J.M. Smucker Company (NYSE: SJM) has reported a robust performance for its second quarter, adjusting its full-year earnings per share (EPS) guidance to $9.90 at the midpoint. Despite anticipating flat sales in the third quarter, largely due to changes in coffee portfolio pricing and pet portfolio comparisons, the company projects a full-year comparable growth of 1.5-3%. This growth is expected to be driven by an equal contribution from volume mix and pricing adjustments.
Key Takeaways
- J.M. Smucker Company revises full-year EPS guidance to $9.90 at the midpoint.
- Anticipates flat sales in Q3, with full-year comparable growth between 1.5-3%.
- Coffee segment grapples with significant inflation; margins expected to drop.
- Uncrustables brand sees exceptional growth, with sales likely to exceed $1 billion by 2026.
- Hostess faces challenges, prompting a planned marketing overhaul.
- Pet Food segment remains strong, driven by innovative products like peanut butter bites.
- The company is on track to achieve $100 million in cost synergies by fiscal 2026.
- J.M. Smucker remains optimistic about surpassing earnings expectations by fiscal 2026.
Company Outlook
- J.M. Smucker expects to maintain momentum in its base business, synergy realization, cost productivity, and debt reduction.
- The company is confident about achieving earnings above their long-term algorithm by fiscal 2026.
Bearish Highlights
- Coffee margins projected to decline from 28% to mid-20s in Q3 and Q4 due to price inflation of arabica coffee.
- Hostess segment currently faces consumer caution and execution issues.
Bullish Highlights
- Uncrustables brand is experiencing significant growth, with sales expected to reach $900 million this year.
- Pet Food segment remains robust, with Milk Bone performing well across value segments.
Misses
- The company expects flat sales in Q3, primarily affected by coffee portfolio pricing adjustments.
Q&A Highlights
- CEO Mark Smucker commented on the company's adaptability to consumer diet trends and their ability to meet changing needs.
- CFO Tucker Marshall confirmed that there is no expected incremental softness to the Milk Bone brand.
J.M. Smucker Company has showcased resilience in its financial performance, with strategic initiatives and segment-specific growth balancing out the challenges faced in particular areas such as the coffee segment. The company's leadership expressed confidence in navigating current market conditions and achieving long-term financial goals. As J.M. Smucker continues to adapt its strategies to meet consumer demands and manage cost pressures, investors and stakeholders are keeping a close watch on the company's progress towards its fiscal 2026 targets.
Full transcript - JM Smucker (NYSE:SJM) Q2 2025:
Conference Operator: Good morning, and welcome to The J. M. Smucker Company's Fiscal 2025 Second Quarter Earnings Question and Answer Session. This conference call is being recorded and all participants are in a listen only mode. Please limit yourselves to 2 questions and re queue if you have additional questions.
I'll now turn the call over to Crystal Biting, Vice President, Investor Relations and Financial Planning and Analysis. Thank you. You may begin.
Crystal Biting, Vice President, Investor Relations and Financial Planning and Analysis, J.M. Smucker Company: Good morning, and thank you for joining our fiscal 2025 Q2 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 atjmsmucker.com. We will also post an audio replay of this call at the conclusion of this morning's Q and 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 the call for questions. Operator, please queue up the first question.
Conference Operator: Thank you. The question and answer session will begin at this time. Our first question is coming from Andrew Lazar from Barclays (LON:BARC). Your line is now live.
Andrew Lazar, Analyst, Barclays: Great. Thanks so much for the question. Good morning. Mark, you now expect flat year over year sales in your fiscal Q3, even though the top line momentum has been solid thus far this year and certainly well above that. And the timing of the SD and A spend moving, I guess, to the Q3, I would think would only help the top line.
So is there something discrete you see impacting Q3 sales, maybe it's just Hostess moving into the base or what's driving sort of that expected deceleration?
Tucker Marshall, Chief Financial Officer, J.M. Smucker Company: Andrew, good morning. This is Tucker.
Ken Goldman, Analyst, JPMorgan: Hey, Tucker.
