The J. M. Smucker Company (SJM) Earnings Call Transcript & Summary

Good morning, everyone. Thank you for joining us today for the J. M. Smucker Company Virtual 2020 Investor Day. During today's presentation, we will make forward-looking statements based on current views and assumptions. 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 included with the slides for today's presentation, which are located on our corporate website at jmsmucker.com. Additionally, the company uses non-GAAP results to evaluate performance internally. Details for both items can be found within today's presentation available on our Investor Relations website. A question-and-answer session will follow this morning's presentations. Please submit your questions at any time during the presentations through the question function on this website. The slides from today's presentation and a replay of this webcast will be posted to our Investor Relations website. Thank you. [Presentation]

From a consumer's first cup of coffee in the morning to the favorite snacks they enjoy, to the food and treats they trust for their pets, we are passionate about feeding those you love. Here at the J. M. Smucker Company, we are truly privileged to be a part of our consumers' lives every day. Our company purpose is to feed connections that help us drive life taste better together. We strongly believe meaningful connections are vital to a happy, healthy, fulfilling life. So we prioritize opportunities to feed connections in everything we do. We believe that when we connect, we are stronger and when we are stronger, society thrives. And it all starts here. I'm Mark Smucker, CEO of the J. M. Smucker Company. Welcome to our 2020 Investor Day. Let's get started. Good morning, everyone. Thank you for joining us. I want to first acknowledge the ongoing challenging times we are all living through here in the U.S. and around the world and hope that all of you and your families are remaining healthy. Over the course of today's event, the team and I are going to outline how we are working to drive long-term and sustainable shareholder value within the ever-changing CPG industry from a strategic, operational and financial perspective. By lunch time, you will see how the entire organization here is working sharper, stronger and together to achieve our long-term ambition. Sharper in the way we invest in our brands, products and channels in order to drive revenue growth. Stronger in how we are transforming our capabilities and cost structure to expand our competitive advantage, deliver growth and maximize returns. And together in how we are bringing our purpose as an organization to life every day to execute our strategy and deliver value. All of this is supported and enabled by several foundational elements that you will hear more about: our employees, our digital insights and infrastructure, our transformation journey and our financial strength. I would like to provide an overview of how today will be structured. I will provide some comments on our strategy and transformation as well as some of the actions we are taking to position ourselves to win over the long term. We will then hear from other members of the Smucker leadership team, including Amy Held, Geoff Tanner, Jill Penrose, John Brase and Tucker Marshall. Let's get started with a quick overview of who we are and what we stand for as a company. The J. M. Smucker Company was founded in 1897 right here in Orrville, Ohio, by my great, great grandfather, Jerome Monroe Smucker, who produced and sold apple butter in the local community. Over the last nearly 125 years, the company has transformed into a leading consumer goods company with over $7 billion in annual sales and a focus on 3 growing and attractive categories: pet food, coffee and snacking. We operate in a highly competitive and fast-moving consumer packaged goods industry with a portfolio that combines leading brands with emerging on trend brands to drive balanced growth. Our portfolio includes over 40 brands, including iconic Smucker's Fruit Spreads, Jif Peanut Butter, Folgers Coffee and Milk-Bone dog treats as well as fast growth brands like Smucker's Uncrustables frozen sandwiches, Café Bustelo coffee and Rachael Ray Nutrish, pet food and pet snacks. Looking back over the decades, we delivered total shareholder return above the S&P 500 and peer group averages by making bold, transformative acquisitions that introduced iconic brands to our portfolio, often in new categories to us, and we delivered synergies and growth with excellence. That transformation journey continued in recent years as we built innovation capabilities, expanded into new distribution channels, honed our marketing expertise and invested in sophisticated data and analytical capabilities to provide enhanced consumer insights. Building on our transformational actions to date, we are taking additional steps to optimize the company for sustainable long-term growth by continuing to focus on our growth strategy, strengthen our financial discipline and unleash our organization to win, all of which you will hear more about over the course of today. In 2018, at our last Investor Day, we shared our desired future state, where we wanted to play and what we wanted to deliver in order to succeed. And it started with a relentless focus built on 3 consumer-centric growth imperatives. First, lead in the best categories. We have a portfolio of leading and emerging brands in great categories to drive balanced growth. Across our U.S. retail businesses, approximately 70% of our net sales are derived from categories where we hold either the #1 or #2 branded position. Over the last few years, we exited challenged categories where we owned leading brands in order to focus on faster growth categories and brands. Our brand portfolio includes brands and formats that meet consumers' needs across the value spectrum and various occasions, including traditional at home offerings, convenient, low prep and on-the-go options and away-from-home products found at places such as hotels, restaurants and schools. Our second growth imperative is to build brands consumers love. We build trust and emotional bonds between consumers and our iconic and beloved brands through innovation, breakthrough marketing and consistent consumer engagement. Within our portfolio, we continue to strengthen these relationships with increased marketing investments and a balanced approach to innovation. Our third growth imperative is to be everywhere. We strive to meet consumers' desire for omnichannel shopping, whether it is at traditional grocery or club stores, purchasing online for at home delivery or curbside pickup or in certain away-from-home channels. I am pleased to say we have made significant progress in executing against each of these imperatives, and our ongoing efforts ensure we can win as the CPG landscape is evolving rapidly. At the same time, the current pandemic has driven core structural shifts that are impacting our business. Millions of new consumers are purchasing our brands as they seek familiar and trusted products. There are permanent changes in consumer buying habits in both traditional brick-and-mortar channels and in e-commerce, providing new opportunities to partner with retailers to drive growth. Also, as consumers are spending more time at home, they are redefining their priorities and habits. All these trends play in our favor. And represent a significant opportunity to accelerate the immediate and long-term growth of our business. In the near term, this means achieving our 4 key priorities for this fiscal year. These 4 priorities are critical to ensure we maintain our underlying momentum and achieve our financial goals for this year and beyond. These include: continued progress in driving consistent net sales growth; an increased focus on financial discipline to maintain or improve our strong profit margins and cash flow generation; harnessing our full suite of capabilities to improve our commercial execution and build competitive advantages; and continued commitment to our purpose by feeding and fortifying connections. With that spirit of future forward-thinking and continuous improvement, over the past few months, I challenged my leadership team to assess the realities of our business performance and our execution, ask the tough questions and ensure we are best positioned to win in the long-term amid this ever-changing environment. We took a hard look at where we play, what we want to deliver and how we will win. This effort became the springboard for our refreshed strategic plans. After months of analysis, scenario planning and spirited debate, I affirmed with my team that we need to increase focus on our best growth opportunities and that we will win through total omnichannel brand stewardship. What we are trying to deliver and where we choose to play do not need to fundamentally change. However, we have not been executing our strategy to our full potential. Said another way, we need to fundamentally transform how we execute our strategy. The result is a focus on execution excellence in the next 12 to 18 months across 4 pillars. Our first pillar is driving commercial excellence. The significant changes in our industry compounded with the ongoing impact of COVID-19 have demanded a rethink of CPG commercial models. We are adapting our model to put even more focus on the consumer and customer to truly deliver what they need and want. Second, we are streamlining our cost infrastructure. We've delivered significant cost savings and synergies over the last several years. However, challenges in revenue growth have created a disconnect with the size and structure of our organization. We have identified opportunities and work streams to rightsize our infrastructure and improve efficiencies. Third, we are reshaping our portfolio. Our strategy of leading in the best categories calls us to reshape our assets to fully realize the potential in our key focus areas. We conducted an in-depth review of our current portfolio. And as you have seen, we have made some very tough decisions to exit brands and businesses that are not consistent with our long-term strategic focus. Our fourth and final pillar is unleashing our organization to win. The strength of the Smucker culture has always been a unique differentiator in maintaining our consistent growth over the past century and is a critical component of our successful path forward. That said, there are elements of our ways of working, such as increasing our agility that must evolve in order to more effectively deliver our strategy. While a lot has changed and continues to change, the values and principles that have defined our company have not. Deeply rooted in the philosophy and heritage of the company, our basic beliefs are the foundation for our future strategy, plans and accomplishments. They serve as the guidepost for decision-making and daily interactions with consumers, customers, employees, suppliers, communities and shareholders. This has been especially true over the last several months of change we have all experienced. With that as background, I want to introduce Amy Held, our Chief Strategy and International Officer, to provide further details on our transformation and the near-term efforts we are taking to execute our strategy.

Good morning. I'm Amy Held, Chief Strategy and International Officer for the J. M. Smucker Company. As Mark outlined in his opening comments, our priority is not on changing our strategy, but rather improving how we execute it to get even sharper and even stronger. Simply put, we are an organization laser-focused on executing our strategy and delivering with excellence. Specifically, over the next 12 to 18 months, we are focused on 4 pillars of execution excellence that we believe will unlock the full potential of our strategy: driving commercial excellence; streamlining our cost infrastructure; reshaping our portfolio; and unleashing our organization to win. I'm pleased to share some additional details about our ongoing efforts in each of these areas. The first pillar of our focus is driving commercial execution excellence. The current pandemic has surfaced unprecedented structural shifts with our consumers and their consumption habits as well as in the retail landscape. We must seize this opportunity to maintain and even strengthen our current momentum by reimagining our current commercial model. At heart, remains a commitment to consumer centricity. However, as you will hear from Geoff Tanner shortly, we are fundamentally transforming every aspect of our commercial delivery, including an investment in a proprietary digital and AI-powered tool that we believe will change the game significantly by providing leading edge insights. We are also revising our joint business planning with retailers by leveraging digital insights with a laser focus on in-store execution and reorganizing our sales team to increase resources and focus on the highest growth opportunities. These significant go-to-market changes will ensure we are retailers preferred partner for growing the categories where we participate. The second pillar for improving our execution is streamlining our overall cost infrastructure, enabling us to both preserve our margins and invest in our brands. We have identified a number of opportunities and work streams to rightsize our cost infrastructure and improve efficiencies centered on a pervasive mindset of continuous improvement, designing to value and operational efficiency. This includes working with external partners to evaluate all spend and implement best-in-class practices to achieve upper quartile metrics on key industry measures. We are deploying a new value engineering focus, fully embedded across our businesses to maintain or enhance margins. This approach has already identified significant opportunities to optimize our supply chain footprint and maximize network production efficiencies. Implementation of these cost initiatives will begin early in the new calendar year. Our third area of focus is reshaping our portfolio. Fundamental to winning with consumers and partnering with retailers to grow our categories is having a portfolio of leading brands. Our strategy of leading in the best categories calls us to reshape our assets to fully realize the potential in our key growth areas. We conducted an in-depth review of our current portfolio of brands and assess the role of how each brand fits with our strategy. We are differentiating our resource allocations to brands that will drive disproportionate growth and divesting brands and businesses no longer consistent with our long-term strategic focus. Recently, we made some tough decisions, which included the decision to complete our exit of the U.S. baking category with the sale of the Crisco oils and shortening business following prior divestitures of the U.S. baking mix and condensed milk businesses. In the pet business, which remains a strategic growth area going forward, we made the decision to divest the specialty channel exclusive Natural Balance brand. This allows us to reallocate resources towards faster growth opportunities for our omnichannel pet brands that are better aligned with our core capabilities and expertise. Nearly all the volume for the Natural Balance business is produced through co-packing partners, and we will not incur any loss of operational leverage at our own facilities. Moving ahead, we are continuing to evaluate opportunities across the company to further align our portfolio with our key growth platforms, and we look forward to updating you as we make further progress in this area. We are also reshaping our portfolio through SKU optimization across the categories and brands that are aligned to our growth platforms. Currently, 60% of our items account for just 20% of sales. Reducing our lease productive items will allow us to increase resources for innovation and reinvest in better performing SKUs while reducing complexity for our sales teams. While we have always consistently evaluated our SKUs, the pandemic-related surge in demand that caused us to produce limited SKUs and improved efficiency in velocities has identified an opportunity for us to reevaluate and optimize our assortment. A streamlined cost infrastructure, a portfolio sharpened towards growth segments and stronger execution of go-to-market fundamentals, all support the financial discipline important to achieve sustainable long-term growth. The first 3 pillars of our improved execution will be powered by a fourth, unleashing the power of our Smucker family of employees. The strength of the Smucker culture has always been a unique differentiator in supporting our growth over the past century and is a critical part to our successful path forward. We must leverage this cultural competitive advantage that has been nurtured for over a century. At the same time, we must evolve our ways of working to be more agile than our competitors, more lean than potential margin headwinds and more embolden than ever before about delivering with excellence and winning in the marketplace. As I mentioned before, we believe a 12- to 18-month focus on delivering core execution with excellence will maximize value creation and best position Smucker for further transformational growth through future acquisitions, which remain a key tenet of our long-term growth strategy. Thank you for joining us today. I'll now turn the presentation over to Geoff Tanner. [Presentation]

