J. M. Smucker(SJM) - 2026 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis for the quarter Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements, including income statements, balance sheets, cash flows, and shareholders' equity, along with detailed explanatory notes Condensed Statements of Consolidated Income (Loss) This statement presents the company's revenues, expenses, and net income or loss over a specific period Three Months Ended July 31, 2025 vs. 2024 (Dollars in millions): | Metric | 2025 | 2024 | Change (YoY) | | :-------------------------------- | :----- | :----- | :----------- | | Net sales | $2,113.3 | $2,125.1 | (11.8) | | Cost of products sold | 1,638.6 | 1,327.9 | 310.7 | | Gross Profit | 474.7 | 797.2 | (322.5) | | Operating Income | 45.6 | 349.5 | (303.9) | | Income (Loss) Before Income Taxes | (56.5) | 246.0 | (302.5) | | Net Income (Loss) | (43.9) | 185.0 | (228.9) | | Earnings per common share (basic & diluted) | (0.41) | 1.74 | (2.15) | - Net Income (Loss) decreased by 124% YoY, from $185.0 million in 2024 to $(43.9) million in 2025[8] - Gross Profit decreased by 40% YoY, from $797.2 million in 2024 to $474.7 million in 2025[8] Condensed Statements of Consolidated Comprehensive Income (Loss) This statement presents the company's net income or loss and other comprehensive income or loss components Three Months Ended July 31, 2025 vs. 2024 (Dollars in millions): | Metric | 2025 | 2024 | Change (YoY) | | :------------------------------------------ | :----- | :----- | :----------- | | Net income (loss) | $(43.9) | $185.0 | $(228.9) | | Total Other Comprehensive Income | 2.0 | 2.4 | (0.4) | | Comprehensive Income (Loss) | $(41.9) | $187.4 | $(229.3) | Condensed Consolidated Balance Sheets This statement presents the company's assets, liabilities, and equity at a specific point in time As of July 31, 2025 vs. April 30, 2025 (Dollars in millions): | Metric | July 31, 2025 | April 30, 2025 | Change | | :-------------------------------- | :------------ | :------------- | :----- | | Total Assets | $17,741.9 | $17,563.3 | $178.6 | | Total Current Assets | 2,401.9 | 2,146.6 | 255.3 | | Total Liabilities | 11,816.0 | 11,480.7 | 335.3 | | Total Current Liabilities | 2,953.9 | 2,652.0 | 301.9 | | Total Shareholders' Equity | 5,925.9 | 6,082.6 | (156.7) | - Cash and cash equivalents decreased from $69.9 million at April 30, 2025, to $39.3 million at July 31, 2025[12] - Total Inventory increased from $1,209.4 million at April 30, 2025, to $1,386.0 million at July 31, 2025[12] Condensed Statements of Consolidated Cash Flows This statement presents the cash inflows and outflows from operating, investing, and financing activities Three Months Ended July 31, 2025 vs. 2024 (Dollars in millions): | Activity | 2025 | 2024 | Change (YoY) | | :------------------------------------------ | :----- | :----- | :----------- | | Net Cash Provided by (Used for) Operating Activities | $(10.6) | $172.9 | $(183.5) | | Net Cash Provided by (Used for) Investing Activities | $(197.9) | $(172.4) | $(25.5) | | Net Cash Provided by (Used for) Financing Activities | $178.0 | $(23.0) | $201.0 | | Net increase (decrease) in cash and cash equivalents | $(30.6) | $(22.5) | $(8.1) | | Cash and Cash Equivalents at End of Period | $39.3 | $39.5 | $(0.2) | - Operating activities shifted from providing $172.9 million in cash in 2024 to using $10.6 million in 2025, primarily due to lower net income and related tax impacts, partially offset by lower working capital requirements[15][145] - Financing activities provided $178.0 million in 2025, a significant increase from using $23.0 million in 2024, driven by a net increase in short-term borrowings[15][147] Condensed Statements of Consolidated Shareholders' Equity This statement presents changes in the company's shareholders' equity over a specific period Shareholders' Equity Summary (Dollars in millions): | Metric | July 31, 2025 | May 1, 2025 | July 31, 2024 | May 1, 2024 | | :-------------------------------- | :------------ | :---------- | :------------ | :---------- | | Total Shareholders' Equity | $5,925.9 | $6,082.6 | $7,769.5 | $7,693.9 | | Retained Income | $343.5 | $501.8 | $2,259.9 | $2,188.1 | | Common Shares Outstanding | 106,687,114 | 106,425,081 | 106,408,530 | 106,194,281 | | Cash dividends declared per common share | $1.10 | N/A | $1.08 | N/A | - Total Shareholders' Equity decreased by $156.7 million from May 1, 2025, to July 31, 2025, primarily due to a net loss and cash dividends declared[16] Note 1: Basis of Presentation This note explains the accounting principles and methods used in preparing the interim financial statements - The unaudited interim condensed consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial information and Form 10-Q instructions, including all necessary normal recurring adjustments[18] - Operating results for the three months ended July 31, 2025, are not necessarily indicative of the full year ending April 30, 2026[19] Note 2: Recently Issued Accounting Standards This note details the adoption and evaluation of new accounting standards and their potential impact - The company adopted ASU 2023-07, Segment Reporting, retrospectively for interim disclosures in Q1 2026, with no material impact on consolidated financial statements[20] - ASU 2024-03 (Expense Disaggregation) and ASU 2023-09 (Income Tax Disclosures) are not yet adopted but are being evaluated; no anticipated impact on results of operations, financial position, or cash flows[21][22] Note 3: Divestitures This note provides details on the sale of certain business segments and the resulting financial impacts - On March 3, 2025, the company sold certain Sweet Baked Snacks value brands to JTM Foods, LLC for net proceeds of $34.6 million, recognizing a pre-tax loss of $44.2 million[23] - On December 2, 2024, the Voortman business was sold to Second Nature Brands for net proceeds of $291.4 million, resulting in a pre-tax loss of $265.9 million[24][25] Note 4: Special Project Costs This note outlines costs associated with divestitures, acquisitions, integration, and restructuring activities - Special project costs include employee-related costs and other transition/termination costs for divestiture, acquisition, integration, and restructuring activities, not allocated to segment profit[26] Integration Costs for Hostess Brands Acquisition (Dollars in millions): | Cost Type | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | Total Costs Incurred to Date at July 31, 2025 | | :-------------------------------- | :------------------------------- | :------------------------------- | :------------------------------------------- | | Transaction costs | $0.0 | $0.0 | $99.0 | | Employee-related costs | $0.3 | $2.6 | $43.3 | | Other transition and termination costs | $0.1 | $9.4 | $43.0 | | Total integration costs | $0.4 | $12.0 | $185.3 | - Restructuring costs of approximately $75.0 million are anticipated for the Indianapolis facility closure, including $60.0 million in noncash accelerated depreciation and $15.0 million in employee-related and other transition costs[31] Note 5: Reportable Segments This note provides financial information for the company's operating segments, including net sales and profit - The company operates in four reportable segments: U.S. Retail Coffee, U.S. Retail Frozen Handheld and Spreads, U.S. Retail Pet Foods, and Sweet Baked Snacks, plus International and Away From Home[33] Segment Net Sales (Three Months Ended July 31, Dollars in millions): | Segment | 2025 | 2024 | Change (YoY) | | :-------------------------------- | :----- | :----- | :----------- | | U.S. Retail Coffee | $717.2 | $623.4 | $93.8 | | U.S. Retail Frozen Handheld and Spreads | $484.7 | $496.8 | $(12.1) | | U.S. Retail Pet Foods | $368.0 | $399.7 | $(31.7) | | Sweet Baked Snacks | $253.2 | $333.7 | $(80.5) | | International and Away From Home | $290.2 | $271.5 | $18.7 | | Total Net Sales | $2,113.3 | $2,125.1 | $(11.8) | Segment Profit (Three Months Ended July 31, Dollars in millions): | Segment | 2025 | 2024 | Change (YoY) | | :-------------------------------- | :----- | :----- | :----------- | | U.S. Retail Coffee | $134.2 | $172.6 | $(38.4) | | U.S. Retail Frozen Handheld and Spreads | $114.3 | $119.0 | $(4.7) | | U.S. Retail Pet Foods | $101.3 | $115.3 | $(14.0) | | Sweet Baked Snacks | $34.2 | $74.4 | $(40.2) | | International and Away From Home | $65.5 | $48.6 | $16.9 | | Total Segment Profit | $449.5 | $529.9 | $(80.4) | Net Sales by Product Category (Three Months Ended July 31, Dollars in millions): | Product Category | 2025 | 2024 | Change (YoY) | | :----------------------- | :----- | :----- | :----------- | | Coffee | $816.1 | $711.9 | $104.2 | | Sweet baked goods | $253.2 | $296.6 | $(43.4) | | Frozen handheld | $244.1 | $222.6 | $21.5 | | Peanut butter | $207.0 | $218.6 | $(11.6) | | Pet snacks | $203.4 | $226.8 | $(23.4) | | Cat food | $179.3 | $183.1 | $(3.8) | | Fruit spreads | $95.3 | $106.5 | $(11.2) | | Cookies | $0.0 | $37.1 | $(37.1) | | Total Net Sales | $2,113.3 | $2,125.1 | $(11.8) | Note 6: Earnings per Share This note details the calculation of basic and diluted earnings per common share Earnings Per Share (Three Months Ended July 31): | Metric | 2025 | 2024 | | :------------------------------------------ | :----- | :----- | | Net income (loss) per common share (basic) | $(0.41) | $1.74 | | Net income (loss) per common share (diluted) | $(0.41) | $1.74 | | Weighted-average common shares outstanding | 106.6 | 106.3 | | Weighted-average common shares outstanding – assuming dilution | 106.6 | 106.5 | - For the three months ended July 31, 2025, a net loss resulted in the exclusion of anti-dilutive stock-based awards from diluted EPS computation[47] Note 7: Debt and Financing Arrangements This note describes the company's long-term debt, credit facilities, and short-term borrowings Long-Term Debt Summary (Dollars in millions): | Debt Instrument | Principal Outstanding (July 31, 2025) | Carrying Amount (July 31, 2025) | Principal Outstanding (April 30, 2025) | Carrying Amount (April 30, 2025) | | :------------------------------------------ | :------------------------------------ | :------------------------------ | :------------------------------------- | :------------------------------- | | 3.38% Senior Notes due Dec 2027 | $500.0 | $499.0 | $500.0 | $498.9 | | 5.90% Senior Notes due Nov 2028 | $750.0 | $746.0 | $750.0 | $745.7 | | 2.38% Senior Notes due Mar 2030 | $500.0 | $497.8 | $500.0 | $497.7 | | 2.13% Senior Notes due Mar 2032 | $364.5 | $361.5 | $364.5 | $361.3 | | 6.20% Senior Notes due Nov 2033 | $1,000.0 | $992.6 | $1,000.0 | $992.4 | | 4.25% Senior Notes due Mar 2035 | $650.0 | $646.0 | $650.0 | $645.9 | | 2.75% Senior Notes due Sep 2041 | $177.5 | $176.1 | $177.5 | $176.1 | | 6.50% Senior Notes due Nov 2043 | $750.0 | $737.3 | $750.0 | $737.2 | | 4.38% Senior Notes due Mar 2045 | $600.0 | $589.4 | $600.0 | $589.2 | | 3.55% Senior Notes due Mar 2050 | $161.2 | $159.3 | $161.2 | $159.3 | | 6.50% Senior Notes due Nov 2053 | $1,000.0 | $983.4 | $1,000.0 | $983.2 | | Term Loan Credit Agreement due Mar 2027 | $650.0 | $649.9 | $650.0 | $649.9 | | Total long-term debt | $7,103.2 | $7,038.3 | $7,103.2 | $7,036.8 | - The company entered into a $650.0 million senior unsecured delayed-draw Term Loan Credit Agreement in March 2025, maturing March 5, 2027, with an interest rate of 5.44% as of July 31, 2025[55] - Short-term borrowings outstanding under the commercial paper program increased to $952.0 million at July 31, 2025, from $641.0 million at April 30, 2025, with weighted-average interest rates of 4.65% and 4.73%, respectively[57] Note 8: Pensions and Other Postretirement Benefits This note provides information on the company's defined benefit pension plans and other postretirement benefit costs Net Periodic Benefit Cost (Three Months Ended July 31, Dollars in millions): | Cost Component | Defined Benefit Pension Plans (2025) | Defined Benefit Pension Plans (2024) | Other Postretirement Benefits (2025) | Other Postretirement Benefits (2024) | | :-------------------------------- | :----------------------------------- | :----------------------------------- | :----------------------------------- | :----------------------------------- | | Service cost | $0.2 | $0.1 | $0.2 | $0.2 | | Interest cost | $3.8 | $4.4 | $0.6 | $0.7 | | Expected return on plan assets | $(3.4) | $(3.1) | $0.0 | $0.0 | | Amortization of net actuarial loss (gain) | $1.0 | $1.1 | $(0.5) | $(0.5) | | Amortization of prior service cost (credit) | $0.0 | $0.1 | $(0.1) | $(0.2) | | Net periodic benefit cost | $1.6 | $2.6 | $0.2 | $0.2 | - Net periodic benefit cost