U.S. markets close in 2 hours 28 minutes

Edited Transcript of SJM earnings conference call or presentation 26-Feb-20 1:30pm GMT

Q3 2020 J M Smucker Co Earnings Call

ORRVILLE Mar 10, 2020 (Thomson StreetEvents) -- Edited Transcript of J M Smucker Co earnings conference call or presentation Wednesday, February 26, 2020 at 1:30:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Aaron Broholm

The J. M. Smucker Company - VP of IR

* Mark R. Belgya

The J. M. Smucker Company - Vice Chair & CFO

* Mark T. Smucker

The J. M. Smucker Company - CEO, President & Director

* Tucker H. Marshall

The J. M. Smucker Company - Senior VP & Deputy CFO

================================================================================

Conference Call Participants

================================================================================

* Alexia Jane Burland Howard

Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst

* Andrew Lazar

Barclays Bank PLC, Research Division - MD & Senior Research Analyst

* Bryan Douglass Spillane

BofA Merrill Lynch, Research Division - MD of Equity Research

* Christopher Robert Growe

Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Analyst

* David Driscoll;DD Research;CEO;Founder

* Faiza Alwy

Deutsche Bank AG, Research Division - Research Analyst

* John Joseph Baumgartner

Wells Fargo Securities, LLC, Research Division - VP and Senior Analyst

* Jon Robert Andersen

William Blair & Company L.L.C., Research Division - Partner

* Kenneth B. Goldman

JP Morgan Chase & Co, Research Division - Senior Analyst

* Pamela Kaufman

Morgan Stanley, Research Division - Senior Analyst

* Robert Bain Moskow

Crédit Suisse AG, Research Division - Research Analyst

* Robert Frederick Dickerson

Jefferies LLC, Research Division - MD & Senior Research Analyst

* Scott Andrew Mushkin

R5 Capital Ltd - Founder & CEO

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good morning, and welcome to The J. M. Smucker Company's Fiscal 2020 Third Quarter Earnings Conference Call. This conference is being recorded. (Operator Instructions) I will now turn the conference over to Aaron Broholm, Vice President of Investor Relations. Please go ahead, sir.

--------------------------------------------------------------------------------

Aaron Broholm, The J. M. Smucker Company - VP of IR [2]

--------------------------------------------------------------------------------

Good morning, and thank you for joining us for our fiscal 2020 third 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 priorities. Mark Belgya, Vice Chair and CFO, will then provide detailed analysis of the financial results and our fiscal 2020 outlook. Also joining us for our Q&A session following the prepared remarks is Tucker Marshall, Senior Vice President and Deputy CFO.

During today's call, we will make forward-looking statements that reflect the company's 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.

Additionally, 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 and fiscal 2020 full year outlook. The 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.

--------------------------------------------------------------------------------

Mark T. Smucker, The J. M. Smucker Company - CEO, President & Director [3]

--------------------------------------------------------------------------------

Good morning, everyone, and thank you for joining us. It was great to see many of you last week at CAGNY. We appreciated the opportunity to provide an update on our vision and strategy, the progress being made on our growth imperatives, our purpose and related ESG efforts. We continue to take decisive actions to improve performance and remain focused on executing against a clear set of priorities. We will deliver earnings growth and long-term shareholder value by prioritizing resources toward our key growth platforms, continuing increased investments to reinvigorate our brands, enhancing category leadership and executing focused, operational and financial discipline.

Overall, our third quarter financial results were in line with our expectations as our anticipated decline in net sales was offset by the benefits of our targeted actions to deliver adjusted EPS growth of 4%. These actions include an increased focus on consumer-facing marketing, prioritization of resources and a reduction in discretionary spending.

Net sales declined 2% compared to the prior year, reflecting softness in our dog food business, particularly related to our private label products and the Natural Balance brand. Net sales for the balance of our portfolio were essentially flat with the deflationary commodity costs being passed on to consumers through lower pricing in coffee and peanut butter, mostly offset by volume growth.

Highlights from the quarter included strong performance for key brands within our focus categories of pet food and pet snacks, coffee and snacking. Starting with pet food, our cat food business achieved low single-digit growth, which marked the ninth consecutive quarter of year-over-year sales growth for our cat portfolio. While dog snacks declined slightly overall primarily due to the shift of a large retailer promotional event in the third quarter of the prior year to the fourth quarter of this year, we were pleased with the performance of our category-leading Milk-Bone brand, which achieved low single-digit growth and benefited from innovation, which is expanding the brand into new treat segments, including rawhide alternatives.

As anticipated, Nutrish pet food net sales declined due to the impact of retailer inventory build related to new distribution in the prior year and competitive activity in the premium dog food category. As we discussed on last quarter's call, the team is executing a set of targeted actions to improve the Nutrish brand's consumer value proposition and reinvigorate performance. During the quarter, we saw positive consumer response to these actions as household penetration for the brand improved and consumer takeaway across all channels grew by 5% sequentially from the second quarter, including online and the pet specialty channel.

Looking forward, further actions will be implemented in the fourth quarter, including the new marketing campaign that leverages the equities of Rachael Ray and real food ingredients. While consumption trends are improving, we expect shipments to decline in the fourth quarter as we lap significant distribution expansion in the prior year. We remain on track to return the brand to growth in fiscal 2021.

In coffee, segment profit grew even though net sales were comparable to the prior year as lower green coffee costs are being passed through to consumers. Volume in this segment grew for the sixth consecutive quarter and the Folgers brand achieved its highest volume quarter in over 3 years. Dunkin' and Café Bustelo continued their growth trends, up 4% and 13%, respectively, benefiting from expanded distribution, increased household penetration and the impact of new marketing campaigns. K-Cup sales also increased 7% with growth for each brand in the portfolio.

In snacking, the Smucker's Uncrustables brand accelerated to 23% growth in the quarter and we expect similar growth in the fourth quarter. As we shared at CAGNY last week, we are excited about the potential of the Uncrustables brand, its continued trajectory for growth and the upcoming innovation that will expand the platform beyond peanut butter and jelly into convenient meat and cheese snacks.

As we announced last week, we made the difficult decision to discontinue Jif Power Ups early next fiscal year. Our principles of financial discipline guided this decision to reallocate resources to areas of the portfolio we believe will generate faster and greater financial returns, such as upcoming Jif innovation and the Uncrustables platform. While Power Ups was successful in attracting new consumers to the Jif brand and will contribute approximately $20 million to net sales this year, the long-term profit projections in the competitive bar category were below our expectations, and we believe this is the right long-term decision.

