Good morning, and welcome to The J. M. Smucker Company's Fiscal 2021 Third Quarter Earnings Conference Call. This conference call is being recorded and all participants are in a listen-only mode. 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 then re-queue if you have additional questions. I will now turn the conference over to Aaron Broholm, Vice President, Investor Relations. Please go ahead, sir.

Good morning and thank you for joining us for our fiscal 2021 third quarter earnings conference call. After this brief introduction, Mark Smucker, President and CEO will give an overview of the quarter's results and an update on our strategic initiatives. Tucker Marshall, CFO, will then provide detailed analysis of the financial results and our updated fiscal 2021 outlook. During today's call, we will make forward-looking statements that reflect our 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 we use non-GAAP results to evaluate performance internally, as detailed in the press release. We have posted a supplementary slide deck summarizing the quarterly results. These slides can be accessed on our website and will be archived there along with a replay of this call. If you have additional questions after today's call, please contact me. I will now turn the call over to Mark Smucker.

Thank you, Aaron. Good morning everyone and thank you for joining us. As we highlighted last week during our CAGNY Presentation, our results for the third quarter exceeded our expectations, reflecting the continued elevated at-home consumption, improved execution of our strategy and momentum for our brands. Net sales increased 5% versus the prior year while comparable sales increased 7%. We delivered net sales growth across all three of our US retail segments with Coffee sales increasing 12%, comparable sales within Consumer Foods increasing 16% and our Pet Food and pet snack sales increasing 6%. Adjusted earnings per share increased 4% driven by increased sales volume, partially offset by higher costs and SG&A expenses inclusive of incremental marketing investments supporting our brands. Due to stronger than anticipated results through the first three quarters of the fiscal year and updated assumptions for the fourth quarter, we are pleased to increase our full year expectations to include net sales growth of 2% versus the prior year, adjusted earnings per share in the range of $8.70 to $8.90, and free cash flow of $1.1 billion. We are delivering exceptional financial performance, while significantly increasing investment in our brand, strengthening our balance sheet and returning cash to shareholders, all of which are important building blocks for supporting long-term growth and increasing shareholder value. At our Investor Day and last week's CAGNY Conference, we provided details around our current priorities that will strengthen our executional capabilities and unlock the full potential of our strategy. These include, driving commercial excellence, streamlining our cost infrastructure, reshaping our portfolio, and unleashing our organization to win. We made significant progress against these priorities in the quarter, specifically in the areas of improving commercial execution and reshaping our portfolio. We continue to benefit from strong demand for our brands and achieved a fourth consecutive quarter of net sales and earnings growth. Our performance reflects the outstanding work our teams have done to increase production and ensure our products are getting on shelf, while minimizing any potential disruptions. We continued our trend of improving market share across our portfolio as we increased our dollar market share in core consumer and Coffee segments, as well as for our cat food business, highlighting the strength of our broad brand portfolio in these categories. In aggregate, we grew share for brands representing 53% of our sales up from 46% in the second quarter. We are confident the actions we are taking along with the macro events that have occurred over the past year will translate to sustain tailwinds for our business. We are well positioned to maintain a meaningful portion of increased consumption for the long-term supported by our marketing investments, enhanced commercial execution and improvement in share trends. Our confidence is further supported by external factors, including retailers desire to simplify assortment, providing more shelf space for our leading brands. Approximately half the US workforce is expected to work remotely on a part- or full-time basis post pandemic compared to just 30% before the pandemic driving increased at-home breakfast and lunch occasions, benefiting our Coffee and Consumer Foods businesses and tailwinds for the pet category, with consumption projected to grow approximately 5% over the next few years as nearly 10 million households adopted a cat or dog over the past 12 months. We have made great progress in reshaping our portfolio having completed the sales of the Crisco and Natural Balance businesses in the quarter. These divestitures underscore our commitment to further our focus on brands