Good morning, and welcome to The J. M. Smucker Company's Fiscal 2019 Third Quarter Earnings Conference Call. This conference is being recorded and all participants are in a listen-only mode. At the request of the Company, we will open the conference up for questions and answers after the prepared remarks. Please limit yourself to two questions during the Q&A session and re-queue if you have additional questions. I will now turn the conference call over to Aaron Broholm, Vice President, Investor Relations. Please go ahead, sir.

Good morning. And thank you for joining us for our fiscal 2019 third quarter earnings conference call. Mark Smucker, President and CEO; and Mark Belgya, Vice Chair and CFO will provide our prepared comments. Also participating in the Q&A are Tina Floyd, Senior Vice President and General Manager Consumer Foods; Dave Lemmon, President, Pet Food and Pet Snacks; and Joe Stanziano, Senior Vice President and General Manager of Coffee. During today's call, we will make forward-looking statements that reflect the Company's current expectations about future plans and performance. These statements rely on assumptions and estimates and actual results may differ materially due to risks and uncertainties. I encourage you to read the full disclosure concerning forward-looking statements in this morning's press release, which is located on our corporate website at jmsmucker.com. Additionally, please note the Company uses non-GAAP results to evaluate performance internally as detailed in the press release. We have posted to our website a supplementary slide deck, summarizing the quarterly results and fiscal 2019 full year outlook. The slides can be accessed through the link to the webcast of this call, and will be archived on our website along with the replay of this call. If you have additional question to ask after today's call, please contact me. I will now turn the call over the Mark Smucker.

Thank you, Aaron. Good morning, everyone, and thank you for joining us. It was great to see many of you, last week at CAGNEY. And we appreciated the opportunity to provide an update on our strategy and preliminary thoughts on fiscal 2020 financial guidance. Our outlook across the businesses reinforces why we remain excited about the long term prospects for delivering on our three key financial priorities of top line growth, prudent cost management and delivering earnings per share growth. Our efforts to position our business for growth and execute on our priorities continued to pay off this quarter. We achieved year-over-year sales and gross margin growth ahead of our projections and adjusted earnings per share came in better than our expectations through favorable as SD&A. Overall, we are very pleased with the third quarter results and the momentum we are starting to build to advance our consumer centric strategy. We delivered strong sales performance for our growth brands, which increased 17% in the quarter. We also achieved strong growth for some of our leading brands. Our core brands demonstrating our ability to increase sales for both core and growth brand. Multiple brands in our pet business achieved double digit sales growth including Rachael Ray Nutrish, Meow Mix, Kibbles 'n Bitsbit and Nature's Recipe. Further, Smucker's Uncrustables and Sahale Snacksso also realized double digit sales grow, while Dunkin Coffee achieved 9% sales growth including strong performance across premium bag and the recently launched canister offerings. Notably, Folgers within the U.S. retail coffee segment was flat in the quarter. Collectively, the gains were partially offset by weakness for Folgers in the International Away From Home business, Natural Balance and declines related to the planned exit of certain private label pet food and Gravy Train, wet dog food products. Excluding the Ainsworth acquisition, and prior year net sales attributed to the divested baking business, organic net sales increased 1% compared to the prior year. Our adjusted earnings per share performance reflects net sales grow, gross margin improvement, achievement of acquisition synergies, and the benefit of consolidating certain geographic locations. Additionally, marketing spend was below our initial expectations because certain expenses shifted to the fourth quarter as delayed retailer shelf resets slowed some innovation launches and related support. But despite this shift, marketing span was up over $30 million compared to the prior year, reflecting the addition of Ainsworth and innovation support for the base businesses. With growth in a number of areas contributing to our third quarter results, we continue to make progress on our three consumer centric growth imperatives of leading in the best categories, building brands consumers love and being everywhere. I'll share a few examples of how we are executing against this framework beginning with leading in the best categories. U.S. Retail Coffee segment sales growth was driven by the premium Dunkin and 1850 brands. Our total K-Cup sales continue to outpace the category with net sales up 4% in the third quarter. The 1850 brand coffee continues to perform with repeat rates exceeding our initial projections and a 75% ACV. We are increasing emphasis on consumer trial through continued brand support. Last week, we announced two new single origin varieties to complement the current 1850 lineup. And we remain confident and continued growth for the platform, which leverages the heritage and authenticity of the Folgers brand to attract new consumers. We are also strengthening the Folgers brand with the upcoming launch of a new line of dark roast coffee under the [indiscernible] platform filling in the canister segment for dark roast varieties. Sales growth within our Pet Food segment reflected contributions from the Ainsworth acquisition. Momentum for the Nutrish and Nature's Recipe brands continued in the quarter with year-over-year sales growth of 23% and 11% respectively, despite increased competitive activity. Initial shipment of our pet treats innovation primarily for the Milk-Bone and Nutrish brands began late in the third quarter. And we remain on track to achieve 3% to 4% incremental new points of distribution for the total pet business. Finally, in the Pet segment, due to sustain input costs inflation, we successfully implemented a price increase across our pet food portfolio effective this month. Turning to our strategic imperative of building brands consumers love. We are following through on our commitment to increase marketing investments to support our innovation and growth brands. As I mentioned in the third quarter, our marketing expense increased over $30 million compared to the prior year. A higher level of marketing and innovation support coupled with a more agile go-to-market approach is critical to achieving an anticipated high single digit net sales increase for growth brands over the next five years. Combined net sales for growth brands are projected to increase 18% for the full 2019 fiscal year. We will also continue to invest in core brands to achieve our net sales growth target. As we highlighted at the CAGNEY conference last week, with updated marketing behind the mature Meow Mix brand, consumption increased over 4% since the campaign launch and net sales were up 10% in the third quarter. The third growth imperative we are focused on is to be everywhere. How, where, and when consumers shop is more than ever on-demand and multi-channel. We think about both traditional and new retail channels as a single ecosystem where our brands must stay current and breakthrough among increasing choices for consumers. Within the e-commerce channel, we have a strategic advantage by participating in fast growing online categories. We continue to achieve very strong e-commerce growth in both coffee and pet food as our brands continue to keep pace with or exceed their respective categories online growth. Within our Away From Home business, our focus is on branded offerings within these channels. For example, the upcoming launch of 1850 coffee and Foodservice channels further supports our intend to be everywhere having our brands available wherever consumer shop, eat or grab something on the go. Also, with the launch of Jif portion control offerings, consumers will now be able to enjoy the number one peanut butter brand in lodging and restaurants. Finally, with respect to being everywhere, we are increasing consumer engagement through digital platforms in addition to traditional channels. Our digital efforts have been instrumental and connecting with consumers for and 1850 and Jif Power Ups. In closing, we have a strong brand portfolio and are committed to maintaining investment particularly in marketing to deliver growth and strengthen our brands connection with consumers. The components of our strategy are coming together as thoughtful cost management, reinvestment in the business, reorganized commercial functions, including sales and marketing, and strong execution have created momentum for growth and increasing shareholder value. None of this would be possible without our great team of dedicated employees to execute this strategy. And I would like to thank all of them for their continued effort. I will now turn the call over to Mark.