for defined benefit pension plans decreased from $2.6 million in 2024 to $1.6 million in 2025[60] Note 9: Derivative Financial Instruments This note explains the company's use of derivatives to manage market risks and their financial impact - The company uses commodity, foreign currency exchange, and interest rate derivatives to manage market risks, but does not enter into them for speculative purposes[61] Gross Notional Value of Outstanding Derivative Contracts (Dollars in millions): | Contract Type | July 31, 2025 | April 30, 2025 | | :------------------------------ | :------------ | :------------- | | Commodity contracts | $1,866.4 | $1,698.1 | | Foreign currency exchange contracts | $125.8 | $122.4 | Net Gains (Losses) Recognized in Cost of Products Sold (Three Months Ended July 31, Dollars in millions): | Derivative Type | 2025 | 2024 | | :------------------------------------------ | :------- | :------- | | Commodity contracts | $(227.7) | $(30.0) | | Foreign currency exchange contracts | $0.6 | $0.2 | | Total derivative gains (losses) | $(227.1) | $(29.8) | - The change in net cumulative unallocated derivative gains and losses was a loss of $253.1 million in 2025, compared to a loss of $30.0 million in 2024[73] Note 10: Other Financial Instruments and Fair Value Measurements This note details the fair value measurements of financial instruments and their categorization Fair Values of Financial Instruments (Dollars in millions): | Instrument | Carrying Amount (July 31, 2025) | Fair Value (July 31, 2025) | Carrying Amount (April 30, 2025) | Fair Value (April 30, 2025) | | :-------------------------------- | :------------------------------ | :------------------------- | :------------------------------- | :------------------------ | | Marketable securities and other investments | $20.1 | $20.1 | $20.0 | $20.0 | | Derivative financial instruments – net | $(117.1) | $(117.1) | $62.1 | $62.1 | | Total long-term debt | $(7,038.3) | $(6,987.6) | $(7,036.8) | $(7,242.0) | - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (significant observable inputs), and Level 3 (significant unobservable inputs)[80][81] Note 11: Leases This note provides information on the company's operating and finance lease arrangements and associated costs - The company leases warehouses, manufacturing facilities, office space, equipment, and vehicles, primarily through operating lease agreements, and does not recognize leases with terms of 12 months or less on the balance sheet[82] Lease Liabilities and Right-of-Use Assets (Dollars in millions): | Metric | July 31, 2025 | April 30, 2025 | | :-------------------------------- | :------------ | :------------- | | Operating lease right-of-use assets | $120.1 | $115.4 | | Total operating lease liabilities | $126.3 | $121.6 | | Finance lease right-of-use assets (net) | $11.1 | $11.9 | | Total finance lease liabilities | $11.7 | $12.5 | Total Lease Cost (Three Months Ended July 31, Dollars in millions): | Cost Type | 2025 | 2024 | | :-------------------------------- | :----- | :----- | | Operating lease cost | $12.4 | $12.5 | | Finance lease cost | $1.1 | $1.0 | | Variable lease cost | $5.9 | $6.5 | | Short-term lease cost | $10.3 | $11.2 | | Total lease cost | $29.7 | $31.2 | Note 12: Income Taxes This note details the effective income tax rate and significant factors affecting income tax expense or benefit - The effective income tax rate for the three months ended July 31, 2025, was 22.3%, compared to 24.8% in 2024, primarily due to state income taxes[95] - The company anticipates a full-year effective income tax rate of approximately 24.0% for 2026[127] - The 'One Big Beautiful Bill Act' signed by President Trump on July 4, 2025, did not materially impact the effective income tax rate for the quarter but will reduce cash income tax requirements for the current year due to accelerated tax deductions[97] Note 13: Accumulated Other Comprehensive Income (Loss) This note presents the components of accumulated other comprehensive income or loss Accumulated Other Comprehensive Income (Loss) (Dollars in millions): | Component | Balance at May 1, 2025 | Balance at July 31, 2025 | Balance at May 1, 2024 | Balance at July 31, 2024 | | :-------------------------------- | :--------------------- | :----------------------- | :--------------------- | :----------------------- | | Foreign Currency Translation Adjustment | $(41.7) | $(42.7) | $(39.2) | $(39.8) | | Net Gains (Losses) on Cash Flow Hedging Derivatives | $(90.1) | $(87.7) | $(143.1) | $(140.5) | | Pension and Other Postretirement Liabilities | $(53.2) | $(52.9) | $(53.4) | $(53.0) | | Gain (Loss) on Available-for-Sale Securities | $0.5 | $0.8 | $1.1 | $1.1 | | Total Accumulated Other Comprehensive Income (Loss) | $(184.5) | $(182.5) | $(234.6) | $(232.2) | - Deferred net pre-tax losses of $114.3 million related to terminated interest rate contracts were included in accumulated other comprehensive income (loss) at July 31, 2025[76] Note 14: Contingencies This note describes legal proceedings and other contingent liabilities facing the company - The company is a defendant in class action lawsuits alleging misrepresentation of Folgers coffee servings; no loss contingency has been recorded as the likelihood of loss is not probable or reasonably estimable[103] - The company is pursuing claims for damages of $109.0 CAD plus punitive damages against the sellers of Voortman for alleged non-disclosures and misrepresentations, retaining these rights after the divestiture of the Voortman business[106] Note 15: Common Shares This note provides information on the company's authorized, outstanding, and treasury common shares Common Share Information (Millions): | Metric | July 31, 2025 | April 30, 2025 | | :-------------------------- | :------------ | :------------- | | Common shares authorized | 300.0 | 300.0 | | Common shares outstanding | 106.7 | 106.4 | | Treasury shares | 43.8 | 44.1 | - No common shares were repurchased under a Board-authorized plan during the three months ended July 31, 2025; repurchases consisted of shares from stock plan recipients[108] Note 16: Supplier Financing Program This note explains the company's supplier financing program and outstanding payment obligations - The company utilizes a supplier financing program, allowing participating suppliers to sell payment obligations to a third-party financial institution[109] - As of July 31, 2025, $324.5 million of outstanding payment obligations were sold to a financial institution by participating suppliers, down from $340.4 million at April 30, 2025[109] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance, condition, and results of operations, covering key trends, detailed financial results, liquidity, and capital resources Trends Affecting our Business This section discusses macroeconomic factors, input cost inflation, and strategic initiatives impacting the business - The company continues to experience input cost inflation and a dynamic macroeconomic environment, including tariffs, regulatory changes, and shifts in consumer behaviors, which are expected to persist through 2026[115] - Price increases have been implemented due to higher costs, and elevated price elasticity of demand is anticipated as consumers face broader inflationary pressures[115] - The company is focusing on a company-wide transformation initiative to drive sustainable productivity, grow profit margins, and reinvest for future growth and cost savings[115] Results of Operations This section analyzes the company's financial performance, including net sales, gross profit, and operating income Key Financial Results (Three Months Ended July 31, Dollars in millions, except per share data): | Metric | 2025 | 2024 | % Increase (Decrease) | | :------------------------------------------ | :----- | :----- | :-------------------- | | Net sales | $2,113.3 | $2,125.1 | (1)% | | Gross profit | $474.7 | $797.2 | (40)% | | Operating income | $45.6 | $349.5 | (87)% | | Net income (loss) | $(43.9) | $185.0 | (124)% | | Net income (loss) per common share – assuming dilution | $(0.41) | $1.74 | (124)% | Net Sales This section analyzes the drivers of changes in net sales, including divestitures, pricing, and volume/mix - Net sales decreased by 1% ($11.8 million) YoY, including a $52.8 million impact from divestitures[119][120] - Excluding divestitures and foreign currency exchange, net sales increased by 2% ($41.2 million), driven