and categories that have the greatest growth opportunities over the long-term. As we move ahead, we will continue to evaluate all elements of the portfolio and make changes when necessary to ensure our portfolio is positioned for growth. Turning to our segment result, in Pet Food, our market leading dog snacks and our cat food businesses delivered another quarter of net sales growth. Sales for dog snacks increased 14% led by gains for the Milk Bone, Pup-Peroni and Rachael Ray Nutrish brands. Sales growth for the Meow Mix brand led cat food growth of 9% representing the 14th consecutive quarter of cat food growth, with our share increasing in both the dry and wet cat categories. In dog food sales for our largest brand Nutrish grew 4%. In consumption share trends for Nutrish dog food has stabilized with repeat rates and dollars per buyer increasing versus the prior year. For the total brand, Nutrish net sales were up 8% in the quarter, reflecting the growth for dog food as well as increases for cat food, dog snacks and cat snacks. Turning to our Coffee business, we delivered net sales growth for all brands and segments in our market leading Coffee portfolio as total segment net sales increased 12% led by the Dunkin and Folgers brands. The Dunkin and Café Bustelo brands as well as K-Cups have become an increasingly important part of our portfolio, collectively growing over 20% and accounting for over 50% of segment net sales in this quarter. Café Bustelo and Dunkin are the two fastest growing brands in the Coffee category, with 52 weeks sales up 28% and 21% respectively. The Dunkin brand has eclipsed $1 billion in all channel retail sales dollars, inclusive of club and e-commerce over the past 12 months. The Folgers brand gained 3 million new households at the height of the pandemic and had the highest repeat rate by new consumers during the holiday season. Further, our portfolio of brands gained more incremental households in the last year than any other manufacturer and as gained share in all channel consumption, inclusive of club and e-commerce. In our Consumer Food segment, growth across all categories drove a 16% increase in comparable sales. The actions we have taken on the Jif brand led to over 20% sales growth on core peanut butter offerings. In multi outlet retail sales Jif was the fastest growing national brand in the quarter, increasing over 13% more than twice the category average. This growth reflects benefits of improved distribution and in stocks, strong marketing support, pricing actions in response to higher costs, and competitive supply disruption. The Jif brand gained over three points of volume and dollar share sequentially from the second quarter, and our total peanut butter portfolio grew to over a 50% share of the peanut butter category. Our Smucker's, Uncrustables business also continued to deliver exceptional growth, with third quarter net sales increasing 21%. Household penetration is up 23% compared to a year ago. For our combined US retail and Away From Home segments, the Uncrustables brand delivered $100 million of net sales this quarter, recording its 27th consecutive quarter of growth. The brand is on pace to deliver over $400 million of net sales this year, and is on track to exceed our $500 million target in fiscal year 2023. Underpinning the improvement in net sales and market share across our businesses has been strong commercial execution, optimized marketing investments to align with consumer behavior and a continued commitment to financial discipline. We plan for a continued step up in marketing investments in the fourth quarter, inclusive of mass media, targeted digital consumer engagement, e-commerce and click and collect programs as we continue to reinvest to support our brands. Finally, we are sharpening our efforts to address issues that impact the quality of life for people and pets. This evolved agenda helps meet their need for quality food, education, equitable and ethical treatment, community resources and a healthier planet. Additional details are available on our corporate website. In summary, I would like to reinforce a few key points. First, we continue to deliver strong financial results and the actions we are taking to deliver our priorities are leading to improvement in key metrics, including market share that position us well for the remainder of the year and beyond. Second, we continue to make progress against their consumer centric growth strategy. Third, through our executional priorities, we're becoming a more focused, efficient and agile organization. And fourth, we are strengthening our core capabilities, which position us as a stronger company set up for delivering sustainable long-term growth and shareholder value. These actions will ensure we continue to deliver consistent sales and profit growth beyond the pandemic leveraging a strong portfolio of brands and world class commercial capabilities, all of which are powered by our unique culture and dedicated employees who I would like to thank for their outstanding contributions. I'll now turn the call over to Tucker.

