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

Next up, please help me welcome the J.M. Smucker Company back to the CAGNY stage. Before I start, join me in thanking Smucker's for their generous support of the conference. This year doing double duty by stacking the coffee bar all week long and also providing an awesome assortment of Hostess snacks. And of course, the incredible Uncrustables. Thank you, as always. Mark, I can see you're already taking down a Twinkie. I've taken out about 15 in the past 2 days. So you've got some catching up to do. It does taste like grub. I love that. On to the intro, it's obviously been an eventful few years for Smucker, particularly the last year. The company has aggressively reshaped its portfolio, increasing its focus on coffee, dog snacks, cat food and snacking while simultaneously divesting lower-growth businesses, and obviously, most recently completing the acquisition of Hostess, a truly iconic suite of brands. Seriously ask yourself, what's better than coffee and a Twinkie? Not much. Here with us today, we have Chair of the Board, President and CEO, Mark Smucker; CFO, Tucker Marshall; and VP of Investor Relations, Aaron Broholm. With that, I'll hand it over to Mark.

Thanks, Andrew. It does taste like grub. Do you love a Twinkie? I mean who doesn't? So first of all, good afternoon. It's really great to be here. We always appreciate the opportunity to provide an update on our company, on our -- the company of our shareholders and be here at CAGNY. It's great. Hang on, I need another drink because that delicious Twinkie, just to wash it down. So the usual disclaimer here very quickly, just noting that certain information provided today is forward-looking based on current views and assumptions. Also, we use non-GAAP results for the purpose of evaluating performance internally. Details for both items can be found in the slides for today's presentation available on our Investor Relations website. Joining me today, as you heard, is CFO, Tucker Marshall, who will follow my remarks with an overview of our financial strategy and priorities. My comments today will focus on the following themes: our results have been strong driven by a focus on executing our strategic priorities and our ability to deliver continued growth across the portfolio. Consumer loyalty to our iconic brands remains high as we continue to experience sustained momentum and volume growth across our businesses. Our portfolio reshape has strengthened our company and the recent acquisition and integration of Hostess is progressing well. The Sweet Baked Snacks business is performing as expected with significant growth opportunities ahead. And we are focused on attractive categories where we are well positioned with leading brands and offerings ranging from value to premium. Over the last several years, we have fundamentally transformed the company. Today, we are a leading packaged food company with pro forma net sales of approximately $9 billion. Our business is focused on North America. The most profitable geography for packaged food, where consumers prefer established brands. We continue to be guided by our vision which is to engage, delight and inspire consumers by building brands they love and leading in growing categories. Our brands have strong consumer awareness and consumer loyalty remains high with over 95% of our U.S. retail sales coming from categories where we hold either the #1 or #2 branded position. And the health of our brands continues to be strong, with the majority of our portfolio growing or maintaining both dollar and volume share. We operate in attractive categories with relatively low private label penetration. Our private label exposure of 12% average share across our business remains below the total store share of 20%. Additionally, we are strategically positioned for macroeconomic shifts as the categories we participate in performed well during both economic expansion and recessionary periods. Our strategy is working. And in support of our relentless focus on long-term sustainable growth, we are refining our strategic priorities. These priorities will guide our business and position the company to deliver strong results and growth. First, deliver the legacy businesses which includes a focus on growing volume, operating with excellence and continuing to prioritize resources to our fastest growth opportunities. Next, integrate and deliver the acquired Hostess business, including the alignment of systems and processes achieving cost synergies and growth ambitions and nurturing a unified culture as we expand our organization. And third, achieve our transformation, cost discipline and cash generation goals. I will dive into the first two priorities, delivering the core business and the Hostess growth plan, and Tucker will later discuss our transformation and financial aspirations. Delivering the business is grounded in our ability to drive growth through our key platforms. Our coffee portfolio, including our expansion into the growing liquids segment, Uncrustables frozen sandwiches and dog snacks and cat food. In addition, we are focused on executing our Hostess growth and integration plans. Now let me share some examples of how we will drive growth for each of our businesses, starting with our coffee segment, which delivered $2.7 billion in net sales last year. We play a leading role in this strong category as over 70% of Americans drink coffee. Further, 7 out of 10 cups are consumed at home, which benefits us as the #1 at-home manufacturer with 3 of the top 7 brands in the category, Folgers, Dunkin' and Café Bustelo. Over the last several years, we have successfully shifted our portfolio toward the faster-growing one cup and premium segments, The Dunkin' and Café Bustelo brands as well as K-Cups remain key drivers of growth, and we will continue our expansion into the growing liquid segment. Dunkin' benefits from crossover Cafe consumers, and we have a significant runway to grow these dual users through new offerings. Consumers can now enjoy Dunkin' Cold and Seasonal offerings at home. In Seasonals, Dunkin' is the #2 brand and growing fast with consumer takeaway up over 30% versus the prior year. We anticipate sales for Seasonal offerings to double over the next few years through continued innovation. In cold coffee, we launched Dunkin' Cold varieties in both K-Cup and prepack roast and ground formats. Additionally, we launched Dunkin' Cold Brew concentrates and the brand is now #2 in the shelf-stable category. To support continued growth for this new platform, we have a creative campaign launching this spring to promote our Cold offerings. We are confident in the Dunkin' brand reaching $1 billion in annual net sales and anticipate the brand growing 2% to 3% annually over the next 5 years to deliver this goal. Café Bustelo remains one of the fastest-growing brands in the at-home coffee category as well, growing double digits annually over each of the past 5 years. To continue this momentum, we are focused on expanding its geographic reach as the brand still has a relatively low household penetration of 6%. The brand was #2 in household penetration growth last year with the fastest demographic growth coming from Gen Z consumers and Café Bustelo has quickly grown to the seventh largest brand in the category and is the #1 espresso coffee and the #1 Latin coffee. We are excited to bring Café Bustelo into the refrigerated aisle with new multi-serve ready-to-drink offerings available in two varieties nationally, black and sweetened as well as a retailer exclusive vanilla flavor. These products will be launching in May of this year. Café Bustelo is on pace to exceed $300 million in net sales this fiscal year, a year ahead of our previous expectations. We expect this momentum to continue with high single-digit growth in each of the next 3 years to reach $400 million in annual net sales. As we continue to invest in growth for Dunkin' and Café Bustelo, we have an iconic asset in Folgers, which is the largest at-home coffee brand in volume more than double the size of the next competitor. Last year, we introduced new packaging and our Bold Marketing Campaign embracing the brand's heritage. We are extending the campaign into calendar 2024 as we continue to invigorate the brand's appeal to younger consumers. Let's take a look. [Presentation]