Tucker Marshall, Chief Financial Officer, J.M. Smucker Company: Thanks for the acknowledgment on delivering a strong second quarter and we do see the momentum continuing through the back half of our fiscal year. Specifically to your question around flat year over year top line for our Q3, Really what we're assessing is the 2nd round of pricing within our coffee portfolio. So we're anticipating flat coffee sales. We're also seeing the pet portfolio lapping a very strong comp in the prior year along with assessing the discretionary nature of overall pet treating and also reduced co manufacturing sales. Further, we have called down Sweet Baked Snacks that we acknowledged in our prepared remarks And then we're seeing that being offset by growth in our frozen handheld and spreads portfolio, which is really the focus of the outlook for Q3.
Andrew Lazar, Analyst, Barclays: Great. That's really helpful. Thank you for that. And then best we can tell your new Hostess sales guidance for the full year implies, I think a low single digit year over year decline in the second half. I guess first, do I have that right?
And if so, obviously, it's more realistic, but still implies a sequential improvement from the, call it, mid- to high single digit declines we've seen for the brand more recently. So I guess, what's expected to drive that sequential improvement in the second half? And sort of what's your visibility to that sort of outcome, again, if I have the calculation right for the back half? Thanks so much.
Tucker Marshall, Chief Financial Officer, J.M. Smucker Company: Andrew, you are correct. The sales guidance for FY 'twenty five implies a low single digit year over year decline in our second half. We are seeing some sequential improvement as we move through the fiscal year. That's really due to two reasons. One are the outlined remarks around what we're doing to improve execution across the portfolio that came through Mark's section.
And then secondly is just lapping some easier year over year comparables. Great.
Andrew Lazar, Analyst, Barclays: Thank you so much. Appreciate it. See you in December.
Conference Operator: Thank you. Next (LON:NXT) question is coming from Ken Goldman from JPMorgan. Your line is now live.
Peter Galbo, Analyst, Bank of America: Hi, good morning and thank you. I'm just wondering to continue the conversation on Hostess. Can you update us a little bit on what you're thinking in terms of synergies both this year and next in light of maybe a little bit of a longer path to kind of get back to that 4% top line growth longer term?
Tucker Marshall, Chief Financial Officer, J.M. Smucker Company: Ann, this is Tucker. I'm going to frame in the cost synergies and then have Mark talk a bit about how we're thinking about the revenue synergy component. But on the cost synergy front, we're still committed to $100,000,000 of achievement by the end of our fiscal year 'twenty six. We're seeing that balanced about half in this fiscal year and half in next fiscal year. And we should be able to achieve that $100,000,000 outlook even after completing the Voortman divestiture.
Mark Smucker, Chair of the Board, President and Chief Executive Officer, J.M. Smucker Company: Ken, it's Mark. Just maybe to play back a little bit in my prepared remarks. So we still feel really excited about Hostess. We love the brand. We think there's a lot of opportunity for it and just wanted to acknowledge in the prepared remarks that there were just two things that were driving the underperformance.
One was just the continued cautiousness of the consumer, right, in terms of inflation and lower discretionary income
Andrew Lazar, Analyst, Barclays: and then a bit
Mark Smucker, Chair of the Board, President and Chief Executive Officer, J.M. Smucker Company: of execution on our it's complete. But what we really have started to pivot to do is making sure that we're doing 4 key things is executed better against base fundamentals, which is getting more display because it is an impulse category, expanding distribution at shelf and notably in the away from home channel. We are going to be launching a fantastic new marketing and advertising campaign in the New Year, which we believe will be very relevant to consumers and really speak to the emotional connection to the brand. And then that would include a packaging refresh, some innovation. We will be looking at launching like $1 pack.
So we will bringing different value equations to the consumer. And then lastly, we've had some early tests on co promoting Hostess with some of our legacy brands, Think Coffee and less discretionary brands and early reads on those co promotions are very strong. So accelerating those efforts is another thing that we'll be doing. So over the coming quarters, we would expect to see improvement in the Hostess results and just remain confident in that brand because of overall snacking trends continue to remain positive across multiple categories.
Peter Galbo, Analyst, Bank of America: Great. Thank you for that. And then just quickly, a pivot to the broader company. How would you like us to think about the balance between price versus volume mix for the rest of the year, with the understanding there's a lot of puts and takes in there? Just a general sense would be helpful.