I will now turn to the progress made against our consumer-centric growth imperatives to lead in the best categories, build brands consumers love and be everywhere. Let me start with leading in the best categories. In coffee, this was the first quarter in 5 years that the category experienced retail sales contraction due to deflation. However, with the #1 and #3 brands in the category, we grew volume share across all formats, including canister, premium bag and K-Cups. The Dunkin' and Café Bustelo brands continued to perform well with increased household penetration and market share gains this quarter.

In snacking, Smucker's Uncrustables is the fastest-growing brand in the frozen snacks category. With the new production facility online and Phase 2 expansion underway, we will have ample capacity to support demand and achieve our goal to grow net sales for the Uncrustables brand to over $500 million annually in fiscal year 2023 and further expand our leadership in this category.

Turning to our strategic imperative of building brands consumers love. We are excited about our new advertising as we have now launched new campaigns for 10 of our largest brands this fiscal year. Our new advertising campaigns have received accolades across the advertising industry. Commercials for the Jif and 1850 brands received recognition as the Top 100 Global Ads in 2019. While it is too early to measure the full impact of the new campaigns, indications from the launches earlier in the fiscal year are strong and correlate with recent market share gains for the Jif and Smucker's brands. Marketing spend for the quarter was 6.1% of net sales and 6.6% of net sales through the first 9 months of the fiscal year. We remain committed to our investments in consumer-facing marketing and continue to project marketing spend of 6.5% to 7% of net sales for the full year.

Our third growth imperative is to be everywhere. We know that consumers shop and interact with brands on demand and across multiple channels. Therefore, we need to be wherever consumers shop and available anytime. Within the e-commerce channel, we continue to deliver solid growth, particularly in the pet food and coffee categories. In the third quarter, our sales to pure-play e-commerce retailers continued to grow double digits, accounting for 5% of total U.S. retail sales. Including click and collect through traditional retailers, our e-commerce sales account for nearly 8% of our U.S. retail sales. The 1850 brand is performing excellent online with sales quadrupling over the past year. We have also extended the brand into the Canadian and Away From Home channels.

In closing, we remain confident in our strategy and are making progress against our growth imperatives. We will continue taking decisive actions to improve performance and remain focused on a clear set of priorities, including prioritizing resources to focus on key growth opportunities including premium pet food, pet snacks, premium coffee and Uncrustables; continuing investments to reinvigorate our brands; enhancing category leadership by strengthening key consumer and customer-facing activities to build competitive advantage; and finally, practicing strict financial discipline.

This is all in addition to the leadership searches we have underway. We are actively evaluating candidates for the positions announced in mid-November. We are pleased with the quality of candidates and are confident we will fill these critical positions with leaders who will strengthen our organization. Execution on all of these actions is creating momentum for growth and increasing shareholder value.

Finally, I would like to thank all of our dedicated employees for their continued efforts, which firmly position the company for a bright future. I will now turn the call over to Mark Belgya.

--------------------------------------------------------------------------------

Mark R. Belgya, The J. M. Smucker Company - Vice Chair & CFO [4]

--------------------------------------------------------------------------------

Thank you, Mark. Good morning, everyone. Before discussing third quarter results, I wanted to summarize the 4 financial priorities we outlined last week at CAGNY: first, consistent sales and earnings growth; second, increased free cash flow; third, capital deployment in a balanced manner with approximately 50% reinvested in the business and 50% returned to shareholders, including maintaining an investment-grade rating; and fourth, improvement of our return on invested capital.

We are committed to ensuring that the top line growth translates to improved earnings per share performance. As we increase marketing investments to accelerate top line growth, improve asset productivity and sharpen our spending discipline, we will deliver earnings and free cash flow growth. We have been building upon these financial priorities this year with a line of sight for momentum to continue. I encourage you to review our full CAGNY presentation available on our Investor Relations website.

Now let me turn to third quarter results. Net sales declined 2%, reflecting reduced volume mix for dog food primarily related to private label and Natural Balance. For the balance of our portfolio, lower net pricing on coffee and peanut butter was mostly offset by increased volume mix for coffee and Smucker's Uncrustables. Adjusted gross profit decreased $24 million from the prior year or 3%. The gross profit decline resulted from the net impact of lower pricing in excess of lower cost for coffee and peanut butter and the reduced volume mix in dog food. Adjusted operating income declined $10 million compared to the prior year, also a decrease of 3% as the gross profit decline was partially offset by a reduction in marketing and general and administrative expenses. Both gross profit and operating income benefited from incremental synergy realization, which has now achieved our $55 million goal. Interest expense decreased $7 million, driven by a reduction in outstanding debt resulting from repayments made over the prior 12 months. Other income and expense was $7 million favorable in the quarter due to nonrecurring litigation cost in the third quarter last year. And finally, the adjusted effective income tax rate was 23.1% versus 25.8% in the prior year, reflecting final adjustments from certain new provisions of U.S. tax reform. This resulted in third quarter adjusted earnings per share of $2.35 compared to $2.26 in the prior year, an increase of 4%.

Let me now turn to segment results beginning with pet. Net sales declined 5% compared to the prior year, driven by both branded and private label dog food. Softness in premium dog food continued as expected with a 13% decline for the Natural Balance brand and a 4% decline for the Nutrish brand. Sales of private label products continued to be a headwind in the quarter, impacting net sales by 2%. These declines were partially offset by cat food as the Meow Mix brand continues to grow. Both our total cat portfolio and the Meow Mix brand achieved the highest quarterly net sales since we entered the pet category. Dog snacks declined slightly compared to the prior year primarily due to a large retailer promotion in the third quarter last fiscal year that will occur in the fourth quarter of this year. However, the Milk-Bone brand delivered continued growth.

Pet food segment profit decreased 1% compared to the prior year. The decrease was driven by lower volume mix, which was mostly offset by an $8 million litigation settlement related to a supplier issue in the prior year and a decrease in marketing, reflecting a reduction of nonworking expenses and a timing shift to the fourth quarter for new advertising.