Good morning. I'm Geoff Tanner, Chief Commercial and Marketing Officer for the J. M. Smucker Company. To support the growth initiatives Mark outlined, we have transformed our commercial model, how we win with both consumers and customers. The first phase of this transformation was how we win with consumers. This new commercial model was put in place 18 months ago and has been a key driver of our recent results. The second phase of the transformation is how we win with customers, specifically, a new sales model. This new sales model, which I'll talk about, we'll deploy in the new calendar year. Before talking about our new commercial model, I want to share details on the structural shifts in our business driven by the COVID pandemic. What you'll see is that our new commercial model will leverage these structural shifts to further build long-term resilience for our company. First, like other companies, we see a massive resurgence of iconic, familiar brands as consumers seek trust, comfort, and in some cases, brands that are in stock. For our business, this has resulted in a net increase of 2.2 million households in our portfolio since March, with brands that make up 77% of our sales, growing households this past year. This represents a massive increase in trial and the opportunity to retain these households. The second structural shift is what I call high-efficiency shopping. For our products, we have experienced an 11% increase in basket size as shoppers seek to limit time in store. And e-commerce, food and beverage probably accelerated 6 years in 6 weeks. Our e-commerce business grew 57% through the first half of this year and now represents 11% of our U.S. retail sales. Now one implication of this shift towards trusted brands and the desire for more efficient shopping is that we, along with our retail partners, are working on more productive shelf assortments. Now looking more fundamentally. What we also see are consumers redefining and reconnecting with what is essential as a result of the crisis. Pet parents, well they're adopting more pets, with 11 million new pets brought home since March. And because they're home, 30% of pet parents report getting more treats. The kitchen, well, that's now the new café since at work and coffee shop consumption has shifted to the home. In support, 1 million more coffee and espresso machines were sold post COVID versus a year ago. And consumers are eating at home more often. Lunch is seeing the biggest disruption, which is accelerating our Uncrustables and our spreads businesses. So that's more pets, more coffee machines at home, plus more work at home flexibility and technology. This paints a picture of the new American home that is here to stay. A picture that is a massive opportunity for our organization. I want to shift gears now. And talk about how we have transformed our commercial model, how we're winning with consumers and customers. As Mark mentioned, this is all in support of building brands consumers love, and being everywhere and driving results by a world-class sales execution. Let me start with brand building. 18 months ago, we blew up our marketing model in partnership with an agency Publicis. Our 3 objectives were: breakthrough culturally relevant creative to ensure our brands remain highly relevant; increased reach, especially with younger consumers and increased speed to market; and reduce nonworking costs to enable us to invest more in working dollars. The quality of the creative drives more than 60% of the return on advertising. This is why we completely overhauled our advertising. In some cases, a total transformation: from vanilla and expected to relevant, differentiated and appropriately edgy creative. In the past 18 months, we've launched 12 breakthrough campaigns across all our major brands. And this new work is driving brand growth. Now I'd like to share a few of those examples. The first is a new campaign for Jif, featuring our new Jif squeezable product. The spot is part of a new campaign that is a major shift from Choosy Moms Choose Jif to So Jif'ing Good. The campaign showcases the same things people will do to get their hands on their favorite peanut butter. We literally just finished shooting this, and I'm proud to share it with you for the first time. [Presentation]

I hope you like that as much as we do. The next example is a new campaign for Meow Mix, which, as John will discuss, is seeing terrific growth. We remixed the iconic Meow Mix jingle into different music genres and videos. Here is our pop music spot. And believe me, we had a lot of fun getting cats to perform on this one. [Presentation]

Finally, here's a spot we recently added for Folgers to ensure we're culturally relevant, differentiated and part of the conversation. I'm sure we can all relate to this one. [Presentation]

We've also made some major strategy shifts in media buying. Historically, our media model was missing large groups of consumers, especially younger ones and cord-cutters. By redesigning our media model, our messaging now reaches an incremental 5 million households, an increase of 10%. This is driven by tighter frequency capping, expanded programming and more precision marketing. One example of how we're using precision marketing is targeting the new consumers who've come into our brand since COVID. Through a new partnership with the industry-leading data company, Epsilon, we're able to identify these new households and deliver customized messages to keep them in the franchise. In addition, we've cut nonworking costs by $30 million, and our creative and production process is 50% faster. It's so critical to staying culturally relevant. So that's better creative, more efficient reach and lower costs, all leading to significant improvement in our volume and profitable sales growth. Since the transformation, we've seen incremental sales attributable to marketing increased 12%, which represents a 15% ROI increase. I'm now going to talk about winning with customers and specifically, a new sales model, which we will deploy in the new calendar year. This new sales model has 3 core elements: moving from 1 to 2 fully dedicated sales teams; ensuring that we have perfect execution in every store and digital shelf; and an evolution of our e-commerce model. So we will be moving from 1 to 2 dedicated sales teams. One will be focused solely on our pet business. The other, supporting our human food and beverage business. These businesses compete in similarly sized categories, but they are very different. The category dynamics are different. The competitive landscape is different. What it takes to win is different. This new structure will support a greater focus on each category and business, providing greater category knowledge and expertise to our customers, and much tighter vertical integration within our operating segments. The second element of our sales transformation is a next level focus on in-store execution. We have not been ruthlessly focused on executing these fundamentals. The objective is optimize distribution, merchandising, pricing, shelving and in stocks in every single store, 5 critical fundamentals. To drive this effort, we have built a proprietary technology platform, something we call customer GPS. Customer GPS sits on over 1 billion points of data and applies advanced analytics and AI to first determine and then measure the optimal set of conditions for each customer, in some cases, down to the store level. For every customer, we will establish clear GPS targets, and we will use every lever at our disposal to execute against these targets. Customer GPS and this focus on fundamental execution at the store level is how we will further accelerate growth. This capability will fully deploy in the calendar year. Finally, we are further evolving our e-commerce capability. As mentioned earlier, arguably, e-commerce bolted 6 years in 6 weeks. The good news is that capability investments we made pre COVID prepared us for this acceleration, and they are supporting the delivery of our recent strong results. These investments included building out a digital shelf, creating unique pack sizes and increasing investments in technology and data capabilities. Now moving forward, we will have a disproportionate focus on increasing profitability, both for us and our retail partners. Initiatives underway include: optimizing assortment; developing unique, more profitable e-commerce items, including different versions of our core SKUs; reducing supply chain costs through logistics efficiencies and even testing direct shipping; a commitment to maintain minimum advertised pricing policies; and partnering closely with click-and-collect retailers, especially where this model makes more sense for certain products in our portfolio like large-sized mainstream pet. It's through a combination of these efforts that we're confident we will increase the profitability of this channel while still driving growth. As I mentioned, the consumer side of our commercial transformation has been in place for about 18 months. It is clearly working, and I'm very pleased with the momentum we're seeing. 18 months ago, only 26% of our portfolio was growing share. Today, 46% is growing share. Our target is 2/3 of our portfolio growing share. When we deploy the new sales model to support the key initiatives, I am confident we will achieve this goal. In closing, I firmly believe our new commercial model will accelerate momentum and continue to change our trajectory. We are in some of the best categories, and we have a portfolio of beloved iconic brands. This new commercial model is how we will unlock the potential and growth of both. I'll now turn the presentation over to Jill. [Presentation]