Tucker Marshall, Chief Financial Officer, J.M. Smucker Company: Yes. As we think about the full year, Ken, I think it's easier to kind of break it down this way is, if you think about our outlook at the midpoint of our guidance range, it's 9%. When you isolate the impacts of acquisition, divestiture, foreign exchange, comparable growth is probably around 1.5%. When you think of the pet co manufacturing, that gives you about another point. So base business is about 2.5% to 3%.
And within that, you're probably equally split between volumemix and price on a full year basis.
Rob Dickerson, Analyst, Jefferies: Perfect. Thanks so much.
Conference Operator: Thank you. Next question is coming from Robert Moskow from TD Cowen. Your line is now live.
Robert Moskow, Analyst, TD Cowen: Hi, thanks. I had a couple of questions about Hostess. One is, Mark, you mentioned that execution weakened. Can you give us a little more details on what aspect of that weakened and what caused it and how you can fix it? And then secondly, a broader question, I appreciate the plans to market Hostess more aggressively in Q1 'twenty five, but are there any concerns internally about whether it might get drowned out?
There's a lot of messaging from the new administration on Make America Healthy again. I'm just wondering, is this the right time to be aggressively marketing indulgent snacks? And how do you think the consumer will receive it?
Mark Smucker, Chair of the Board, President and Chief Executive Officer, J.M. Smucker Company: Sure, Rob. It's Mark. First of all, just on the category in general, remember that when I talked about this less discretionary income and inflation that has affected all channels. So that is it's traditional channels, it's convenience. We've seen the entire convenience channel be down a bit and so that has clearly impacted.
And then, I guess what I would highlight is we would have liked to have seen our execution drive a bit more display. And so when I mentioned that we are going to really be ramping up our efforts across channels to make sure that our display is in place, is relevant, that we're supporting that with innovation. And again, we do think there's some opportunity with these co promoted events that will take place in the future and continually off and on throughout the next, obviously, several quarters. As it relates to anything in the political domain, we believe very strongly that snacking continues, the trends are supportive, consumers continue to eat a couple snacks a day, that continues to be the case. And indulgent snacking, whether it's Hostess or snacking more like Uncrustables that contains protein, those will continue and consumers are going to continue to look for a way to reward themselves at different times throughout the day.
So continuing to connect the dots between the brands and the consumers and what they're seeking, whether that be portion size or less indulgent, more indulgent, we have an obligation to continue to grow the brand and that's what we're going to continue to focus on.
Robert Moskow, Analyst, TD Cowen: Great. Thank you.
Conference Operator: Thank you. Next question is coming from Peter Galbo from Bank of America. Your line is now live.
Tom Palmer, Analyst, Citi: Hey, guys. Good morning. Thanks for taking the question.
Mark Smucker, Chair of the Board, President and Chief Executive Officer, J.M. Smucker Company: Good morning.
Peter Galbo, Analyst, Bank of America: Tucker, maybe just to start, if we look at
Tom Palmer, Analyst, Citi: the EPS guidance going back to kind of the start of the year, your midpoint has now moved, I think, from $10 to $9.80 now back to $9.90 And I just want to understand like the volatility in what you've seen from a cut and then a raise. Maybe you can just unpack that a bit more for us because it was a bit odd to me. I don't know if the visibility is maybe lower than it would have been historically, but just any help in unpacking kind of why the shift has been as much as it has? Thanks.
Tucker Marshall, Chief Financial Officer, J.M. Smucker Company: Yes. So you are correct. We came into the year with a midpoint guidance of $10 and we revised down to $9.80 coming out of the Q1 at the midpoint. Really that change was largely driven by a reduction in our top line outlook and also driven by ongoing green coffee inflation and the need to take a second round of pricing. As we took up our outlook for this quarter up $0.10 so now at the midpoint of our guidance range $9.90 really what we're doing is we're locking in the component of the gross margin beat in our 2nd quarter.
And so that in our mind is a good story and acknowledging our ability to bring up our outlook at the bottom line for the full year.
Tom Palmer, Analyst, Citi: Got it. Okay. That's helpful. And maybe while we're on the subject of coffee, Mark, coffee prices seem to kind of make new highs every day, at least in the commodity markets. You've taken 2 rounds of pricing at this point.
