J. M. Smucker(SJM) - 2025 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the company's unaudited condensed consolidated financial statements for the three months ended July 31, 2024, with detailed accounting notes Condensed Statements of Consolidated Income Condensed Statements of Consolidated Income Highlights | Metric | Three Months Ended July 31, 2024 ($ millions) | Three Months Ended July 31, 2023 ($ millions) | Change ($ millions) | Change (%) | | :---------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------ | :--------- | | Net Sales | 2,125.1 | 1,805.2 | 319.9 | 17.7% | | Cost of Products Sold | 1,327.9 | 1,150.4 | 177.5 | 15.4% | | Gross Profit | 797.2 | 654.8 | 142.4 | 21.7% | | Operating Income | 349.5 | 303.5 | 46.0 | 15.2% | | Income Before Income Taxes | 246.0 | 238.4 | 7.6 | 3.2% | | Net Income | 185.0 | 183.6 | 1.4 | 0.8% | | Earnings per common share | 1.74 | 1.79 | (0.05) | (2.8%) | Condensed Statements of Consolidated Comprehensive Income Condensed Statements of Consolidated Comprehensive Income Highlights | Metric | Three Months Ended July 31, 2024 ($ millions) | Three Months Ended July 31, 2023 ($ millions) | Change ($ millions) | Change (%) | | :-------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------ | :--------- | | Net Income | 185.0 | 183.6 | 1.4 | 0.8% | | Other comprehensive income (loss): | | | | | | Foreign currency translation adjustments | (0.6) | 7.4 | (8.0) | (108.1%) | | Hedging derivative activity, net of tax | 2.6 | 2.6 | 0.0 | 0.0% | | Postretirement benefit plans activity, net of tax | 0.4 | 0.4 | 0.0 | 0.0% | | Available-for-sale securities activity, net of tax | — | (0.2) | 0.2 | 100.0% | | Total other comprehensive income (loss) | 2.4 | 10.2 | (7.8) | (76.5%) | | Comprehensive Income | 187.4 | 193.8 | (6.4) | (3.3%) | Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets Highlights | Metric | July 31, 2024 ($ millions) | April 30, 2024 ($ millions) | Change ($ millions) | Change (%) | | :---------------------- | :------------------------- | :-------------------------- | :------------------ | :--------- | | Total Current Assets | 2,081.1 | 1,966.9 | 114.2 | 5.8% | | Total Property, Plant, and Equipment | 3,095.3 | 3,072.7 | 22.6 | 0.7% | | Goodwill | 7,649.5 | 7,649.9 | (0.4) | 0.0% | | Total Assets | 20,348.2 | 20,273.7 | 74.5 | 0.4% | | Total Current Liabilities | 3,764.0 | 3,761.1 | 2.9 | 0.1% | | Total Noncurrent Liabilities | 8,814.7 | 8,818.7 | (4.0) | 0.0% | | Total Liabilities | 12,578.7 | 12,579.8 | (1.1) | 0.0% | | Total Shareholders' Equity | 7,769.5 | 7,693.9 | 75.6 | 1.0% | Condensed Statements of Consolidated Cash Flows Condensed Statements of Consolidated Cash Flows Highlights | Metric | Three Months Ended July 31, 2024 ($ millions) | Three Months Ended July 31, 2023 ($ millions) | Change ($ millions) | Change (%) | | :---------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------ | :--------- | | Net Cash Provided by Operating Activities | 172.9 | 217.9 | (45.0) | (20.7%) | | Net Cash Used for Investing Activities | (172.4) | (151.9) | (20.5) | 13.5% | | Net Cash Used for Financing Activities | (23.0) | (481.3) | 458.3 | (95.2%) | | Net Increase (Decrease) in Cash and Cash Equivalents | (22.5) | (414.7) | 392.2 | (94.6%) | | Cash and Cash Equivalents at End of Period | 39.5 | 241.1 | (201.6) | (83.6%) | Condensed Statements of Consolidated Shareholders' Equity Changes in Shareholders' Equity (May 1, 2024 to July 31, 2024) | Metric | Balance at May 1, 2024 ($ millions) | Net Income ($ millions) | Other Comprehensive Income (Loss) ($ millions) | Purchase of Treasury Shares ($ millions) | Stock Plans ($ millions) | Cash Dividends Declared ($ millions) | Balance at July 31, 2024 ($ millions) | | :-------------------------------------- | :---------------------------------- | :---------------------- | :--------------------------------------------- | :--------------------------------------- | :----------------------- | :----------------------------------- | :------------------------------------ | | Common Shares (Outstanding) | 106,194,281 | | | (22,748) | 236,997 | | 106,408,530 | | Common Shares (Value) | 26.5 | | | — | 0.1 | | 26.6 | | Additional Capital | 5,713.9 | | | (3.2) | 4.5 | | 5,715.2 | | Retained Income | 2,188.1 | 185.0 | | 0.6 | 0.8 | (114.6) | 2,259.9 | | Accumulated Other Comprehensive Income (Loss) | (234.6) | | 2.4 | | | | (232.2) | | Total Shareholders' Equity | 7,693.9 | 185.0 | 2.4 | (2.6) | 5.4 | (114.6) | 7,769.5 | Notes to Unaudited Condensed Consolidated Financial Statements Note 1: Basis of Presentation - Financial statements are prepared in accordance with U.S. GAAP and Form 10-Q instructions, omitting some information and notes required for complete financial statements[17] - Operating results for the three months ended July 31, 2024, are not necessarily indicative of the results expected for the full year ending April 30, 2025[18] Note 2: Recently Issued Accounting Standards - The SEC adopted climate-related disclosure rules in March 2024, requiring certain climate information, but