Executive Summary / Key Takeaways

• The J. M. Smucker Company is undergoing a significant portfolio transformation, shedding non-core assets to focus on attractive growth categories: pet, coffee, and snacking, anchored by iconic brands like Uncrustables, Café Bustelo, Jif, Milk-Bone, Meow Mix, and the recently acquired Hostess.
• Fiscal year 2025 results reflect the impact of the Hostess acquisition and ongoing divestitures, alongside macroeconomic pressures like inflation and shifting consumer spending, leading to mixed performance with strong growth in key platforms like Uncrustables and Café Bustelo offset by challenges in Sweet Baked Snacks and certain pet segments.
• Significant noncash impairment charges totaling nearly $2 billion were recognized in FY25 related to the Sweet Baked Snacks segment goodwill and Hostess brand trademark, reflecting underperformance relative to initial expectations and a revised long-term growth outlook for the segment.
• Management has outlined a refined strategy for the Sweet Baked Snacks segment focused on strengthening the portfolio, elevating execution, and reigniting sustainable growth, including operational optimizations like the planned Indianapolis facility closure, while maintaining confidence in the long-term potential of the Hostess brand.
• The Company is prioritizing debt reduction following the Hostess acquisition, targeting approximately $500 million in annual paydowns over the next two years to achieve a leverage ratio below 3x net debt to adjusted EBITDA by the end of fiscal year 2027, supported by strong free cash flow generation and cost synergies from the Transformation Office and Hostess integration.

The J. M. Smucker Story: Evolution and Strategic Focus

Established in 1897 and incorporated in Ohio in 1921, The J. M. Smucker Company has evolved from its origins in fruit spreads to become a diversified North American leader in branded food and beverage products, as well as pet food and snacks. Over its history, the Company has demonstrated a capacity to adapt to changing consumer preferences and industry dynamics, including the long-term decline in center-of-store sales volume. This adaptation has been driven by a strategic vision focused on building brands consumers love and leading in growing categories.

In recent years, this strategic focus has accelerated, marked by a deliberate reshaping of the portfolio through both acquisitions and divestitures. Non-core businesses, such as Crisco, Natural Balance, certain private label pet food and beverage assets, Sahale Snacks, the Canada condiment business, the Voortman business, and certain Sweet Baked Snacks value brands, have been divested to streamline operations and concentrate resources on areas with the most significant growth potential: pet, coffee, and snacking. The most notable recent move was the $5.4 billion acquisition of Hostess Brands (TWNK) in November 2023, a bold step to significantly expand the Company's presence in the sweet baked goods category within its snacking platform. This strategic pivot aims to drive balanced, long-term growth, primarily within North America, by leveraging a portfolio of iconic, market-leading brands.

Core Strengths: Iconic Brands, Operational Capabilities, and Competitive Moats

Smucker's competitive position is built upon a foundation of well-recognized brands, high-quality products, and consumer trust. The portfolio includes powerhouses like Folgers, Dunkin, and Café Bustelo in coffee; Uncrustables, Jif, and Smuckers in frozen handhelds and spreads; and Meow Mix, Milk-Bone, Pup-Peroni, and Canine Carry Outs in pet foods. These brands benefit from experienced management, varied product offerings, responsive customer service, and an integrated distribution network.

Beyond brand equity, the Company possesses distinct operational and technological capabilities that contribute to its competitive moat. Proprietary coffee roasting methods are considered essential to the consistent flavor and richness of its coffee products. Similarly, proprietary methods for manufacturing Uncrustables sandwiches are deemed critical to producing high-quality products that consistently meet consumer expectations. While these methods are often protected as trade secrets rather than patents, they represent valuable know-how. Packaging innovations, such as Folgers' AromaSeal canisters and the unique Uncrustables Round, Crustless Sandwich design, also play an important role in marketing and operational efficiency.

Recent investments in manufacturing capacity further underscore the commitment to operational excellence and supporting growth platforms. The $1.1 billion investment in a new manufacturing facility and distribution center in McCalla, Alabama, dedicated to Uncrustables production, is a prime example. Construction began in 2022, with production commencing in the second quarter of fiscal year 2025. This facility, the Company's third and largest for Uncrustables, is designed to meet increasing demand and drive margin expansion through more efficient cost absorption. The project is being executed in three phases over multiple years, aligning investments and job creation with production ramp-up.