Just how you're thinking about potential
Crystal Biting, Vice President, Investor Relations and Financial Planning and Analysis, J.M. Smucker Company0: the need
Tom Palmer, Analyst, Citi: to take additional pricing and maybe the elasticity impact that that could have as well? Thanks very much.
Mark Smucker, Chair of the Board, President and Chief Executive Officer, J.M. Smucker Company: Sure, Peter. Mark here. So coffee, as we all know, it's a pass through category. We've been very pleased with our performance in the quarter despite the fact that we continue to see significant inflation. I would highlight that arabica hit $3 yesterday and we haven't seen $3 arabica for probably over 10 years.
And so it is unusual. I would highlight that the market for coffee today is very speculative because we haven't hit harvest season yet. And so a lot of the volatility we're seeing is really related to financial speculation. As we get into the harvest, we will have more intel in terms of what that looks like. We would hope that we would get a bit of relief assuming we have a good crop.
There are some indicators that we might, but it's still a bit early to start to anticipate what could be. But at the end of the day, we have to be responsible. We want to make sure that we are able to pass along cost changes both up and down, and we do intend to do that. And we will continue to pull the levers available to us, whether that's trade or obviously cost reduction to try to make sure that we don't take price up too much and very careful to what the consumers can bear. But we will be responsible, and we will continue to manage the coffee business the way we always have.
Conference Operator: Thank you. Next question is coming from Chris Carey from Wells Fargo (NYSE:WFC). Your line is now live.
Crystal Biting, Vice President, Investor Relations and Financial Planning and Analysis, J.M. Smucker Company1: Hi. Good morning, everyone. I wanted to follow-up on piece line of questioning around coffee, but maybe moving it even a little bit forward. Mark and Tucker, you've made some comments about fiscal 'twenty six EPS being above algorithm. And as we assess hostess trends clearly an expectation for it to get better against easier comps, specifically perhaps into next summer at C Stores.
But you also have this coffee inflation dynamic as well that it sounds like you would want to price against that going into next fiscal year. How does this all, I guess, come together in the context of earnings aspirations that you have beyond this fiscal year?
Tucker Marshall, Chief Financial Officer, J.M. Smucker Company: Chris, good morning. It's probably early to talk about the outlook for fiscal year 'twenty six, but I can certainly appreciate the question. I think what I'd like to frame in is sort of the components that we're considering against that outlook for 'twenty six. First of all, what is base business momentum and you've sort of alluded to some of that in your questions. 2 is the removal and mitigation of stranded overhead associated with the pet food divestiture.
3 is the realization of synergies from the Hostess acquisition. Also as we think about ongoing advancements from our cost and productivity programs associated with our transformation office, and then thinking about the benefits from debt pay down, particularly a reduced interest expense. And that's really the framework that we're considering for next year. We'll continue to have a better assessment as we complete this fiscal year and we continue to plan for next year, but it's too early to call the outlook for next year.
Crystal Biting, Vice President, Investor Relations and Financial Planning and Analysis, J.M. Smucker Company1: Okay, fair. One follow-up. We've received more questions around coffee consumption in recent weeks, some theorizing that weather may be some driver of some sequential softness in volumes for the entire category. What is your assessment of sequential developments in the coffee category and also for your business? And how you see the impact of elasticity, perhaps weather and any other considerations that we should be thinking about going forward from here?
Thank you.
Mark Smucker, Chair of the Board, President and Chief Executive Officer, J.M. Smucker Company: Chris, that's a tough one to answer, to be totally honest. What we continue to see is that our business is an at home business for the most part. We do have a nice away from home piece of the business, but the majority of our coffee business is at home. The data continues to support 70% of cups consumed are still consumed at home. And we do see positive, usually a bit more consumption around the holidays.
Obviously, that can be related to family gatherings as well. But in general, we still feel very positive around our coffee business in total. The consumer as they do ship to different forms, whether that's liquid. In the past, it's been 1 cup. We have demonstrated our ability to shift our portfolio to where the growth is, and that's where we're going to continue to focus.