Good morning, everyone. I'm Jill Penrose, Chief People and Administrative Officer for the J. M. Smucker Company. As we increase our company's focus on execution through commercial excellence, streamlining our cost structure and reshaping our portfolio, success will be fueled by the power of our people and the strength of our culture. I'd like to share some details on the steps we are taking to strengthen our organization while also positively impacting the lives of our employees and partners as well as the communities and the planet we share. This year, we, along with our colleagues and families, have experienced unprecedented and consequential events and challenges from the disruptions of the COVID-19 pandemic to an ongoing national dialogue around systemic racial injustice. At the J. M. Smucker Company, we recognize our responsibility to lead and act in pursuit of positive social and environmental change where we can make a difference. On behalf of our talented teams, I am pleased to share some of the commitments and actions that reflect our thriving together mantra. More detailed ESG-related disclosures, including SASB and TCFD formats will be available on our corporate website in the near future. Recent events have rightly prompted historical and societal reflection regarding race, injustice and equity. This ongoing national dialogue and movement has strengthened our resolve. As a company, we are taking intentional steps to deepen our understanding and enhance our support of inclusion, diversity and equity. While we are in the early stages of our journey, we have accelerated several initiatives in pursuit of equality for each Smucker employee and community member. First, we conducted inclusion and diversity listening sessions with hundreds of our employees to learn from their life experiences and heighten our awareness. We also launched unconscious bias training for all employees. The 2 experienced and talented directors we recently elected to our Board, strengthened the Board's gender and racial diversity, further enriching our company's perspective. We committed to the CEO diversity inclusion action pledge. We officially identified Juneteenth as a company paid holiday in celebration of Black history and the freedom of Black people. We introduced new steps to our marketing and creative processes in support of the nationwide SeeHer initiative to increase the accurate portrayals of women and girls in U.S. advertising and media. Finally, we committed $500,000 to organizations that advocate for inclusion, racial justice and the advancement of underrepresented people. We intentionally selected partners that reflect the change we want to support and provide opportunities for meaningful employee engagement. We are both humbled and inspired by their missions, dedication and the progress they have made to fight and advocate for those facing systemic discrimination and overwhelming hurdles. I'm proud to tell you about 5 of our partner organizations. The NAACP Legal Defense and Educational Fund fights for racial justice for the black community and other marginalized populations. The human rights campaign helps LGBTQ people live their truth without fear and with equality under the law. The Equal Justice Initiative fights for a fair, more equitable criminal justice system for groups facing racial discrimination. And finally, the Akron Urban League and the Urban League of Greater Cleveland help underserved urban residents, secure economic self reliance, parity, power and civil rights. In terms of sustainability, we continue to make strides in doing our part to address climate change and ensure responsible stewardship of natural resources. Integrating a sustainability mindset across our operations not only reduces our impact on the environment, it also is crucial to maintaining business continuity through risk mitigation and serves as a valuable tool for delivering cost savings within our businesses. Because the coffee supply chain is so important to our company and consumers, we support TechnoServe, an organization dedicated to business solutions to reduce poverty. TechnoServe's initiatives include working with coffee farmers to improve agricultural practices, yields and quality. We also partner with the Newman foundation whose initiatives include working with coffee farmers on climate change adaptation strategies and new capabilities to improve farming conditions and yields. We've also made progress toward renewable energy since operations at the Plum Creek Wind Farm launched in June. This long-term renewable energy commitment is expected to produce enough renewable wind energy certificates to match 50% of our total annual electricity usage. In addition, this project contributes to renewable energy infrastructure in the U.S. Thanks to this and other projects, we are on track to exceed our 2020 environmental goals, which include 95% waste to landfill diversion, 15% water usage intensity reduction and 10% greenhouse gas intensity reduction. Building on this progress, we established aggressive new packaging goals earlier this year. By 2025, we strive to achieve 100% recyclable compostable or reusable packaging materials. We strive to make how to recycle information available for all packaging and ensure that 100% of fiber-based packaging is from recycled or certified sources. And by 2030, we will strive to use 30% post-consumer recycled or renewable resource materials in plastic packaging. In the coming year, we expect to announce additional sustainability goals including a commitment to set science-based targets. We are immensely proud of our contributions to improve significant global and societal issues and humbled by the enormity of our collective work ahead. Equally important is the commitment we fulfill to those closer to home on behalf of our employees and communities. Our purpose illuminates the opportunity to feed connections that help us thrive. It serves as a guiding principle for how we serve communities and the broader society. We know that meaningful connections are vital to a happy, healthy, fulfilling life. And we believe that when we connect, we are stronger. And when we are stronger, society thrives. As a leading food manufacturer, we are passionate about our role in the fight against hunger, both nationally and in our local communities. Over the past year, we have donated more than 32 million meals to people and pets through our partners at Feeding America, the Akron Canton Regional Food Bank, Rescue Bank and the Rachael Ray Foundation. Additionally, we continue to support our communities through partnerships with the Red Cross, United Way, the Lebron James Family Foundation and other charitable organizations in the local areas where we have business operations. Our employees demonstrate an unwavering dedication to ensuring a continuous and safe food supply for their fellow citizens. In this challenging time, they continue to overcome adversity and get the job done. The company recognizes this dedication. We offer employee support through hardship awards for our manufacturing and distribution employees, an employee relief fund for exceptional personal circumstances, physical and mental health resources, enhanced pay time off for COVID-related health needs and workplace flexibility where possible. The strength of our people and strong Smucker culture are a unique competitive advantage. We believe that professional, physical, emotional and financial well-being are interconnected and our approach allows us to attract and retain the best people. Our future-ready workforce and business strategies are aligned as we challenge and empower our people. We find professional growth and purpose in the vision and values of the J. M. Smucker Company. And when our people are inspired and focused they consistently go above and beyond for our consumers, customers and communities, driving our company forward. These efforts are examples of living our values, and we remain deeply grateful to our employees and their families who continue to persevere during this unprecedented, unusual and demanding time. We thank our employees and our external partners for their continued commitment to their colleagues and to our company. We are proud to bring nourishment comfort and connections to all who enjoy our brands and products. It is our employees genuine care for each other and all our constituents that makes our culture unique. This manifests itself in a collaborative spirit, a commitment to quality work and a willingness to embrace change as we always strive for improvement, all of which creates a competitive advantage. Thank you.

We are now going to take a 15-minute break, and then Mark will welcome everyone back for the remainder of our presentation this morning. [Break]

Welcome back, everyone. So far today, we have shared our commitment to our purpose, confidence in our long-term strategy and an emphasis on the capabilities we are building and the actions we are taking to improve execution, deliver consistent growth and increase shareholder value. We are increasing momentum this fiscal year as we adjust our approach to the fast-changing environment. The recent increase in at-home-eating occasions driven by the pandemic, caused a surge in trial and a significant number of new consumers purchasing our brands as nearly 90% of all eating occasions were at home, a 12 percentage point increase versus the prior year. Thanks to our scale and portfolio of trusted brands, we were uniquely positioned to benefit from this shift as over 2.2 million net new households purchased at least one of our products over the last 3 quarters versus the prior year. Nearly all our categories experienced an increase. Importantly, 86% of consumers made a repeat purchase and dollars spent per buyer increased 10%. Through the first half of our fiscal year, sales have grown 7% and adjusted earnings per share increased 24% compared to the prior year. We're well positioned to retain a significant portion of this growth. Looking ahead, we're very excited about the new sales model and data-driven tools we are deploying. We're confident they will help us continue the momentum and deliver on our financial commitments for this fiscal year and future growth over our strategic time horizon to deliver increased shareholder value. In an effort to enhance the execution of our strategy, I streamlined my leadership team by hiring John Brase into a newly created Chief Operating Officer role and promoting Tucker Marshall to CFO. This structure makes my leadership team tighter and more agile and ultimately facilitates faster decision-making, sharper prioritization and drives a greater degree of accountability. I am excited to introduce John and Tucker as our final 2 presenters. As many of you know, John recently joined us from P&G, where he ran their $6 billion North American family care unit. He brings 3 decades of experience in the consumer goods industry to the role, including significant work across brand management, business operations, manufacturing, marketing and sales. And earlier this year, Tucker succeeded our long-time CFO, Mark Belgya. Tucker has been a strong leader within our finance organization for the last 8 years and has worked closely with senior leadership and supported our long-term strategic planning including multiple M&A transactions. John is going to cover how we are working to improve our execution and become a more agile organization. Tucker will highlight our expectations regarding our current fiscal year 2021 and then transition to our longer-term view of how we will execute with financial discipline to deliver top and bottom line growth and increased shareholder value. With that, I will turn it over to John. [Presentation]