by 6 percentage points from net price realization (primarily coffee) and offset by a 4 percentage point decrease from volume/mix (coffee, dog snacks, sweet baked goods, fruit spreads)[119][120] Operating Income This section analyzes the factors influencing operating income, including gross profit, expenses, and amortization - Gross profit decreased by $322.5 million (40%) due to higher commodity costs (including unfavorable derivative impacts), unfavorable volume/mix, and divestitures, partially offset by higher net price realization[123] - Operating income decreased by $303.9 million (87%), primarily reflecting the decrease in gross profit, partially offset by lower selling, distribution, and administrative (SD&A) expenses and amortization[124] Operating Income Components as % of Net Sales (Three Months Ended July 31): | Component | 2025 | 2024 | | :-------------------------------- | :----- | :----- | | Gross profit | 22.5% | 37.5% | | Total selling, distribution, and administrative expenses | 17.9% | 18.4% | | Amortization | 2.4% | 2.6% | | Other special project costs | 0.3% | 0.3% | | Other operating expense (income) – net | (0.2)% | (0.3)% | | Operating income | 2.2% | 16.4% | Interest Expense This section discusses the company's net interest expense and its comparability to the prior year - Net interest expense remained comparable to the prior year[126] Income Taxes This section details the changes in income taxes and the effective tax rate for the period - Income taxes decreased by $73.6 million (121%) due to a pre-tax loss in the current year, resulting in an income tax benefit[127] Special Project Costs This section outlines the costs associated with divestitures, acquisitions, and restructuring initiatives - Total cumulative divestiture costs related to Sahale Snacks and Canada condiment businesses were $6.4 million, with no new costs incurred in Q1 2026[128] - Total cumulative integration costs for the Hostess Brands acquisition reached $185.3 million, with $0.4 million recognized in Q1 2026[131] - Restructuring costs of $20.7 million were recognized in Q1 2026 for the Indianapolis manufacturing facility closure, including $4.2 million in employee-related and $16.5 million in other transition costs[132] Segment Results This section provides a detailed breakdown of net sales and profit performance by reportable segment Segment Net Sales and Profit (Three Months Ended July 31, 2025 vs. 2024, Dollars in millions): | Segment | Net Sales 2025 | Net Sales 2024 | Net Sales % Change | Segment Profit 2025 | Segment Profit 2024 | Segment Profit % Change | | :-------------------------------- | :------------- | :------------- | :----------------- | :------------------ | :------------------ | :---------------------- | | U.S. Retail Coffee | $717.2 | $623.4 | 15% | $134.2 | $172.6 | (22)% | | U.S. Retail Frozen Handheld and Spreads | $484.7 | $496.8 | (2)% | $114.3 | $119.0 | (4)% | | U.S. Retail Pet Foods | $368.0 | $399.7 | (8)% | $101.3 | $115.3 | (12)% | | Sweet Baked Snacks | $253.2 | $333.7 | (24)% | $34.2 | $74.4 | (54)% | | International and Away From Home | $290.2 | $271.5 | 7% | $65.5 | $48.6 | 35% | LIQUIDITY AND CAPITAL RESOURCES This section evaluates the company's ability to generate and manage cash, including sources of funds and capital structure - Cash and cash equivalents decreased to $39.3 million at July 31, 2025, from $69.9 million at April 30, 2025[143] Cash Flow Summary (Three Months Ended July 31, Dollars in millions): | Activity | 2025 | 2024 | | :------------------------------------------ | :----- | :----- | | Net cash provided by (used for) operating activities | $(10.6) | $172.9 | | Net cash provided by (used for) investing activities | $(197.9) | $(172.4) | | Net cash provided by (used for) financing activities | $178.0 | $(23.0) | | Free cash flow | $(94.9) | $49.2 | - The $183.5 million increase in cash used for operating activities was primarily due to lower net income and related tax impacts, partially offset by lower working capital requirements[145] Liquidity This section discusses the company's primary sources and uses of cash, including operating, investing, and financing activities - Principal sources of funds are cash from