Thank you, Mark. Good morning, everyone. Let me begin by providing further detail on the impairment noted our press release this morning. Our third quarter GAAP results included a non-cash charge of $107 million attributable to certain indefinite live trademarks within the Pet Food segment. This reflects a strategic shift for certain brands from the Big Heart pet brands acquisition, resolving a reduction of their long term sales forecast. Our long term organic growth projection for the overall pet business remains unchanged in part due to the anticipated growth related to Rachael Ray Nutrish and innovation across the portfolio. With that, let me now provide an overview of third quarter results. I will then conclude with an update on our full your outlook. Adjusted EPS was $2.26 compared to $2.50 in 2018. There were several factors that affect comparability to the prior year's results, which I will note as I provide additional details on the quarter. Net sales increased 6% driven by the acquisition of Ainsworth. Excluding Ainsworth and the impact from the U.S. baking divestiture, net sales increased $40 million or 1%. Favorable volume mix in coffee and consumer foods offset a $5 million foreign exchange headwind during the quarter and net price realization was neutral. Adjusted gross margin expanded to 38.6%, increasing 20 basis points compared to the prior year, and a sequential improvement of 40 basis points over the prior quarter. Excluding Ainsworth, which impacted gross margin by 50 basis points and the margin benefit divesting the baking business, the gross profit improvement was the result of favorable volume mix and lower cost. SD&A increased $43 million, or 13%, compared to 2018. Marketing expenses increased $31 million or 31%, reflecting the addition of Ainsworth and support for recent product launches. General and administrative expenses increased $5 million or 5%, reflecting the addition of Ainsworth, mostly offset by synergies and cost management benefits. Factoring in all of this, adjusted operating income increased $5 million or 1% compared to the prior year. Below operating income, interest expense increased $9 million, driven by borrowing costs associated with the Ainsworth acquisition. A $4 million increase in other expense was driven by pension settlement and increase legal expense. The adjusted effective income tax rate was 25.8% in the quarter. Let me now turn to segments results beginning with Coffee. Net sales increased 2% compared to the prior year. The increase was primarily attributed to the Dunkin brand, driven by roast and ground, both bag and canister formats. Sales for the Folgers brand inclusive of 1850 were unchanged from the prior year. Its higher volume mix was offset by lower pricing to increase trade spend, as lower green coffee costs are being passed through to consumers. Coffee segment's profit increased 1%, reflecting the favorable volume mix and the net benefit of price and cost, which more than offset of 47% increase in marketing expense. In Consumer Foods, net sales increased 4% excluding the non-comparable sales related to divested U.S. baking business with both Jif and Smucker's up compared to the prior year. Sales for the Smucker's brand was driven by Uncrustables, which increased 12% more than offsetting declines in Fruit Spreads. Net sales for Jif increased 5%, reflecting the contribution from Power-Ups and volume mix gains in peanut butter. Sahale Snacks sales increased 63%, driven by gains in volume mix and favorable net pricing. Segment profit decreased 21% in the quarter, excluding the prior year profits from the U.S. baking business, segment profit decline 6% due to increased marketing on Jif Power-Ups and cost associated with the construction of the new Uncrustables facility. Turning to the Pet Food segment. Net sales increased 35%, reflecting the addition of Ainsworth. Excluding Ainsworth, net sales were flat to the prior year, although the plant exit of certain private label offerings and the plant discontinuation of Gravy Train wet dog food products impacted sales by 3% or $19 million. Nutrish sales increased 23% compared to the prior year with robots growth across all segments at dog food, cat food and snacks. Gains in Meow Mix and Kibbles 'n Bits were partially offset by declines for Natural Balance in Milo's kitchen. The decline in Natural Balance reflect ongoing softness in the Pet specialty channel, which is not being offset by growth in e-commerce. Pet Food segment property increased 26% compared to the prior year, again driven by the profit contribution from Ainsworth. Excluding Ainsworth, segment profit was flat compared to the prior year. And lastly in the International Way From Home segment, net sales declined 6% compared to the prior year. Volume mix declines most notably for Folgers and Crisco were partially offset by growth for Smucker's Uncrustables and portion control products. Unfavorable FX, lower net price realization and non-comparable sales in the prior year from the divested baking business also contributed sales decline. Segment profit decreased 2%, as the impact of reduced volume mix and foreign exchange were partially offset by decreased marketing expense and the net benefits of lower pricing cost. Third quarter free cash flow was $333 million. This represented a $56 million decrease compared to the prior year, reflecting reduced benefits from working capital improvements, primarily driven by inventory. During the quarter, we repaid $300 million of long term debt, while increasing our short term borrowings by $114 million. This resulted in a net debt reduction of $186 million and a debt balance of $6.1 billion as of January 31. Based on a trailing 12 months EBITDA of approximately $1.6 billion, our leverage ratio stands at 3.8 times. Let me conclude my comments with an update on our full year outlook. As noted in this morning's press release, and last week at CAGNEY, we maintained our full year guidance. Expectations for net sales and gross margin remained unchanged with fiscal year net sales of $7.9 billion and estimated gross margin of 38%. Adjusted earnings per share is expected to be in a range of $8 dollars to $8.20. Key factors included in this forecast include better than anticipated third quarter results, a shift in certain marketing expenses from the third quarter to the fourth, the price decline on Jif peanut butter effective in March and a full year tax rate of 26% reflecting the fourth quarter rate comparable to the third quarter. Our projection for free cash flow remains in the range of $700 million to $750 million dollars, the CapEx estimated at $350 million to $370 million. In closing, let me reiterate that we're very pleased with this quarter's results and feel confident in delivering on our guidance for the year. Thank you for your time this morning. And we'll now open up the call to your questions. Operator, can you please queue up the first question?