Thank you, Mark. Good morning, everyone. Let me begin by giving an overview of third quarter results before providing an update on our financial outlook for fiscal 2021. Net sales increased 5%. Excluding the impact of divestitures and foreign exchange, net sales increased 7%, primarily driven by favorable volume mix in each of the US retail segments, partially offset by an anticipated decline in the Away From Home business. Adjusted gross profit increased $23 million or 3% from the prior year, mostly driven by the positive contribution from volume mix, partially offset by higher costs and the non-comparable impact of the divested businesses. Adjusted operating income grew $8 million or 2%, reflecting the increased gross profit partially offset by higher SG&A expenses. The increase in SG&A expenses was primarily driven by incentive compensation and increased marketing investment, partially offset by reduced distribution costs. Below operating income, interest expense decreased $2 million, and the adjusted effective income tax rate was in line with the prior year at 23.1%. Factoring all this in, along with shares repurchased that resulted in a weighted average share count of 112.6 million. Third quarter adjusted earnings per share was $2.45 compared to $2.35 in the prior year, an increase of 4%. Let me now turn to segment results beginning with Pet Foods. Net sales increased 6% versus the prior year, primarily driven by favorable volume makes for dog snacks and cat food partially offset by lower net price realization. The reduction in net pricing primarily reflects investment in e-commerce and new product launches. Growth was led by our three largest brands in the segment, including increases of 8% for Nutrish, 9% for Meow Mix, and 11% for Milk Bone. Pet Foods segment profit declined 7% reflecting the lapping of an $8 million legal settlement received in the prior year. Excluding the settlement in the prior year, segment profit declined 2% primarily reflecting lower net pricing and higher costs partially offset by the favorable volume mix. The increased costs were mostly driven by higher transportation expense. Turning to the Coffee segment net sales increased 12% driven by a 13 percentage point increase from volume mix partially offset by lower net pricing. Growth occurred across all brands and formats in the portfolio led by the Dunkin growth of 19%, Folgers growth of 7% and Café Bustelo growth of 26%. Our K-Cup portfolio which is growing nearly twice the category rate continues to be an increasingly important growth driver, as sales increased 27% and accounted for over 30% of the segments net sales. Coffee segment profit increased 11% driven by the favorable volume mix, partially offset by lower net pricing and higher marketing expense. In Consumer Foods, net sales increased 6%. Excluding the prior year non-comparable sales for the divested Crisco business, net sales increased 16% driven by volume mix growth of 10% and a five percentage point impact from higher net pricing primarily due to a list price increase taken on peanut butter in the second quarter. Growth was led by the Jif brand, which grew 14% while Smucker's, Uncrustables, frozen sandwiches grew 21% and Smucker's fruit spreads grew 15%. The prior year discontinuation of Power Ups was a $6 million headwind in the quarter. Consumer Food segment profit increased 32%, primarily reflecting the increase from volume mix, a favorable net Impact of higher price and cost and lapping of $7.5 million equipment write off for Jif Power Ups in the prior year. These tailwinds were partially offset by the non-comparable profit on the domestic Crisco business, and increased marketing expense. Lastly, in International Away From Home net sales declined 13%. The Away From Home business contracted 27% primarily driven by declines in Coffee and portion control products due to the continued impact of COVID-19. International growth of 9% was primarily driven by increases in Canada across most categories, including baking, pet food and snacks, peanut butter and fruit spreads. International Away From Home segment profit decreased 50% primarily driven by the reduced volume mix and increased costs partly attributable to the deleveraging of fixed costs in the Away From Home business. Third quarter free cash flow was $417 million, which represented a decrease from the prior year due to a less favorable benefit from net working capital requirements, increased capital expenditures and a decline in net income adjusted for non-cash items. Capital expenditures for the quarter were $70 million, with the increase over the prior year primarily related to capacity expansion for Uncrustables, frozen sandwiches. During the quarter, the company received total net proceeds from the domestic businesses of $569 million inclusive of transaction costs and initial working capital adjustments. We used $522 million to repurchase 4.5 million common shares, of which 4.3 million settled in the third quarter for $498 million and the remainder settled at the beginning of the fourth quarter. These repurchase is decreased the number of shares outstanding by approximately 4%. We finished the quarter with cash and cash equivalent balances at $502 million. We paid down $314 million of debt during the quarter, resulting in a total debt balance of $4.8 billion. Based on a trailing 12-month EBITDA of approximately $1.9 billion, our leverage ratio stands at 2.5 times. We anticipate maintaining a balanced capital deployment model that prioritizes the use of cash toward dividends and debt repayments while evaluating other strategic uses of cash for future growth and shareholder value creation, including the potential for future share repurchases. Let me now provide additional color on our revised outlook for fiscal 2021. The severity and length of the pandemic and related implications continue to create uncertainty in our financial outlook. Changes in consumer purchasing behavior, retailer inventory levels, macroeconomic conditions, and any manufacturing or supply chain disruption could materially impact our actual results. Further, we have experienced some weather-related disruption and tightening in the supply chain this month. That said we are sharing our expectations based on our current performance and understanding of the overall environment. Net sales are now anticipated to be up approximately 2% compared to the prior year, which reflects the sales performance for the first three quarters of the fiscal year and an expected 10% decline in the fourth quarter. Elements taken into consideration for the fourth quarter net sales include a lapping of $185 million benefit in the prior year related to the initial consumer stock up purchasing during the beginning of the pandemic. Lapping sales related to the domestic businesses of approximately $124 million and continued elevated at-home consumption benefiting the US retail Coffee and Consumer Food segments. We anticipate full year gross profit margin to approximate 38%. The projected gross margin includes fourth quarter incremental trade spend investments primarily for the pet business, timing of fixed costs expenses related to manufacturing absorption, and increased freight and transportation costs. SG&A expenses for the full year are projected to increase 3% to 4% primarily reflecting increased marketing spend and incentive compensation. Total marketing spend is expected to approximate 6.5% or greater of net sales with incremental fourth quarter brand reinvestments across all US retail businesses, most notably for pet food. We continue to anticipate net interest expense of $180 million and an adjusted effective tax rate of 24%. We anticipate a full year weighted average share count of 112.6 million, which includes a fourth quarter share count of 109.6 million, reflecting the impact of shares repurchased in the third quarter. Taking all these factors into consideration, we anticipate full year adjusted EPS to be in the range of $8.70 to $8.90. At the midpoint of our range, fourth quarter adjusted EPS is anticipated decline around $1 versus the prior year due to decreases in net sales, gross profit margin decline, incremental marketing investments and the net impact of divestitures and shares repurchased. Full year free cash flow is anticipated to be approximately $1.1 billion with capital expenditures of $300 million versus prior guidance of $315 million. In closing, let me reiterate Mark's opening comments. We are pleased with our third quarter results, which show the strength of our brand portfolio and the health of our categories. With continued financial discipline, we are committed to delivering sustainable and consistent long-term value for our shareholders. Thank you for your time. We will now open the call to your questions. Operator, please queue up the first question.