operations, commercial paper program borrowings, and revolving credit facility[143] - Cash used for investing activities in Q1 2026 primarily included a $126.7 million increase in derivative cash margin accounts and $84.3 million in capital expenditures[146] - Cash provided by financing activities in Q1 2026 was mainly from a $300.6 million net increase in short-term borrowings, partially offset by $114.4 million in dividend payments[147] Supplier Financing Program This section describes the company's supplier financing program and the amount of outstanding payment obligations - The company's supplier financing program allows suppliers to sell payment obligations to a third-party financial institution, with $324.5 million outstanding at July 31, 2025[148] Contingencies This section addresses the company's involvement in legal proceedings and other contingent liabilities - The company is involved in class action lawsuits regarding Folgers coffee servings and a claim against Voortman sellers for alleged misrepresentations, with no material adverse effect on financial position currently anticipated for most proceedings[149][150][152] Capital Resources This section details the company's capital structure, including debt, equity, and credit facilities Capital Structure (Dollars in millions): | Metric | July 31, 2025 | April 30, 2025 | | :------------------ | :------------ | :------------- | | Short-term borrowings | $951.6 | $640.8 | | Long-term debt | $7,038.3 | $7,036.8 | | Total debt | $7,989.9 | $7,677.6 | | Shareholders' equity | $5,925.9 | $6,082.6 | | Total capital | $13,915.8 | $13,760.2 | - The company has a $2.0 billion unsecured revolving credit facility and a commercial paper program, with $952.0 million in short-term borrowings outstanding at July 31, 2025[154] - Quarterly dividends paid were $114.4 million in Q1 2026 ($1.10 per share), up from $112.1 million in Q1 2025 ($1.08 per share)[156] Material Cash Requirements This section confirms no material changes to the company's cash requirements since the last annual report - No material changes to material cash requirements were reported as of July 31, 2025, compared to the Annual Report on Form 10-K for April 30, 2025[161] NON-GAAP FINANCIAL MEASURES This section provides reconciliations and explanations for non-GAAP financial measures used by management - The company uses non-GAAP financial measures (e.g., adjusted gross profit, adjusted operating income, free cash flow) to evaluate internal performance and enhance investor understanding, excluding items like amortization, special project costs, and derivative gains/losses[162][163] Non-GAAP Reconciliations (Three Months Ended July 31, Dollars in millions, except per share data): | Metric | 2025 | 2024 | | :------------------------------------------ | :----- | :----- | | Adjusted gross profit | $743.2 | $832.5 | | Adjusted operating income | $370.3 | $447.9 | | Adjusted income | $203.4 | $259.5 | | Adjusted earnings per share – assuming dilution | $1.90 | $2.44 | CRITICAL ACCOUNTING ESTIMATES AND POLICIES This section highlights key accounting estimates and policies that require significant management judgment - There were no material changes to the critical accounting estimates and policies previously disclosed in the Annual Report on Form 10-K for the year ended April 30, 2025[167] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's exposure to market risks, including interest rates, commodity prices, and foreign currency, and strategies to manage these volatilities Interest Rate Risk This section discusses the company's exposure to interest rate fluctuations on its debt portfolio - The company is exposed to interest rate risk from fixed- and variable-rate debt, primarily related to U.S. Treasury rates, SOFR, and commercial paper rates[169] - A hypothetical 100 basis-point decrease in interest rates at July 31, 2025, would increase the fair value of long-term debt by $529.3 million[171] Commodity Price Risk This section details the company's management of commodity price volatility for raw materials and energy costs - The company uses derivatives with maturities generally less than one year to manage price volatility of raw materials (e.g., green