I'll wrap up the pet segment with an item noted in our press release this morning. Due to the continued sales decline for Natural Balance in the pet specialty channel and our decision to reposition the brand within our pet foods portfolio, our GAAP results included a noncash impairment charge of $52 million attributable to the Natural Balance brand. Going forward, we anticipate ongoing work to optimize the mix of grain-in and grain-free offerings, a refreshed marketing campaign and sharper price points will improve trends for the brand next fiscal year.

Turning to the coffee segment. Net sales were comparable to the prior year, a 5 percentage point impact from lower net price realization, reflecting the pass-through of lower green coffee cost by way of increased trade spend was mostly offset by favorable volume mix, particularly for Dunkin' Donuts and Café Bustelo brands. Dunkin' grew 4% in the quarter and Café Bustelo grew double digits with a 13% growth in the quarter. These brands mostly offset a 4% sales decline for the Folgers brand, where most of the price reduction was incurred. K-Cup sales increased 7%, with growth across each brand in the portfolio. Coffee segment profit increased 3%, mostly reflecting the favorable impact of volume mix and lower marketing expense, which was slightly offset by the net impact of lower pricing and lower input costs.

In consumer foods, net sales were comparable to the prior year. Favorable volume/mix, driven by increases for the Smucker's Uncrustables and Jif brands contributed 4 percentage points. This was offset by lower net pricing primarily attributable to the Jif brand resulting from a list price decline taken in the fourth quarter of the prior year. Uncrustables sales growth in the segment was 29% in the quarter and 45% on a 2-year stacked basis. Consumer foods segment profit declined 12% driven by a net unfavorable impact of lower pricing in excess of lower cost and a $7.5 million equipment write-off related to the discontinuation of Jif Power Ups, partially offset by a benefit from volume/mix.

And lastly, in International & Away From Home segment, net sales were comparable to the prior year. Volume/mix and net price realization were slightly unfavorable and were more than offset by favorable FX of $1 million. Segment profit decreased 7% due to the impact of lower volume mix and higher SD&A expenses.

Third quarter free cash flow was $465 million, a $132 million increase over the prior year, reflecting an increase in cash provided by operating activities and a reduction in CapEx following the completion of the first phase of the Longmont, Colorado facility. Working capital initiatives contributed a large portion of the improved cash flow in the quarter.

The company made net debt repayments of $320 million in the quarter, ending January with a total debt of just under $5.4 billion. Based on a trailing 12-month EBITDA of just over $1.6 billion, our leverage was 3.3x. We continue to progress toward our goal of 3x.

Let me conclude my comments with an update on our full year outlook. As noted in this morning's press release and communicated at CAGNY, we maintain our full year guidance. Expectations are for net sales to be down 3% compared to the prior year or down 2% on an organic basis. Adjusted earnings per share is expected to be in the range of $8.10 to $8.30. Key components include gross margin of approximately 38.2%; SD&A expenses declining approximately 2.5% compared to the prior year; interest expense at $200 million; and an effective tax rate of 24%. Our projections for free cash flow remain $850 million, with CapEx estimated at $300 million to $320 million.

In closing, let me reiterate that we're pleased with this quarter's earnings performance and remain focused on delivering on our guidance for the year. I am confident that we have put in place the building blocks to deliver against our financial priorities: consistent earnings growth; free cash flow growth; balanced capital allocation, including delevering of the balance sheet; and improvement of return on invested capital. We thank you for your time this morning. We will now open the call to your questions. Operator, please queue up the first question.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Our first question today is coming from Andrew Lazar from Barclays.

--------------------------------------------------------------------------------

Andrew Lazar, Barclays Bank PLC, Research Division - MD & Senior Research Analyst [2]

--------------------------------------------------------------------------------

Sure. I guess, first off, just keying in on gross margins, that came in somewhat below what we and I think many had modeled for some of the reasons you talked about, Mark, around costs in excess of pricing. And I guess with the expectation for fiscal '21 for sales to be flat to slightly up and more reinvestment, obviously, to continue to drive the top line, I guess I'm trying to get a better sense of if gross margin in '21 can be maybe a bit of a funding mechanism for some of this planned investment or not and what might drive that? And then just a follow-up.

--------------------------------------------------------------------------------

Mark R. Belgya, The J. M. Smucker Company - Vice Chair & CFO [3]

--------------------------------------------------------------------------------

Okay. Andrew, I will probably not be able to go deep in this question only because of what we said last week that where we are in our planning process, and for those that did not hear, we said that our top line, our expectation is it would be flat to maybe slightly up, and then we expected earnings per share growth, but we really didn't go deeper than that.

I guess my only other response would be -- is just going through the first 9 months of kind of what we've called out at the gross profit or gross margin level, there's been a few things and what jumps out most notably is the Longmont overhead situation where, because of the start-up, we had significant under-absorption. We'll certainly be running much more volume through that plant next year. So that would be an additive. But to go much beyond that or to quantify anything, I don't think we're in a place to do that.

--------------------------------------------------------------------------------

Andrew Lazar, Barclays Bank PLC, Research Division - MD & Senior Research Analyst [4]

--------------------------------------------------------------------------------

Understand, understand. And then the, some of the 3Q upside, I'm trying to get a sense of if there are some -- any discrete reasons that you see at this point that some of that would come out of 4Q. I think you did mention maybe some shifting of marketing in pet into the fourth quarter. So I'm just trying to get a sense of how much of that upside in EBIT, let's say, relative to our expectations, where -- would come out of 4Q for, let's say, some discrete reasons that you know about versus not.

--------------------------------------------------------------------------------

Mark R. Belgya, The J. M. Smucker Company - Vice Chair & CFO [5]

--------------------------------------------------------------------------------

Yes. I think that specifically the fourth quarter, the marketing would be what comes to mind. We certainly were behind last year's third quarter. Some of that was definitely due to timing and would come through in Q4. I think when you look at other costs, I don't think there's anything specifically that I would think would reverse itself to the negative in Q4.

--------------------------------------------------------------------------------

Operator [6]

--------------------------------------------------------------------------------

Our next question is coming from Ken Goldman from JPMorgan.