Thank you. The question-and-answer session will begin at this time. [Operator Instructions]. Our first question comes from Andrew Lazar of Barclays. Please state your question.

Good morning, everybody.

Good morning, Andrew.

Hi. First question would just be, you noted some shifting of marketing spend from 3Q to 4Q. Was there any other shifting, you know the top line obviously was quite a bit better particularly in consumer then we had modeled with the underlying as you mentioned being up for. Then if there's anything that shift in relation to either the change in the cadence of SNAP spending to consumers or things of that nature that might have affected, you know, inventory at retailers one way or the other. Just trying to get a sense of the sustainability of the type of trends that you showed, particularly in consumer on the top line?

Hi, Andrew. It's Mark Belgya, I'll answer the question. I would say that we would call up anything specific to SNAP or any other you know, specified programs. We obviously over delivered sales in coffee in the business generally above what we thought, but there was nothing significant. You know one thing I might just take the opportunity to call out is as we do look to the fourth quarter on P&L, so you'd mentioned and we'd mentioned an increase in marketing. So that would certainly be a little bit of a flip between the two quarters. And then we also see the impact of the new pricing on peanut butter that will go on effect in the fourth quarter in March with the higher tax rate. And then although it was forecast originally, but kind of new news to you guys is that you know, with the construction of Longmont, we're going to see a step up in those costs in Q4 over last year's Q4 of about $0.04. So those whatever was three or four factors or things that you guys can just consider as you think through your fourth quarter outlook. But to the original question, I would say there was nothing significant, you know, that would - we would call out and say the timing difference other than the marketing.

Great. Thank you for that. And then just the second one would be the sustainability of Pet segment margins, obviously, a very big step forward, leap forward from where you were in fiscal 1H and certainly part of that I know is the synergies that are flowing through from Ainsworth and such. But when you adjust out, you know, some of the inventory step up from Q1, you know, the progress in Pet margins was, you know, much more significant than we had models. I just want to get a sense of your confidence there and the sustainability of margin structure moving forward in Pet? Thank you.

Yeah, Andrew, it's Dave Lemmon here. I would say that we're really pleased with our margin progression on the business. Q3, we were 19.4% verses Q2 of 17%. So great progression against margins. You know, you mentioned synergy capture, but I would just say that you know, as we move to the back half, we expect to capture the bulk of the synergy related to year one in the back half. So that would be one thing contributing to our margin expansion. The other thing is that we've just taken a price increase on food, but we have the benefit of price increase on snacks and Natural Balance in Q - throughout the fiscal that would help our margins. And then just sort of thinking longer term, we have network optimization which is going to be kicked off later this fiscal. Portfolio management will continue with things like these are action on Gravy Train web. And then we plan to launch margin accretive innovation that will also help our margins. So we feel really good that the margin levels that we see today will be sustained if not enhanced.

Great. Thanks everybody.

Our next question comes from David Driscoll of Citi. Please state your question.

Great. Thank you. Good morning, everybody.

Good morning.

I just wanted to confirm, Mark Belgya, that the Uncrustables facility startup, you said that that was - I think you said it was $0.04 per quarter on a go forward basis until your - I think you just said next quarter, but I would assume that's $0.04 per quarter until you finish the startup. Is that correct or is it just $0.04 next quarter?

Hey, Dave, it's Mark. It was - that quote was specifically to the fourth quarter of this coming year. We'll give you more color on the total costs. We gave, as you recall, we did call Longmont expenses out as impacting both fiscal '20 as well, but will hold on till June. But the $0.04 was just specific to Q4 this fiscal.

Okay. And then on pet food, you called out the asset impairment and you said that that overall your expectations are not changed. But an asset impairment means that management lowered the revenue expectations which is why you get the impairment. What was the counterbalance right there? Did you actually raise your expectations for Rachael Ray? And then related to things in pet, are you exiting all the private label Pet Food that Ainsworth's did and just what's the implication of that on the business?

Okay. Dave, it's Mark again. I'll start and then I'll let Dave also speak. So let me just kind of ground everyone on the impairment. So impairment was specific to trademarks. And I could give you all lesson here, but the trademarks are based upon future top line growth where goodwill is based on profitability. So the trademark implication or impairment was due we made some strategic decisions there, David and team have been going through. This is his strategy. And that's where reducing top line forecast for certain brands. That drove the trademark impairment that we took this quarter. We feel that long term because of the addition of the profitability of Ainsworth and all the things that David talked about or we'll talk about, we think that the profitability and the top line growth is still good where we are not facing a goodwill charge. So right now, the only thing was on the trademark. As we have consistently said in our 10-Q and our 10-Q will be issued later today and I'm just direct you all to read that is that we do know that because fair value and book value are close that any significant changes and any future forecast could result or would result in additional impairment. But right now, we feel the base business with all the growth opportunities you know should not cause a goodwill impairment this time.