coffee, wheat, soybean meal, corn, edible oils) and energy costs[172] - Gains and losses on commodity derivatives are immediately recognized in cost of products sold, as they do not qualify for hedge accounting[172] Potential Loss (Gain) from Hypothetical 10% Change in Commodity Prices (Dollars in millions): | Metric | July 31, 2025 | April 30, 2025 | | :------ | :------------ | :------------- | | High | $113.5 | $112.7 | | Low | $20.4 | $20.0 | | Average | $52.5 | $49.6 | Foreign Currency Exchange Risk This section addresses the company's exposure to foreign currency fluctuations, primarily in Canadian currency - The company's foreign currency exposure is primarily in Canadian currency, managed with derivatives having maturities generally less than one year[175][176] - A hypothetical 10% change in exchange rates would not materially impact the fair value of hedged foreign currency positions[176] - Revenues from customers outside the U.S. represented 3% of net sales for the three months ended July 31, 2025[177] Certain Forward-Looking Statements This section provides a cautionary statement regarding forward-looking information and associated risks - The report contains forward-looking statements subject to risks and uncertainties, including integration of Hostess Brands, supply chain disruptions, input cost inflation, consumer preferences, and regulatory changes[178][179][181] - Readers are cautioned not to unduly rely on forward-looking statements, which speak only as of the date made, and the company does not undertake to update or revise them[180] Item 4. Controls and Procedures This section details the evaluation of disclosure controls and procedures and any changes in internal controls over financial reporting during the quarter - Management concluded that disclosure controls and procedures were effective as of July 31, 2025[182] - A new enterprise performance management system (Oracle Cloud Solutions) was implemented during the quarter, leading to new controls and processes[183] - No other changes in internal control over financial reporting materially affected or are reasonably likely to materially affect internal control during the quarter[183] PART II. OTHER INFORMATION This section provides additional information including legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings This section incorporates by reference the discussion of legal proceedings and contingencies from the financial statements - Information on legal proceedings is incorporated by reference from Note 14: Contingencies in Part I, Item 1[186] Item 1A. Risk Factors This section advises readers to consider the risk factors described in the Annual Report on Form 10-K and other filings - Readers should carefully consider risk factors from the Annual Report on Form 10-K for the year ended April 30, 2025, and other filings, as additional unknown risks may also affect the company[187] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details common stock repurchases, primarily from stock plan recipients, during the first quarter of 2026 Common Stock Purchases (First Quarter of 2026): | Period | Total Number of Shares Purchased | Average Price Paid 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, 2025 - May 31, 2025 | — | $— | — | 1,111,472 | | June 1, 2025 - June 30, 2025 | 46,733 | $95.36 | — | 1,111,472 | | July 1, 2025 - July 31, 2025 | 955 | $104.51 | — | 1,111,472 | | Total | 47,688 | $95.54 | — | 1,111,472 | - Shares repurchased were from stock plan recipients in lieu of cash payments, not under a publicly announced repurchase program[188] Item 5. Other Information This section states that no director or Section 16 officer adopted or terminated any Rule 10b5-1 trading arrangements - No director or Section 16 officer adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the first three months of 2026[190] Item 6. Exhibits This section refers to the Index of Exhibits for a detailed list of documents filed with the report - A detailed list of exhibits is provided in the Index of Exhibits on Page 35 of the report[191] SIGNATURES Official attestations to the report's accuracy and compliance INDEX OF EXHIBITS A comprehensive list of all exhibits filed with the report