Thank you, Mark. Good morning. I'm John Brase and happy to be here today for the first time since joining the J. M. Smucker Company as Chief Operating Officer. I'd like to discuss 3 topics today. First, I'll provide some comments on my background, why I joined Smucker and what I have observed in my first months in the role. Next, I'll highlight some of the details of the approach we are taking across the organization to execute our strategy. And finally, I will share some specific commentary on priorities within each of our U.S. retail segments. I joined the company after spending over 30 years in the consumer products industry at Procter & Gamble. I was part of a significant transformation of the company during my time there. I learned how to deliver consistent growth and create value in the organization, specifically, how to grow large iconic brands and how to leverage insights and capabilities to deliver innovation consumers love and how to partner with retail customers to create profitable growth in mature categories. I joined Smucker because I was excited about the opportunities to take on new challenges and because Smucker is an amazing company with an incredibly strong culture, values and people and powerful brands in great categories. Since joining, I've also learned that our company has tremendous growth opportunities and a very strong leadership team that is passionate about realizing them. I've been particularly impressed with this leadership team's ability to engage in healthy debate and then come together and pursue common goals and objectives, including a relentless focus on delivering results, while maintaining a commitment to our strong culture. The company has truly shine during this dynamic and challenging time. Our culture is shown up in the way that we have supported our constituents and how we have leveraged our scale and capabilities to deliver tremendous growth and financial results. Our core iconic brands are healthier than they have been in a while, and we have significant momentum to expand and keep our base of loyal consumers post pandemic. The company is focused on the right categories with the right brands and have the right strategy to succeed. There are 3 areas where we can and will improve our execution to unlock growth and increase value for our customers, consumers and shareholders. Let me share some examples of where we are focused. First, we are setting the organization up for success by driving greater alignment and ownership of key decisions and accountability for results. Smucker has built incredible commercial capabilities and centers of excellence. But at the same time, decision-making and ownership of results has become too matrixed. We are creating a leaner, flatter organization in aligning ownership, accountability and incentives to the income statement. This will improve focus on a common goal of driving top and bottom line growth with quicker, more agile teams. Second, we are focused on growing market share in our areas of strength in pet food, coffee and snacking and better aligning our resources against these priorities. I'd like to apply the principle of core and more. We must always support the core where the most value is derived and then focus on adjacent opportunities and pockets of growth that are critical to the long-term health of our brands. Third, we will pursue balanced top and bottom line growth. Constant evaluation of productivity will reduce complexity and cost, and increase opportunities for growth. We are evaluating the 60% of our total items to represent only 20% of company sales. We will stop efforts that are unproductive or no longer consistent with our growth strategy. We will continuously pursue cost takeout opportunities across the businesses that can be dropped to the bottom line or use as fuel for investments in our brands. Additionally, we will apply our net revenue optimization strategies to drive dollars per occasion and not chase volume, taking price when appropriate, shifting our mix to more premium items and driving out inefficient spend. We are bringing solutions to our partners that meet the unique needs of the shopper while creating profitable category growth strategies for both us and our retail partners. Now I'd like to transition our discussion about key priorities within each of our 3 U.S. retail segments, which collectively account for just under 90% of our company's total sales. Our largest segment is U.S. retail pet foods, which accounts for $2.9 billion or 37% of total company net sales last fiscal year. Dog food makes up nearly 40% of our pet sales, followed by our snacks portfolio and then cat food, each accounting for just under 30% of our pet sales. About 5% of our pet sales are private label offerings, primarily related to dog food. Pet food and snacks continue to be one of the most attractive consumer product categories. At $34 billion in annual retail sales, it is the largest center of the store category. And projected to grow 4% annually over the next 5 years. 52% of households own at least one dog or cat and pet adoptions are on the rise as 9% of households have acquired a new pet during the pandemic. Pets today are viewed as an important member of the family, with the average pet spending per household expected to increase 6% year-over-year. We have an excellent opportunity to accelerate our pet business performance and are confident that our portfolio is well positioned to compete. We have a portfolio of strong brands that serve consumer needs across value, mainstream and premium offerings. We are also the market leader in dog snacks with the iconic Milk-Bone brand and hold the #2 and $3 share positions in cat food and dog food, respectively. We are taking aggressive action to increase resources on the areas of the portfolio that will generate the highest return. One notable example of this is our decision to divest the Natural Balance brand. The brand required an outsized portion of investments, our team's time and focus, and generated margins well below the portfolio average. With the brand's distribution primarily weighted toward pet specialty retailers, we took a hard look at what it would take to recover recent sales declines and generate profitable growth. We decided ultimately the best option was to divest the brand and increase our focus on leading brands and channels where we have scale and capabilities to drive growth. Moving forward, value creation in pet would be achieved through a 3-pronged approach. First, we will win in snacking. This will provide the fuel for growth across the pet portfolio. Second, we will achieve category growth rates in dog food, primarily through restoring the health of Nutrish dog food. And third, we will continue momentum in our cat business. Dog snacks is the fastest growth segment within the Pet category. Our snacks portfolio has delivered year-over-year net sales growth in 12 of the last 13 quarters and we have an opportunity to increase the pace of growth. To do so, we are accelerating demand driven innovation. Consistent innovation is highly important in this category as approximately 60% of category growth comes from innovation and variety. Over the last couple of years, we have taken initial steps to drive increased dollars per occasion in pet snacks through innovation on our core Milk-Bone brand by expanding into high-growth premium segments such as long-lasting chews and rawhide alternatives. In January, we are launching further innovation. We are revitalizing Milk-Bone biscuits with a premium focus, aiming to please pet and pet parents alike. Further, we are building on the momentum in long-lasting chews by applying a culinary lens. Pets will be able to benefit from bone broth as an ingredient in new varieties for our Nutrish line of dog treats. In dog food, our near-term efforts are focused on the Nutrish brand. It is the largest brand in our pet portfolio and is one of the fastest-growing brands in the category just over a year ago. While the brand has continued growth in snacks, cat food and wet dog food, performance decelerated in dry dog food, primarily related to the brand's sublines and specialty offerings. Some of the initiatives to improve performance include more competitive pricing and bag sizes, optimizing our assortment, improving the sub-brands packaging, bringing excitement with disruptive innovation and a significant increase in marketing investments, all of which are underway. I'd like to provide a little more perspective on some of the closer end innovation for the brand, which is Nutrish Big Life. The dog food shelf is under-indexed with exciting offerings for large breeds, which make up almost 1/3 of the dog population and consume over half the volume in the dry dog food category. We believe Nutrish brand has the credentials to deliver on both the taste and nutritional needs of big dogs. Initial retailer feedback and acceptance has been very strong, and we anticipate shipments to begin in early calendar 2021. We will have a strong marketing support for the launch, including national TV, digital and social programs. Further, new investments for the Nutrish Master brand will include national advertising and targeted digital campaigns to drive trial and repeat purchase. While our priority and #1 growth opportunity for dog food is accelerating the growth of the Nutrish brand, the balance of our portfolio is still important to net sales performance and delivering profit growth. In premium, the initiatives to accelerate growth for the Nature's recipe brand are underway, including more grain in varieties to align with shifting consumer preferences. In wet dog food, we are outpacing the category growth rates, expanding distribution and launching innovation across several brands including Nature's recipe. We are also reintroducing Gravy Train wet dog food, which have been reformulated with improved quality and a higher price point to drive improved margin. In cat food, we have significant momentum with year-over-year net sales growth for 13 consecutive quarters, led by Meow Mix, which has the highest household penetration in volume share in the category. We continue to evolve the strategies that led to over 4 points of dollar share growth over the last 3 years, including innovation, new marketing and a push to ensure our assortment is properly represented on shelf. Reflecting stronger productivity and velocities versus our key competitors. We are confident about continuing the momentum in cat food with a pipeline of unique innovation and leveraging digital tools and evolve marketing and promotional programs that Geoff previewed earlier. Shifting to our $2.1 billion coffee segment. We're the #1 branded manufacturer in the $15 billion category with a 25% share of the market. We have a strong portfolio, featuring 3 of the top 10 brands in the category, including the iconic Folgers brand and the fast-growing Dunkin' and Café Bustelo brands. Coffee is a great category. As 62% of Americans drink coffee, with 4 out of 5 cups consumed at home. The at-home coffee category has grown at a 3% rate over the last 5 years. With consumption accelerating over the last 9 months, driven by the work anywhere environment. We have added over 2 million net new households in the last year, more than any other branded manufacturer. We believe the dynamics of the current environment will result in long-term structural changes in the category, driven by 2 key disruptions. First, more people are working and drinking coffee at home. And this has become the new normal. Second, during the height of stay at home orders, 1 million more coffee and espresso makers were sold in the same period a year ago. In fact, the Keurig system is on pace to increase by 3 million households in 2020, meaning more consumers bring high-quality coffee at home. Our immediate focus has been to increase our marketing investments while tailoring our communication strategies to gain and retain these new households and our brands. Maintaining the benefits of these structural changes will be one element of our coffee growth strategy. Another is continuing the momentum and growth for Dunkin' and Café Bustelo brands, which have grown 17% and 26%, respectively, over the last 52 weeks, collectively gaining nearly 1 share point. Dunkin' and Bustelo now account for over 40% of our coffee sales. Our K-Cup brands have grown 17% over the past year, which is nearly 2x the category average. While we continue the investments in growth strategies for Dunkin' and Bustelo, we also have a great asset in Folgers, a brand that we have begun to revitalize. During the past 9 months, over 3 million new households purchased the Folgers brand. Over the next 2 years, we have a pipeline of initiatives, including innovation and refreshed marketing designed to evolve the iconic Folgers brand to better connect with new consumers. Finally, in our consumer foods business, we are focused on the fastest growth snacking segment, including no mess, convenient and nutritious options. Over the last few years, we have made significant changes in our portfolio to align with this focus, including fueling the growth of Smucker's Uncrustables and bringing convenient options to PB&J, such as squeezable containers for peanut butter and fruit spreads. We've also reshaped the portfolio through divestitures and challenged growth categories to allow for increased investment in our Uncrustables and spread businesses. Peanut butter and jelly is America's #1 lunch sandwich. It is also a popular comfort food. Why? Because it's a simple and comforting indulgence that is easy to make and provides delicious balanced nutrition. We have the #1 share positions in both the peanut butter and fruit spreads category, holding nearly double the market share of the next closest competitor. We will continue to focus efforts on meeting the needs of our consumers' changing lifestyles with new offerings, perfecting in-store and digital shelf and expanding our brands to new consumers for lasting relevance and connection. The fastest area of growth in consumer foods is through our Smucker's Uncrustables brand. It achieved net sales of $365 million in fiscal year 2020, a 26% increase versus the prior year. Through 2 quarters this fiscal year, net sales grew an additional 22%. Uncrustables frozen sandwiches have top quartile velocities in the frozen aisle, with 15 consecutive quarters of double-digit dollar consumption growth. The brand achieved 29% growth in households in the last year, achieving 10% household penetration. Even with this impressive growth, Uncrustable still represents just 15% of PB&J occasions at home, demonstrating significant opportunity for continued growth. Over the last several years, we made substantial investments to expand our production. However, demand continues to exceed our capacity to produce. We have been capacity constrained at times during 7 of the past 10 years on Uncrustables. A new production line will be operational next month. And we've accelerated Phase 2 of the plant expansion in Longmont, with construction to begin early next calendar year, providing capacity to exceed our $500 million net sales target in fiscal year 2023. Through a combination of increased capacity, marketing investments and strategic pricing, we expect to unlock significant growth for the brand over the next several years, including consistent double-digit top and bottom line growth making Uncrustables one of the key growth drivers for the company. A streamlined portfolio and intense focus on consumer-led strategies will be the catalyst for consistent growth in consumer foods. The actions we are taking across all of our businesses give us confidence that we can deliver continued long-term organic sales growth. To achieve this growth, we will focus on consistent and disruptive innovation. We'll also focus on innovation to strengthen our core and drive out cost. Next, we will focus on productivity for both us and our retail partners. This will fuel investment in our strategic brands and growth categories. And finally, we will accelerate e-commerce and Click & Collect efforts to unlock faster growth and do it more profitably. The solutions across these 2 platforms are different, and they will require us to work with our retail partners to ensure we're offering the right assortment and the right promotional solutions along with a laser focus on reducing supply chain costs. In a moment, Tucker will provide details on our financial outlook. But before I pass the mic to him, let me reiterate, we are confident that the company is focused on the right categories with the right brands and has the right strategy to succeed. I am optimistic about the opportunities in front of us to continue delivering reliable top and bottom line growth. Thank you. [Presentation]