And Dave, just to answer the question on private label. We're still very committed to the private label business. As you know, we pack sort of the premium private label on dry dog and sort of the value equation on wet cat. The exits were planned exits related to the legacy business on Pet, on private label Pet, but the - all the business that's associated with APN and will continue to service those customers and meet their needs.

Okay, thank you. Nice quarter. I'll pass it along.

Thanks David.

Thank you.

And our next question comes from Ken Goldman of J.P. Morgan. Please state your question.

Hi, good morning. Thank you. First question is on Natural Balance. You know - and I know this question has been asked before, I'm just hoping for an update on your thoughts. You know, a few years ago, it was Natural Balance and Blue Buffalo and those were the sort of big hitters at least perception wise at the super premium and in pet superstores. And since then, you know, your big competitor Blue has made a lot of choices that have grown and are about to grow with sales pretty dramatically. And I think those are the right choices in many ways, because of what we're seeing with pet superstores. And I don't feel like Natural Balance has made those same choices. So I'm just curious, is it too late for that Natural Balance brand to sort of expand its distribution platform if you will, have you made some mistakes there? What do you think the options are for it to grow because it was such a great brand and I feel like we just don't hear much about it anymore, it's sort of been put on the back burner?

Ken, it's Dave Lemmon here. I would say, as I said on previous calls, we're not happy with the performance on Natural Balance. But - and we're going to continue to be a consumer led brand in the pet specialty arena, so we're committed to that channel and we will be committed to that channel for the longer term. And we have what I feel is a strong plan to turn the results around. But it won't happen overnight, I would say. But in the near term, you know, we're celebrating our 30th year anniversary of the brand. So we have a lot of display and promotional activity behind the brand coming in Q4 or through the first half of next fiscal. We're re-launching the ultra-brand with new graphics and focus on LID. We're focusing on pet specialty and regaining back our store level recommendations, which are critical to the brand. And then over the longer term, we're focused on a new marketing strategy that will drive brand awareness and increase household penetration and bring new users into the franchise. And lastly, I would say that we're really focused on our e-com strategy and building the brand in this important channel through a pricing strategy that meets the needs of the channel and through innovation that meets the needs of the channel. So we think with the combination of, you know, those five or six factors that I've outlined that we will be able to return the business to grow.

Can I use my second question for a follow-up to that? I don't quite understand. I understand there's any marketing strategy, understanding emphasis on e-com, but why the reliance still on pet specialty and why you say there's a good plan to turn it around. What is that plan? In pet specialty, it's no secret, is heading south. I don't think anyone really is expecting it to start growing very quickly again. In the meantime, there's an arguably a missed opportunity in food, drug and mass, but your biggest competitor has taken. And I don't quite understand why you're letting all that shelf space go to your biggest competitor?

Well, you know, I'd say a couple things. The first thing is that as a brand that we've chosen to have it sold only in that channel and exclusive to that channel, and the pack is still growing and growing quite nicely, big box retailers in the pet specialty arena are declining, but we think that there is growth to be had in the pet. And as the pet specialty sort of pushes out on, pet goes announcement with being focused on ingredients and so forth. We think that we want to stay committed to the brand and that - in the pet specialty arena and that'll be our go forward position.

And Ken, it's Mark Smucker. I guess I would just add, you know, there's been a lot of focus on this brand. And of course I think Dave outline very well what the turnaround plan is. But you know we've got clearly a lot of effort and work to do in the mainstream channels with Nutrish and Nature's Recipe, both of which are continuing to perform and in aggregate are much larger than the Natural Balance opportunity. And they fill I would say a unique spot in the premium tier where you've got some of the other competition. As I highlighted, I think at CAGNEY last week, it's a very broad priced category. So you know we've got - there's plenty of room I think for these multiple competitors to play and we're going to remain focused on that. And we will, as Dave highlighted, you know, make sure that we're doing the right things for the Natural Balance brand. But we just feel like our strategy and the channels in which our brands play today is right.

Hey Kin, just - it's Mark Belgya. Not to pile on, but I think we also have to keep the context the relative size of Natural Balance. It's 10% of the entire tech business. So you know, not to minimize the commentary in the question, but just for the benefit of everyone on the phones to dollar eyes that.

Our next question comes from Chris Growe of Stifel. Please state your question.

Hi, good morning. I wonder if I could ask a follow-up question. In terms of the marketing shift in the fourth quarter, forgive me if I missed this, but have you said how much for these shifts from Q3 into Q4, just kind of get our model straightaway here?

Hey, it's Mark Belgya. Yeah, you know, we would say that the impact of marketing is about a $0.03 to $0.04 impact between Q3 to Q4.

Okay, so relatively modest shift it sounds like?

Yeah.

Okay, thank you. And then this wanted to ask, there's been a lot of talk of you know accelerated sales growth in the month of January particular SNAP benefits push back and I know there's been some inventory build, some retailers. I'm curious of reuse if that helped your quarter at all, where you see your retail inventory levels overall and any businesses that may have benefited from that phenomenon if it occurred?

Yeah, I can jump in. This is Tina. You would think that peanut butter may have had some impact with regards to SNAP, but we didn't see really anything significant that would have changed anything within our sustainable business.

Yeah, this is Joe. I would say the same thing on coffee, pretty consistent as we move into the fourth quarter.

And just generally Chris, I would say nothing as I said earlier that would indicate you know anything specific to inventory changes that retailers or anything like that. It was pretty much a normal flow of goods throughout the - you know the end of the quarter.

Okay. That's great. I appreciate your time this morning.

Our next question comes from Bryan Spillane of Bank of America. Please state your question.

Hi, good morning.

Hey, good morning.

Just two questions. One just related to the fourth quarter that the guidance for the fourth quarter, you've got a still a pretty wide EPS range but like a point estimate on revenues, tax rate. So just trying to understand what's the variability in the fourth quarter, might be timing some of the marketing might shift to the first quarter of next year or just trying to understand what potential volatility there could be in the fourth quarter?