the rule was stayed in April 2024[19] - FASB issued ASU 2023-09 (Income Taxes), effective May 1, 2025, to enhance income tax disclosure transparency[20] - FASB issued ASU 2023-07 (Segment Reporting), effective for annual periods beginning May 1, 2024, and interim periods beginning May 1, 2025, to improve reportable segment disclosure requirements[21] Note 3: Acquisition - The company completed the acquisition of Hostess Brands, Inc. on November 7, 2023, for $5.4 billion in cash and stock[22] - Acquisition consideration included approximately 4 million common shares issued (valued at $450.2 million), $3.9 billion cash paid (net of acquired cash), and $991 million debt assumed[23] - Hostess Brands' results are included in the condensed consolidated financial statements, contributing $333.7 million in net sales and $50.8 million in operating income for the three months ended July 31, 2024[24] Preliminary Fair Value Allocation of Hostess Brands Acquisition | Category | Amount ($ millions) | | :---------------------------- | :------------------ | | Assets acquired: | | | Cash and cash equivalents | 135.0 | | Trade receivables – net | 181.1 | | Inventories | 66.0 | | Other current assets | 6.0 | | Property, plant, and equipment – net | 534.5 | | Operating lease right-of-use assets | 17.2 | | Goodwill | 2,447.1 | | Other intangible assets – net | 3,038.6 | | Other noncurrent assets | 43.2 | | Total assets acquired | 6,468.7 | | Liabilities assumed: | | | Accounts payable | 67.3 | | Other current liabilities | 249.3 | | Deferred income taxes | 639.4 | | Noncurrent operating lease liabilities | 14.5 | | Other noncurrent liabilities | 1.4 | | Total liabilities assumed | 971.9 | | Net assets acquired | 5,496.8 | Acquired Identifiable Intangible Assets | Intangible Asset Category | Amount ($ millions) | Useful Life (Years) | | :-------------------------------------------- | :------------------ | :------------------ | | Intangible assets with finite lives: | | | | Customer and contractual relationships | 1,238.5 | 25 | | Non-competition agreements | 38.0 | Varying | | Trademarks | 9.9 | 5 | | Intangible assets with indefinite lives: | | | | Trademarks | 1,752.2 | Indefinite | | Total intangible assets | 3,038.6 | | Note 4: Divestitures - The company sold its Canadian condiments business on January 2, 2024, for $25.3 million net proceeds, resulting in a $5.7 million pre-tax loss[32] - The company sold its Sahale Snacks business on November 1, 2023, for $31.6 million net proceeds, resulting in a $6.7 million pre-tax loss[32] - The company sold certain pet food brands on April 28, 2023, for $1.2 billion net proceeds (cash and Post common stock), resulting in a $1.0 billion pre-tax loss[32] Note 5: Special Project Costs - Special project costs primarily include employee and other transition and termination costs related to divestiture, acquisition, integration, and restructuring activities[33] - Total costs related to Sahale Snacks and Canadian condiments divestitures are estimated at approximately $6 million, with $5.8 million incurred as of July 31, 2024[34] - Total integration costs for the Hostess Brands acquisition are estimated at approximately $210 million, with $159.4 million incurred as of July 31, 2024[36][39] Note 6: Reportable Segments - The company operates four reportable segments: U.S. Retail Coffee, U.S. Retail Frozen Handheld and Spreads, U.S. Retail Pet Foods, and Sweet Baked Snacks[38] Net Sales and Segment Profit by Reportable Segment | Segment | Net Sales (2024, $ millions) | Net Sales (2023, $ millions) | Segment Profit (2024, $ millions) | Segment Profit (2023, $ millions) | | :---------------------------------------- | :--------------------------- | :--------------------------- | :-------------------------------- | :-------------------------------- | | U.S. Retail Coffee | 623.4 | 625.1 | 172.6 | 170.1 | | U.S. Retail Frozen Handheld and Spreads | 496.8 | 464.0 | 119.0 | 105.7 | | U.S. Retail Pet Foods | 399.7 | 441.0 | 115.3 | 81.3 | | Sweet Baked Snacks | 333.7 | — | 74.4 | — | | International and Away From Home | 271.5 | 275.1 | 48.6 | 36.4 | | Total | 2,125.1 | 1,805.2 | 529.9 | 393.5 | Net Sales by Geographic Region | Region | Three Months Ended July 31, 2024 ($ millions) | Three Months Ended July 31, 2023 ($ millions) | | :-------------- | :-------------------------------------------- | :-------------------------------------------- | | United States | 2,015.4 | 1,676.4 | | International | 109.7 | 128.8 | | Total | 2,125.1 | 1,805.2 | Net Sales by Product Category | Product Category | Three Months Ended July 31, 2024 ($ millions) | Three Months Ended July 31, 2023 ($ millions) | Primary Reportable Segment | | :------------------------- | :-------------------------------------------- | :-------------------------------------------- | :----------------------------------------------- | | Coffee | 711.9 | 709.1 | U.S. Retail Coffee | | Sweet baked goods | 296.6 | — | Sweet Baked Snacks | | Pet snacks | 226.8 | 243.4 | U.S. Retail Pet Foods | | Frozen handheld | 222.6 | 179.4 | U.S. Retail Frozen Handheld and Spreads | | Peanut butter | 218.6 | 212.0 | U.S. Retail Frozen Handheld and Spreads | | Cat food | 183.1 | 191.1 | U.S. Retail Pet Foods | | Fruit spreads | 106.5 | 106.6 | U.S. Retail Frozen Handheld and Spreads | | Portion control | 54.1 | 48.6 | Other (International and Away From Home) | | Cookies | 37.1 | — | Sweet Baked Snacks | | Toppings and syrups | 28.3 | 24.8 | U.S. Retail Frozen Handheld and Spreads | | Baking mixes and ingredients | 14.2 | 14.8 | Other (International and Away From Home) | | Dog food | 6.2 | 26.8 | U.S. Retail Pet Foods | | Other | 19.1 | 48.6 | Other (International and Away From Home) | | Total net sales | 2,125.1 | 1,805.2 | | Note 7: Earnings per Share - Basic and diluted earnings per share are calculated using the two-class method, with diluted EPS for 2024 and 2023 computed using the treasury stock method due to its dilutive effect[46] Earnings per Share (Basic and Diluted) | Metric | Three Months Ended July 31, 2024 | Three Months Ended July 31, 2023 | | :---------------------------------------- | :------------------------------- | :------------------------------- | | Net income allocated to common stockholders | $185.0 million | $183.5 million | | Weighted-average common shares outstanding | 106.3 million | 102.4 million | | Net income per common share | $1.74 | $1.79 | | Net income per common share – assuming dilution | $1.74 | $1.79 | Note 8: Debt and Financing Arrangements Summary of Long-Term Debt | Debt Instrument | July 31, 2024 Principal Outstanding ($ millions) | July 31, 2024 Carrying Amount ($ millions) | April 30, 2024 Principal Outstanding ($ millions) | April 30, 2024 Carrying Amount ($ millions) | | :-------------------------------------------- | :----------------------------------------------- | :----------------------------------------- | :------------------------------------------------ | :------------------------------------------ | | 3.50% Senior Notes due March 15, 2025 | 1,000.0 | 999.5 | 1,000.0 | 999.3 | | 3.38% Senior Notes due December 15, 2027 | 500.0 | 498.5 | 500.0 | 498.4 | | 5.90% Senior Notes due November 15, 2028 | 750.0 | 744.8 | 750.0 | 744.5 | | 2.38% Senior Notes due March 15, 2030 | 500.0 | 497.3 | 500.0 | 497.2 | | 2.13% Senior Notes due March 15, 2032 | 500.0 | 495.3 | 500.0 | 495.2 | | 6.20% Senior Notes due November 15, 2033 | 1,000.0 | 991.8 | 1,000.0 | 991.5 | | 4.25% Senior Notes due March 15, 2035 | 650.0 | 645.6 | 650.0 | 645.5 | | 2.75% Senior Notes due September 15, 2041 | 300.0 | 297.5 | 300.0 | 297.4 | | 6.50% Senior Notes due November 15, 2043 | 750.0 | 736.6 | 750.0 | 736.5 | | 4.38% Senior Notes due March 15, 2045 | 600.0 | 588.8 | 600.0 | 588.7 | | 3.55% Senior Notes due March 15, 2050 | 300.0 | 296.3 | 300.0 | 296.2 | | 6.50% Senior Notes due November 15, 2053 | 1,000.0 | 982.8 | 1,000.0 | 982.6 | | Total long-term debt | 7,850.0 | 7,774.8 | 7,850.0 | 7,773.0 | | Current portion of long-term debt | 1,000.0 | 999.5 | 1,000.0 | 999.3 | | Total long-term debt, less current portion | 6,850.0 | 6,775.3 | 6,850.0 | 6,773.7 | - The company completed a $3.5 billion senior notes offering in October 2023, partially funding the Hostess Brands acquisition[53] - The company has a $2.0 billion unsecured revolving credit facility and a commercial paper program allowing issuance of up to $2.0 billion in short-term unsecured commercial paper[54][55] - As of July 31, 2024, the company had $697 million in outstanding short-term borrowings with a weighted-average interest rate of 5.48%[55] - As of July 31, 2024, the company was in compliance with all debt covenants[56] Note 9: Pensions and Other Postretirement Benefits Net Periodic Benefit Cost | Component | Defined Benefit Pension Plans (2024, $ millions) | Defined Benefit Pension Plans (2023, $ millions) | Other Postretirement Benefits (2024, $ millions) | Other Postretirement Benefits (2023, $ millions) | | :-------------------------------------- | :----------------------------------------------- | :----------------------------------------------- | :----------------------------------------------- | :----------------------------------------------- | | Service cost | 0.1 | 0.2 | 0.2 | 0.2 | | Interest cost | 4.4 | 4.6 | 0.7 | 0.6 | | Expected return on plan assets | (3.1) | (4.1) | — | — | | Amortization of net actuarial loss (gain) | 1.1 | 0.9 | (0.5) | (0.4) | | Amortization of prior service cost (credit) | 0.1 | 0.1 | (0.2) | (0.1) | | Settlement loss (gain) | — | 3.2 | — | — | | Net periodic benefit cost | 2.6 | 4.9 | 0.2 | 0.3 | - In Q1 2024, the company recognized a $3.2 million non-cash pre-tax settlement charge related to accelerated service costs for a Canadian defined benefit pension plan surplus[58] Note 10: Derivative Financial Instruments - The company uses commodity derivatives to manage price volatility of key raw material and energy input costs, typically with maturities less than one year[61] - Commodity and foreign currency derivatives do not qualify for hedge accounting, with gains and losses recognized immediately in