--------------------------------------------------------------------------------

Kenneth B. Goldman, JP Morgan Chase & Co, Research Division - Senior Analyst [7]

--------------------------------------------------------------------------------

Two for me. First, if I look at the midpoint of your 2020 guidance range, I know it's a broad sort of set of numbers there, but it does imply a little bit of improvement to your sales growth sequentially from the fourth quarter -- to the fourth quarter from the third and a pretty good gross margin, too, at least a lot better than what you've previously showed in the fourth quarter. So I just wanted to know if we could walk through, sort of collect some of the tailwinds that are leading you to what I think is a reasonably optimistic number there. I mean you talked about marketing. You talked about the timing of the dog snacks promo. Just wondering if there's any other areas where you expect maybe a meaningful sort of push for that fourth quarter? Maybe it's the pricing comparison that looks pretty easy. I'm just curious if I'm missing something big there.

--------------------------------------------------------------------------------

Mark R. Belgya, The J. M. Smucker Company - Vice Chair & CFO [8]

--------------------------------------------------------------------------------

Kenneth, it's Mark Belgya. Yes. I think the -- one of the things on the price you mentioned is that we did take the price on Jif last year in the fourth quarter, so we will be lapping that. So in terms of top line, that's one point, although we had a really strong fourth quarter from a volume perspective in peanut butter, so there's going to be some offset. But in terms of that, there's really not a whole lot, kind of back to Andrew's point, that is significantly different versus the third quarter in terms of gross profit items or SD&A.

--------------------------------------------------------------------------------

Kenneth B. Goldman, JP Morgan Chase & Co, Research Division - Senior Analyst [9]

--------------------------------------------------------------------------------

Okay. I'll follow-up with that offline.

--------------------------------------------------------------------------------

Mark R. Belgya, The J. M. Smucker Company - Vice Chair & CFO [10]

--------------------------------------------------------------------------------

Yes. Ken, I'm sorry, just one other thought, just -- the only other thing that comes into play, and it's just -- unfortunately, it gets buried a little bit in the sales and volume/mix, but it's probably some positive mix on the sales that are coming through. That does tend to benefit us and we think that will continue into Q4.

--------------------------------------------------------------------------------

Kenneth B. Goldman, JP Morgan Chase & Co, Research Division - Senior Analyst [11]

--------------------------------------------------------------------------------

Okay. That's helpful. And then I had a question for Tucker. I think you said Tucker's available for the Q&A, right?

--------------------------------------------------------------------------------

Mark R. Belgya, The J. M. Smucker Company - Vice Chair & CFO [12]

--------------------------------------------------------------------------------

He is. Yes, he is.

--------------------------------------------------------------------------------

Kenneth B. Goldman, JP Morgan Chase & Co, Research Division - Senior Analyst [13]

--------------------------------------------------------------------------------

Tucker, some of the -- as you think about sort of your role as an incoming CFO, obviously, long-term targets are part of that. The company still has some growth targets out there for the long term that are, I think, many investors would consider fairly aggressive. I realize these are -- they don't kick in until '23, but I'm just curious your level of comfort with some of these numbers, especially given that, I guess, some of these targets were forged maybe a bit before the company became more committed to ROIC in all of its decisions. So just curious for your thoughts on like the 2% to 3% top line, 8% bottom line, items like that.

--------------------------------------------------------------------------------

Tucker H. Marshall, The J. M. Smucker Company - Senior VP & Deputy CFO [14]

--------------------------------------------------------------------------------

Ken, I certainly appreciate the question. Just let me begin by a couple of things. One is I would just begin by saying that focused on delivering this fiscal year and we're really focused on making sure that we get the right plan for next fiscal year. And then as we think about the longer-term growth algorithm, we would always consider that over the long term as we consider the business. And at the appropriate time, we probably would readdress that with you and the investors. And as you know, that in the fall, we have our first Investor Day for this upcoming fiscal year. And so that probably would be the appropriate time to readdress those long-term rates.

--------------------------------------------------------------------------------

Operator [15]

--------------------------------------------------------------------------------

Our next question today is coming from David Driscoll from DD Research.

--------------------------------------------------------------------------------

David Driscoll;DD Research;CEO;Founder, [16]

--------------------------------------------------------------------------------

I wanted to follow up just on pet a little bit, Natural Balance and the pet specialty channel. And Mark, could you just talk a little bit about the strategy? I know you're still looking for your permanent head of that unit. But can you talk a little bit about the strategy? And when you took some of the other brands into grocery, Natural Balance seemed like it was really well positioned to be a solid brand within that pet specialty channel and even potentially e-commerce. So kind of -- I guess, where it's confusing for me is, is everybody criticized one of your competitors and thought that pet specialty would be really harsh and you would have a real advantage with Natural Balance. Why hasn't that maybe played out exactly as we all thought it would? And how big of a lift is it going to be to get Natural Balance back to the growth rates that maybe we think it can or should be at, just given how strong premium is?

--------------------------------------------------------------------------------

Mark T. Smucker, The J. M. Smucker Company - CEO, President & Director [17]

--------------------------------------------------------------------------------

David, it's Mark Smucker. Thanks for the question. If I may, I'd like to just back up. I will answer your question, but I'd like to just back up to the total pet category. As you know, we're in the category because it's a growing category. It's a great category, and our business is really about 3 legs of a stool. It's about pet snacks. It's about cat food and then it's about dog food. And so just reminding the group that, as you all know, the shortfall in the quarter was isolated to premium dog, but there were a number of fantastic positives. And so our strategy is fundamentally about playing offense and making sure that we maintain and drive leadership in pet snacks, which we are the clear leader. It's the most profitable segment. And as you heard in the prepared remarks, cat has been doing very well over 9 quarters, and so we're winning there. And even in our mainstream dog business, that is going well. So just to highlight the fact, again, that this is an isolated issue, Rob has brought a tremendous amount of focus to the business, and so we are very pleased with the work that he and the pet team is doing.

And Natural Balance, if you think about the channel, it's a $14 billion channel. Again, we have not been playing offense. On that particular brand, we're getting back to doing that. There's no question that the brand itself has the right to win in the pet specialty channel. And so yes, it is going to take a little bit of time. But as we talked last week between rebalancing the portfolio, between grain-free and not, getting the right packaging architecture, pricing structure and then really getting back to actually marketing the brand. So we really think that we can continue to win in Natural Balance but it is going to take time. If you look at total pet spesh and e-com, both of those, we're growing in both of those channels.

--------------------------------------------------------------------------------

Operator [18]

--------------------------------------------------------------------------------

Our next question is coming from Bryan Spillane from Bank of America.