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

Good morning, everybody.

Good morning, Andrew.

Good morning.

Quick question about - in pet food, I think you'd mentioned that Nutrish dog food sales rose about 4% in the quarter. And I think at CAGNY last week you'd mentioned that your anticipation - you're anticipating getting back to growth in Nutrish in the back half of your fiscal '22. So I guess I'm just trying to square those two things basically is premium dog sort of turning maybe more quickly than you would have thought or were there certain things in this particular quarter that maybe would be discrete or less sustainable for a couple quarters until it's truly sort of where you want it to be.

Hey Andrew its Mark. Yes, Nutrish dog food did grow actually 6% in the quarter. Notably the total Nutrish brand grew 8% and so we're obviously very pleased with that. I think what we reported last quarter was the fact that we were seeing that brand stabilize and this quarter, we think we have pretty good confidence that it is stabilizing. So let me make a correction, the 4% number was specific to dry dog, right and then the total brand was 8%.

Right and I was looking specifically at sort of dry dog because I know that's the area where you were doing more of the work and had more of the challenges and I think again at CAGNY I think you'd said by back half of fiscal '22 it'd be back to growth. So anyway, I was just trying to get a sense of if that's happening faster or you might have initially expected or if there's anything one off in this quarter related to Nutrish growth. It doesn't totally sound like that was the case, necessarily that there was something one off in nature, if I'm hearing your right.

No. Yeah, I think it's just a function, quite frankly, of all the work that we have done on Nutrish. And we've spent a lot of dollars in marketing, supporting the brand and the launch of Big Life [ph] is underway, we've had good sell in for that. We're re architecting the brand as well. So we really do feel that the actions we're taking on that brand are starting to pay off.