Yeah, Bryan, it's Mark. You know, I would just say there's probably, you know, three or four things I've kind of commented on them. Certainly the one that stands out the most is the pricing - our price decrease that goes in next month. I mean, we've obviously factored in, you know, estimated price decline and volume gains and so forth. But until that's in market, you know, we need to see that. But short of that there's nothing I would say significant, you know, in that range has been consistent with that range throughout the year. And what we tried to do with my earlier comments to Andrew was just give you a sense of the three or four things that that you guys may not have had, you know, color on it as you think through your fourth quarter. But it certainly is a high end, you know, would just be continued benefits from innovation and just the continuation of the trends that we saw come out of Q3. So if there's anything with probably a little bit of conservatives and bill into that around the top line growth, so we did over deliver above our expectations.

Okay. And then just follow-up on - you know it's pretty good results in coffee in the quarter and looks like your K-Cups did pretty well as well. And Keurig had you know probably a better merchandising around brewers for the fourth quarter. So was there any sort of notable change in the category or change in your business just related to some of the things that you know Keurig has done to try to stimulate you know, household adoption?

Yeah, Bryan, it's Joe. You know, I think we've been pretty consistent with how we've approached the K-Cup merchandising. We did have a good Q3 I would say and we talked a little bit about it I think the last quarter you know, some of the work that Keurig has done on the entry level brewers has really helped us in key customers and key channels, especially for brands like the Folgers brand and seeing an adoption and increase sales velocity in that brand. So we continue to be positive about all four of our brands in the K-Cup segment.

Okay, great. Thank you.

Our next question comes from Jason English of Goldman Sachs. Please state your question.

Hey, good morning, folks. Thank you for letting me in, I appreciate that. I want to come back to pet real quick. Can you give us any quantification of the price increases that you're pushing through on the food side and any indication of whether or not any your big competitors like Mars, Nestle et cetera have led or followed?

Yeah. It's Dave Lemmon here Jason. Thanks for the question. As you know, we follow on food, so it would be safe to say that are big competitors lead on pricing. In terms of the volume impact, we've modeled that in. So all of the impacts with respect to volume have been reflected in our guidance for next quarter. And you know, I just like to say, you know, we took food up in the first quarter, we took Natural Balance up in the fourth quarter. So in effect, we've taken our entire lineup of pet food up in price over the last 12 months. So it's been a great job by the sales team and by selling it in to our customers.

Great. I love it, Dave, if you could give me any quantification of that price increase if possible? And then my second question, you guys mentioned that you've over delivered on coffee sales this quarter. Clearly volume was very strong, congratulations on that. It does, however, contrast what we see in the Nielsen or IRI data. Can you give us any indication of where you're sourcing that volume Generalized?

Yeah. Hey, Jason. It's Dave. Sorry I didn't close the loop on that for that first question. But we won't be sharing the amounts that we took. But you can be safe to say that they were in line with our competitors.

Understood.

Hey, Jason, it's Joe. Yeah, from a coffee perspective, you know, again, I think when we look at the third quarter, you know from an IRI perspective, actually we did grow share and mainstream in the 12 week up about six tenths of a share point, driven mainly by the Dunkin canister launch in Bustelo. However Folgers roast and ground net sales were flat in Q3 and that is an improvement over Q1 and Q2. So you know while we continue to work on the Folgers core business, you know we're excited for the launch of the Folgers Douwe product that you saw last week. We think that is really important innovation bringing to the mainstream canister category, a line of dark roast product that really we believe is missing in that segment. So continue to work for improvement there.

Jason, this is Mark Smucker. I guess I would just add a general comment about our support of these brands is we're pretty happy with the results this quarter, particularly in the sense that we've seen multiple examples of when we put some support behind these core brands, we in response, so we've seen that with Meow Mix, Kibbles 'n Bits and then now more recently seeing some improvement on Folgers. And so just a comment that it does work, the strategy does work. And then also as it relates to Jif specifically and Folgers, when you factor in 1850 and Jif Power-Ups, both of those are helping the brands. And so again just more confirmation that we're doing the right things and we're starting to see a little bit of momentum and see our strategy play out successfully. So I'll stop there.

Right on. Thank you, guys. I'll pass it on.

Our next question comes from Rob Dickerson of Deutsche Bank. Please state your question.

Great. Thank you. Yes, my first question is just on pet. Kind of more generally, it sounds like you said this morning perhaps new distribution points of 3% to 4%, I know last week you kind of stated, you didn't really expect that much share encouraging coming in Mars and Blue just off of the data sets you've seen. This kind of curious, is it like others could be losing shelves, like you could be losing some SKUs offer maybe larger bags or more mainstream or retailers expanding categories for footage, I am just try to get a sense of as to why you specifically, let's say other premium brands within Mars without lose share just if someone else comes in unless they're trying to premium up the entire category and then others mainstream are losing share. So just kind of any general comments as to what you think plays out over the next six to nine months in pet at Mars? Thanks.

Rob, I have a few comments I'd make and just start by saying that on previous calls and it's further sort of supported now, we have limited interaction with Blue. And as we look at the data, we've coexisted for over a year now in many accounts and both our Nutrish and Nature's Recipe brands have continued to maintain or grow share consistently over that time. Blue is much higher priced then both Nutrish and Nature's Recipe and is attracting a really different consumer base, I would say. The whole notion of super-premium versus premium. And they attract a much - a consumer who's willing to pay much, much more for food. And then the last thing I would say is that we have a huge pipeline of innovation coming behind Nutrish and Nature's Recipe that will help sort of kind of insulate us from their entry. We are one of the only manufacturers or very few manufacturers to receive incremental shelf space or PODs, and it's because of our new platforms across both these brands. And then from a shelf space perspective, I just add that Blue is going to definitely add some pressure to the shelf space as they continue to crossover. It is yet seen who or what segments will be impacted by that. But if you want my opinion, I'd say that the shelf space will continue to come from primarily the value segments to a lesser extent than the mainstream segments, as retailers continue the journey of trying to trade up the consumer to premium dog food and premium pet. And I would anticipate the value segment being reduced through the elimination of duplication. And that they will probably try and make its bed shelf space much more efficient moving forward, which we will try to take advantage of and we're well positioned for across our portfolio offering both value mainstream premium and super-premium. So we feel really good about how we're going to defend against Blue coming over to and continue to cross over into FDM.