Rob Dickerson, Analyst, Jefferies: Okay. Thank you.
Conference Operator: Thank you. Next question today is coming from Tom Palmer from Citi. Your line is now live.
Crystal Biting, Vice President, Investor Relations and Financial Planning and Analysis, J.M. Smucker Company0: Good morning. Thanks for the question. I wanted to maybe just start off on Sweet Baked Baked Snacks. You noted some of the planned changes here as we roll into the New Year packaging, displays, marketing. Where are we in kind of the selling cycle to customers?
How have these changes been received? Do you have visibility at this point into improved distribution or merchandising from rolling these changes out?
Mark Smucker, Chair of the Board, President and Chief Executive Officer, J.M. Smucker Company: Yes, we have we've already are actively engaged with several of our key customers and those discussions have been positive. I think at the end of the day, being a leader in this category, where we can demonstrate winning, they win too. And so it really needs to be a win win the way we work with our customers, regardless of which channel that is, bringing to their insights, data and ultimately thinking holistically about the categories allows us to bring partnership to our customers that they like and they need and everyone wins. So the goal is to grow not only the Hostess business, but to grow the category as well.
Crystal Biting, Vice President, Investor Relations and Financial Planning and Analysis, J.M. Smucker Company0: Okay. Thanks for that. And then I appreciate maybe you don't want to comment in full on 26, but you did bring up some of the puts and takes. And I wanted to ask on the stranded costs in the Pet segment. As we think about some of the TSA unwind here, I think it's occurring quite soon and the ability to address stranded costs.
Are there benefits this year or headwinds this year to consider? And then just to confirm, the number for next year is still $0.60 year over year?
Tucker Marshall, Chief Financial Officer, J.M. Smucker Company: Yes, Tom. So we have completed the transition services agreement with Post Holdings (NYSE:POST) that was completed in our Q2. We have called out in this fiscal year a net $0.60 impact of stranded overhead. That is confirmed as an impact to this fiscal year. As we move forward into next fiscal year, we have acknowledged that we are working to mitigate or otherwise remove those stranded overhead.
So it should not be a drag to earnings as we think about our growth year over year.
Crystal Biting, Vice President, Investor Relations and Financial Planning and Analysis, J.M. Smucker Company0: But it should be a tailwind, right?
Tucker Marshall, Chief Financial Officer, J.M. Smucker Company: Correct.
Crystal Biting, Vice President, Investor Relations and Financial Planning and Analysis, J.M. Smucker Company0: Okay. Thank you.
Conference Operator: Thank you. Next question today is coming from Alexia Howard from Bernstein. Your line is now live.
Crystal Biting, Vice President, Investor Relations and Financial Planning and Analysis, J.M. Smucker Company2: Good morning, everyone.
Mark Smucker, Chair of the Board, President and Chief Executive Officer, J.M. Smucker Company: Good morning.
Crystal Biting, Vice President, Investor Relations and Financial Planning and Analysis, J.M. Smucker Company2: So can we just ask a sort of not just about Hostess, but a broad question on the GLP-one weight loss drugs. More specifically around how are you tackling the question of gathering information about what the consumer needs there? You've obviously got some parts of the portfolio that play well into that segment, things like Jif peanut butter, obviously the pet food and the coffee is pretty benign. And then we have hostess, which could be pressured. It seems as though there might be as many as mid single digit percentages of U.
S. Adults on these drugs now, and it's obviously likely to escalate. I think there were articles out this morning about the potential for Medicare and Medicaid to cover them. How are you tackling the question of getting information about what innovation, what you need to do to tackle that trend and how urgently what resources are you pushing against that relative to other developments in the market?
Mark Smucker, Chair of the Board, President and Chief Executive Officer, J.M. Smucker Company: Alexia, it's Mark. So first of all, thank you for acknowledging the breadth of our portfolio because obviously being in pack coffee, spreads and other forms of snacking bodes very well because we play in a lot of different categories that win in different ways. So appreciate the acknowledgment. And then as I've said in prior quarters, we look very closely at all of the trends and really are focused on what the consumer is saying and wanting. And specifically, we continue to do an ongoing research on the impact of GLP-one trends and what that might mean for our business.