Good morning, everyone. My name is Tucker Marshall, and I am the Chief Financial Officer for the J. M. Smucker Company. So far today, you have heard how we are taking targeted actions that will enhance our ability to execute and unlock the full potential of our strategy. This will ultimately lead to consistent growth and increase shareholder value. I will begin by outlining our expectations for our current fiscal year 2021. I will then transition to our longer-term view of how what you have heard today, in conjunction with our financial strategy, translates to our top line and bottom line growth ambitions. We reported our fiscal year 2021 second quarter results 2 weeks ago. Through the first 6 months of the year, net sales have increased 7% and adjusted earnings per share have increased 24%. Top line growth continues to benefit from at-home consumption trends and market share gains in our U.S. Retail Coffee and Consumer Food segments. This growth was partially offset by a decline in our away-from-home business. Pet food sales were up slightly reflecting gains for cat food and dog snacks, offset by softness in our dog food portfolio. The growth in adjusted earnings per share primarily reflects the positive contribution from volume mix. The net impact of pricing and cost was also favorable, primarily due to manufacturing operating leverage from the increased volume and net pricing benefit, partially offset by higher input costs and freight expense. SG&A expenses were flat versus the prior year. Our updated full year guidance is for reported net sales to be flat to up 1% versus the prior year, inclusive of the impact of the Crisco divestiture. On a comparable basis, net sales are expected to grow 1% to 2%. Our full year outlook reflects strong first half performance with third quarter net sales trends similar to the second quarter and a substantial decline in the fourth quarter upon lapping the $185 million benefit to net sales in the prior year. This benefit was related to the consumer stock up purchasing that occurred during the initial stages of the pandemic. For the remainder of the fiscal year, we anticipate continued base momentum led by Dunkin' and Cafe Bustelo coffee, Uncrustables, Frozen Sandwiches and Jif Peanut Butter and for the dog snacks and cat food portfolios. Our projected full year adjusted EPS guidance range is $8.35 to $8.65. Embedded within our earnings guidance is a $0.20 headwind related to lost profits and stranded overhead from the Crisco divestiture. No potential benefit from the use of proceeds has been included in our fiscal year 2021 projections. We have not factored in any impact of the pending natural balance divestiture, which we anticipate being immaterial to earnings this fiscal year. We believe our carefully considered earnings outlook provides flexibility to adapt to a dynamic and uncertain operating environment while enabling us to balance reinvestment and return. The current guidance range includes incremental marketing and trade spend versus our original expectations heading into the fiscal year. These investments support our growth brands and key pet initiatives, including e-commerce and innovation. We believe these investments are critical to building sustainable long-term improvements in our performance. Looking ahead to next fiscal year, it is highly uncertain when or how much of the balance between at-home and away-from-home consumption will shift or moderate. Our focus is on leveraging our momentum to maintain the elevated at-home consumption while achieving some recovery for our away-from-home business and executing a step change in the performance for our pet business. This also includes an increased focus on cost and margin management while generating cash and deploying capital. Before turning to our longer-term financial plans, I would like to share my priorities as CFO. I am committed to delivering value for our shareholders in accordance with the financial priorities shared across the leadership team. These include consistent and transparent communication, improved execution to deliver annual and long-term financial targets, enhanced focus on returns when evaluating investments in the business, maintaining cost reduction and margin enhancement efforts and capital deployment that balances investment in the business and returning cash to shareholders while maintaining a strong balance sheet and investment-grade debt rating. In support of our long-term strategic horizon, we are advancing programs to improve our cost structure in order to preserve or enhance our strong profit margins and cash flow generation. We are achieving this through a total company commitment to productivity and a focus on minimizing expenses that do not support either sales or profit growth. Execution of these initiatives will support the consistent delivery of our growth expectations. This morning, the leadership team presented the steps that we have taken and we will continue to take to achieve long-term growth. We project top line growth around a 2% CAGR over the next 5 years. This will be primarily driven by priority brands in each of our segments, including Uncrustables in snacking, Nutrish and Milk Bone in Pet and Dunkin' and Cafe Bustelo in Coffee. We expect gross profit to grow at a slightly faster rate than net sales. This will be accomplished through favorable volume mix associated with the portfolio realignment, innovation, net revenue optimization, value engineering and improving our manufacturing and supply chain footprints. Our expectation for SG&A expenses include total marketing expense in the range of 6.5% to 7% of net sales while managing year-over-year inflationary trends. As a part of our margin management programs, we have a team working to evaluate and prioritize a pipeline of strategic projects with significant opportunities for cost reductions across the company. These programs include minimizing discretionary spend, reducing expenses in our manufacturing and supply chain environments and evaluating changes to our organization and realigning roles and responsibilities to increase speed and agility. These activities are anticipated to achieve $50 million of annual cost savings in each of the next 3 years. Taking all this into consideration, we expect to achieve operating income growth around a 5% CAGR over the next 5 years. Below operating income, we expect a decrease in interest expense as we continue to pay down debt in the coming years while maintaining the effective income tax rate. Reducing debt has been our priority since the Big Heart Pet Brands and Ainsworth Pet Nutrition acquisitions. As we have reduced our debt leverage ratio to below 3x, we are in a position to shift toward a more balanced approach to capital deployment with share repurchases and other potential strategic uses of cash. We maintain that delivering adjusted earnings per share growth around an 8% CAGR over the next 5 years is achievable. When considering a dividend yield of 2% to 3%, total shareholder return would approximate 10% or greater. Let me now share a few thoughts on our capital deployment approach. Maintaining disciplined cost control and margin management, along with the enhanced focus on improving investment returns, will serve as the fuel to support our capital deployment model. We will continue to prioritize investment decisions toward those that will generate the highest and best financial returns. Our capital deployment approach is to allocate approximately 50% of our operating cash flow for future growth through capital expenditures and strategic projects, including acquisitions, and then returning approximately 50% of cash to shareholders through dividends, share repurchases and the reduction of debt. Our strategic target for annual capital expenditures is 3.5% of net sales. However, expenditures will remain elevated during the short term, primarily due to the construction of Phase 2 of the Uncrustables facility in Longmont, Colorado. For fiscal year 2021, capital expenditures are projected to be $315 million or approximately 4% of net sales, with the next 2 fiscal years projected to be around 4.5% of net sales. After considering earnings growth, ongoing working capital management and capital spend, along with any integration and restructuring costs related to our portfolio and organization reshape, we remain committed to generating $1 billion or more in annual free cash flow. At the beginning of this fiscal year, we had a debt balance of just over $5.6 billion. Since then, we have applied approximately $500 million to pay down debt, and our leverage ratio was 2.8x at the end of the second quarter. We view this leverage position as an important enabler of our financial strategy, allowing us to maintain an investment-grade debt rating and access to capital at preferred rates and the flexibility to repurchase shares, increased dividends or pursue strategic investments. In July, we announced a 2% increase to our quarterly dividend, marking the 19th consecutive year we have grown our dividend. Our dividend increase has averaged 8% over the past 10 years. We expect the Board to maintain the company's current dividend policy, which is to return approximately 40% to 45% of our annual adjusted earnings per share to shareholders. We continue to prioritize the use of cash for dividends and debt repayments while evaluating other strategic uses of cash for future growth and increasing shareholder value. With the recently completed and announced divestitures, we recognize our obligation to return cash and value to shareholders. As noted in our press release, for the completion of the Crisco divestiture, we anticipate offsetting the earnings dilution and using the after-tax cash proceeds for share repurchases over time. As part of our portfolio reshape efforts, we will continue to evaluate our businesses, brands and infrastructure. As we consider future strategic transactions, our primary focus is on our return on invested capital, which is why the metric is now tied to long-term incentive compensation. This has already led to refocusing how we evaluate opportunities to prioritize investments and spend. In support of this, we are putting in place greater oversight, strengthening our reporting and analytical tools and continuously evaluating our portfolio to put the company in a position to deliver strong financial results and improved return on invested capital. We believe as we continue to execute, the company has the opportunity to become a top quartile performer in terms of total shareholder return in the Food & Beverage industry. Across our peer group, Smucker is currently trading at a valuation multiple discount. As we continue to execute on our strategy and consistently deliver both our short-term and long-term sales and earnings growth objectives, there is an opportunity for multiple expansion, resulting in enhanced total shareholder return. In closing, I would like to summarize several key messages that the team has shared today. We are making significant progress executing against our key growth priorities. We are delivering strong results during these unprecedented times through execution enabled by the capability investments that we have made over the past few years. We are improving our offerings through assortment optimization and innovation that meets evolving consumer needs. We have embraced a rigorous focus over the next 12 to 18 months to improve execution across commercial functions, streamline our cost structure, create a more agile organization to adapt to the rapidly changing environment and reshape our portfolio to increase focus on our key growth areas of pet food and snacks, coffee and snacking. Finally, execution against these priorities will enable delivery of our short-term and long-term financial targets, strong cash generation and balanced capital deployment, resulting in increased shareholder value. Thank you for your time today. [Presentation]

At this time, we are going to take a short 5-minute break and then we will transition to the question-and-answer portion of today's presentation. [Operator Instructions] [Break]

Welcome back. I'm Aaron Broholm, Vice President of Investor Relations for the company. We will now begin the question-and-answer portion of today's program. Joining us for this segment are Mark Smucker, Tucker Marshall and John Brase. [Operator Instructions] Let's get started. Our first question is for Mark and comes from Andrew Lazar at Barclays. Mark, the dedicated pet sales force. Does this risk deleveraging the scale that the company brings to retailers across all of its categories in the store? What are the potential benefits?

Well, Andrew, first of all, thanks for the question. Absolutely not, does it deleverage or descale us. In fact, because the category, the pet category is so dynamic and it has different dynamics than the human food categories, it makes all the sense in the world to actually dedicate a pet team to that segment. There are -- even the way customers are structured today, often by category with unique buyers, obviously gives us the opportunity to address the needs of each customer specifically in that category.

Our next question also comes from Andrew Lazar and is for John. For many food companies, 80% of SKUs make up something between 2% and 20% of sales. SJM is targeting the 60% that make up 20%. Any thoughts on why that would be so different?

Andrew, thanks for the question. Honestly, I think the fact that 60% of our SKUs account for only 20% of our business talks about some of the progress we've already made to date. And we have had real intentional efforts to be more productive with our assortment. Honestly, I think what the pandemic has really highlighted, though, is an opportunity to go even deeper. And I think there's an opportunity for us to continue to partner with our retailers to ensure we've got the most productive assortment that drives efficiencies throughout the supply chain and make sure that the offerings that are on the shelf are the right ones for the consumer.

Our next question is for Tucker and is from Ken Goldman at JPMorgan. Tucker, does your 2% long-term sales algorithm include any benefit from future M&A?

Ken, our top line growth is really focused on balancing the businesses and the portfolio of brands across our U.S. retail businesses and the continued growth in our international and away-from-home business. As we think about that, that is our top line expectation on an organic basis. And so therefore, we would hope to achieve, over time, that 2% level as a total company.

Our next question is also for Tucker and also comes from Ken Goldman at JPMorgan. You're discussing a number of things that will require bigger spending, including splitting your sales force, adding to product quality and raising marketing spending. I appreciate that you're going to find savings, too, but will the savings be enough to offset these added expenses in FY '22?

Ken, we anticipate the $50 million per year of annual savings over the next 3 years to be supportive to profit growth. And when we talk about those investments that we're making, we have found ways to fund those investments, and we do not see the creation of a second sales force to support our pet business as an incremental spend to the company, rather one that we can manage over time.

Our next question is for Mark Smucker and comes from Chris Growe at Stifel. Mark, it's not clear if you continue to reshape the portfolio further from here. Are there more brands that you expect to divest as part of your reshaping? And do you need to execute further divestitures in order to achieve your long-term sales growth target?

Thanks for the question, Chris. So if you think about portfolio reshape, it's not only the assets within our portfolio. It's also, as John alluded to a moment ago, the SKU rationalization. So it is a comprehensive look at our portfolio. This is something that we have done consistently over the past couple of decades. And so as we have acquired, similarly, we have divested. So it's an exercise that we do on an ongoing basis. I can't comment on any future plans at this point, but it is something that we think about holistically and we take it very seriously.

Our next question comes from an investor, and this one's for Tucker. Great job getting back to your targeted leverage. Could you elaborate on why 3x is the right number for Smucker? And where you might be willing to re-extend leverage in order to pursue strategic opportunities?