earnings[62][63] - The company uses interest rate derivatives to manage interest rate risk related to anticipated debt transactions, with some designated as cash flow hedges[64] Derivative Financial Instruments (Fair Value) | Derivative Type | July 31, 2024 ($ millions) | April 30, 2024 ($ millions) | | :-------------------------------- | :------------------------- | :-------------------------- | | Commodity contracts | 1,664.1 | 787.7 | | Foreign currency exchange contracts | 101.8 | 98.6 | Derivative Gains and Losses Recognized in Cost of Products Sold | Derivative Type | Three Months Ended July 31, 2024 ($ millions) | Three Months Ended July 31, 2023 ($ millions) | | :-------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Commodity contracts | (30.0) | 7.8 | | Foreign currency exchange contracts | 0.2 | (2.2) | | Total | (29.8) | 5.6 | Note 11: Other Financial Instruments and Fair Value Measurements - Remaining financial instruments, excluding long-term debt, are recognized at estimated fair value in the condensed consolidated balance sheets[74] Carrying Value and Fair Value of Financial Instruments | Financial Instrument | July 31, 2024 Carrying Amount ($ millions) | July 31, 2024 Fair Value ($ millions) | April 30, 2024 Carrying Amount ($ millions) | April 30, 2024 Fair Value ($ millions) | | :---------------------------------------- | :----------------------------------------- | :------------------------------------ | :------------------------------------------ | :--------------------------------------- | | Marketable securities and other investments | 22.1 | 22.1 | 22.1 | 22.1 | | Derivative financial instruments – net | (17.0) | (17.0) | 28.2 | 28.2 | | Total long-term debt | (7,774.8) | (7,620.6) | (7,773.0) | (7,652.9) | - Fair value measurement techniques rely on observable and unobservable inputs, with most financial instruments measured using Level 1 (quoted prices in active markets) or Level 2 (significant observable inputs)[75][77][78] Note 12: Leases - The company leases warehouses, manufacturing facilities, office space, equipment, and vehicles, primarily through operating lease agreements, with leases of 12 months or less not recognized on the condensed consolidated balance sheets[79] Right-of-Use Assets and Lease Liabilities | Metric | July 31, 2024 ($ millions) | April 30, 2024 ($ millions) | | :------------------------------------ | :------------------------- | :-------------------------- | | Operating lease right-of-use assets | 164.5 | 174.6 | | Total operating lease liabilities | 173.6 | 184.0 | | Finance lease right-of-use assets | 12.4 | 10.7 | | Total finance lease liabilities | 12.8 | 11.1 | Components of Lease Cost | Lease Cost Component | Three Months Ended July 31, 2024 ($ millions) | Three Months Ended July 31, 2023 ($ millions) | | :-------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Operating lease cost | 12.5 | 12.7 | | Amortization of right-of-use assets | 0.8 | 0.3 | | Interest on lease liabilities | 0.2 | 0.1 | | Variable lease cost | 6.5 | 6.1 | | Short-term lease cost | 11.2 | 9.4 | | Total lease cost | 31.2 | 28.6 | Weighted-Average Lease Term and Discount Rate | Metric | July 31, 2024 | April 30, 2024 | | :------------------------------------ | :------------ | :------------- | | Weighted average remaining lease term (in years): | | | | Operating leases | 6.1 | 6.2 | | Finance leases | 4.2 | 4.3 | | Weighted average discount rate: | | | | Operating leases | 4.3% | 4.3% | | Finance leases | 4.9% | 4.8% | Note 13: Income Taxes - The effective income tax rate for the three months ended July 31, 2024, was 24.8%, up from 23.0% in the prior year, primarily due to discrete unfavorable impacts from share-based compensation[88] - The full-year effective income tax rate for 2025 is projected to be approximately 24.3%[88] Note 14: Accumulated Other Comprehensive Income (Loss) Components of Accumulated Other Comprehensive Income (Loss) | Component | Balance at May 1, 2024 ($ millions) | Reclassification Adjustments ($ millions) | Current Period Credit (Charge) ($ millions) | Income Tax Benefit (Expense) ($ millions) | Balance at July 31, 2024 ($ millions) | | :-------------------------------------------- | :---------------------------------- | :---------------------------------------- | :------------------------------------------ | :---------------------------------------- | :------------------------------------ | | Foreign Currency Translation Adjustment | (39.2) | — | (0.6) | — | (39.8) | | Net Gains (Losses) on Cash Flow Hedging Derivatives | (143.1) | 3.4 | — | (0.8) | (140.5) | | Pension and Other Postretirement Liabilities | (53.4) | 0.5 | — | (0.1) | (53.0) | | Gain (Loss) on Unrealized Available-for-Sale Securities | 1.1 | — | — | — | 1.1 | | Accumulated Other Comprehensive Income (Loss) | (234.6) | 3.9 | (0.6) | (0.9) | (232.2) | Note 15: Contingencies - The company faces multiple class action lawsuits alleging misleading statements on Folgers coffee packaging regarding servings, with outcomes and financial impacts currently