And the facts are that at this point, we have seen no material impact to any of our business as a result of that trend. Acknowledging that snacking would be a logical place where we might see an impact. To date, we have not seen anything meaningful. That said, we're going to continue to monitor it as we always do and we're going to continue to look for innovation that is relevant for consumers that might be looking to change their diet. I mean, keep in mind, been in business for 127 years.
We've been through every different type of diet trends across the consumer landscape and have effectively provided products that meet the needs, whether that's portion size, we can look at reducing sugar, there's a whole variety of innovations that we will bring to bear. And so really thinking of it as an opportunity is what we have to continue to do, all the while monitoring what the impact may be.
Crystal Biting, Vice President, Investor Relations and Financial Planning and Analysis, J.M. Smucker Company2: Thank you very much. And just a real quick follow-up. On Voortmann's, the divestment, you've said that you expect a $0.10 hit to earnings this year. Is that based on the expectation that it will close at the end of Q3 or somewhere in the middle of Q3? I'm just trying to get a sense for how much the impact could be going out into next year.
Tucker Marshall, Chief Financial Officer, J.M. Smucker Company: Alexia, so on a full year basis, the Voortman impact is $0.25 We announced that in the press release around the transaction. The impact to this fiscal year, because we're closing a little bit more than halfway through the year, so it'll be probably the middle of our Q3 is $0.10 But we anticipate using $300,000,000 in proceeds from the transaction to pay down debt, which would partially offset that $0.10 leaving about a nickel, therefore, kind of immaterial to our overall guidance range or outlook for the year.
Crystal Biting, Vice President, Investor Relations and Financial Planning and Analysis, J.M. Smucker Company2: Perfect. Thank you very much. I'll pass it on.
Conference Operator: Thank you. Next question is coming from Matt Smith from Stifel. Your line is now live.
Peter Galbo, Analyst, Bank of America: Hi, good morning, Mark. Thank you for the question. One of the drivers for the increased comparable sales is the momentum in Acrossables growth has been stronger than anticipated. You mentioned new products in your remarks and the increase in capacity. But as we look forward, can you talk about the drivers of growth in the second half and beyond?
Are you seeing stronger distribution opportunities or is this more velocity driven as you increase your investment? Thank you.
Mark Smucker, Chair of the Board, President and Chief Executive Officer, J.M. Smucker Company: Matt, I can't believe we've made it this long into the call without an uncrecessable question, so thank you. Well, Creswell's is doing fantastic. As you saw, we did the ribbon cutting. I was in Alabama earlier in the month with the governor opening the 3rd site, which is up and running, continuing to expand production there over the next several months. But the fact that we're now in demand generating mode allows us to advertise, allows us to clearly meet the demand that the consumer is giving us and launch new products.
So the raspberry unprofitable, peanut butter and raspberry is far exceeding our expectations. It's a fantastic product. We also launched a limited peanut butter only SKU, which will go national next year. And really pleased with the performance of the brand and actually overall it's exceeding our expectations. So we do expect to hit $900,000,000 this year, which is ahead of our expectations.
I think it's safe to say we're going to meet or exceed the $1,000,000,000 in $26,000,000 like we said. And so we have not put any markers out there for beyond $1,000,000,000 but we do believe we're going to get beyond $1,000,000,000 with the support of great production, great teams in all three plants and frankly, the ability to continue to bring out new products and new varieties. So really bullish on the Incressibles business.
Conference Operator: Next question today is coming from Rob Dickerson from Jefferies.
Rob Dickerson, Analyst, Jefferies: I just had a couple of questions kind of on the profitability side. Mark, maybe Tucker, I know historically there have been times when you've been willing to provide a little bit of incremental color on a per segment basis, just kind of around maybe where op margin could kind of fall for the full year. So kind of first, I'm just asking specifically on coffee, right? I mean coffee, all things considered, it's done pretty well in the first half of the year. I'm assuming just given the past due nature that comes down in the back of the year.
So I guess first question is just kind of how do you, as of today, like kind of view that op margin for the year playing out?