Yeah, great, thank you. And then one, one last quick one would just be, was inventory sort of refill a factor at all in the quarter, obviously, in Coffee, in Pet, in US consumer, clearly, consumption was - or organic sales growth was quite a bit above what most for modeling and in some cases, even above what we've seen in sort of standard data, which is obviously not fully comprehensive. So I didn't know if inventory refill was much of a factor in any of those segments or not really. Thank you.

Andrew, we believe that our shipments are in line with consumption as you look across all the channels that we participate in, so we don't see anything abnormal for the quarter going forward.

Thanks, everybody.

The next question is from Chris Growe of Stifel. Please proceed with your question.

Hi, good morning. Thank you for the time here. I just had two questions if I could, the first would just be that as I think about your EPS guidance for the year, I was just curious how much of that would incorporate the dilution that's coming from Crisco and Natural Balance? Have you defined the sort of the amount that's now built into 87o to 890 in terms of this year?

Good morning. Yes, we have. From an earnings standpoint, we believe that there's a $0.20 impact to the financial guidance this year that is being offset on a full year basis by approximately $0.10 of shares repurchased in the third quarter.

Okay, thank you. And then just another question that I had and which is in relation to the gross margin performance I think you said some heavier promotional spending that occurred in the third quarter, I was a bit surprised by the by the sequential decline in the gross margins. So I just want to get a sense of if you could frame the promotional studies increase and you have some more coming in Q4 as well. And then also another one where divestiture is probably drag on the gross margin as well, is that a meaningful factor? I know you cited that but is there a number that goes with that that could explain some of the decline sequentially in the gross margin?

Yeah, so I would bring you back to our full year guidance of approximately 38% for the full year as it relates to the gross profit margin. As you think about the fourth quarter, we are going to be down materially from the gross profit standpoint or margin standpoint. And that's due to as you've noted, incremental trade spend investments primarily for the Pet business that's supporting the brands and the intros and the promotion, along with timing of fixed expenses related to manufacturing absorption, we are comping a very strong sales quarter. So we will lose some level of manufacturing absorption, along with the continued impact on our Away From Home business. And then as we have shared, we are experiencing increased freight and transportation expenses this year due to tight supply chains. But on a longer-term basis, we remain committed to a healthy gross profit margin achieving that 38% or better.

Okay, thank you for that color.

The next question is from Faiza Alwy of Deutsche Bank. Please proceed with your question.

Yes. Hi. Good morning. So I first wanted to ask about e-commerce. Maybe I missed it, but I didn't hear much about how e-commerce sales were trending. And specifically, I wanted to know if you could - now that Natural Balance is not part of the portfolio anymore, if you could give us some color on what the channel breakdown for the pet business is now between specialty, mass and e-commerce?

Hi, good morning. Thanks for the question. This is Mark. E-commerce is one of the key components of our growth strategy. And specifically we talk about being everywhere and that's critical as we think about e-commerce and so making sure that we're engaging with consumers wherever they shop. We're pretty pleased with the growth in our e-commerce business and our ability to do that profitably. Over the last three quarters, we've actually grown the business 50% or over 50% and so total e-commerce sales are over 10% for the total company. Coffee specifically, was up over 70%. One of the great things about e-com is it really does allow us to get closer to our consumer, where we can understand and engage with them, we can make adjustments to our assortment if we need to on the fly and it does have high ROI. So it really is a win-win-win. It's a win for us. It's a win for our customers, as well as our consumers. And we really continue to remain very focused on the click and collect model, which is a very productive channel. And we have number one brands there from a digital shelf standpoint, specifically, skewing towards coffee, peanut butter and pet snacks.

Okay, thank you for that. Are you able to share the channel breakdown for the pet business if you have it?

We haven't previously done that. We'd probably hold off on that for now.

Okay, alright, thank you.

But the e-com business in pet was strong up or about 50%.

The next question is from Ken Goldman of JP Morgan. Please state your question.

Hi, good morning, everybody. I wanted to ask about pricing. Your all-in pricing, flattish, slightly negative at a time when most packaged food companies reported pricing, it's already started to accelerate a little bit. I get you're spending a little bit more in trade, especially in pet. I'm just curious, when might we expect Smucker's pricing - the all-in that price number that you provide to start rising a little bit more in line with the group so to speak?