We recently launched a new campaign inviting people to put the great taste of Folgers to the test, which includes traditional media, online video and social. The #1 selling dark roast canister Folgers Black Silk was preferred over Starbucks French Roast in a nationwide test at home ground coffee. Among all participants, 60% preferred Folgers Black Silk compared to 35% who chose the competitor. And finally, our K-Cup portfolio continues to experience strong momentum. We are a leader in K-Cups with 18% dollar share in a portfolio that generates approximately $800 million in annual net sales. We anticipate the business to grow mid-single digits annually over the next 5 years to $1 billion in net sales. We are uniquely positioned in the U.S. retail coffee market with our leading brands that provide consumers with options ranging from value to premium, and we will continue to leverage our deep expertise in coffee, in coffee sourcing, roasting and retail category advisory capabilities to take advantage of emerging coffee trends. Next, our frozen handheld and spreads business. Net sales, excluding the Sahale Snacks divestiture, were $1.6 billion last fiscal year. Over the last few years, we divested low-margin brands that represented a sizable portion of the business to prioritize our focus on the fast-growing Smucker's Uncrustable Sandwiches. We expect approximately 50% of net sales for the segment will be generated from Uncrustable Sandwiches within the next 4 years. The brand has delivered tremendous growth to date and is expected to grow approximately 20% to $800 million in total company net sales this fiscal year. We expect $100 million of net sales growth for the brand in each of the next 2 fiscal years. Construction of our third and largest Uncrustables manufacturing site is on track and operations are set to begin later this calendar year. This expanded capacity will enable continued growth and we are confident in growing the brand to $1 billion in annual net sales by the end of fiscal year 2026. Uncrustable Sandwiches has grown 9x faster than the frozen snacks and sandwiches category over the past year with consumer takeaway up 21%. The #1 SKU in the total freezer aisle is now an Uncrustables product with 2 SKUs in the top 10. And the brand also has the #1 repeat rate and #1 velocity growth rate, which is over 3x the frozen category average. Uncrustables still has significant runway to increase household penetration as we broaden distribution into new channels and geographies including future expansion into convenience stores, leveraging Hostess go-to-market capabilities. We are also increasing awareness with its first-ever National Advertising Campaign. Our new campaign introduces our spokespeople, the Bread Brothers. Take a look. [Presentation]