--------------------------------------------------------------------------------

Bryan Douglass Spillane, BofA Merrill Lynch, Research Division - MD of Equity Research [19]

--------------------------------------------------------------------------------

So just 2 quick ones for me. First, I guess, given the performance in dog food, both Natural Balance and Nutrish, have you lost distribution? And I guess what I'm really after is as we're thinking about '21, will there have to be some effort and some resource allocated to maybe rebuilding some distribution that you may have lost this year? And then I have a follow-up.

--------------------------------------------------------------------------------

Mark T. Smucker, The J. M. Smucker Company - CEO, President & Director [20]

--------------------------------------------------------------------------------

No. Fundamentally, there hasn't been any significant losses in distribution. I mean just building on the comment about Natural Balance, it continues to grow in e-com, which I didn't quite say in the last comment, but clearly, there's good growth there. So we're not -- we haven't lost any significant distribution in pet specialty. And then Nutrish, I think the -- really, the highlight is that we're lapping a very strong pipeline fill last year, and so that is not helping the comp -- the comp is not helping the results this quarter. But again, on Nutrish, all of the actions that we have implemented are bearing fruit. As we -- as you see, we have started to increase household penetration. And so really, just, again, playing offense and making sure that we're doing that on both brands.

--------------------------------------------------------------------------------

Bryan Douglass Spillane, BofA Merrill Lynch, Research Division - MD of Equity Research [21]

--------------------------------------------------------------------------------

Okay. And then just last one for me, just on the deleveraging and free cash flow. If I remember it right, you've got a target of wanting to get the leverage down to 2x by 2023. And I guess, with the stock being at the valuation it's at, is 2x still the right number? Is there a possibility that you think about maybe slowing that pace of deleveraging and leaning into the stock at some point over the next 2 years, just given that you're generating plenty of cash, and it seems like 3x leverage is -- should be something that you could be also comfortable with?

--------------------------------------------------------------------------------

Mark R. Belgya, The J. M. Smucker Company - Vice Chair & CFO [22]

--------------------------------------------------------------------------------

Bryan, it's Mark Belgya. Let me just say a couple of things, and then I'll turn to Tucker and see if he wants to add. So you're right. We have, in prior presentations, talked about a 2x lever by the year that you'd said, '23. I think that's probably more mechanical than anything. Where I would hone in on more is what we said as it relates to a more recent time period, and that would be getting to 3x in the near term, which we project to do, again, in fiscal '21. And I'll just ask Tucker to maybe comment on our deployment thoughts going forward, which probably closer addresses how we would think about buybacks on a go-forward basis.

--------------------------------------------------------------------------------

Tucker H. Marshall, The J. M. Smucker Company - Senior VP & Deputy CFO [23]

--------------------------------------------------------------------------------

Yes. Mark, thanks. Just to support what Mark said, our goal of getting down to around 3x would open up strategic capacity to consider share repurchases and then also M&A activity, which has been consistent with our -- basically our financial policy over time. That would enable us to then get back to more of a balanced deployment model.

--------------------------------------------------------------------------------

Operator [24]

--------------------------------------------------------------------------------

Our next question today is coming from Chris Growe from Stifel.

--------------------------------------------------------------------------------

Christopher Robert Growe, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Analyst [25]

--------------------------------------------------------------------------------

I just had a couple of questions for you. If I could ask you first to go back to a question Andrew asked earlier on the gross margin. I think the overall gross margin outlook for the year is a little lower than where it was before. And I guess, I just want to understand, was that mostly due to the little weaker performance in the third quarter? I mean it looks like based on that outlook, you have an improved outlook for the fourth quarter. Maybe just some of the factors that would be kind of pushing this up in Q4.

--------------------------------------------------------------------------------

Mark R. Belgya, The J. M. Smucker Company - Vice Chair & CFO [26]

--------------------------------------------------------------------------------

Yes. It was -- I mean I think we were at 38.1% for the quarter, which is below even where we're projected for the whole year, 38.2%. So -- and some of that was certainly the top line softness that we experienced in the quarter. As, I think, someone mentioned earlier, the fourth quarter, the sales would project a little bit more positive. So that should help also turn the gross profit, but it really is coming to the reasons where we talked about cost and pricing and then just the volume shortfalls in the areas we called out in pet.

--------------------------------------------------------------------------------

Christopher Robert Growe, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Analyst [27]

--------------------------------------------------------------------------------

Okay. And just one follow-up question, if I could, on the pet food division, where you talked about an increase in promotional spending. Is that reflective -- and I know we obviously have gone through Nutrish and Natural Balance and some of the challenges in the portfolio today. Is that trade spending producing the sort of volume effect that you expect? Is that related to competition in terms of you seeing a competitive increase?

--------------------------------------------------------------------------------

Mark T. Smucker, The J. M. Smucker Company - CEO, President & Director [28]

--------------------------------------------------------------------------------

I'm sorry. Were you asking about treats, Chris?

--------------------------------------------------------------------------------

Christopher Robert Growe, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Analyst [29]

--------------------------------------------------------------------------------

Sorry, I was talking about pet food in general. I thought the increase in trade funding was in pet food.

--------------------------------------------------------------------------------

Mark T. Smucker, The J. M. Smucker Company - CEO, President & Director [30]

--------------------------------------------------------------------------------

Yes. I mean there is -- there would be some that is related to some of the -- getting the value proposition right, particularly on Nutrish, which we've done, I think, when we spoke to that a little bit last week at CAGNY. So yes, there would be a bit of incremental there, just using that as a lever to make sure that we're getting the right pricing in the category.

--------------------------------------------------------------------------------

Operator [31]

--------------------------------------------------------------------------------

Our next question today is coming from Faiza Alwy from Deutsche Bank.

--------------------------------------------------------------------------------

Faiza Alwy, Deutsche Bank AG, Research Division - Research Analyst [32]

--------------------------------------------------------------------------------

So I wanted to talk about the Nutrish brand a little bit more. So I know you talked about innovation and new marketing, but then you also talked about maybe sharpening the price point a little bit there. So I guess, what we're seeing is that some of the higher-priced sub-brands within Rachael Ray and Nutrish have been losing distribution and then the entry-level point has been increasing. So I just wanted to talk about how you're thinking about that as you look at 2021. Do you expect the brand to really consolidate around the entry-level price point, sort of the under $2 level? Or do you expect sort of a holistic decrease across -- price decrease across all the sub-brands?