Yes. Thank you for your question. We have talked about our desire to maintain a 3x or below leverage profile. That profile enables us to have a balanced capital deployment model of reinvesting in the business and returning cash to shareholders in the form of dividends, share repurchases and incremental debt paydown. To the specific point of your question, what we would like to do is continue to manage a leverage profile in that 2 to 3x. It really helps us have an optimal capital structure where we can continue to advance the strategic priorities of the company. But over time and in the future, it gives us strategic capacity for future M&A at the right point and the right time.

Our next question is also from Tucker and is from Chris Growe at Stifel. The new long-term EPS growth target incorporates a use of cash to produce stronger EPS growth than operating profit growth. But the company does not have an explicit share repurchase program, which is surprising. While the company has indicated it would not make a large-scale acquisition, it would seem that the lack of an explicit share repurchase program could leave open that opportunity. How should we consider the uses of cash from both divestitures and ongoing cash flow?

Chris, let me first begin by addressing the ongoing cash use over time. So consistently, over the past few years, we've talked about getting to a leverage profile of below 3x, which would open up strategic capacity. When we open up that strategic capacity, it would enable us to begin to evaluate potentially the use of share repurchases on an annual basis. We believe that, that annual opportunity would provide a couple of points of growth to our EPS, both in the near term and in the long term. And now that we are at that level of desired leverage, we now have the opportunity to consider those share repurchases ongoing. Immediately, we do have the divestiture of the Crisco transaction. And as we have shared, we intend on using the after-tax cash proceeds to repurchase shares over time.

Our next question is from Bryan Spillane at Bank of America, and this one's for John. It's a 2-part question, and it relates to the SKU optimization. First, could you provide color on the potential impact, how much of the 20% of revenue is potentially impacted? And second, we understand that calendar year 2020 demonstrated the benefit of fewer high-velocity SKUs. But pre-COVID, how wide did we decide to add all of the SKUs? And why do we think fewer SKUs will work when conditions normalize?

Bryan, thanks for the question. A couple of things. I think, first, as we were going into the pandemic, our job really was to partner with our retail customers to maximize availability of our product for consumers. And so that had us do different things with our assortment to really minimize the assortment to maximize the output that we could provide to feed as many families as possible. As you think about coming out of the pandemic now, we see a continued opportunity to reduce our assortment, but honestly, not to affect top line at all. We have an opportunity to get our most productive SKUs in front of the consumer. And we believe by getting rid of some of the long tail of our SKUs, we can get more of our assortment in that's faster-moving and delights more consumers. And so honestly, we think there's addition by subtraction as we think about optimizing our portfolio.

Next, we have a couple of questions from Faiza Alwy at Deutsche Bank. The first one for Tucker. Tucker, how should we think about the base that you expect long-term growth targets off of? Is it fiscal year '21 less the divestitures or some other time frame?

Yes. Faiza, as we think about the base year for our long-term growth algorithm, as we've thought about it internally, really, this fiscal year is our base year as we think about that achievement over the long term. However, with that said, as we continue to evaluate our progress against that, we will do that based on the underlying performance of our business, absent the impacts of COVID and the pandemic has created over the last 9-plus months. And so I just think it's important for us to acknowledge that over the long term, we want to achieve this, but it will be based on our underlying performance.

And then the next question from Faiza is for John. Can you expand on the change to the sales organization? And why that is being implemented? Relatedly, how is the e-commerce function organized? Is it embedded within the sales organization or is it a separate function?

As Mark alluded to earlier, I am personally incredibly excited about the restructuring of our sales organization. One of the things we've learned is that deep category expertise is critical to bringing category winning solutions to our retailers, and it's also right for our brands. And so this concept of more dedicated, deeper coverage in both the pet and human side of the business is really, I think, a breakthrough for our company, and really excited to bring that to market. As you think about e-commerce, this is an interesting one. And honestly, like many most -- like many CPG companies, we've been building capability for several years across e-commerce, and I think it required a dedicated effort. I think over time, we'll look to embed that back in the categories so we can develop the right category solutions for both our pure-play and Click & Collect customers, no different. That we take a channel approach for our club and dollar customers and food customers. And so I think that will be the natural evolution of the business.

Okay. Our next question is for Mark and comes from an investor. Mark, what have you learned since making your sizable acquisitions in pet food that will ensure a better return on invested capital from future M&A?

Thanks for the question. So first of all, our strategy is really around leading in the best categories, and we know that pet indeed is one of those categories because it does have -- it's growing, it has growth potential and we see that it will grow in the future. So if you think about even the divestiture of natural balance and the remaining portfolio, we feel that this portfolio and I have a high degree of confidence it will continue to grow. I mean, if you look even right now, cat is doing very well, continues to do well over multiple quarters. Snacks, we are growing. There obviously are new snacking occasions as pet parents are staying home more during this time. And then we have a very specific and strong plan to ensure that Nutrish is focused and growing and the anchor of our dry dog portfolio going forward.

Our next question is for Tucker, and this comes from David Driscoll at DD Research. With the announced divestiture of Natural Balance, is the divestiture program concluded? If not, can you give a sense as to how much of revenues are you looking to divest in the coming years?

David, as Mark alluded to in his comments and also Amy shared as well, portfolio reshape is an essential component of our strategy to make sure that we are situated in the right categories with the right brands, and so we will continuously evaluate our portfolio over time. As it relates to divestiture activity and the amount of top line that we're looking forward to divesting or looking to divest, candidly, there's no number. What we're trying to do is ensure that we have the right portfolio to deliver balanced top line and bottom line growth to achieve both our near-term and long-term financial and strategic expectations.

Our next question is for Mark, and it comes from Rob Dickerson at Jefferies. It sounds like part of the strategy is to margin up your pet business, but it also sounds like there may be incremental expenses upfront to get the business where you want it to be. How should we be thinking about the profitability trajectory of the pet business over the next 3 years?

Rob, thanks for the question. I may start this one and ask John to chime in as well on the pet. So again, our pet business, we believe, is very strong and has a lot of potential. We have a responsibility as stewards of these brands, whether it's the pet category or the other categories we participate in to balance top and bottom line growth. Part of the top line growth is, in a responsible way, ensuring that we can maximize net revenue. That could come in the form of net price realization or other levers. And so our responsibility is to grow both top and bottom line, and we have a variety of levers that we can pull to do so. John, I don't know if you had had anything to add on that.

Yes, Mark, I think you said it well. And I want to start by just reminding folks of the strength that we have in our pet business. We have cat that has grown sales in 13 consecutive quarters. We have our pet snacks business that has grown in 12 of the last 13 quarters. We have a really thriving pet business when you look at those 2 segments. And we feel really confident the plans we've put in place Nutrish are going to restore the brand to growth. I think over the short term, it will require some investment. And the great news is we're in a good position as a company to invest for growth and the pet business that -- to your point, we have the same requirements for our pet business as we do our others, which is we had to deliver continuous top and bottom line growth.

Okay. Next question is for Mark, and this comes from Rob Moskow at Crédit Suisse. Do you need to reduce the size of your workforce? Will there be significant restructuring charges this fiscal year for streamlining the organization?

So on this one, Rob, I'll start and ask Tucker to maybe wrap up. As with any divestiture, obviously, there are certain costs that go with the business. Oftentimes, there are some costs that remain behind. And those costs, whether they're organizational or other categories, need to be addressed. And so as we have done with past divestitures, we will actively engage and manage taking those costs out of the system.

Rob, as Mark has shared in our efforts to reduce those costs and take them out of the organization, there will be onetime nonrecurring restructuring costs. We anticipate those costs to occur in a portion of this fiscal year and also into next fiscal year as well.

We have a follow-up question from Rob Moskow, and this one is for John. What does management consider a structural shift in consumer behavior that will persist even after COVID vaccines are fully distributed and consumers regain mobility?

Honestly, I don't think any of us have a crystal ball of exactly what the world will look like post the pandemic. But I think you can look at all of our personal situations and say that, no question, there will be a different flexibility as you think about work from home as an example. And so I think there'll definitely be changing consumer behaviors. But honestly, we can't control those. What we can control is our performance within the categories that we compete in. And what I feel great about is over the past 4 quarters, we've delivered consistent growth in terms of the amount of brands that are growing share in our portfolio. And we have almost 50% of our brands growing share. And so our job is to do is to continue to win in the categories that we compete and that will transfer nicely post pandemic regardless of how the consumer habits change.

Next, we have another question from an investor, and this one's for Mark. Could you elaborate on the traction you're seeing with the new management team? Any early examples of the benefits of bringing in a Chief Operating Officer? And where have you been able to spend more of your time as CEO?

Good question. So as we talked about in the prepared remarks, the idea of bringing in a COO had been contemplated for some time. We feel very fortunate to have found John and that he was willing to come and join the company. It happened to coincide, of course, with Tucker's promotion. And so it was an opportunity, given the timing of Mark Belgya's retirement and so forth, to really streamline and get a tight leadership team. In parallel, we also recognize that we had some other work that we needed to do. And so it was a good time to actually start to think about ensuring that the organization has the right levels of accountability that we are able to empower the employees, flatten the organization. And so far, we're seeing tremendous results. I think John spoke in his prepared remarks also about his experience with his leadership team, the amount of healthy debate that goes on, the eventual alignment that we get and action that comes from that. So John has been able to bring a perspective that helps look across all of the businesses and help make choices on where resources should flow. Where should we be investing, for example? We've clearly invested more dollars in Pet and Coffee over the last couple of quarters. It has allowed me as a CEO to really focus on strategy and be forward-looking over the next couple of years in terms of ensuring that what we do today is going to deliver against our long-term growth objectives. So very pleased with this team. I think they're amazing. I think the employees underneath them are also unbelievable. And we have a high degree of confidence that the momentum that we have begun is going to continue going forward.

Our next question is going to be for Tucker. This question comes from Jason English at Goldman Sachs. And Jason says, your medium targets imply that you will hit an all-time high EBIT margin by 2020. I appreciate that you see $150 million of incremental savings, but it also looks like you will have to overcome stranded costs from the recent divestments, mounting inflation pressure and investments to fund your focus on the higher cost to serve e-com channel. Your margin target appears unattainable to me in this context. What am I missing or underappreciating?

Jason, we feel very confident with our long-term growth algorithm that we spoke to today and being able to achieve both balanced top line growth and bottom line growth. And when you think about the opportunity to not only achieve the $50 million per year of savings, we also have the ability to focus on offsetting any inflationary pressures within our traditional SG&A environment. We will make sure that we have the price cost relationship correct with our products. We will also make sure that we continue to advance the investments across marketing and also in e-commerce. And as we presented today, we feel very comfortable that we can do this over time. And again, we will have to see what the year-over-year impacts will be as a result of the pandemic. But underlying, there is health and opportunity in our business and brands and in our cost structure to deliver both in the near term and the long term.