It's got a little curvier enthusiasm by those spots. We are excited to be launching a raspberry variety later this year. This new sandwich will bring the popular raspberry flavor into the Smucker's Uncrustables family, enabling a different sandwich variety for every day of the school week. We look forward to bringing additional innovation to the brand that meets consumer needs across more occasions. Now turning to our category-leading peanut butter and fruit spreads business. Over 70% of households with millennial parents eat peanut butter or fruit spreads each week. In peanut butter Jif has the #1 position in the category with 38 points of dollar share leading all competitors in household penetration and volume velocity. We see continued growth opportunities to expand Jif beyond sandwiches and into new usage occasions. We launched a new marketing campaign leading up to the big game last week, focused around saving the salary, a fun spin on the idea of more occasions for peanut better usage. [Presentation]

We had tons of great social executions on that and even had an organic collab with Jason Kelce, Jif and Frank's RedHot from McCormick. So that was a real nice bonus on that campaign. We're also expanding the Jif brand to meet the growing usages of spreads for snacking with Jif peanut butter and chocolate flavored spread. The perfect merger of peanut butter and the flavor of chocolate is launching this summer with 50% less sugar than the leading hazelnut spread. A new national media campaign will highlight how irresistible Jif peanut butter and the flavor of chocolate are when they come together in a way that only the Jif brand can deliver. This new product leverages the plant-based halo, brand familiarity and nostalgia from peanut butter. Over 70% of peanut butter buyers are not purchasing a chocolate flavor spread today and we anticipate this innovation will be highly incremental to the brand. We are confident there is significant white space within our frozen handhelds and spreads business to expand usage occasions and capitalize on continued growth in consumer snacking. For our Pet segment, net sales -- excuse me, for our Pet segment, switching gears, net sales, excluding the divested brands, were $1.5 billion last fiscal year. Pet is the largest center of store category, and we are a leader in the attractive dog snacks and cat food segments, which continue to experience strong macro tailwinds and growth. This growth is driven by more pet households, more pets and more spending on pets, all of which have grown double digits over the last 5 years. The pet population continues to grow, which benefits us with the #1 brand in dog snacks, Milk-Bone and #1 brand in dry cat food, Meow Mix. In dog snacks, we are the leader with a 21% dollar share. Dog snacks has historically been the fastest-growing segment in the pet category and delivers significantly higher margins than pet food. Our share in snacks continues to expand, and our portfolio consistently outpaces the category. Milk-Bone has grown dollar share for 10 consecutive quarters, driven by core offerings and premium positioned innovation. We have been the innovation share leader each of the last 3 years as well as having the most successful launch in each of those years. Milk-Bone continues to grow households faster and attract new and younger consumers with its culturally relevant, more dog campaign. Let's take a look. [Presentation]

We are also expanding seasonal and special occasion offerings by inspiring shoppers to celebrate with their pets to drive impulse purchases, which allows us the opportunity to drive net sales growth through increased dollars per occasion. 4 years ago, we set out to revitalize the Milk-Bone brand with a focus on its largest subsegment biscuits. We wanted to change the perception that biscuits are boring. With refreshed packaging, increased marketing investments and consistent elevated innovation, Milk-Bone biscuits have grown over 40% the past 4 years. This growth delivered approximately $160 million in dollar sales and 3/4 of the growth in the biscuits segment. We are now leveraging this playbook in the long-lasting chew and soft and chewy segments. We recently launched our Milk-Bone Comfort Chews lineup products, which was the largest dog treats launch in 2023 and was 50% incremental to the long-lasting chew category. We're now combining the #1 dog treat brand with the #1 peanut butter brand with new Milk-Bone peanut buttery bites made with Jif peanut butter. Launching later this year, supported by robust marketing investments, we're excited about continuing to expand the reach of the Milk-Bone brand. To achieve continued dog snacks growth, we will maximize every day treating with our core offerings, launch innovation and drive increased household penetration through incremental treating occasions. We anticipate our total dog snacks portfolio to grow approximately 3% annually over the next 2 years to $1 billion in annual net sales. In cat food, Meow Mix has returned to category share and profit growth after a challenging operating environment over the past year. Meow Mix is the leader in household penetration and volume share in the dry cat food category. There are also more cat parents than ever, and the population growth is projected to continue. We plan to leverage the strong tailwinds for the Meow Mix brand by driving demand, relevance and awareness with breakthrough marketing and engagement, elevating core offerings by optimizing assortment to meet our customer and consumer needs and delivering innovation that increases dollars and margin per occasion. The dry cat food category has experienced sluggish innovation while the needs of the consumer have evolved. We have a robust pipeline of Meow Mix innovation that will provide opportunities for trade up and treating occasions. With an improved operating environment for cat food, growth in high-margin dog snacks and the divestiture of low-margin pet food brands, we are experiencing margin improvement in our pet food segment. Over the next 2 years, we expect continued margin expansion upon the wind down of co-manufacturing and transition services related to the divested brands along with benefits from transformation initiatives. In addition to delivering on our core business, we are focused on executing on our Hostess integration and growth plans. Hostess provides Smucker with a significant presence in the highly attractive snacking category with its iconic brands and popular snack cake products. Here is a video highlighting the iconic and beloved Hostess snacks. [Presentation]