--------------------------------------------------------------------------------

Mark T. Smucker, The J. M. Smucker Company - CEO, President & Director [33]

--------------------------------------------------------------------------------

The answer to that very -- this is Mark Smucker. The answer to that very last question is no. We wouldn't expect pricing to get lower. I mean obviously, we're not experiencing deflation in the pet category. Just highlighting again that Nutrish, in total, is a very important brand to our portfolio. Obviously, the actions, again, that we have taken are starting to bear fruit, which is great. The sub lines have played an important part in rounding out the brand, but clearly, there is a core there, which you highlighted, of the base Nutrish SKUS, and that is -- it is very important for us to continue to support those base SKUS. So by no means are we abandoning the sub lines. They each play a unique position within the portfolio and within the brand specifically. But we are making sure that that base, those core Nutrish SKUs are healthy.

--------------------------------------------------------------------------------

Faiza Alwy, Deutsche Bank AG, Research Division - Research Analyst [34]

--------------------------------------------------------------------------------

Okay. And then I was just -- I wanted to clarify a little bit around fiscal '21. So I think you were very clear around what you expect sales to be. But I think last week at CAGNY, there was a little bit of confusion around how you're thinking about profitability in 2021. So I was wondering -- I just wanted to give you the opportunity to maybe clarify how you were thinking about that.

--------------------------------------------------------------------------------

Tucker H. Marshall, The J. M. Smucker Company - Senior VP & Deputy CFO [35]

--------------------------------------------------------------------------------

Yes. Good morning. This is Tucker. I guess just in terms of that clarification, what we specifically said is, is that we are committed to ensuring that the top line translates to earnings growth. And the 3 points that we said in there were: one, maintaining our marketing investments around current year levels; two is, is just the advancement of ongoing profit or margin management cost programs; and then lastly, is just continuing to address improved asset productivity. And then lastly, I would just say I think it's best for us to further the conversation around next fiscal year on our fourth quarter earnings call.

--------------------------------------------------------------------------------

Operator [36]

--------------------------------------------------------------------------------

Our next question is coming from Rob Dickerson from Jefferies.

--------------------------------------------------------------------------------

Robert Frederick Dickerson, Jefferies LLC, Research Division - MD & Senior Research Analyst [37]

--------------------------------------------------------------------------------

Great. So I guess first question is really just on the grain-free space in general. Obviously, there's this kind of elephant in the room, which is the FDA's investigation into the link to DCM. I just bring it up because I feel like -- feel like I think it was one of the Marks, when it was stated on the call, said and also innovation in grain-free, it sounded like it was actually emphasized. So I'm just -- given I'm a bit distant from a discussion with retailers and overall, let's say, trends within the trade, I'm just curious if you can provide any color on kind of what you think the perspective is at this point, given we haven't heard from the FDA in a while. And obviously, consumption seems like it's been dented a little bit, but some people seem to also kind of be blowing it off to an extent. So just any color you can provide would be very helpful.

--------------------------------------------------------------------------------

Mark T. Smucker, The J. M. Smucker Company - CEO, President & Director [38]

--------------------------------------------------------------------------------

Sure, Rob. It's Mark Smucker. I would just start by saying quality is one of our basic beliefs, and so we obviously adhere to unwavering safety and quality standards. The FDA has really made no clear link between DCM and the root cause of any specific diet, because it isn't known. Now obviously, we're going to continue to cooperate with the FDA and the Pet Food Institute to make sure that we can support any of the research that's happening. You've seen that consumers have made some assumptions about what the link might be. And we have seen a slight decrease in sales for grain-free, particularly in the pet specialty channel. But our brands were each less than 2% of the mentioned cases in the FDA report.

And then I guess, finally, success is really about being close to the consumer, and so we will continue to listen to the consumer and make adjustments within each brand or our portfolio as necessary. And we are launching, or getting ready to, with new -- with grain products to make sure, particularly in those brands that have been mentioned, that we are striking the right balance between grain-in and grain-out products.

--------------------------------------------------------------------------------

Robert Frederick Dickerson, Jefferies LLC, Research Division - MD & Senior Research Analyst [39]

--------------------------------------------------------------------------------

Okay. That makes sense, a natural balance, so to speak. And then secondly, just in retail consumer foods, the assumption is margin profitability on Uncrustables is probably fairly impressive, while at the same time, we've seen some margin contraction over the past couple of years, even when including a divestment of baking. So if we're thinking forward, not just to '21, but just in general, do you feel as if kind of coming out of that baking divestment, and now that you have already ramped your marketing spend and you're adjusting the mix, that kind of that level of profitability, call it that low 20%, so to speak, 20%, 21% kind of feels like a proper run rate for that division all-in?

--------------------------------------------------------------------------------

Mark R. Belgya, The J. M. Smucker Company - Vice Chair & CFO [40]

--------------------------------------------------------------------------------

Rob, it's Mark Belgya. Yes, I think that's right. I mean if you look at this quarter, it was down probably about 150 basis points from that average because of the write-off of the Jif Power Up equipment, but I think you're right. I think we've got a marketing run rate that's probably comparable. I mean certainly, components will change over time. And then as I mentioned earlier, as we run more products through the plant in Colorado, when we get that over -- or under-absorption corrected, that'll help. But I think your overall assumption is pretty good for now.

--------------------------------------------------------------------------------

Operator [41]

--------------------------------------------------------------------------------

Our next question is coming from Pam Kaufman from Morgan Stanley.

--------------------------------------------------------------------------------

Pamela Kaufman, Morgan Stanley, Research Division - Senior Analyst [42]

--------------------------------------------------------------------------------

I wanted to ask about coffee margins, which were at peak levels this quarter. How much of the expansion is related to lower green coffee prices versus lower marketing spend in the segment? And how sustainable do you view this level of profitability to be?

--------------------------------------------------------------------------------

Mark T. Smucker, The J. M. Smucker Company - CEO, President & Director [43]

--------------------------------------------------------------------------------

Pam, it's Mark Smucker. We do get this question a lot, and we've been pretty consistent in saying that it is a commodity category with -- where we pass-through ups and downs to our customers and consumers. So there can be some volatility in the margins, but we have been consistent in saying and have a high degree of confidence that we can maintain margins around that 30-ish percent. In any given year, you could see fluctuations, but we don't see any significant erosion in that. I guess the other point is as we continue to drive growth in the premium and K-Cup segments, there is a little bit less propensity in the premium and K-Cup segments for volatility, as much volatility. And so that will help to maintain margins on a relatively stable basis.