Good morning, Ken. Thanks for the question. As we always say there's multiple levers to manage net pricing. And we're always taking a very prudent judicious approach, one, which involves partnering with our customers, and making sure that we're doing the right thing by them as well as for our business. So when we take specific list price changes, we're always focused on justifiable increases that are driven by cost increases or in some cases where the consumer sees value. I would point out Jif, we took a pricing action recently and we're pleased that in the last several months the key competitors did follow that increase. And so we feel pretty good about our ability to continue to recover.

Okay, thank you for that. And then for my follow up, I know it's not the biggest part of your business, but International and Away From Home, I think the segment margin was down or it was down over 500 basis points sequentially. I realize you still have a lot of deleveraging there. I understand there's a lot of puts and takes, but I'm curious and maybe you said this and I missed it. But what was the reason for that kind of sequential decline in operating profit in that segment? Was there anything unique in this quarter that stands out that might go away next quarter?

Yeah, Ken, what we're experiencing in the International Away From Home operating segment is a continued significant and extended decline in the Away From Home business. And that's really driven by the kind of two key elements within that business. One is coffee, and two is portion control. There is the handheld component of the business. And as a result of the last top line, we are seeing a pretty significant impact to last manufacturing, absorption and other fixed cost absorption as well. And you have to recall that it's not only the manufacturing size, we also have a very big installed equipment base for coffee brewing. And so we're not putting volume across that it also has an impact. So as we see return to growth in the top line for the Away From Home business and the segment and its entirety that will also have a corresponding improvement to the profit base as well.

The next question is from Rob Dickerson of Jeffries. Please state your question.

Great, thanks so much. The question for you Mark, I think you'd said in the prepared remarks there's ongoing simplicity push, right by the retailers. And obviously, there's been a fair amount of rationalization over the past few years. But it sounds like kind of what was implied in your comment was that retailers, as they continue to simplify and optimize, are looking still to bigger brands to you to potentially secure more shelf, I don't know if that means you have the opportunity increasingly to get more distribution and/or if the retailer's overall say, hey, as we got through the pandemic, how you support your brands, how is your more focused and agile, we're willing to partner with you more, right? You've scaled brands that are profitability. So just trying to gauge what you're implying when you said that the retailers are looking to simplify and still work with bigger brands? Is that bigger brands relative to smaller brands? Or is that just kind of an ongoing trajectory, as we're seeing say, coming out of COVID, but obviously, relative to what we've been seeing over the past nine months. And that's it. Thanks a lot.

Rob thanks. You are correct that your interpretation of my prepared remarks were spot on. And we do see this as an ongoing trend just as we are looking to simplify and optimize our assortment so are our customers and that does tend to benefit larger mainstream brands because as there are fewer - the tail is not as long if you will, in certain categories. And because they're getting more efficient on shelf, there are fewer - there will be fewer or fewer SKUs in particular categories. In our case, it's notable in coffee and peanut butter would be two of the notable ones where we're benefiting from that. And what that means is not only are we staying on shelf, but in many cases, we are getting more shelf space and so we do see that as an ongoing trend for the foreseeable future.

All right, great, thank you so much. I'll pass it on.

The next question is from Robert Moskow of Credit Suisse. Please proceed with your question.

Hi, Mark, I was hoping to get little more specifics on what's happening on your cost inflation exposure. Coffee costs are rising. I think the grain costs also will have an impact on the Pet Food business. Is there any way to get some sequential help here as to what the inflation pickup looks like? And when will you start giving us a little more specificity on what's going to happen to equation

Sure rob banks. On coffee, specifically, a lot of the volatility that you're seeing at this point in the year often is driven by some speculation, because it is early in the year in terms of when coffee is planted or harvested. And so a lot of that volatility we think is more financially driven. So we will watch that. I think the headline here is that we again, have multiple levers on price. We'll continue to price in a responsible way when we can. On pet specifically we do have pricing power, for example, in snacks. In dog food, for example, we would follow, but I think the good news about the pet industry is that the industry in total really does have a great track record of recovery and using those levers. So we do have confidence that regardless of the category or our position they're in that we would continue to have the ability to recover justifiable cost increases through the various pricing levers.