Okay. Fair enough. Thank you. And then in terms of price decrease, you mentioned, forthcoming in peanut butter. I guess a simple question, is that - do you think that's the only category where you might have to lean in a little bit into pricing? It sounds like peanut butters more or less, but we have seen what seems like a little bit heightens promotional activity in coffee. So I'm just curious if there are other areas you think you might lean into price and then more specifically on coffee, do you feel pretty standard so to speak as to where your pricing is now or could you potentially need to promote a bit into this spring? Thanks.

Hey, Rob. It's Joe. From a coffee perspective, we have obviously this year kind of continue to reflect the green price and stay very competitive on shelf. More comfortable as we go into fourth quarter with our price and promotional strategy. Obviously we continue to watch that the green market as we go into next year. But as we sit here and look to fourth quarter, we feel like we're in a good place.

Hey, Rob. It's Mark Belgya. Just maybe conclude the question is that you'll recall coming into the year, we were talking about just overall cost and we said that, green coffee was going to be down, it's obviously continue to be. And to Joe's comments on how that's been passed through. And then but the rest of our costs, whether it was packaging, ingredients et cetera, we're up and most affecting Tina's business and Dave's business. So I think you've heard, we took the pricing on days and the only notable decrease in Tina's area is peanuts. And so we are as we say, we're passing that through. But otherwise, if you look at price having to come from, cost supported, it's really green coffee costs and peanuts costs are the two that are moving the rest are - they are - what we expected and that's wouldn't expect any cost driven price off, their price change after that.

Okay, great. And then just one quick one for you Mark again, Belgya. Is just, why not have updated your guidance last week at CAGNEY give us the kind of the direct question right is Q3 obviously came in a lot better than you've expected. Q4, what I'm hearing is there may have been some changes on peanut butter pricing that weren't expected for the year, the shift in marketing $0.04, which isn't that much. I'm not hearing much other deltas for the year. So I mean, I guess maybe the answer is we just like to leave ourselves the cushion and be conservative, it's a competitive marketplace, but it seems like it's - it may have been worthy of increasing guidance yet, you just didn't do so. So I'm curious as to what the thinking was? That's it. Thank you.

Well, I guess what I would say, Rob, is that we still feel comfortable with the range. And we purposely did not release and get into Q3 results because we didn't want to use that format we felt that was important that's the long term strategy discussion in Cagney want to save the commentary for here. And we just want to have this conversation, but I think we've presented that we feel good that we will deliver within our guidance range and really don't have much more to add to that.

Okay. Thank you.

Our next question comes from Akshay Jagdale of Jefferies. Please state your question.

Thanks for the question. First one is for Mark Smucker. Just in terms of the - so the long term strategy, can you just cover us where price falls in, your pricing strategy obviously this year one of the main reasons you've lowered a top line organic sales growth guidance is because of lower pricing in coffee, lower pricing in peanut butter and now peanut butter pricing is gone even lower. So I know there's a lot of commodity pass through but at the end of the day, you've got these pretty aggressive organic growth target for your main brands and some of them are in obviously coffee right. So can you just level set us how like this year's results and overall just sort of these past through and strategic moves on pricing that seemed to impact profit negatively in the short term play into your long term strategy of sort of high single growth for your leading brands?

Okay, I'd say. This is Mark Smucker. I guess a couple things. First of all, you know we've seen margin improvement this quarter. So our profit is improving and we intend to manage dollar profit. As you know, we always say our goal is to grow year-over-year our profit dollars. And to the extent that we can achieve margin improvement that obviously is a secondary goal. As it relates to just pricing in general, being able to take pricing up or down, particularly in categories that are commodity driven, is going to continue to be a very important part of our strategy. And to maintain credibility with our retail customers as well, we need to be somewhat transparent in terms of our - when we are moving, that it is cost driven. And so as it relates to peanut butter specifically, we did actually take a pricing increase about a year ago, and we saw no one follow. And as you know, peanuts costs and the competition continues to be to be strong, we felt that the right thing for the business is to make sure that our pricing strategy is right that our price gaps are right. And so that's really the reason for the move. And it will cause us to be more competitive. But clearly at the end of the day, bottom line pricing is important, our ability to do so is important and we've got to maintain that credibility with our customers and obviously pass things along to the consumer and when we can.

That's useful. And just one follow-up on pet as it relates to your 2020 high level top line guidance. So it looks like you're expecting an improvement in organic growth, obviously pretty significant one in 2020 overall for the company and pets going to have to obviously improve significantly. Some of that is the innovation pipeline, right. But can you just give us a sense of the improvement in pet, how much of it is just innovation driving significant incremental growth, and more importantly, how all of that fits into the competitive dynamics, right? Like what I think people would like to hear is you're taking a conservative approach on velocities given the entry of Blue, but just high level, like how are you thinking about the improvement in pet organic growth over the next 12 months and what are the puts and takes there? Thank you.

Yeah, Akshay, it's Dave Lemmon here. I would say to touch on your question around innovation, we have a huge pipeline of innovation coming in the fourth quarter, which will be supporting all of our segments, new platforms for growth meaning like new territories, we're taking the brands in terms of the segments, primarily focused around our snacks line with Milk-Bone being sort of the anchor of that effort. But still lots of news on our food business around Nutrish, Meow Mix, Kibbles 'n Bits and so forth. We expect to deliver $100 million of net sales incremental against our innovation, all of which will primarily come next fiscal. We had a delay in the mod resets of this year and so we expect that the bulk of that to hit us in next fiscal. I would say that retail acceptance has been great. So far most of the resets are launching later in the fourth quarter. We've grown PODs by - you heard Mark said, but by 3% to 4% incrementally. So we have great sort of growth coming from a POD standpoint. And just on the other side, I would say that we expect organic growth from our brands and we're going to deliver share growth through investing in our brands. And so sort of a balance between innovation and base business growth.