The Company's ability to extend the shelf life (ESL) of certain products is also highlighted as an important component of its Direct-to-Warehouse model, contributing to competitive logistics. Furthermore, investments in digital technologies, data analytics, and transforming manufacturing and commercial operations are aimed at improving operating efficiencies and generating actionable commercial insights in an increasingly competitive landscape shaped by e-commerce.

Navigating the Market: Performance in a Dynamic Environment

Fiscal year 2025 saw Smucker operate within a dynamic and evolving macroeconomic environment characterized by ongoing input cost inflation, tariffs, regulatory changes, and shifts in consumer behavior, including diminished discretionary income impacting spending. Consolidated net sales increased by 7.0% to $8,726.1 million in FY25, primarily driven by the incremental net sales from the Hostess Brands acquisition ($669.3 million), partially offset by the impact of divestitures ($134.0 million of noncomparable net sales in the prior year). Excluding these noncomparable items and foreign currency exchange, net sales saw a modest increase of 0.3%, reflecting higher net price realization (+2.0 ppts) largely offset by unfavorable volume/mix (-2.0 ppts).

Gross profit increased by 9.0% to $3,384.7 million, benefiting from the Hostess acquisition and higher net price realization, but pressured by higher costs, divestiture impacts, and unfavorable volume/mix. Adjusted gross profit, excluding non-GAAP items like derivative gains/losses and special project costs, increased by 7.0% to $3,335.6 million, resulting in an adjusted gross profit margin of 38.2%.

Operating income, however, saw a significant decrease, falling from $1,305.8 million in FY24 to $673.9 million in FY25. This decline was primarily driven by substantial pre-tax noncash impairment charges totaling $1,982.5 million related to the goodwill of the Sweet Baked Snacks reporting unit ($1,661.6 million) and the Hostess brand indefinite-lived trademark ($320.9 million). These charges reflect the underperformance of the Sweet Baked Snacks segment relative to initial expectations since the Hostess acquisition, influenced by slower category recovery and execution challenges. The net pre-tax loss on divestitures ($310.1 million) also contributed to the operating income decline. Adjusted operating income, excluding these and other non-GAAP items, increased by 12.0% to $1,824.7 million, with an adjusted operating margin of 20.9%.

Net income reflected the significant impairment charges, resulting in a net loss of $1,230.8 million in FY25, compared to net income of $744.0 million in FY24. Diluted EPS was a loss of $11.57 in FY25, versus earnings of $7.13 in FY24. Adjusted earnings per share, which excludes non-GAAP items, was $10.12 in FY25, an increase from $9.94 in FY24.

Liquidity remained supported by cash generated from operations, supplemented by borrowings. Net cash provided by operating activities was $1,210.4 million in FY25, a slight decrease from $1,229.4 million in FY24, primarily due to higher working capital requirements. Capital expenditures were $393.8 million in FY25, down from $586.5 million in FY24, representing 4.5% of net sales and showing progress towards the long-term target of 3.5%. Free cash flow increased to $816.6 million in FY25 from $642.9 million in FY24. The Company ended FY25 with $70 million in cash and cash equivalents and $7.6 billion in total net debt, resulting in a leverage ratio of 3.6x adjusted EBITDA.

The Competitive Landscape: Positioning and Rivalry

The packaged food industry is intensely competitive, with SJM's brands facing rivalry from other established branded products, private label offerings, and increasingly, emerging players leveraging new technologies or business models. Key competitors include large, diversified food companies such as General Mills (GIS), Mondelez International (MDLZ), Nestle (NSRGY), Conagra Brands (CAG), and Kraft Heinz (KHC), each with significant scale, resources, and market presence in overlapping categories.

In the U.S. retail market segments where SJM primarily competes, private label products hold a notable and growing presence, capturing a 15.2% average dollar market share during the 52 weeks ended April 20, 2025, up from 13.7% in the prior year period. This highlights the importance of SJM's strategy to differentiate its brands through quality, innovation, and consumer trust to maintain a price premium.

