The J. M. Smucker Company (NYSE:SJM) Q2 2023 Earnings Call Transcript

Peter Galbo : Okay. And then maybe if we could just talk a little bit about coffee. Coffee costs, I think green coffee costs have started to roll over. And so just seeing the change that Andrew brought up on the gross margin side, understanding there’s a bit of timing. But when might we expect some of that benefit if coffee prices have rolled to kind of start to flow through and impact the gross margin?

Mark Smucker : Peter, it’s Mark. Thanks for the question. Just as we always say on coffee, we — it’s largely a pass-through category, and we will pass through cost increases or decreases at the time that we realize them. And so although we are not transparent with our hedging practices, we do take a very prudent approach to how and when we pass those costs through. I guess I would also just highlight that our strategy has been to ensure that we are recovering dollar-for-dollar cost. That continues to be the case. And so as we did lead on the way up in pricing, we have now seen and continue to see competitive price gaps close and the performance of our portfolio in aggregate has been satisfactory. Obviously, the solid top line growth, continued share growth as well as our ability to meet consumers across the entire value spectrum continues to be very important.

Tucker Marshall : And Peter, I also want to remind you that the first and second quarters for the highest green coffee costs year-over-year for us and then it begins to moderate in the third and fourth quarters. As such, you should anticipate the margin profile within our coffee business to improve as we continue to work through the second quarter and into the fourth quarter as we step into those year-over-year changes.

Operator: Next question today is coming from Ken Goldman from JPMorgan.

Ken Goldman : Can we just get a little bit of a clearer sense of what your marketing dollars are expected to look like in the third quarter versus the fourth quarter just because there’s such a shift? It might help us sort of model that a little more cleanly. And then I guess I’m curious, where do you expect in terms of categories or brands for some of these dollars to go in the back half of the year?

Tucker Marshall : Ken, good morning. Just acknowledging that we remain committed to reinvesting in our business and building our brands, we continue to support a 5.5% spend of net sales against our marketing budget. And just acknowledging there was some timing favorability in the second quarter that is trending into the third quarter. We will be slightly above that 5.5% in the quarter as you think about modeling and the flow for the year.

Ken Goldman : You raised your outlook for earnings, but not for CapEx or free cash flow. So what’s incrementally negative in operating cash flow that’s perhaps offsetting that expectation for higher net income that will keep free cash kind of constant versus your prior expectation?

Tucker Marshall : Ken, so we maintained our capital expenditure outlook at $550 million for the fiscal year. Again, the predominance of that is in support of our strategic growth around the Uncrustables brand. And then acknowledging we did not take our free cash flow guidance up. That was largely due to an additional estimated cash tax payment that we forecasted in for the fiscal year.

Operator: Next question is coming from Robert Moskow from Credit Suisse.