unpredictable[93] - The company is a defendant in consumer lawsuits related to the May 2022 voluntary recall of Jif peanut butter products, with outcomes and financial impacts currently unpredictable[94] - Hostess Brands (now part of the company) has asserted indemnification claims against the seller of Voortman for breaches of the acquisition agreement, seeking CAD 109 million in damages[96][97] Note 16: Common Shares - For the three months ended July 31, 2024, the company did not repurchase any common shares under its publicly announced board-authorized program, with approximately 1.1 million shares remaining available for repurchase[98] - The company issued approximately 4 million common shares (valued at $450.2 million) on November 7, 2023, to partially fund the Hostess Brands acquisition[100] Common Share Information | Metric | July 31, 2024 ($ millions) | April 30, 2024 ($ millions) | | :-------------------------- | :------------------------- | :-------------------------- | | Common shares authorized | 300.0 | 300.0 | | Common shares outstanding | 106.4 | 106.2 | | Treasury shares | 44.1 | 44.3 | Note 17: Supplier Financing Program - The company partners with a third-party administrator for a supplier financing program, allowing participating suppliers to voluntarily sell their payment obligations to designated third-party financial institutions to optimize working capital[101] - As of July 31, 2024, $366.8 million in outstanding payment obligations had been sold by participating suppliers to financial institutions[103] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section discusses the company's financial condition and operating results for the three months ended July 31, 2024, including acquisition impacts, segment performance, liquidity, and non-GAAP measures Trends Affecting our Business - In Q1 2025, the company continues to face input cost inflation and a dynamic macroeconomic environment, expected to persist through the remainder of 2025[109] - The company is focused on a company-wide transformation initiative to translate continuous improvement philosophies into sustainable productivity initiatives, aiming to enhance margins and reinvest for future growth and cost savings[109] - The company continuously monitors risks such as supply chain disruptions, transportation delays, and labor shortages potentially caused by geopolitical events[110] Results of Operations Key Financial Performance (GAAP) | Metric | Three Months Ended July 31, 2024 ($ millions) | Three Months Ended July 31, 2023 ($ millions) | % Increase (Decrease) | | :---------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :-------------------- | | Net sales | 2,125.1 | 1,805.2 | 18% | | Gross profit | 797.2 | 654.8 | 22% | | Gross profit % of net sales | 37.5% | 36.3% | +1.2 pp | | Operating income | 349.5 | 303.5 | 15% | | Operating income % of net sales | 16.4% | 16.8% | -0.4 pp | | Net income | 185.0 | 183.6 | 1% | | Net income per common share – assuming dilution | 1.74 | 1.79 | (3)% | Key Financial Performance (Adjusted Non-GAAP) | Metric | Three Months Ended July 31, 2024 ($ millions) | Three Months Ended July 31, 2023 ($ millions) | % Increase (Decrease) | | :---------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :-------------------- | | Adjusted gross profit | 832.5 | 644.4 | 29% | | Adjusted gross profit % of net sales | 39.2% | 35.7% | +3.5 pp | | Adjusted operating income | 447.9 | 331.7 | 35% | | Adjusted operating income % of net sales | 21.1% | 18.4% | +2.7 pp | | Adjusted income | 259.5 | 227.0 | 14% | | Adjusted earnings per share – assuming dilution | 2.44 | 2.21 | 10% | Net Sales - Net sales increased by $319.9 million (18%) in Q1 2025, with the Hostess Brands acquisition contributing $333.7 million in incremental net sales[114][116] - Excluding the impacts of acquisitions, divestitures, and foreign exchange, net sales increased by $16.9 million (1%), driven by volume/mix growth in Uncrustables, Café Bustelo, and Meow Mix brands[114][116] Gross Profit and Operating Income - Gross profit increased by $142.4 million (22%) in Q1 2025, primarily reflecting non-comparable benefits from Hostess Brands and favorable volume/mix[118] - Operating income increased by $46.0 million (15%), driven by gross profit growth, partially offset by a $76.5 million increase in selling, distribution, and administrative (SD&A) expenses and a $16.2 million increase in amortization expense[118] - Adjusted gross profit increased by $188.1 million (29%), and adjusted operating income increased by $116.2 million (35%), reflecting the exclusion of non-GAAP adjustments[120] Interest Expense - Net interest expense increased by $68.3 million in Q1 2025, primarily due to new senior notes issued for the Hostess Brands acquisition and increased short-term borrowings under the commercial paper program[121] Income Taxes - Income taxes increased by $6.2 million (11%) in Q1 2025, primarily due to an increase in the effective income tax rate from 23.0% in Q1 2024 to 24.8%, mainly from discrete unfavorable impacts of share-based