Thank you. I'll pass it on.

Our next question comes from John Baumgartner of Wells Fargo. Please state your question.

Good morning. Thanks for the question.

Good morning.

Just maybe for Joe and maybe if Mark wants to jump in In terms of retail coffee, when we look at premium, it's about what 15% of your portfolio, it's where it was five years ago and you're still under index versus the category. And we look at Nestle, you going out acquiring Blue Buffalo and chameleon to kind of catch that millennial Gen X consumer. How do you think about winning that jump all in terms of developing brands internally versus automatic with M&A, I guess what's different in coffee versus the pet business?

Yeah, John, I could start and Mark will jump in. I mean, obviously, we've been focused on, growing the premium side of the business. Obviously, the Dunkin brand continues to grow. And we continue to support that. There's great upside head of us there. And a launch of 1850 was really to hit that squarely in the middle. And we've been nine months into the launch now. We're very excited about what it's doing. But again, we're in the first inning here. We're going to be here for a long time. But we are doing the things we need to do. The third quarter saw a focus on more trial and we saw an improvement in our trial numbers there. Now, just shy of our goal repeat continues to exceed our goal. And I think some of the key things your point is we're reaching the target consumer. We have a higher index with older millennial and Gen X. We continue to support the brand, learn and adjust. The launch of 1850 and Away From Home is really important for our imperative to be everywhere. And this will drive broader awareness and trial and multiple channels. And then the launch of the single origins that you saw last week will continue to strengthen this platform. So we're all invested in the brands that we have, not to say that we don't always look for opportunity externally from an M&A perspective, but right now we're focused on the brands we have and driving that growth.

Okay, thanks, Joe.

Our next question comes from Robert Moskow of Credit Suisse. Please state your question.

Hi, thanks. I have a few questions. I will try to ask the inventory question a little more directly. Walmart is 30% of your sales and they said publicly that they increased inventory and their January quarter relates to the SNAP program. It just looks like there's just such a high correlation between your shipments above Nielsen measured consumption, especially in coffee and in consumer in relation to that statement? And we've already touched on a bunch of ways. So maybe I don't know if there's anything more to add. But I guess I want to ask you, have you done the math to try to compare and contrast the reported data compared to your ships? I guess the second question is the special projects in the quarter, it's $18 million, you're pulling it out. That's a pretty big number. And I want to know what is special about these projects and why wouldn't we consider every year that there would be something that would require that kind of spending? Thank you.

Rob, I will start, it's Joe. From a coffee perspective again our teams are obviously watching inventories constantly, you know especially on Walmart honestly, the coffee business has done well all year. So we have not seen anything out of the ordinary or dramatic that we would have called out to say that that's different. We're coming off one of the key promoted time periods of the year the third quarter was November, December and the January being a highly promoted, high consumption time periods. So, again, from our perspective, we don't see anything significantly out of the ordinary.

Hey Rob, listen before Mark answers your next question, I would just add that you're right that our largest customers quarters line up with ours. And so he is possible that we do see some impact to our sales based on how they treat their inventory but this quarter was not that way.

Hey, Rob, it's Mark Belgya then. So I think you're speaking to the 18 million other project costs in the P&L reconciliation. So as we define in our non-GAAP, that is what we would call RMI, so it would be restructuring and merger and integration costs. So first of all, I say that we're consistent in our definition, we spent a fair amount of time making sure that it qualifies for our definition of special project costs. And specific to this year that's predominantly integration of the Ainsworth business and then the geography decisions that we made earlier in the year and the costs associated with that. So we feel that we know we're consistent obviously that number ebbs and flows a little bit if we have an integration or some sort of restructuring program in place. Restriction programs that fall into this definition are all board approved, so they are threshold that are considered as a result of that. So we feel that the consistency of our definition and sort of the process we go through to make sure they qualify. We feel comfortable about putting on there and call it out. Now we seeing the reconciliation between non-GAAP and GAAP numbers.

Thanks for that, Mark. I didn't realize that was restructuring. Last thing, the 3% to 4% EPS growth for fiscal 2020, how much better would that have been if he didn't have the headwind from this divestiture? There's this $0.25 that you've called out, but there's kind of some puts and takes. Have you kind of tease that out for people because you have a long term target of 8%, is the answer somewhere in the middle that it would have been a core of around 6% or so?

Yeah, that's about right, a couple of percentage points around that. So yeah, you're 5% to 6% could be right, Rob.

Great. All right. Thank you.

Our next question comes from Pamela Kaufman of Morgan Stanley. Please state your question.

Good morning. This is Rose on for Pam. We just had a quick question on coffee. So if you think about the competitive dynamics that you're seeing, we've seen some headlines that key competitor brand could be up for sale. So I'd be curious to know, if you anticipate any impact from that development? And then secondarily, within your premium segment, can you give us a sense for the competitive interaction between your 1850 and Dunkin brands?

Yeah, again, it's Joe. Hi. We've talked about it before but we feel really good. There are very limited interaction between 1850 and Dunkin. You know Dunkin has a real core consumer obviously, Dunkin Corporate, the shop, we continue to support that, that same positioning at retail. And the 1850 position is very different from the look and feel and even in the consumer that we target and we talk to. I spoke earlier about that higher index on the older millennial and the Gen X on 1850. So a little more premium, a little more kind of what we would call a copy purist, so no real concern there. I think we're all hearing the same things. You guys are hearing from a competitive standpoint. At this point, it would be too early to speculate on what the potential implication could be of a major brand changing hands in the category. Obviously, it's happened before, and we continue to stay focused on the things we need to do in our portfolio and will be prepared for whatever happens.