Smucker's competitive positioning varies by segment:

• U.S. Retail Coffee: Competing against major players like Kraft Heinz (Maxwell House, Yuban), Keurig Dr. Pepper (KDP) (McCafé, Green Mountain Coffee), Nestle (Starbucks, Nescafé), and others. SJM's strength lies in its portfolio spanning mainstream (Folgers), premium (Dunkin), and growing ethnic segments (Café Bustelo). While navigating volatile green coffee costs and needing multiple price increases, SJM has seen competition follow its pricing actions, suggesting a degree of price leadership. The reliance on single-source suppliers for certain formats like K-Cup pods (Keurig) and liquid coffee (JDE Peets) represents a competitive vulnerability.
• U.S. Retail Frozen Handheld and Spreads: Jif and Smuckers compete with brands like Skippy (Hormel (HRL)), Nutella (Ferrero), Peter Pan (Post (POST)), Welch's, Bonne Maman, and private label. Uncrustables competes with frozen snacks like Hot Pockets (Nestle), Totino's (General Mills), and El Monterrey (Ruiz Foods). SJM's proprietary sandwich-making methods and the unique Uncrustables product design provide a significant competitive advantage, driving strong growth and market leadership in its niche. The brand is notably leading in attracting new buyers among key demographics.
• U.S. Retail Pet Foods: Meow Mix, Milk-Bone, Pup-Peroni, and Canine Carry Outs compete with major players like Nestle Purina PetCare (Nestle) (Cat Chow, Friskies, Beggin' Strips), Mars, General Mills (Blue Buffalo, Nudges), and private label. SJM's focus on pet snacks (Milk-Bone, Pup-Peroni, Canine Carry Outs) and mainstream cat food (Meow Mix) leverages leading volume share positions. Innovation, such as Milk-Bone Peanut Buttery Bites co-branded with Jif, has successfully outpaced competitor launches. The segment has demonstrated significant margin expansion, suggesting improved operational efficiency relative to rivals.
• Sweet Baked Snacks: The Hostess brand competes with Little Debbie (McKee Foods), Entenmanns (Grupo Bimbo (GRBMF)), Flower Foods (FLO), and private label. Despite being an iconic brand with strong awareness and category-leading positions in packaged donuts (Donettes) and cupcakes, the segment has faced significant competitive and execution challenges since the acquisition, contributing to underperformance and requiring a refined strategy to regain momentum and market share.

SJM's ability to effectively compete in the expanding e-commerce market and leverage technology for operational efficiencies and data analytics is increasingly critical. While the Company highlights its efforts in these areas, the competitive landscape is dynamic, and rivals with substantial financial and technological resources pose ongoing challenges. The concentration of sales with a limited number of large customers, particularly Walmart Inc. (WMT) (33% of net sales in FY25), also represents a competitive dynamic where customer strategies can significantly impact sales and profitability.

Outlook and the Path Forward

Smucker's outlook for fiscal year 2026 reflects a cautious approach in light of the dynamic external environment, while emphasizing continued investment in key growth platforms and disciplined financial management. Management anticipates full-year net sales to increase by 2% to 4%, with comparable net sales expected to rise approximately 4.5% at the midpoint, excluding the impact of recent divestitures and reduced contract manufacturing sales. This growth is expected to be driven by higher net price realization, particularly in coffee and Uncrustables, and ongoing brand momentum for key platforms, despite an anticipated decline in total company volume/mix due to coffee price elasticity assumptions and headwinds in Sweet Baked Snacks.

Adjusted earnings per share for FY26 is projected in the range of $8.50 to $9.50. This guidance incorporates several factors, including the impact of coffee price elasticity, increased marketing investments (total marketing expense estimated at 5.7% of net sales, a $40 million increase), headwinds in the Sweet Baked Snacks segment, and an estimated 50 basis point unfavorable impact on adjusted gross profit margin from tariffs, largely in U.S. Retail Coffee. These pressures are expected to be partially offset by positive tailwinds from base business momentum, cost and productivity benefits from the Transformation Office, the realization of $100 million in total run-rate synergies from the Hostess acquisition by the end of FY26, benefits from mitigating stranded overhead, and continued debt paydown.