compensation[122] - The full-year effective income tax rate for 2025 is projected to be approximately 24.3%[122] Special Project Costs - Total costs related to Sahale Snacks and Canadian condiments divestitures are estimated at approximately $6 million, with $5.8 million recognized as of Q1 2025[123] - Total integration costs for the Hostess Brands acquisition are estimated at approximately $210 million, with $159.4 million recognized as of Q1 2025[125] Segment Results Segment Net Sales and Profit | Segment | Net Sales (2024, $ millions) | Net Sales (2023, $ millions) | % Increase (Decrease) | Segment Profit (2024, $ millions) | Segment Profit (2023, $ millions) | % Increase (Decrease) | Segment Profit Margin (2024) | Segment Profit Margin (2023) | | :---------------------------------------- | :--------------------------- | :--------------------------- | :-------------------- | :-------------------------------- | :-------------------------------- | :-------------------- | :--------------------------- | :--------------------------- | | U.S. Retail Coffee | 623.4 | 625.1 | —% | 172.6 | 170.1 | 1% | 27.7% | 27.2% | | U.S. Retail Frozen Handheld and Spreads | 496.8 | 464.0 | 7% | 119.0 | 105.7 | 13% | 24.0% | 22.8% | | U.S. Retail Pet Foods | 399.7 | 441.0 | (9)% | 115.3 | 81.3 | 42% | 28.8% | 18.4% | | Sweet Baked Snacks | 333.7 | — | n/a | 74.4 | — | n/a | 22.3% | n/a | | International and Away From Home | 271.5 | 275.1 | (1)% | 48.6 | 36.4 | 34% | 17.9% | 13.2% | U.S. Retail Coffee - U.S. Retail Coffee net sales decreased by $1.7 million, primarily due to a 1 percentage point decline in net price realization for the Dunkin' brand, partially offset by volume/mix growth in the Café Bustelo brand[130] - Segment profit increased by $2.5 million (1%), reflecting lower marketing and selling expenses, partially offset by lower net price realization and higher commodity costs[130] U.S. Retail Frozen Handheld and Spreads - U.S. Retail Frozen Handheld and Spreads net sales increased by $32.8 million (7%), with volume/mix contributing 7 percentage points (Uncrustables sandwiches) and net price realization contributing 1 percentage point (peanut butter)[131] - Segment profit increased by $13.3 million (13%), reflecting lower costs, favorable volume/mix, and higher net price realization, partially offset by increased marketing expense and pre-production expenses for a new Uncrustables sandwich manufacturing facility[131] U.S. Retail Pet Foods - U.S. Retail Pet Foods net sales decreased by $41.3 million (9%), with volume/mix declining 6 percentage points (contract manufacturing sales for divested pet food brands) and net price realization declining 4 percentage points[132] - Segment profit increased by $34.0 million (42%), reflecting lower costs, favorable volume/mix, and lower distribution costs, partially offset by lower net price realization and increased marketing expense[132] Sweet Baked Snacks - The Sweet Baked Snacks segment contributed $333.7 million in net sales and $74.4 million in segment profit in Q1 2025, following the November 2023 acquisition of Hostess Brands[132] International and Away From Home - International and Away From Home net sales decreased by $3.6 million (1%), impacted by divested businesses and unfavorable foreign exchange[133] - Excluding non-comparable impacts, net sales increased by $20.2 million (8%), with net price realization contributing 5 percentage points and volume/mix contributing 3 percentage points[133] - Segment profit increased by $12.2 million (34%), driven by higher net price realization, favorable volume/mix, lower costs, and reduced marketing expense[133] Liquidity and Capital Resources Liquidity - The company's primary funding sources are cash generated from operations, supplemented by borrowings under its commercial paper program and revolving credit facility[134] - As of July 31, 2024, cash and cash equivalents decreased to $39.5 million from $62.0 million as of April 30, 2024[134] Summary of Cash Flows | Cash Flow Activity | Three Months Ended July 31, 2024 ($ millions) | Three Months Ended July 31, 2023 ($ millions) | | :---------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net cash provided by operating activities | 172.9 | 217.9 | | Net cash used for investing activities | (172.4) | (151.9) | | Net cash used for financing activities | (23.0) | (481.3) | | Free cash flow | 49.2 | 67.6 | - Cash provided by operating activities decreased by $45.0 million, primarily due to increased working capital requirements in 2025[136] - Cash used for investing activities primarily included $123.7 million in capital expenditures for a new Uncrustables sandwich manufacturing and distribution facility in McCalla, Alabama[137] Supplier Financing Program - The company utilizes a supplier financing program to optimize working capital, allowing participating suppliers to voluntarily sell their payment obligations to third-party financial institutions[138] - As of July 31, 2024, $366.8 million in outstanding payment obligations had been sold by participating suppliers