Smucker's Q1 2026: Contradictions Emerge on Tariff Impact, Pricing Strategies, and Pet Portfolio Performance

The above is the analysis of the conflicting points in this earnings call

Guidance:

• FY26 EPS guidance midpoint $9 unchanged; profit shifts to H2.
• Q2 EPS decline > Q1 due to elevated coffee costs/hedging.
• Q2 comparable net sales growth mid-single digits.
• Coffee: FY26 pricing mid-20%; volume down low–mid teens; sales growth low–mid teens.
• Coffee pricing taken in May/August; likely additional action in early winter.
• Coffee margins mid-20s in Q4; sales build sequentially through FY26.
• Free cash flow outlook raised to $975M (from $875M); ongoing OBBB Act benefit.
• Incremental cash directed to debt paydown; target ~3x leverage by FY27 end.
• Sweet Baked Snacks: $30M savings from SKU/Indy closure; ~$10M in Q4 FY26; ~$20M in FY27; profitability improves sequentially.
• Milk-Bone expected to return to growth in H2.

Business Commentary:

* Coffee Price Increase and Tariff Headwinds: - J.M. Smucker's Coffee segment expects a mid-20s pricing increase for fiscal '26, with anticipated low to mid-teens overall growth. - The increase in pricing is due to additional pricing actions to combat increased tariff rates, while volume is expected to decrease by low to mid-teens.

• Guidance and Phasing:
• The company reiterated its annual guidance but expects slight weakness in the second quarter with improvement in the back half of the year.

• This shift is due to better-than-anticipated price elasticity assumptions and additional coffee costs in Q1 and Q2.

• Milk-Bone Improvement:

• Milk-Bone is expected to return to growth in the second half of the fiscal year.

• The improvement is driven by strong comparisons, innovation, strategic pricing, and continued brand support despite cautious consumer discretionary spending.

• Sweet Baked Snacks and SKU Rationalization:

• The Sweet Baked Snacks segment faced a volume decline in Q1.

• SKU rationalization is underway to replace lost sales and improve profitability in the segment, with benefits expected to materialize in subsequent quarters.

• Free Cash Flow Increase:

• J.M. Smucker increased its free cash flow outlook to $975 million for the full fiscal year.
• This is due to the ongoing benefits from the One Big Beautiful Bill Act and is being used to support debt pay-down efforts.

Sentiment Analysis:

• Maintained full-year EPS guidance midpoint at $9 despite higher coffee costs. Raised free cash flow outlook to $975M and will use excess cash to de-lever to ~3x by FY27. Coffee pricing now mid-20% for FY26 with volume down low–mid teens; Q2 EPS decline expected to exceed Q1 due to timing of coffee costs, with profit shifting to H2. Announced $30M savings from Sweet Baked Snacks SKU rationalization/Indianapolis closure, with ~$10M in Q4 and the balance in FY27.

Q&A:

• Question from Andrew Lazar (Barclays): What is the updated Coffee pricing benefit given new tariffs, and was it included in August pricing?
  Response: Coffee pricing benefit is now mid-20% for FY26, with August implemented and an additional early-winter action likely; expect low–mid teens volume declines and low–mid teens segment sales growth.

• Question from Andrew Lazar (Barclays): Why is Q2 now expected to decline more than Q1 and how does it affect annual EPS phasing?
  Response: Full-year EPS midpoint remains $9; Q2 is weaker due to timing of higher coffee costs/hedging while tariffs offset better elasticity, shifting more profit to H2.

• Question from Peter Thomas Galbo (BofA Securities): How have coffee elasticity assumptions changed and what is the top-line impact?
  Response: Better-than-expected elasticity on May pricing drove Q1 outperformance and lifts full-year coffee by ~$100M; August assumes ~0.5 elasticity, with winter action facing higher elasticity (more volume pressure).

• Question from Peter Thomas Galbo (BofA Securities): Will Milk-Bone return to growth due to easier comps or improved consumption?
  Response: H2 growth is expected, supported by easier comps, innovation and tactical pricing/promo, despite lower treating frequency.

• Question from Robert Bain Moskow (TD Cowen): Did SKU rationalization drive the Sweet Baked Snacks volume decline, and what is the dedicated sales org change?
  Response: Rationalization completes by Q2 and is aimed at profitability; a dedicated sales force (with existing c-store team) sharpens execution to improve performance.

• Question from Robert Bain Moskow (TD Cowen): Did SKU rationalization impact Q1 volume?
  Response: No.

• Question from Tom Palmer (JPMorgan): What drives the better back-half outlook if Q2 is weaker?
  Response: Coffee profit timing shifts to H2; positive elasticity is offset by higher tariffs, keeping the $9 midpoint intact.

• Question from Tom Palmer (JPMorgan): When do SKU reductions benefit earnings?
  Response: Savings total ~$30M, with about $10M in Q4 FY26 and ~$20M in FY27; profitability improves sequentially through FY26.

• Question from Peter K. Grom (UBS): How confident are you in an on-algorithm FY27 after FY26?
  Response: Exiting FY26 with coffee margins in the mid-20s plus Hostess stabilization and growth brands’ momentum supports FY27, pending tariff dynamics.

• Question from Peter K. Grom (UBS): How will price vs volume/mix evolve and what’s the coffee pricing ramp?
  Response: Coffee pricing will be mid-20% in Q2–Q3 and slightly higher in Q4; overall sales improve sequentially through the year.

• Question from Megan Christine Alexander (Morgan Stanley): What drives the higher free cash flow and how will you use it?
  Response: FCF raised to $975M (from $875M) mainly from ongoing OBBB Act benefits, and will be used to de-lever toward ~3x by FY27.

• Question from Megan Christine Alexander (Morgan Stanley): What segments drive Q2 mid-single-digit net sales growth and sequential improvement?
  Response: Coffee, Uncrustables, and cat food drive momentum; Sweet Baked Snacks stabilizes; Away From Home remains strong.

• Question from Alexia Jane Burland Howard (Bernstein): Are you pursuing tariff exemptions on green coffee?
  Response: They are monitoring and advocating via industry groups but assume no relief; guidance would be updated if relief occurs.

• Question from Alexia Jane Burland Howard (Bernstein): Are GLP-1 drugs impacting Hostess or other categories?
  Response: No meaningful impact observed; coffee/pet are insulated and snacking persists, with portion/reduced-sugar options available.

• Question from Max Andrew Stephen Gumport (BNP Paribas Exane): How do improved elasticity and higher tariffs net to the same guidance impact?
  Response: Coffee is up ~$100M (~$0.20 benefit), but higher tariffs now net -$0.25, bringing coffee back to plan and keeping guidance unchanged.

• Question from Max Andrew Stephen Gumport (BNP Paribas Exane): Why aren’t GLP-1 users affecting your categories more?
  Response: Consumption reductions aren’t concentrated in their categories; Uncrustables/Hostess remain resilient as small rewards, so impact is not measurable.

• Question from Scott Michael Marks (Jefferies): How big is the Hostess SKU reduction and its impact?
  Response: Primarily long-tail, lower-profit SKUs; expect offsets from growth in core sub-brands like Donettes.

• Question from Scott Michael Marks (Jefferies): If tariff relief comes, how quickly would it affect pricing and P&L?
  Response: Relief wouldn’t add back the full ~$0.50 FY impact due to timing; they would revise guidance to reflect phasing.