This acquisition strengthens our financial profile as it will contribute strong top line growth over time, provide significant cost and revenue synergy opportunities and be accretive to margins and earnings growth. The new Sweet Baked Snacks segment is anticipated to contribute growth next fiscal year. Snacking is one of the largest and fastest-growing categories and is growing faster than overall packaged food. We're focused on 5 key consumer eating occasions across multiple categories with an addressable market of $69 billion in retail sales. This view of consumer preferences through occasions allows us to better understand how consumers buy snacks. Today, 70% of consumers are eating at least 2 snacks per day and 50% of them are eating 3 or more per day. And while better-for-use snacks continue to grow, sweet and indulgent snacks are growing at an even faster rate. Even more encouraging is that snacking continues to grow across all day parts and with every generation. The tailwinds driving snacking provides our Sweet Baked Snacks segment with significant opportunity for future growth. Net sales growth for our Sweet Baked Snacks business will be achieved by 5 key drivers. Driving base velocity, delivering breakthrough innovation, expanding distribution opportunities, revenue growth management and e-commerce activation. Supporting base velocity growth will be a 50% increase in advertising to drive greater household penetration. We're primarily focused on growth consumer groups including Gen Z and Millennial consumers on the go and Millennial Parents Juggling it All. We have significant growth opportunities with Millennial Parents, especially through increased top-of-mind awareness which lags behind competitors. Improving brand awareness and bringing young families into the franchise is key to long-term growth as snacking behaviors are passed down through generations. In fact, over half of Americans say they've inherited their snacking habits from their parents and 82% of Millennial Parents are interested in finding new snacks. Historically, about 15% of Hostess Brands annual sales were from new products launched within the prior 3 years, and we will continue to invest in significant innovation for the category, consistent with evolving consumer preferences. For the third year in a row, Hostess innovation led the Sweet Baked Goods category with the #1 share of innovation at 40% and launched 9 of the top 20 new items in the category. One example is the huge success of Kazbars, which grew over $30 million in retail sales in calendar 2023, its first full year in market. We will continue to bring innovation to the category later this year as we launch new Hostess products, flavors and seasonal offerings aligned to current consumer trends. And for the Voortman brand, we're launching exciting innovation for sugar conscious consumers. Another growth driver will be channel and total distribution points expansion leveraging the strength of our strategic customer partnerships and commercial execution capabilities. In retail channels, we have opportunities to expand distribution in grocery, mass, and club, including multiple points of distribution in the store via on-shelf, in-aisle displays and at the checkout. In the away-from-home channels, we have distribution opportunities at universities, travel, lodging and entertainment venues. Revenue growth management and price pack architecture will be used to optimize sales and drive mix benefits. Finally, we plan to accelerate growth for products sold through e-commerce by leveraging the strength of our capabilities and expertise in the channel. With these multiple growth initiatives, we are engaging the consumer across their path to purchase and key snacking occasions from a morning sweet start to the lunchbox and afternoon reward and an evening treat. We continue to be encouraged by the many opportunities for the Sweet Baked Snacks business and its future contributions to our long-term growth objectives for the company. In addition to delivering on our financial aspirations, the company continues to have a positive impact on our employees, our communities and our planet. We're proud of the recent recognition we received for our activities that support our Thriving Together Agenda. We're confident in the strategic choices we have made to transform our portfolio and our results reaffirm that our strategy is working. Our priorities of delivering growth for the core business, integrating and growing the Sweet Baked Snacks segment and achieving our transformation, cost management and cash generation aspirations position us to deliver long-term growth and increase shareholder value, all of which are enabled by our unique culture and our talented employees who I would like to thank for their dedication and outstanding contributions. With that, I'll turn it over to Tucker.