Tucker Marshall, Chief Financial Officer, J.M. Smucker Company: Yes, Rob. So I would start big picture and just acknowledge at the total company level, we delivered a strong gross margin in the second quarter better than our expectations. We're able to lock in that over delivery into our EPS guidance range and also align to a 37.5% to 38% gross profit margin outlook for the full year. And really the portfolio is coming in line with margin expectations at the segment level. In some instances, some businesses are a little bit better, some businesses are around sort of their expectation.
But where you are seeing that margin change is in the coffee portfolio, which we acknowledge coming into this fiscal year and we also acknowledge coming out of our Q1. And that's really driven by 2 rounds of pricing actions to recover ongoing green coffee inflation. And so coffee margins in the 1st two quarters were very good. Candidly, they were in the 28% level for both Q1 and Q2. But as we get into the 3rd and 4th quarters, you will see that come down substantially to kind of the mid-20s and low-20s as a result of that ongoing green coffee inflation as we get into the higher costed component of our cost structure.
Rob Dickerson, Analyst, Jefferies: Okay. Okay. That's very helpful. And then maybe just to touch on a kind of comment you just made, which is going to be a question anyway. It seems like they're clearly there's moving pieces around the segments in terms of how profitability is coming in, right?
I think you said originally Pet might have been kind of 25% or so op margin in Q2, might come in a little bit better, right? So, so far in the first half, pet's coming in at 28% op margin, and that's without the release of all the stranded overhead. So I'm just curious, if we're thinking about kind of that total portfolio, let's say, in the back half, right, coffee margin comes down a little bit, totally understood as to why. It seems like kind of frozen handhelds and spreads is kind of maybe running around that 23%, 24% range. Pets doing a lot better, right?
And then Sweet Baked Snacks, I'm hearing a little pull forward and some activation, maybe there's a little bit more investment coming in the back half. So is it fair to say just kind of all in that, yes, coffee margins coming down some, probably higher than we originally thought, frozen is kind of in line ish and maybe Sweet Baked Snacks comes a little lower kind of in Q4. So net net, it all kind of plays okay, but really pet is driving some of the offset and funding of some of the other parts of the business. There's a lot in there, but that's all I have. Thank you.
Tucker Marshall, Chief Financial Officer, J.M. Smucker Company: Rob, you are right. There is a lot in there. But I do want to acknowledge, I understand your framework. I think we have a scheduled follow-up call. So why don't we go through the puts and calls of your model then?
But I certainly understand the framework. Thanks.
Rob Dickerson, Analyst, Jefferies: Okay, great. Thanks a lot.
Conference Operator: Thank you. Next question is coming from Steve Powers from Deutsche Bank (ETR:DBKGn). Your line is now live.
Ken Goldman, Analyst, JPMorgan: Hey, thanks. Just a quick, I guess, follow-up to some extent on the pet business. Tucker, you called out and you talked about the 3 key puts and takes. It's just some, I guess, caution or conservatism, acknowledgment of the discretionary nature of pet treating. I just would love an update on what you're seeing in that category.
It appears to us, I guess, at least sequentially that the kind of the sensitivity to demand has held pretty stable. We were looking for things to potentially get worse quarter over quarter, and that doesn't seem to have happened thus far this year. So I'm just curious what you're seeing and are you expecting relative sequential stability or maybe your comments kind of portends another step down in demand as we go into the back half?
Mark Smucker, Chair of the Board, President and Chief Executive Officer, J.M. Smucker Company: Hey, Steve, it's Mark. I'll take that one. Milk Bone continues to perform and it's essentially for two reasons. One is, we play across the whole value spectrum. So we've got Milk Bone has products that compete in value to premium in all of the different treating occasions, whether that's dental or long lasting cues or just basic biscuits, core biscuits.
So I'd say the breadth of that brand continues to perform. And then secondly, our innovation is working. Regardless of where we've innovated, it seems to have brought new news, drive it's driving sales. Notably, the innovation that's been really winning for us at this the peanut buttery bites, which actually contain GIF, and those have been performing exceptionally well. So Milk Bone, although growth has been a little bit subdued because of the discretionary nature of the category, continues to perform.
And even in our soft and chewy segment with pop where we are down, we now are bringing to bear new plans in terms of refreshing the brand, leveraging the fact that that brand has an extremely high consumer loyalty. And so really thinking about how we're going to go to market, really emphasize the product quality of that product. So we're going to support the whole breadth of our snacking portfolio, not just Milk Bone.