The refined strategy for the Sweet Baked Snacks segment is central to the FY26 outlook, aiming to stabilize performance and return the brand to growth. This involves strengthening the portfolio through optimization and simplification, elevating execution in supply chain and commercial processes (including a dedicated sales organization), and refocusing strategy on core strengths and innovation. The planned closure of the Indianapolis manufacturing facility by early calendar year 2026 is a key operational step to optimize the bakery footprint, though it will incur approximately $75 million in costs ($60 million noncash). Management anticipates comparable net sales in this segment to decline low-single-digits in FY26 as these actions take hold in the back half of the year.

Financially, a significant focus remains on deleveraging. The Company plans to pay down approximately $500 million of debt annually over the next two years, targeting a leverage ratio at or below 3x net debt to adjusted EBITDA by the end of fiscal year 2027. This is supported by projected free cash flow of approximately $875 million in FY26 (at the midpoint of EPS guidance), with capital expenditures planned at $325 million, continuing the trend towards the long-term target of 3.5% of net sales.

Management expressed confidence that fiscal year 2027 is anticipated to be an "algorithm year" for adjusted earnings per share growth, assuming no significant changes in the green coffee market, consumer behavior, or the regulatory environment, including trade policy. This suggests that beyond the near-term volatility and integration efforts, the Company expects to return to its long-term strategic growth objectives of low single-digit net sales growth, mid-single-digit adjusted operating income growth, and high single-digit adjusted earnings per share growth on average.

Key Risks to the Thesis

While Smucker's strategy is clear, several risks could impact the investment thesis:

• Macroeconomic Headwinds: Continued or worsening inflation and reduced consumer discretionary income could further pressure demand, particularly in discretionary categories like pet snacks and sweet baked goods, impacting sales volume and requiring difficult pricing decisions.
• Commodity Price Volatility: Record-high green coffee costs and volatility in other raw materials (peanuts, oils, grains, packaging) could continue to pressure margins if price increases cannot fully offset costs or lead to significant demand elasticity.
• Hostess Integration & Performance: Despite integration completion, the Sweet Baked Snacks segment faces significant challenges. Failure to successfully execute the refined strategy, regain lost market share, and improve profitability could lead to further impairment charges and negatively impact overall financial performance and investor confidence.
• Competitive Intensity: Aggressive pricing, promotion, or innovation from larger, well-resourced competitors and the continued growth of private label could erode market share and pressure margins across segments.
• Supply Chain Disruptions: Vulnerabilities related to single-source suppliers, concentrated manufacturing sites, labor shortages, transportation costs, and geopolitical events could disrupt production and distribution, impacting product availability and increasing costs.
• Debt Levels: While deleveraging is a priority, the substantial debt load ($7.6 billion net debt at FY25) increases vulnerability to rising interest rates and limits financial flexibility for future investments or acquisitions if cash flow generation falters.
• Regulatory and Trade Policy Changes: New regulations related to ingredients, labeling, packaging, environmental policies, or tariffs could increase compliance costs, impact product formulations, or affect sourcing and distribution.

Conclusion

The J. M. Smucker Company is in the midst of a significant strategic transformation, shedding complexity to focus on core growth platforms with strong brand equity and operational capabilities. While fiscal year 2025 highlighted the benefits of the Hostess acquisition on the top line and the strength of brands like Uncrustables and Café Bustelo, it also underscored the challenges in integrating and revitalizing the Sweet Baked Snacks segment, leading to substantial impairment charges.

The path forward involves executing a refined strategy for Hostess, leveraging operational strengths like the new Uncrustables facility, driving innovation across the portfolio, and diligently pursuing cost synergies and productivity savings. A key financial priority is aggressive debt reduction to enhance flexibility and strengthen the balance sheet. While macroeconomic volatility, commodity costs, and competitive pressures present ongoing risks, management's focus on core brands, operational execution, and financial discipline provides a clear roadmap. The anticipated return to algorithm-driven EPS growth in fiscal year 2027 signals confidence in the long-term potential of the transformed portfolio, positioning Smucker as a company working to leverage its iconic brands and operational foundation to deliver sustainable value for shareholders.