to financial institutions[139] Contingencies - The company faces class action lawsuits related to Folgers coffee serving statements and consumer lawsuits related to the Jif peanut butter recall, with outcomes and financial impacts currently unpredictable[141][142] - Hostess Brands (now part of the company) is seeking indemnification from the seller of Voortman for breaches of the acquisition agreement, seeking CAD 109 million in damages[143][144] Debt and Capital Total Debt and Capital | Metric | July 31, 2024 ($ millions) | April 30, 2024 ($ millions) | | :------------------------------------ | :------------------------- | :-------------------------- | | Current portion of long-term debt | 999.5 | 999.3 | | Short-term borrowings | 697.0 | 591.0 | | Long-term debt, less current portion | 6,775.3 | 6,773.7 | | Total debt | 8,471.8 | 8,364.0 | | Shareholders' equity | 7,769.5 | 7,693.9 | | Total capital | 16,241.3 | 16,057.9 | - The company completed a $3.5 billion senior notes offering in October 2023, partially funding the Hostess Brands acquisition[146] - The company has a $2.0 billion revolving credit facility and a $2.0 billion commercial paper program, with $697 million in short-term borrowings outstanding as of July 31, 2024[147] - The company is investing $1.1 billion in a new Uncrustables sandwich manufacturing and distribution facility in McCalla, Alabama, expected to commence operations in Q2 2025[151] Material Cash Requirements - The company believes existing cash, cash from operations, borrowings under its revolving credit facility, and access to capital markets are sufficient to meet cash requirements for the next 12 months[152] - As of July 31, 2024, the company had no material off-balance sheet arrangements or relationships with unconsolidated entities[154] Non-GAAP Financial Measures - The company uses non-GAAP financial measures (e.g., net sales excluding acquisitions, divestitures, and foreign exchange impacts; adjusted gross profit, adjusted operating income, adjusted income, adjusted EPS, and free cash flow) to assess internal performance[155] - Non-GAAP financial measures exclude certain items impacting comparability, such as intangible asset amortization and impairment charges, special project costs, gains and losses on divestitures, and net changes in unallocated derivative gains and losses[156] Non-GAAP Financial Measures Reconciliation | Metric | Three Months Ended July 31, 2024 ($ millions) | Three Months Ended July 31, 2023 ($ millions) | | :---------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Gross profit reconciliation: | | | | Gross profit | 797.2 | 654.8 | | Change in net cumulative unallocated derivative gains and losses | 30.0 | (10.4) | | Cost of products sold – special project costs | 5.3 | — | | Adjusted gross profit | 832.5 | 644.4 | | Operating income reconciliation: | | | | Operating income | 349.5 | 303.5 | | Amortization | 56.0 | 39.8 | | Loss (gain) on divestitures – net | — | (1.2) | | Change in net cumulative unallocated derivative gains and losses | 30.0 | (10.4) | | Cost of products sold – special project costs | 5.3 | — | | Other special project costs | 7.1 | — | | Adjusted operating income | 447.9 | 331.7 | | Net income reconciliation: | | | | Net income | 185.0 | 183.6 | | Income tax expense | 61.0 | 54.8 | | Amortization | 56.0 | 39.8 | | Loss (gain) on divestitures – net | — | (1.2) | | Change in net cumulative unallocated derivative gains and losses | 30.0 | (10.4) | | Cost of products sold – special project costs | 5.3 | — | | Other special project costs | 7.1 | — | | Unrealized loss on investment in equity securities – net | — | 27.4 | | Pension plan termination settlement charge | — | 3.2 | | Adjusted income before income taxes | 344.4 | 297.2 | | Income taxes, as adjusted | 84.9 | 70.2 | | Adjusted income | 259.5 | 227.0 | | Weighted-average shares – assuming dilution | 106.5 | 102.8 | | Adjusted earnings per share – assuming dilution | 2.44 | 2.21 | Critical Accounting Estimates and Policies - Discussion of the company's critical accounting estimates and policies can be found in its Form 10-K annual report for the year ended April 30, 2024, with no material changes[160] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discloses the company's market risks, including interest rate, commodity price, and foreign exchange risks, and how these are managed using derivative financial instruments Interest Rate Risk - The company faces interest rate risk on existing fixed and variable rate debt, primarily including U.S. Treasury rates, SOFR, and U.S. commercial paper rates[162] - The company uses derivative instruments to manage interest rate risk for anticipated debt transactions and changes in the fair value of long-term debt, with some designated as cash flow hedges[163] - A hypothetical 100 basis point decrease in interest rates as of July 31, 2024, would increase the fair value of the company's long-term debt by $634.4 million[164] Commodity Price Risk - Certain raw materials and other commodities used by the company are