Okay, and then maybe a quick follow up for Tucker. Tucker, can you go back and give us a little more math behind your $185 million estimate for the inventory stock up last year? Like how did you come up with that number? And is there any way that that might be conservative?

Yeah. Rob, so what we factor that 185 million is the impact to our fourth quarter of last fiscal year that was primarily in the back half of the month of March and the balance of our fiscal year in April. And what we looked at was the initial stock up by consumers due to the early stages of the pandemic across all of our businesses, particularly in coffee and consumer. It did have an element of impact to pet as well. That's what we quantified based on where we thought we were going to finish the year 45 days earlier, so to speak. And that's our best estimate. We've been pretty consistent with that comment both in the completion of our fiscal year and then carrying it through because we knew that at a top line due to that specific component lapping the COVID initial surge would be a year-over-year decline in the fourth quarter for us.

Okay, alright, thank you.

Thanks.

The next question is from Jason English of Goldman Sachs. Please state your question.

Hey, good morning folks. I was just wondering -

Good morning.

I guess building on the last question I appreciate in the fourth quarter you had a lot of - a bit of stock up, but it's still difficult to forecast for 39% EPS decline with your comments at CAGNY that suggesting that you expect EPS next year to effectively be sort of flattish to the midpoint your current guidance. How do we put those two? What are the puts and takes? And is this chatter in the media about layoffs and restructuring is that a key determinant or key driver of your EPS expectations for next year?

Jason, good morning, I still think there's a couple of parts to that question. So I'm going to start and then let Mark provide some incremental comments. So as it relates to the fourth quarter, we are anticipating being down in earnings approximately $1 at the midpoint. This is reflecting ongoing business momentum that we see which we approximate to be about $0.25, then it's being offset by the net sales decline due to the lapping of the initial consumer stock up during the pandemic of the prior year of approximately $0.50. And then we've noted that there is a divestiture impact across Crisco and Natural Balance of approximately $0.20 in the fourth quarter that is being offset about $0.06 from shares repurchased in the third quarter. And then we have incremental cost headwinds in two areas. One is the incremental SG&A expenses of about $0.35 and that's being driven by the marketing reinvestments that Mark spoke to. And then lastly as you are seeing a year-over-year gross margin decline. And that is approximately $0.25. So that gets you to where we're down about $1. Without some of the lapping effect and some of the reinvestment effects that would have had a positive impact to the bottom line. But we did - we have made some decisions and we have divested some businesses. And then the second question that I think you asked was last week at CAGNY, we offered that on a two-year stack basis, we see a path demonstrating underlying organic growth at the top line and adjusted earnings per share. There were some questions around what level of earnings per share. We finished FY '20 at $8.76 and so we'd like to think that we could do $8.76 or better in our next fiscal year. But again, it's early innings as we work through the planning process. I'll pause and offer Mark if he has any other responses to your questions.

And Jason you were a little faint. I thought the last part of your question was about organization.

Yeah, the media reports of layoffs.

Yeah, so a couple of things, there were a few factors in terms of our decision to realign our corporate support organization to better support our business. As you well know, consumer behavior has evolved rapidly in recent years and will continue to do so. And of course, the divestitures and then our much greater focus on the growth platforms in priority brands. So if you think about our consumer centric strategy, we really want to create a leaner and flatter organization, ensuring that we align ownership accountability, incentives and so forth to the financial statements and we do have high confidence this is going to make us more agile. So while there are decisions that do negatively impact our employees, these are very difficult decisions. We take them extremely seriously. And we only make them after very careful consideration, so from time to time there are moments when we need to ensure the long-term health of our business. And so this is one of those moments. And as you also know, we have a very strong continuous improvement mindset. And this is one factor in that process, so just making sure that we treat our employees with the utmost respect for those that would be exiting the organization.

Okay, one more follow-up in terms of market reinvestment. I think last year, you spent around 2.5% of sales in advertising. With your e-com growth, I imagine the demands for that retail media and some of the e-com investment are growing. How much of your ad spend now is going towards those platforms? And are you able to fund that out of your half the trade budget? Or is this coming out with incremental money or traditional media? Just so where's the funding for that coming from? Thank you.