Great. And if I could just follow-up on 1850. Who are the customers you're seeing coming in, you said, you're over indexing to millennial and Gen X. Are you seeing new customers come into the category, or you seeing kind of up trade amongst your other brands?

Yeah, mostly we're seeing 1850 really incremental of the category through expanding category consumption, so more consumption within the coffee portfolio, both for the category and our portfolio.

Great. Thank you.

Thank you.

Our next question comes from Rebecca Scheuneman of Morningstar. Please state your question.

Good morning. So it's great to see the organic revenue growth in the quarter. And I was just wondering if you can tell me which brands were the primary drivers of that and if those brands strength was driven by innovation, or was it more promotional just kind of a points around that?

Hey Rebecca, this is Mark Belgya. So as we said that in coffee would have been Dunkin, with an 1850 with Jif, with Power-Ups Uncrustables, and then in, Dave, obviously Rachael Ray and just the addition there, but then Meow Mix and Kibbles 'n Bits were the five or six or seven key brands, all with significant increases year-over-year.

Okay. And so I can probably assume like Meow Mix and Kibbles 'n Bits was more maybe promotional, whereas some of the other ones were may be more innovation and maybe more sustainable therefore?

I wouldn't say - I wouldn't necessarily put promotion, I think Dave maybe want to elaborate, but certainly Meow Mix, we've been actively working that brand.

Yeah, quite honestly, we launched a new advertising campaign and we saw dramatic lifts across Meow Mix during that time. So we attribute the success to both tender centers, which is a new launch for the brand and from marketing support.

Has more consumer support than any promotional support.

Okay, wonderful. Thank you so much.

Thank you.

Our next question comes from Laurent Grandet of Guggenheim. Please state your question.

Yes, hi, good morning and thanks for the opportunity. I'd like to drill a bit more on into the Q4. As - I mean something I'd like to read you understand is the bridge between year-to-day results and full-year guidance especially on the bottom line. As you are exiting 3Q, you are earning an EPS and you kept full year guidance the same, I understand this $0.03 to $0.4 in terms of marketing shift between 3Q and 4Q. But still I mean there is a gap here. So, is it coming from all the marketing spends you would have to support the different launch you presented to us during CAGNEY or is there anything else?

Hey, Laurent, this is Mark Belgya. Thanks for the question. Let me just circle back to that I said earlier and try to quantify a little bit. So if you look at what the Street is thinking for Q4, the four things that I would suggest our new news things that you should consider. One is, as you said, is the marketing. The second is the impact of the price decline on Jif, goes back in next month. There's a higher effective tax rate than what we had submitted last quarter for both Q3 and Q4. And then lastly is just around the Uncrustables in the Longmont facility. So without being specific, I would say all four of those are sort of evenly spread in terms of the impact for Q4. And with suggested just sort of put that into your thinking to maybe to adjust and gotten saying the Street what they're thinking currently.

Thank you. That's all for me. Thank you.

You're welcome. Thank you

Our next question comes from David Driscoll of Citi. Please state your question.

Great. Thank you for taking the follow-up. This is for Dave on pet snacks in the innovation. So I do appreciate the reiteration of the $100 million expectation for the innovation. But Dave, I wanted to clear up, did you say that that the pet snack launch is on time or were you trying to suggest that it's going to be pushed out a little bit? I think you specifically said the sales would show up in fiscal 2020. But I thought the shipping was all supposed to happen in the fourth quarter. Am I getting that wrong? And then I just wanted to also ask about the - just the numbers of products that you're launching. A little bit on the philosophy of why so many products at once may I mean on Milk-Bone I believe you've got the Gnaw product and you've got the Wonder product and then you're also launching on the true treats and you've got. Just a lot happening right there and I'm just wondering why you maybe didn't spread it out a little bit over the coming six months or so, just to keep having a flow of innovation in the pet snacks business?

I'll answer your second question first. David, this is Dave Lemmon. The answer to your question is we have a huge amount of innovation coming. We're supporting every segment of the business. So through the value chain into mainstream and it extends beyond premium and super-premium. We're supporting all brands. The one key thing I would say is that Nutrish is getting a ton of support and is kind of waiting, they are tipping the scale from that perspective. So we're giving a lot more innovation support to Nutrish moving forward in cat, wet cat, wet dog, dog and treats. So it's receiving support across the brand in every segment that we operate and we would expect it to deliver significant growth next year. As to the timing question, just to clarify, retailers have moved their mindset. So they typically would happen in February. They moved out to later in March. So we would expect pipeline filter pretty much occur in the fourth quarter, but - and will be laughing that but we would expect 100 million incremental on a full-year run rate.

David, its Mark Smucker. Just one way to think about pet is it if you think about, it's a very, it's a more complex category, if you will, then some of the others that were in like our consumer foods business because we're not in baking anymore, it's not quite as complex, coffee is coffee and pet is just across there is multiple segments. And so I would say there is two ways. One, we have to innovate. And new news is required to compete in pets, number one. And number two, pet does receive probably on in aggregate a slightly larger as a percent of net sales marketing in order to support that type of activity. When you think about Wonder Bones and GnawBones, I would think about those are more or less a single platform, long lasting chews. So just to help put it in a little higher level and put it in some context.

That's very helpful. Thank you, guys.

Thanks.

I will now turn the conference call back to management to conclude.

Well, first of all, I wanted to thank all of you for listening in today. Obviously, we had a good quarter and we're proud of that. Just like to remind everyone that really it is about our strategy we are in it. You know obviously as we said at CAGNEY, acquisitions will continue to play a role, but given where we are in executing our strategy our leveraged position, it is imperative for us to innovate. And so our long term strategy is to grow organic top and bottom line and ultimately of course increase shareholder value. So again, thank you for your time. Thank you for listening. And thank you to our employees for delivering.

Ladies and gentlemen, this concludes our conference call for today. Thank you all for participating and have a nice day. All parties may now disconnect.