subject to price fluctuations, managed by derivatives with maturities typically less than one year to mitigate commodity purchase price volatility[165] - Commodity derivatives do not qualify for hedge accounting, with gains and losses recognized immediately in cost of products sold[165] Commodity Price Risk Sensitivity Analysis (Assuming 10% Change) | Metric | July 31, 2024 ($ millions) | April 30, 2024 ($ millions) | | :-------------- | :------------------------- | :-------------------------- | | High (potential gain) | 35.6 | 26.0 | | Low (potential loss) | (3.5) | (4.0) | | Average | 16.0 | 12.8 | Foreign Currency Exchange Risk - The company operates outside the U.S., holding foreign currency denominated assets and liabilities, primarily in Canadian currency, exposing it to foreign exchange volatility[166] - The company uses foreign exchange derivatives to manage the impact of foreign currency fluctuations on future cash payments, typically with maturities less than one year, with value changes recognized immediately in cost of products sold[166][167] - As of July 31, 2024, a hypothetical 10% change in exchange rates would not materially impact the fair value of foreign currency hedging positions[167] Item 4. Controls and Procedures Management assessed the effectiveness of the company's disclosure controls and procedures as of July 31, 2024, concluding they were effective, with no material changes to internal financial reporting controls this quarter - As of July 31, 2024, management assessed and concluded that the company's disclosure controls and procedures were effective[172] - There were no material changes in the company's internal control over financial reporting during the three months ended July 31, 2024[172] PART II. OTHER INFORMATION Item 1. Legal Proceedings Information regarding legal proceedings is incorporated by reference from Note 15: Contingencies in Part I, Item 1 - Required information on legal proceedings is incorporated by reference from Note 15: Contingencies in Part I, Item 1[174] Item 1A. Risk Factors This section advises reviewing risks described in the Form 10-K annual report and notes the potential for other unknown or currently immaterial risks to significantly impact the business - Risk factors are described in 'Part I, Item 1A. Risk Factors' of the company's Form 10-K annual report for the year ended April 30, 2024[175] - Other risks, currently unknown or deemed immaterial, could materially and adversely affect the company's business, financial condition, and results of operations[175] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details common stock repurchases in Q1 2025, totaling 22,748 shares at an average price of $112.18, primarily from stock plan grantees, with approximately 1.1 million shares remaining for repurchase under board authorization Issuer Purchases of Equity Securities | Period | Total Number of Purchased Shares | Average Price Per Share ($) | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs | | :--------------------------- | :------------------------------- | :-------------------------- | :------------------------------------------------------------------------------- | :----------------------------------------------------------------------------- | | May 1, 2024 - May 31, 2024 | 23 | 115.21 | — | 1,111,472 | | June 1, 2024 - June 30, 2024 | 22,343 | 112.17 | — | 1,111,472 | | July 1, 2024 - July 31, 2024 | 382 | 112.50 | — | 1,111,472 | | Total | 22,748 | 112.18 | — | 1,111,472 | - Repurchased shares were acquired from grantees under stock plans in lieu of cash payments, not as part of a publicly announced repurchase program[176] - As of July 31, 2024, approximately 1.1 million common shares remained available for repurchase under board authorization[176] Item 5. Other Information This section states that no directors or Section 16 officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q1 2025 - No directors or Section 16 officers adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q1 2025[177] Item 6. Exhibits This section directs readers to the Exhibit Index on page 37 for a list of exhibits filed or incorporated by reference with the report - The list of exhibits can be found in the Exhibit Index on page 37 of this report[178] SIGNATURES This report was signed by Mark T. Smucker, Chairman of the Board, President, and Chief Executive Officer, and Tucker H. Marshall, Chief Financial Officer, on August 28, 2024 - This report was signed by Mark T. Smucker (Chairman of the Board, President, and Chief Executive Officer) and Tucker H. Marshall (Chief Financial Officer) on August 28, 2024[180] INDEX OF EXHIBITS This section provides a list of exhibits filed or incorporated by reference with the report, including revolving credit agreement amendments, performance unit agreements, various certifications, and XBRL files - The exhibit list includes revolving credit agreement amendments, performance unit agreements, various certifications (e.g., Rule 13a-14(a) and 18 U.S.C. Section 1350 certifications), and XBRL files[181][182]