--------------------------------------------------------------------------------

Pamela Kaufman, Morgan Stanley, Research Division - Senior Analyst [44]

--------------------------------------------------------------------------------

And can you comment on the timing shift in the promotional event you mentioned in the pet segment that shifted into the fourth quarter? How much did this impact the third quarter? And what do you expect contribution to be next quarter?

--------------------------------------------------------------------------------

Mark R. Belgya, The J. M. Smucker Company - Vice Chair & CFO [45]

--------------------------------------------------------------------------------

Pam, this is Mark Belgya. It was -- yes, we called out it affected the treats performance, if I recall from scripted comments. While it was significant enough to call out for the impact on treats, because Milk-Bone was actually up for the quarter, it was not overly significant to the whole pet business. So there will be, as you noted, a pickup, but it will not be significant in Q4.

--------------------------------------------------------------------------------

Operator [46]

--------------------------------------------------------------------------------

Our next question today is coming from John Baumgartner from Wells Fargo.

--------------------------------------------------------------------------------

John Joseph Baumgartner, Wells Fargo Securities, LLC, Research Division - VP and Senior Analyst [47]

--------------------------------------------------------------------------------

Maybe Mark Smucker, I wanted to focus a bit on the innovation. The Power Ups were launched with a lot of confidence, you found an opportunity to extend that brand more broadly across snacking. That's been discontinued after about 2 years. Folgers, 1850, that's down solid double-digits. It's losing distribution. And I understand not every new product launch is successful. But I'm curious, just wanted to focus on what you've learned from this recent slate of innovation in terms of the test market versus the everyday market, and any changes to the innovation approach from here?

And I guess maybe related to that, you seem to be doubling down on Uncrustables to lean into the snacking part of the portfolio. Does the Jif experience have you thinking differently about the potential to extend your other consumer brands going forward?

--------------------------------------------------------------------------------

Mark T. Smucker, The J. M. Smucker Company - CEO, President & Director [48]

--------------------------------------------------------------------------------

John, thanks for the question. So as you pointed out, not all innovations are successful. From a top line perspective, we actually would view the Power Ups was successful in, obviously, bringing new consumers into the brand and so forth. But as we got further into the launch and recognized some of the challenges that we might have going forward, that's really what caused us to really implement our financial discipline and recognizing that we could probably divert some of that support into a brand like Uncrustables.

So -- but from a macro perspective, innovation is going to continue to be important. It is not the only driver of top line growth. We have to continue, as we've said, to invest in some of our larger, more legacy brands, but innovation will play a role in both growth brands as well as some of the mainstay brands as well, and that is really about striking the right balance between, in some cases, platform and, in other cases, more line extension-driven innovation. So an example in pet, as we have continued to see some very nice growth on the Milk-Bone brand, the innovation there, for example, is meeting our expectations. It is performing as we expected. So it's just -- I think the Power Ups example is one where we chose to make a -- to take a very decisive action for the benefit of the broader business, and it was the right decision.

--------------------------------------------------------------------------------

Operator [49]

--------------------------------------------------------------------------------

Our next question today is coming from Robert Moskow from Credit Suisse.

--------------------------------------------------------------------------------

Robert Bain Moskow, Crédit Suisse AG, Research Division - Research Analyst [50]

--------------------------------------------------------------------------------

Just a few cleanup questions, I guess. Coffee in fourth quarter last year, I thought that there was inventory build in the trade and then it came out in the first quarter of fiscal '20. Will you have a tough comparison in fourth quarter this year to that last year?

And then the next question was pet snacks, in general, this is more of an observation, you have a great brand with Milk-Bone and pet snacks is a big priority. But your disclosure on how that group of brands is doing is a little inconsistent, like sometimes we get a number and sometimes we don't. Is it possible that you might, going forward, give us like pet snacks altogether, what kind of growth it's generating, especially since it's such a priority and high margin?

--------------------------------------------------------------------------------

Mark R. Belgya, The J. M. Smucker Company - Vice Chair & CFO [51]

--------------------------------------------------------------------------------

Rob, it's Mark Belgya. Yes. Last year's fourth quarter, your recollection is correct. We had a strong Q4, but I'll tell you, with the performance that we have seen, notably, Dunkin' and Bustelo, we still think that the growth will continue in the quarter. But you are right, I think we -- as we called out in Q1 of this fiscal, we felt the impact of that. And then Mark, do you have the second question?

--------------------------------------------------------------------------------

Mark T. Smucker, The J. M. Smucker Company - CEO, President & Director [52]

--------------------------------------------------------------------------------

He was asking about pet snacks and how we report pet snacks. We've been a little bit inconsistent. Rob, can you just repeat the question, please?

--------------------------------------------------------------------------------

Robert Bain Moskow, Crédit Suisse AG, Research Division - Research Analyst [53]

--------------------------------------------------------------------------------

Yes, sorry. Sometimes, I think you gave us a total pet snacks growth number; sometimes you don't. It's a big priority for your company. Can you -- would you consider being more consistent in giving us a total pet snacks growth number going forward?

--------------------------------------------------------------------------------

Mark R. Belgya, The J. M. Smucker Company - Vice Chair & CFO [54]

--------------------------------------------------------------------------------

Yes. I think it's a fair ask. We do kind of default at times to Milk-Bone, but certainly, we have other brands than that. So we'll take that under consideration.

--------------------------------------------------------------------------------

Operator [55]

--------------------------------------------------------------------------------

Our next question is coming from Alexia Howard from Bernstein.

--------------------------------------------------------------------------------

Alexia Jane Burland Howard, Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst [56]

--------------------------------------------------------------------------------

Just 2 questions. First of all, we talked a bit about innovation during the call. Can you tell us where you're at, at the moment in terms of new products as a percent of sales? I don't know whether you measure that over the past 3 years or over the past year, and maybe whether that's been increasing or staying stable over time and where you would hope it to get to over the longer term? And then the follow-up question that I have that I think is a little quicker is with African swine flu kicking in and probably over the next several months putting meat input costs up, is that something that you're planning for? How do you anticipate that playing out in the pet food segment?