Ken Goldman, Analyst, JPMorgan: Okay. Fair. So just playing that back, it sounds like any slowdown in your pet business in the Q3 is more about just the underlying comp being more difficult than anything getting more difficult in the actual category
Crystal Biting, Vice President, Investor Relations and Financial Planning and Analysis, J.M. Smucker Company1: demand backdrop. Is that fair?
Mark Smucker, Chair of the Board, President and Chief Executive Officer, J.M. Smucker Company: Yes, we're not co manufacturing for host anymore. And so the comps will not look great, but we would keep you guys focused on the existing business and the comps apples to apples versus the prior year. So we'll make sure we clarify that with you.
Tucker Marshall, Chief Financial Officer, J.M. Smucker Company: And Steve, we're not calling down any incremental softness to the Milk Bone brand. We're just acknowledging that it's growing at a slower rate as a result of the overall discretionary nature of the category and that's kind of embedded in there. So my comments as a relation to Q3 were more around the comparable. 2 is just where the treating aspect of the category stands. And then 3 is just the mechanical math of co manufacturing sales.
Ken Goldman, Analyst, JPMorgan: Yes. Okay. We're aligned. Understood on all of that. Thanks so much.
Tucker Marshall, Chief Financial Officer, J.M. Smucker Company: Thank you, Steve.
Conference Operator: Thank you. Next question today is coming from Max Comfort from BNP Paribas (OTC:BNPQY). Your line is now live.
Crystal Biting, Vice President, Investor Relations and Financial Planning and Analysis, J.M. Smucker Company3: Hey, thanks for the question. Going back to coffee, I think earlier on this call, you mentioned an expectation for flat net sales growth in the second half. You just did a 3% sales growth for coffee in the 2nd quarter and I realize you're embedding elasticity assumptions in the second half. But to me that sounds pretty drastic if I heard it right that you'd go from a plus 3 to something that's more like flat in the second half as you bring on pricing for what's historically been a pretty in the last two categories. So just wanted to clarify on your expectations for the coffee top line in the second half?
Thanks.
Tucker Marshall, Chief Financial Officer, J.M. Smucker Company: Yes. Max, my comments related to coffee being flat were in our Q3. We will see a level of growth in our Q4. And as you know, we've taken 2 rounds of pricing and the 2nd round of pricing was essentially in mid October. So we'll begin to see the effects of the 2nd round against price elasticity of demand in our early winter.
And so that's what we also continue to monitor and assess. The good news is, is that our portfolio continues to perform with the strength of our leadership in the category.
Crystal Biting, Vice President, Investor Relations and Financial Planning and Analysis, J.M. Smucker Company3: Okay, got it. That's helpful. And then on pet food, the prepared remarks had comments about a price cut for Meow Mix and then higher trade spend in cat food and dog snacks. So putting the consumer caution aside, can you just talk about what you're seeing in the competitive environment that's informing those types of decisions? And I'll leave it there.
Thanks very much.
Tucker Marshall, Chief Financial Officer, J.M. Smucker Company: Yes, Max, the Meow Mix brand continues to be a bright spot and a highlight of the overall pet portfolio and within the company. And we were able to restore some of the promotional activity against the brand, particularly as we became full supply and back end stock against the brand and we continue to drive innovation across the portfolio as well.
Conference Operator: Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over
Tucker Marshall, Chief Financial Officer, J.M. Smucker Company: for any further or closing comments.
Mark Smucker, Chair of the Board, President and Chief Executive Officer, J.M. Smucker Company: Kevin, thank you. Well, first, I'd just like to thank everyone for taking the time today and a holiday week to join our call. We had another great quarter and that would not have been possible without our outstanding employees. So as always, I'd like to thank them for their continued hard work and dedication to our company. We're really looking forward to hosting our Investor Day on Tuesday, December 10th in New York City.
And so for any additional requests, please reach out to Crystal Biting. And just hope everyone has a very happy Thanksgiving and a great holiday week and hopefully gets the rest over the weekend. So thanks again.
Conference Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.
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