Our next question is going to be for John, and this question is from Alexia Howard at Bernstein. How are retailers lining to our case shoppers as we lap the onset of the pandemic and the economy reopens? Are you worried that they will be pushing for sharper price points and using private label products more strategically?

Alexia, thanks for the question. And I think start with the trend that we've seen throughout the pandemic, which is consumers returning to trusted brands, and that bodes well for companies like ours. And our job is to continue to delight those consumers and to keep them in our franchise. As for the retailer strategy post-pandemic, I don't want to speculate where they're going to go, but I can tell you that our responsibility is to figure out how to partner with them to continue the momentum of profitable top and bottom line growth. And so our job is to bring category growth solutions that can help deliver that.

We have another question from Alexia Howard, and this one is for Tucker. What are the puts and takes on gross margin as we lap the onset of the pandemic in March? Presumably, there could be a return to more normal levels of promotional activity, but what are the other factors that we should consider?

Alexia, as you think about the puts and takes as it relates to our gross profit dollars and margin over time, I would first share that we believe that volume mix over time should support our gross profit. We also believe that net revenue optimization will also support it as well and then as we think about a continuous improvement mindset within the supply chain and manufacturing environment as well. What we're seeing this fiscal year really is a couple of different dynamics. First is, as we noted on our earnings call, we are seeing increases in freight and transportation costs. We also are making some incremental investments across our pet portfolio in terms of incremental trade spend to support innovation in e-commerce, and we are beginning to bring promotional activity back. But we believe going forward, we will be able to balance both the top line needs and the cost needs in order to maintain a strong profit dollar and margin over time.

Our next question is for Mark. Question comes from Laurent Grandet at Guggenheim. As a follow-up on the new sales organization, splitting from -- splitting Pet from Food & Beverages, could you please clarify if the pet food sales force will be incremental to the existing sales force? Or do you reallocate some of the existing sales force to pet? Also, how -- could you talk about how your specific pet food sales force will compare in terms of size versus competitors?

Well, thanks, Laurent. I don't think I can answer the second part of that question because we're not -- it's very difficult to ascertain our competitors and how large their sales forces are. That said, we've learned a lot. We've talked a little bit about this already in terms of the pet sales force and what the needs are, what the needs of the category are. It is not meaningfully different in cost. So as we may build in certain areas, for example, we may be looking to take additional customers direct, those costs can be offset with external partners. So there are a lot of moving parts, but I would submit to you that there is really no meaningful increase in the cost structure given the puts and takes.

And we have another question from Laurent. This one is for John. Regarding the coffee category specifically, how much of the increased household penetration that you're enjoying right now do you think will stay once consumers go back to pre-COVID habits? What have you embedded into your long-term algorithm?

Thanks for the question. And I think this is one of the really unique dynamic categories as we think about post-pandemic. There is no doubt that consumers will be spending more time at home. The flexible work world, I think, will change, and that will have more people working out of the home, which will drive coffee consumption. But again, no one has a crystal ball on exactly what that will look like. Go back to the things we can control, and we can control the performance of our brands in the categories that we compete in, and I feel great about the performance of our brand -- our brands. We're growing share across the category. We've got a tremendous vertical portfolio with 2 of our brands growing over 20% with Dunkin' and Bustelo and Folgers has brought over 2 million net new households into the franchise. So those are really important, I think, trends that set us up well for regardless of how consumer habits change post-pandemic.

Next, a couple of questions for John regarding the Pet business, and these come from John Baumgartner at Wells Fargo. First, the shift at Gravy Train is pretty dramatic, going from winding down the brand to bringing it back as a more premium item. We have yet to see a mainstream or value-priced brand in the U.S. Pet successfully pivot into a more premium space. What's behind this logic as opposed to placing more resources behind a brand such as Milo's Kitchen instead?

Thanks for the question. And I think one of the things that is really important is we have a vertical portfolio across dog food, and that's critical. We want to make sure that we have offerings to meet the consumer wherever he or she is in the needs of their pets. Specifically with Gravy Train, I think this is one of the stories that talks about the power of getting the right proposition in front of the consumer and not being afraid to price when you've got the right proposition. We relaunched Gravy Train at a more premium price than pre -- was in market before, and it's performing well in market. And so I think a good example of getting the proposition right, but not being afraid to price when we believe the value equation can enable that.

And then the second question from John Baumgartner regarding the Pet business for John. What are the plans for portfolio shaping at Nutrish from here? I'm thinking specifically about the flanker brands such as 6 and DISH. Sales for those brands have been declining double digits for a while. Are those considered in the SKU rationalization program? And what do the struggles of those brands suggest about Nutrish's ability to expand out from its core?

John, as Mark talked about earlier, we're really excited about the plans that we have in place for nutrition. Really, the majority of the intervention plans that we talked about are hitting in the back half of the year. So coming with the launch of Big Life, increased marketing and you hit on one of them, which is brand architecture. I think we have an opportunity to clean up our brand architecture in terms of making sure that consumer knows what he or she is buying when she goes to the store. And so our packaging is an opportunity of where we're going to enhance, to make it clear what she is buying and what is right for her dog or his dog. And so I think an opportunity to clean up definitely our packaging. As you think about our assortment, we're going to continue to look for the most impactful architecture for the Nutrish brand, make sure the offerings that we have are the most powerful offerings. So I do think there'll be opportunities for us to make sure we've got the most powerful offerings on the shelf for the Nutrish brand.

Next question is going to be for Tucker from one of our investors. What is the baseline performance ex-COVID that we can use to model the long-term algorithm?

That question, we have not quantified in specifics. But let me break it down in just a couple of different thoughts for you to consider. So what we do know is, is that in the fourth quarter of this fiscal year, we'll have to lap $185 million top line benefit due to the initial surge or stock up due to the pandemic in our prior fiscal year. What we also know is, is that in the first quarter we experienced double-digit top line growth, largely due to the continued impacts of the pandemic and also inventory replenishment at retailers. But what we have seen is this continued momentum into the second and ultimately, into the third quarter across our U.S. Retail businesses, primarily Coffee and Consumer, at a little bit of an elevated level due to the pandemic, but those levels have come down since the initial stock up and the first quarter. And so what we would anticipate going into next fiscal year is beginning to experience underlying growth across our portfolio in the following areas: one is continued growth across both the Uncrustables brand and Jif Peanut butter; we would expect continued growth in both Cafe Bustelo and the Dunkin' brand; and then lastly is continued momentum in dog snacks and cat food while stabilizing the overall dog portfolio.

We have another question for John from Faiza Alwy at Deutsche Bank. John, would have been some of the surprises since joining Smucker? Where do you see the most opportunity for improvement?

Thanks for the question. And honestly, I knew throughout the interview process that this was a special place. But I don't think -- I think I probably underestimated the power of this amazing culture and organization. And I think really, the opportunity we have is to unleash the power of this great organization. I think we've -- as we are building capabilities, the right commercial capabilities, as an example, I think we introduced a little too much complexity into organizational structure. I think we have an opportunity to streamline decision-making, as I talked about earlier, and honestly enable the people closest to the business to make the decisions to enable us to continue to win in the marketplace. I think sometimes you get too internally focused. We need to shift more focus externally on how do we beat the competitors versus how do we get the decision made internally. But I've seen tremendous progress already in the first few months. And I will tell you, the opportunities in front of us are immense. And I think you're starting to see the power of these brands and the great categories we compete in, in this amazing organization.

Next, we have a couple of financial questions for Tucker. These come from Andrew Lazar at Barclays. First, can you help build up the 2% sales growth target for us perhaps by segment? Should we assume the lower sales growth target 2% versus the 2% to 3% previously is primarily more reasonable expectations for pet growth?

Andrew, as it relates to our top line algorithm our momentum over the long term, we will achieve balanced growth across each of our businesses and our portfolio of brands in order to achieve that 2% long-term top line expectation. Underlying that, what we do anticipate in the near term is that our U.S. retail businesses will approximate more of that 2% level on a balanced basis while beginning to see return to growth in our international and away-from-home operating segments, primarily driven by the away-from-home business. And then over the longer term, as pet continues to advance its step change, primarily in advancing both dog snacks, cat food but also strengthening and returning to growth the dog food portfolio, we would anticipate pet to sort of trend a little bit higher above that 2% level.

And then Tucker, a follow-up question from Andrew Lazar. How much, if any, of the $50 million incremental cost saves over the next 3 years will be reinvested? Are our marketing levels at the right level and the cost saves are how the company gets from 2% sales to 5% EBIT growth?

Yes, Andrew. So as we've talked about, it's important for us to balance both top line growth and bottom line growth. And in order to do that, we need to deliver the top line and ensure that we have the right volume mix, pricing and promotion so that we can support the gross profit margin. But also a continuous improvement mindset is very important. And so we believe that the $50 million does need to go and support operating income growth over time in order to achieve our algorithm.

And then continuing on the growth targets for Tucker, Bryan Spillane at Bank of America asks, the long-term targets that were given today, do they apply to FY '22 off of the current year base?

Yes, Bryan, I certainly appreciate the question. But candidly, I think it's early for us to begin talking about the direction for FY '22. We did provide some thoughts around where we see the momentum supporting FY '22 across our Coffee and Consumer businesses, how we see the advancement within Pet and the opportunity to return to growth our away-from-home business. I think in the coming months and quarter, we'll be able to give you a greater sense of what that direction is for next year. And as I have also shared, we're also just trying to understand what the impact is to the business as a result of the COVID-19 pandemic on a year-over-year basis. But we are anticipating underlying growth in those areas that I mentioned.

Okay. We have another question from Ken Goldman at JPMorgan. And Mark, I think this one will start with you. There's a lot of focus on sales, marketing and understanding the consumer. All of this is great, but what about the products themselves? Do you need to spend more on improving your ingredients? One of the criticisms we hear is that while Smucker is in great categories, its products are being left behind a bit as premiumization continues.

Ken, thanks for the question. I'll start and then see if John has anything to add. Yes, we are in great categories. And yes, we do tout that. But what I would also remind you is that in each category, we really do play across the value spectrum. So whether it's fruit spreads. And we have our traditional fruit spreads, we have our natural fruit spreads, sweetened only with fruit, et cetera. There is -- even within that smaller category, there is -- we're meeting every consumer need that we can. So that would be true in nut spreads, that would be true in Pet as well as Coffee. And if you think about coffee, between Dunkin', Folgers, Bustelo, K-Cup, the K-Cup format, we are addressing those needs. So we are very keen to ensure that as consumers' needs do evolve that we're there to meet them. And if that's premiumization, if it's humanization in the pet category, we're keen to those trends, and we will introduce innovation to address the needs of the consumer.