Thank you, Mark, and good afternoon, everyone. It's great to join you for this year's conference. We are having a strong fiscal year and demonstrating momentum across our portfolio. Our comparable sales and earnings growth has been driven by our sustained consumer demand for our iconic brands combined with our continued focus on superior execution and disciplined cost management. Next Tuesday, we look forward to providing an update on our third quarter financial results, along with our outlook for the remainder of the fiscal year. We will continue to build on our business momentum by executing on our financial priorities. These priorities will allow us to remain dedicated to our long-term growth strategy, while operating with financial discipline. How we will achieve this is through the following: active and transparent communication, consistent financial execution, continuous focus on productivity and cost control, the successful integration of Hostess and prioritizing the highest return opportunities and a balanced capital deployment model. Our financial priorities are the building blocks to delivering increased and sustained long-term shareholder value. These priorities have guided us to deliver 3-, 5- and 10-year total shareholder return that has outpaced our peer group. As we move forward, we expect to remain a consistent top quartile performer in total shareholder return in the food and beverage industry. Turning to our expectations. The strategic framework and financial priorities shared give us confidence to achieve the following long-term financial targets. These include low single-digit net sales growth, mid-single-digit operating income growth, high single-digit adjusted earnings per share growth and total shareholder return of approximately 10% or greater when considering our dividend policy. We see these objectives as a steady, compelling and compounding algorithm achieved through top line and bottom line growth accompanied with margin expansion and a commitment to disciplined capital deployment. We have confidence in sustained top line growth as a result of our strengthened and streamlined portfolio driven by strategic investments, portfolio reshaping activities and projected growth rates in our respective categories. Let me give some color on how each of our key platforms ensures our top line growth. We expect continued growth for our coffee portfolio driven by the Dunkin' and Café Bustelo brands, our K-Cup portfolio and our expansion into liquid coffee. The Uncrustables brand is expected to account for approximately 1 percentage point of the company's total growth rate. We anticipate 3% to 4% growth for our pet foods business, led by our leading brands, Milk-Bone and Meow Mix. The Sweet Baked Snacks segment is anticipated to grow approximately 4%. And lastly, we expect continued growth in our away-from-home business driven by key growth platforms. Our transformation, cost discipline and cash generation objectives are now part of our stated strategic priorities, demonstrating the further emphasis we are placing on each of these activities. With these priorities in mind, we anticipate adjusted operating income growth will outpace our sales growth increasing at a mid-single-digit percentage over time. Operating income growth and margin improvement will be supported by 5 key growth areas. First, improved volume mix. We reshaped our portfolio by divesting low-margin businesses acquiring the margin-accretive Hostess business and prioritizing resources towards our fastest growth opportunities. Additionally, we expect to exit low-margin contract manufacturing sales related to the divested pet food brands next fiscal year. Second, benefits from our transformation efforts will support both gross and operating margin improvement while we view transformation activities as a permanent part of our operating model, we have established a 3-year road map of initiatives that will deliver significant benefits to the business. These benefits are expected to support margin growth and profitability aspirations along with reinvestments into our portfolio. The transformation work stream, which now reports directly to me, is driving ownership and accountability for the execution of cost and productivity initiatives, stranded overhead and synergies. Third is the realization of synergies from the Hostess acquisition. We anticipate cost synergies of approximately $100 million, half of which are expected to be realized in fiscal year 2025 with the full annualized amount to be achieved by the end of fiscal