Smucker Company (NYSE:SJM) Q3 2023 Earnings Call Transcript February 28, 2023

Operator: Good morning, and welcome to The J. M. Smucker Company’s Fiscal 2023 Third Quarter Earnings Question-and-Answer Session. This conference call is being recorded and all participants are in a listen-only mode. Please limit yourself to two questions and re-queue if you have additional questions. I will now turn the conference call over to Aaron Broholm, Vice President, Investor Relations. Please go ahead, Aaron.

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Aaron Broholm: Good morning, and thank you for joining our fiscal 2023 third quarter earnings question-and-answer session. I hope everyone had a chance to review our results as detailed in this morning’s press release and management’s prepared remarks, which are available on our corporate website at jmsmucker.com. We will also post an audio replay of this call at the conclusion of this morning’s Q&A session. During today’s call, we may 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. Additionally, we use non-GAAP results to evaluate performance internally.

I encourage you to read the full disclosure concerning forward-looking statements and details on our non-GAAP measures in this morning’s press release. Participating on this call are Mark Smucker, Chair of the Board, President and Chief Executive Officer; and Tucker Marshall, Chief Financial Officer. We will now open up the call for questions. Operator, please queue up the first question.

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Q&A Session

Operator: Certainly. The question-and-answer session will begin at this time. Our first question today is coming from Peter Galbo from Bank of America. Peter, your line is now live.

Peter Galbo: Hey, Mark and Tucker. Good morning. Thanks for taking the question.

Mark Smucker: Good morning.

Peter Galbo: I was wondering if we could just start maybe on the gross margin. The implied acceleration into the fourth quarter is pretty meaningful just to hit kind of the full-year number I think, north of 35.5% in 4Q. And just, one, I feel like that’s maybe being driven by coffee. I just want to understand kind of what are the drivers of that in the fourth quarter. But then also just as we think about that exit rate into 2024, if there’s any considerations there as using that as kind of a base as we get into next year.

Tucker Marshall: Peter, good morning. So as you know, in our prepared remarks this morning, we reaffirmed an approximate 33.5% gross profit margin for the full fiscal year. And we have seen sequential improvement in our gross profit margin, each of the consecutive or sequential quarters, with the fourth quarter being our strongest. And yes, you are correct, that is largely due to us getting into the coffee best margin of its four quarters in the fourth quarter. As it relates to next fiscal year, we have talked a little bit about what the puts and calls are as it relates to margin improvement. And I guess what I would just say is this. One is we’ll continue to see the benefits of volume/mix going forward. We will see the benefit of lapping the Jif peanut butter product recall.

We will also see a moderation of cost inflation as a benefit, along with stabilization and supply chain and manufacturing environments, along with benefits coming from our transformation office and then also, over time, the benefit of the divestiture after addressing stranded overhead.

Peter Galbo: Got it. Thanks Tucker for that. And then maybe just as a follow-up, Mark, I guess, in cat food, in particular, it seems like you would have grown more if not for some of the Meow Mix supply chain constraints, I think that maybe was new this quarter. It seems like maybe you’re through the worst of that, but I was just hoping you could address the comments in the prepared remarks and just what you’re seeing with Meow Mix on a go forward. Thanks very much.

Mark Smucker: Sure, Peter. Yes, as we’ve been pretty consistent over these past couple of years, we’re talking about the supply chain, in general, our strong ability to manage through some of the disruptions and just acknowledging that there €“ the supply chain still is a bit fragile and it varies by quarter or month in terms of where some of that fragility might be. We have experienced some supply disruption in our Meow Mix business, which we are working through in the third quarter as well as the fourth quarter. But we do acknowledge as also temporary and that we will work through that, and we would have expected to continue with the double-digit run rate growth on Meow Mix. But again, just reiterating that it is temporary. And over the next several months, we should be able to work through that.

Tucker Marshall: And Peter, in support of what Mark shared, Meow Mix for the quarter was up 6%. As you said, we would have anticipated absent the manufacturing disruption to be up double digits. But I do want to acknowledge that the wet portion of the portfolio continues to perform quite well and grow. Really, the disruption right now is on the dry cat food side of the portfolio.

Peter Galbo: Great. Thank you.

Operator: Thank you. Next question is coming from Andrew Lazar from Barclays. Your line is now live.

Andrew Lazar: Great. Thanks. Good morning.

Mark Smucker: Good morning.