Mark, the only thing I would add is ultimately the consumer will reward us with their purchases. And ultimately, we'll know if we're winning or if we're growing share in the categories that we compete in. And over the last 18 months, that's exactly what we've been doing. We've been moving the needle in the right direction. So I would argue, our propositions are right from the product to the promise and the value. And ultimately, that's the metric that we need to continue to judge ourselves against, are we winning when the consumer comes to make that decision in the store each and every day? And I believe we're making tremendous progress there.

Our next question comes from an investor regarding our marketing investments, and I believe this one's for John. Can you provide some additional color about the level of marketing investment from both the perspective of spend cadence as you work to retain new households gained this year and in terms of the complexion of that spend. In other words, what factors do you look at to determine how to best allocate those dollars? And how is that different today versus 5 years ago, if at all?

Great. A couple of layers to that question. So I think I'll start with, as we alluded to earlier, Tucker and Jeff both talked about a little bit about our ongoing commitment to the right levels of marketing support. And we see that being that 6.5% to 7% of sales. So I think that ratio is right and will continue. And I think one of the things that our business strength has enabled us to do this year is to invest and continue to invest, but we need to always make sure those dollars are working hard. And I think Jeff and his team have done a tremendous job of using analytics and artificial intelligence to make sure that our dollars are working as hard as they possibly can. And as you think about how the consumers evolved, no question in the last 5 years, obviously, the continued drive of e-commerce and digital, right, and we have to be better there. And I think we've done a tremendous job. And what that allows you to do is pivot quickly. You can test fast. You can find what's working, and then you can double down where you know the consumer is responding. And so that's what digital provides. And I think we've done a great job of moving our organization to newer agile so we can adapt where necessary in our marketing.

Next question for Tucker comes from Chris Growe at Stifel. Do you anticipate restructuring costs in order to achieve your cost-saving programs? You noticed some supply chain cost reductions. How could this enhance your gross margin going forward?

Chris, we see the restructuring costs in order to achieve the portfolio reshape are really around addressing stranded overhead. And a component of stranded overhead is the organization. And another component of stranded overhead is not the organization. And so we will have some onetime costs there. As it relates to some supply chain efficiencies, some do not require costs to achieve the savings and some do. And I think what will make sense is, over time, as we begin to implement these decisions and changes, we'll be able to come back with you and sort of break down where we're seeing the onetime nonrecurring restructuring costs.

And then another question from Chris Growe, this one for Mark, creating a second sales organization for the pet business, why is this necessary given an increasing consolidation of pet sales in key channels where the company has existing sales force?

Chris, I think we've already answered this question. It's fundamentally about focus and the dynamics of the pet category being different. An example would be, John spoke in his prepared remarks about consistent, strong innovation. And what we mean by consistent is bringing new news to the various segments of the category on a consistent basis and a frequent basis. It could be new platforms, but it could be line extension. So it runs the gamut. That's just an example. So fundamentally, it really is about focus. It's about making sure that we're meeting the needs of our customers, our retail customers, whether those are online or brick-and-mortar customers because as we bring expertise, particularly in a segment like snacks, they will look to us as a category leader to provide those insights. So it's really about focus.

Next question is from Rob Dickerson at Jefferies. This one for Mark. I didn't hear much on the international and away-from-home segment. And given it's your lowest-margin segment and maybe not your fastest growth area, would you say that incremental investments and capabilities in your brands will clearly be centered on your core 3 focus areas of coffee, pet food and snacking?

So obviously, our U.S. retail business is our largest component of the company. And to Aaron's -- to the question, those 3 categories are key. I would point out, let's just separate away-from-home from international for a moment, Canada has experienced some of the same growth, of course, during the COVID dynamic as the U.S. It is a less-profitable market. That team does a phenomenal job of addressing their costs and improving their profitability. But there are similar categories in our Canadian business. Baking is one that is unique. We have exited the baking business in the U.S., but it is still a very strong business for us in Canada. So Canada is, in many ways, a mirror of the U.S. Away-from-home has made tremendous strides both in gaining share as well as improving profitability over time, focusing on branded offerings. And so over time, that business is going to come back and will continue to be a strong contributor to our total company, as will Canada.

Next question is one for Tucker. This comes from Rob Moskow at Credit Suisse. At what point will Smucker be able to give annual guidance that resembles the long-term growth algorithm? Would it be possible to use fiscal year '20 as the base after some adjustments for the past few months?

I definitely think that we are evaluating sort of what the through line is for the company in order to demonstrate sort of the underlying performance. And the way that we've been talking about this internally is, absent the pandemic, where might we have finished fiscal year '20? What would have our expectations been for this fiscal year? And then where would we be thinking about next fiscal year. And what we're trying to do is make sure that, through the pandemic and on the other side of this, that we are demonstrating the underlying performance in the business, in the categories that we play with the brands that we have and with the cost structure that we can influence. And so as a result of that, we will look to see what that effect is in '22. So therefore, we can begin to think about when you get on to the annual algorithm to support the long-term algorithm. I would share that we feel very confident that we can get there. I think right now, we're just working through the visibility due to the cloudiness of the COVID-19 pandemic. But again, in the coming weeks and quarters, we should have a better sense of what that direction should be.

And next, another financial question for Tucker from an investor. Are the $50 million of annual cost reductions net savings? Meaning our gross savings larger because $50 million doesn't seem like it would be sufficient to cover natural inflation in the businesses.

So the $50 million really comes from a couple of different areas and components across the supply chain and manufacturing environments. It comes across discretionary spend. It comes from the organization. And so what we have done is we believe that $50 million is needed annually to support our profitability, those margins and those dollar growth. There are other savings that are identified throughout the organization. Oftentimes, we have talked about savings in nonworking marketing that we can use to reinvest back into working dollars of marketing. And so there are some other savings that we are earmarking, so to speak, to support the growth of our business, both at the topline and bottom line.

If I may just add to that. Just going back again to this responsibility that we have building on everything that Tucker said to increase net revenue. And so if there is inflation, and it's meaningful and justifiable, we do have a responsibility to our investors and our customers to take justifiable pricing when necessary that benefits our financials but also supports the customers as well. So partnering in that way, the recent Jif pricing action is a perfect example of that, that did benefit. And so just to ensure each of you that we are actively managing our revenue and that is both growing volume, but it is also ensuring that meaningful cost increases can be passed along.

Next up, another important question about our pet business for John that I want to make sure we fit in. This comes from Jason English at Goldman Sachs. How have grain-free trends impacted your pet food portfolio? And how, if at all, have you modified your strategy as a result? Was this a factor that influenced your decision to divest the Natural Balance brand?

Thanks, Jason. A couple of things here. I think, again, back to Natural Balance. I think the decision there was we just had an outsized amount of effort and honestly dollars going just to a brand that we knew the return just wasn't there as we looked at other opportunities across the franchise. And so really, Natural Balance was an example of us driving sharper focus in our portfolio to allow us to invest in brands that we think can deliver a higher return for the shareholder. I think as you talk about grain-free, that's one of many trends, honestly, that we continue to be watching and migrating to ensure we've got the right offerings across Nutrish, but our other brands, right? Nature's Recipe as an example to ensure we're staying current and making sure that the proposition that we're bringing to the consumer and their pet are the right offerings.

Keeping with pet food, another question for John from Laurent Grandet at Guggenheim. What is the strategic rationale to choose to lower Nutrish pricing rather than improve formulizations and premium-ize the brand further.

Thanks, Laurent. And again, I think it comes back to the value equation. And what we need to make sure that we're doing across all of our brands, not just Nutrish, is ensuring we've got the right product proposition, the right promise at the right price. And I think specific to Nutrish, we had a few opportunities as you looked at some pack size, where we just -- we didn't have the right pricing as it related to our key competitors. And so we addressed it. As we move forward, we always want to try to premium-ize where we can, right? We always want to drive better product experience that allow us to drive dollars per occasion, and that will be a key component of Nutrish moving forward.

Next question for Mark from John Baumgartner at Wells Fargo. There wasn't much discussion around people snacking today, which was a big theme for Smucker just a year or 2 ago. I can appreciate the focus on improving product mix, but considering that many of your categories have longer purchase cycles, such as peanut butter, jellies and coffee, how are you thinking about increasing the frequency of consumption if you don't lean into snacking occasions as forcefully?

Well, we are leaning into snacking occasions with Uncrustables. That's not the only example, but it's by far the most powerful example. That train has left the station, and it is one that we have to ensure has enough fuel to continue to grow. Pre-pandemic, having just completed the Longmont facility in Colorado, we saw that we had enough capacity to meet demand. The pandemic has changed that. We have reacted, accelerated our expansion of that facility. And so that's one way that we are ensuring that, in the future -- in the relative near future that we can continue to meet that demand. So clearly, no-mess on-the-go convenience, those are all sort of the fundamental building blocks of some of the snacking efforts that we are taking on. You saw the gladiator spot for Jif Squeeze. Jif Squeeze is another -- again, coming back to this no mess easy for you. That product is a very simple way to deliver on some of our snacking ambitions as well. So snacking is still very much part of our strategy. Uncrustables is the driver of it, but there are other things in different areas that we will continue to focus on as well.

Aaron, if I could, I'd love just -- because we had the opportunity to talk Uncrustables...

Please.

And I think we shouldn't diminish the opportunity that we have on Uncrustables. As I said in my opening remarks, we have been capacity-constrained for 7 of the last 10 years on that brand. And under Mark's leadership, we've accelerated our manufacturing capability to bring a lot more product to the market faster to enable the 2023 goal of $0.5 billion. But currently today, Uncrustables serves only 15% of PB&J occasions. And so if you just look at the amazing whitespace opportunity there, honestly, the only barrier to capturing that is our ability to supply product. And so we've made tremendous efforts to accelerate that. And I think that, combined with marketing, which we've never turned on marketing on Uncrustables, marketing coupled with smart strategic pricing, I think, unlocks tremendous opportunities for the Uncrustables.

Absolutely.

And I'm just checking to see if we have any more questions coming through. I don't see any additional questions at this time. So I thank everybody for all the questions. And I'm going to turn it over to Mark now for a few closing comments.

Thanks, Aaron, and thank you to all of you for taking half of your day to spend with us today. We hope that you see the evolution of our company. Clearly, we have made tremendous strides transforming both capabilities, agility, and so forth. So we are very -- more confident than we ever have been in our ability to continue these trends, making the right, in some cases, difficult decisions to further our business. And all of it in the end is to support our purpose of feeding connections that help us thrive. And that means supporting all of our constituents, not least of which our employees, our communities and, of course, our shareholders. So again, thank you to each of you for joining us today. I want to thank our unbelievable employees for their dedication and what they have been able to deliver, particularly over these last few quarters, and wishing each and every one of you a very happy and healthy holiday season. Thank you.