year 2026. Of the $100 million in synergies, 25% will benefit gross margin, with the remaining 75% benefiting SG&A spend. With the majority of our cost synergy analysis and organization design completed, we have a high level of confidence in delivering our synergy goals. Fourth, the mitigation of stranded overhead costs related to the Pet divestiture. We anticipate the net stranded overhead impact to be approximately $0.60 this fiscal year, inclusive of income and reimbursements from transition services and co-manufacturing agreements. The impact will continue into fiscal year 2025 since the transaction included a multiyear commitment to transition services and co-manufacturing. We anticipate beginning to address stranded overhead costs next year for the benefit of subsequent fiscal years. Finally, we anticipate a moderation of commodity and input inflation, continued stabilization improvements in our supply chain and manufacturing environments over time. These focus areas should enable us to deliver gross margin improvement while supporting mid-single-digit operating income growth. Below operating income, we expect our capital deployment model to drive a high single-digit percentage growth for adjusted earnings per share as we pay down debt and repurchase shares over time. Our company has consistently demonstrated the ability to generate strong cash flow that allows us to take a balanced approach to capital deployment while maintaining an investment-grade debt rating. Our objective remains to generate at least $1 billion in free cash flow annually, which will be used to support the growth of our business, pay down debt and create shareholder value through dividends and share repurchases. Our long-term strategic target for capital expenditures continues to be approximately 3.5% of net sales. However, investments will be elevated next fiscal year compared to our target, primarily due to Uncrustables sandwich capacity expansion. In the near term, we plan to prioritize debt reduction by paying down approximately $500 million of debt annually over each of the next 3 years. With this anticipated deleveraging, achievement of cost synergies and overall business growth, we anticipate a leverage ratio of approximately 3x net debt-to-EBITDA by the end of fiscal year 2027. This level of debt provides the financial flexibility for a balanced approach to capital deployment, while maintaining an investment-grade debt rating and the flexibility to undertake strategic growth opportunities. Another key element of our capital deployment strategy is our dividend. We are proud to be a member of the dividend aristocrats, an index that includes companies that have increased their dividend each year over several decades. Last July, we increased our quarterly dividend by 4%, marking 26 consecutive calendar years of dividend growth. On average, our dividend increase has been approximately 7% over the past 10 years. We expect our 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, reflecting dividend growth consistent with future earnings. Turning to next fiscal year. Let me provide some perspectives about the elements that we are considering as we begin our planning process. For next fiscal year, top line tailwinds include continued brand momentum across the portfolio and a full year of net sales from the acquired Hostess business. Top line headwinds include lapping net sales from the divested Sahale Snacks and Canadian condiment brands, reduced contract manufacturing sales related to divested pet food brands and any inflationary pressures impacting consumers' purchasing behavior. Key considerations for the bottom line next fiscal year are volume mix benefits from ongoing business momentum. Dynamics around key commodity and ingredient costs, continued stabilization in our supply chain and manufacturing environments, marketing investments to support top line growth, cost and productivity benefits and the impact from stranded overhead. Further, considerations related to the Hostess acquisition include a full year of ownership and business growth, approximately $50 million in run rate synergy realization next year and additional interest expense amount of debt paydown and total shares outstanding. In closing, our results continue to demonstrate the strong momentum across our business and brands. We remain confident in our strategy and the ability to deliver continued growth across our portfolio. And we are well-positioned to deliver consistent and long-term growth for our shareholders. Thank you for your time today.