--------------------------------------------------------------------------------

Mark R. Belgya, The J. M. Smucker Company - Vice Chair & CFO [57]

--------------------------------------------------------------------------------

Alexia, it's Mark Belgya. To answer your first question, if you look at how we define new products, so that would be products that have been introduced over the last 3 years, of current sales, it represents about 5%. And that's, I think, been fairly consistent. We certainly, a few years back, when we introduced some of the Dunkin', particularly the K-Cups, that was probably maybe a couple of percentage points higher, but 5% is a pretty good number for us.

And then as it relates to the second question, again, I think I'll just defer a little bit to one of the earlier questions as it relates to forward looking. We would look at all costs and comment on those when we talk to you folks in June. Certainly, if it was significant enough to take actions or something in the interim, that might be different. But for right now, we'll include that just in our overall cost perspective when we talk about F '21 in June.

--------------------------------------------------------------------------------

Operator [58]

--------------------------------------------------------------------------------

Our final question today is coming from Jon Andersen from William Blair.

--------------------------------------------------------------------------------

Jon Robert Andersen, William Blair & Company L.L.C., Research Division - Partner [59]

--------------------------------------------------------------------------------

A couple of quick ones. Just coming back to Uncrustables. As you look to drive the business north of $500 million of sales, can you talk about the levers that get you there? Is this more about distribution at retail? Is it more about new product types or forms of the Uncrustable product? Is it about Away From Home? Just trying to get some -- a little bit more granularity on what drives you to that level of sales.

--------------------------------------------------------------------------------

Mark T. Smucker, The J. M. Smucker Company - CEO, President & Director [60]

--------------------------------------------------------------------------------

Yes. Jon, it's Mark Smucker. It's -- you touched on many of the levers. I think the -- what I would highlight is we have so much runway on Uncrustables. One of the -- one of our smaller competitors that had similar products is actually, from what we understand, exiting the business. And just given the fact that we brought the Colorado plant online, that really supports the runway. And so as you know, we have not -- just in core peanut butter and jelly, we have not spent dollars on marketing until basically now. And so that product has continued to grow as convenience and other factors that the consumer wants really have driven that. And so there is a tremendous amount of runway on core. We are continuing to invest in the Colorado facility to make sure that we can support the $0.5 billion target. And then yes, innovation will play a role, but I would just stress the amount of runway just on core PB&J at this point.

--------------------------------------------------------------------------------

Jon Robert Andersen, William Blair & Company L.L.C., Research Division - Partner [61]

--------------------------------------------------------------------------------

Super helpful. The one other question I had was on K-Cups. Can you talk a little bit more about where your portfolio sits today? And is the K-Cup category, in aggregate, still growing? With the changes that you made, I think, to some of your partnership arrangement, is there pricing stability in the category now? Just trying to understand how kind of -- how that segment of the coffee market is playing out right now in terms of growth, in stability and profitability.

--------------------------------------------------------------------------------

Mark T. Smucker, The J. M. Smucker Company - CEO, President & Director [62]

--------------------------------------------------------------------------------

Yes, K-Cup is still obviously very important. It is -- in dollars, it's not quite half, it's probably 40%, 45% of the dollars in the at-home category. As you know, the growth has slowed, I think, actually, in the latest 52 weeks, the growth of K-Cups has been about 1% to 2%. The -- this is the first quarter where we've actually seen the total coffee category have a slight contraction in dollars primarily driven by just deflation and the lower commodity cost, but K-Cup is growing. It continues to grow. We are very pleased with our portfolio. If you look at across all of the brands in the portfolio, we did see growth in the quarter on all of the brands and that includes, of course, Folgers and Bustelo, 1850, Dunkin' and so it's -- and gaining share, so continues to be important.

The partnership with Keurig has been great. As you know, we have benefited from -- over the last couple of years from some lower tolling rates, if you will, and that has been beneficial. Pricing is generally stable, I think it is. The competitive environment has, the dust has settled, so to speak, and I think that we're in a more stable environment in that part of the category.

--------------------------------------------------------------------------------

Operator [63]

--------------------------------------------------------------------------------

Our next question is coming from Scott Mushkin from R5 Capital.

--------------------------------------------------------------------------------

Scott Andrew Mushkin, R5 Capital Ltd - Founder & CEO [64]

--------------------------------------------------------------------------------

I got kicked off the call and had to come back in. So I want to kind of just ask a little bit more about the other businesses. And just about the spending shelf space and placement allocations at retailers in kind of the key peanut butter and jelly and coffee brands. I guess we're continuing to see a little bit of private label making further inroads, maybe not volume, but certainly on shelf space allocation and placement. And we're seeing the same thing a little bit with premium and local and gourmet offerings. So I was just wondering if you could talk about things that you guys can do to make sure your core brands don't erode.

--------------------------------------------------------------------------------

Mark T. Smucker, The J. M. Smucker Company - CEO, President & Director [65]

--------------------------------------------------------------------------------

Scott, it's Mark Smucker. I think the first comment starts with having #1 brands, and the number -- and leading brands like Jif, Smucker's, Folgers, et cetera, have a right to exist and a right to play in each of the categories. And so where you may see some growth of private label, and to a lesser -- much lesser degree, some of the gourmet brands, you may see some shifting around in the shelf set. But generally speaking, it would be the #3 brands that are going to probably suffer the most and first. So we're maintaining category leadership, continuing to partner with the retailers, leveraging the fact that private label typically compares themselves to the leading brand, all tend to, in general terms, work in our favor.

--------------------------------------------------------------------------------

Operator [66]

--------------------------------------------------------------------------------

We've reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.

--------------------------------------------------------------------------------

Mark T. Smucker, The J. M. Smucker Company - CEO, President & Director [67]

--------------------------------------------------------------------------------

Wanted to thank everyone for taking the time today. I appreciate seeing you all at CAGNY and really feel very good about where the business is and our ability to continue to grow and focus where we need to. And again, thank you to our fantastic employees for all of their efforts.

--------------------------------------------------------------------------------

Operator [68]

--------------------------------------------------------------------------------

Ladies and gentlemen, this concludes our conference call for today. Thank you all for participating, and have a nice day. All parties may now disconnect.