I think we've got time for a few questions. Let's go with Ken. Ken? Oh, I'm sorry.

Can you just clarify, Mark, I think you said there's a 50% increase in marketing coming. Is that for the Hostess business, I just wanted to make sure I heard that correctly?

Yes.

Can you clarify over what period that is? And is this a onetime kind of jump start? Is it more permanent in nature? Is this like a new level of marketing? And I guess lastly, was this planned on when you gave your accretion guidance as you bought the business?

I'll start and Tucker can finish. It is a planned and consistent -- the plan is for it to be meaningful and permanent and so we do think that there's an opportunity for Hostess to actually invest more in marketing. I think one of the reasons -- 2 reasons we feel really good about Hostess and why we sort of modeled the 4% was, number one, there is an opportunity to meaningfully increase marketing, connecting consumers better with the brand, and there's just a great innovation pipeline. So I think the fact that Hostess was able to consistently deliver fast-cycle innovation with actually pretty limited resources is remarkable. And so we've been really impressed by those capabilities and plan to continue that.

Yes. Ken, as a follow-up, I would just acknowledge that the marketing will ramp up over time, and we intend on having a higher level of marketing spend for the Hostess brand and it was considered in sort of our thought process for next fiscal year.

Andrew Lazar?

Mark, you've talked openly about how the Hostess transaction came together pretty quickly on your end. So now that you've kind of owned the business for a while. I was really hoping to maybe context on some early learnings, right, things that you've kind of gotten to know about the brand that maybe you didn't have a chance to when you're doing some of the due diligence. Any surprises. It's hopefully more positive than not, but would love some context around that?

First, I would say, we're really impressed with the team, not least -- I mean just starting with Dan, right? And many of the folks there. Last week, we had their entire product development team in Orrville, interacting with ours in sort of our center of excellence. And it was remarkable just to see sort of the, just the cultural synergies that exist. So from an organization and people perspective, we feel really good about that. I think there's general excitement on both from their side and ours about what's possible. And then I just spoke to some of the innovation and marketing, Andrew, and I think that we continue to feel very enthusiastic about that. We feel very good about the general trends in snacking and specifically indulgent snacking and the opportunities that exist there. And to be honest, it did come together very quickly, but we have been studying their business for 18 months to 2 years and just admiring what they had accomplished. Obviously, there were some unique tailwinds through COVID that are probably not repeatable. And so we didn't model those. And that's why sort of we wanted to make sure that what we are putting out there publicly with you all is achievable and realistic. And so we -- as we get into it, the business is performing as expected. We feel very good about the continued growth possibilities that we've outlined and just very optimistic overall.

Pam?

Just to clarify Ken's question, the $100 million in cost savings from Hostess, is that inclusive of the step-up in marketing spend? Or is it separate? And then just to touch on the recent performance for Hostess of sales have been soft in the scanner data. Just curious about your recent strategy. It seems like there's been a step-up in promotional activity at Hostess.

So Pam, the $100 million of cost synergies associated with the Hostess acquisition, that's independent of the marketing increase or reinvestment against the Hostess brand. So there are 2 separate items.

Yes. And Pam, just kind of in part repeating what I just said, just about, first of all, our optimism about the potential of the business through innovation and then the improved marketing, we've learned a couple of things, and maybe this is back to a little bit on Andrew's point is there is a little bit of seasonality in the business around the holiday period since people do a bit more baking at home around the holiday period. And so I think that's a little bit of what you're seeing in the scanner data. But as we are moving out of that period. And there was a customer issue that we've talked about. We're getting past that now. And so that's what gives us optimism for the future and continuing the growth trajectory.

Rob?

I have to ask. Is there any reason for Tucker for not reiterating guidance today? A lot of other companies have come and have done so. Is there complications in explaining the quarter or anything that you want to kind of elaborate on?

Rob, we continue to be very pleased with the start and the momentum through our fiscal year. We're demonstrating strong performance across the portfolio, the momentum. As Mark noted, the acquisition is on track, and so we're very confident in our portfolio. Unfortunately, our earnings call is next Tuesday, so we'll have to talk about the quarter and the full year then. But again, hopefully, today, you see the strength of the company and the overall portfolio.

Yes. I would just add, just don't read anything into it because we -- as we come into this conference, we obviously take it very seriously, and I would just reiterate what Tucker said, we feel really good about where we are. We feel great about the full year. And so we'll tell you guys the full scoop next week.

Max. Sorry, I didn't see you were there.

I had a question on 2 of the headwinds you listed for FY '25 on the top line. So first -- I think the first one is easier. So on the contract manufacturing sales. I just wanted to confirm those are all going away in FY '25 or some will persist still in FY '25? And then on the inflationary pressure impacting consumers. I realize this one is tough to call and tough to predict, but it feels like peers are discussing a return to volume growth as some of the impacts we saw this past year elapsed. Are you seeing anything you'd suggest that those headwinds last into this whole calendar year? Or is this just more some prudence on your part?

So the co-manufacturing agreement impacted the full fiscal year for FY '24, and it will have a partial year impact based on what we've outlined today in FY '25, likely feeling more like a 6-month impact. So that would be on the top. As it relates to volume, and I know Mark will speak more here in a moment, just acknowledging the strength of our portfolio and the ability to demonstrate volume growth over the last several quarters, and we expect continued momentum across the portfolio, while at the same time advancing the success of the Hostess acquisition.

All right. I think we'll wrap it up there and take it over to the breakout. Join me once again in thanking Smucker for their generous support throughout the conference.