Yeah, Jason, I understand the question. I think what you're seeing, you reference a 2.5 and saw that, I think in your report, I think what you're seeing is just mass media and so that were all that was been reflected in that. We have not been specific in the various channels where we spend marketing. We are, as we've been talking about, we're very committed to that 6.5% to 7% of net sales target. And as we think about the various media channels, we evaluate them all when we think about each of them uniquely in terms of what returns are they getting, and so forth. We do fundamentally focus on reach for a lot of our brands, we want to reach as many consumers as we can, but there is a very strong element of targeting that we take there. As it relates to some of the media channels that are within retailers, we have participated in those from the get go, they have a very high ROI, and have helped improve our market share. So outside of that in mass media, even we have the strongest share of voice in - and particularly in coffee and peanut butter for example. And so we continue to evaluate all channels. And we think that the budget that we have now and going forward will be sufficient to support all of those marketing efforts and channels.

And Jason, the one thing that I would support Mark's comments on is, is that a part of our continuous improvement mindset is, is making sure that we get the right return on that marketing spend, but that any non-working marketing dollars are analyzed, and either reinvested back into marketing or potentially taken to the bottom line. And that is an element of our cost improvement programs that we've talked about.

Very good, thank you all.

Thanks.

The next question is from Alexia Howard of Bernstein. Please state your question.

Good morning, everyone.

Good morning.

Good morning.

Great, kind of about the puts and takes for the outlook on gross margin. I think you said in the prepared remarks that you're hoping to be able to sustain the gross margins. You've obviously seen a nice step up in fiscal '21 to that 38% you're guiding to for the full year. But as we look out there's operational deleveraging versus net pricing maybe some COVID costs going around. I'm just wondering how you're thinking about the ability to sustain that gross margin as we look out into '22? Thank you.

Yeah. Alexia, good morning. I would share that last fiscal year we finished with a gross profit margin percentage over 38%, I think it was 38.2%. We're currently guiding to be approximately 38% for this fiscal year. And big picture, we remain committed to ensuring that we have a healthy gross profit margin today, tomorrow and beyond. And that is really supported by our continuous improvement mindset, the cost management reduction programs and the margin management programs as well. As Mark talked about as you think about commodities along with any other ingredient or packaging or transportation increases, we would love to offset those first through our physical buy. Secondly would also be through our hedging and risk management strategies. The next would also then be our continuous improvement mindset as noted, and then lastly, pricing where and when justified across our respective businesses. And so we acknowledge that we continue to take all those elements not only to deliver this fiscal year, but also for next fiscal year and beyond. I would also say on the manufacturing side, we do have very tight supply chains. And so inventory levels, particularly within our network are a bit below where we might want them. And so we continue to work to get those levels up, not only this fiscal year, next fiscal year to meet retail and consumer demand. So I don't expect - I do expect a hangover in manufacturing absorption, I think the question is, how big is the hangover, and there might be some benefit or upside there. So when you think about manufacturing absorption year-over-year. And then lastly is as we continue to reshape the portfolio, either through divestiture activity or optimizing SKUs that will also hopefully endure to a positive benefit as well, to gross profit margin. And then underlying all of that, as you well know, we have a very strong consumer centric strategy across a lot of our key growth brands. And as we've continued to drive that growth, it will also support the gross profit margin as well. So hopefully, that gives you a sense at a big picture level as to how we're thinking about it.

Much appreciated. And then a quick follow up. You mentioned in the CAGNY Presentation, there was a 30% increase in purchases of home coffee brewers over the course of the last year. How much does that affect the overall signals of business? I mean, obviously, there's an established base. But that sounds like it could be a fairly nice bump for the next few years. I'm just wondering how you're thinking about the potential growth in that part of the coffee segment.

Thanks Alexia, its Mark. Hard to quantify, but clearly a benefit, just the fact that these consumer habits around coffee, around breakfast and lunch have changed and evolved. We do think that there is a high degree of stickiness. Our confidence in that has increased over time. And just the dynamics that I mentioned in our - in the prepared remarks, whether specific to coffee or otherwise are really going to benefit us going forward post pandemic. K-Cups specifically have grown about two times the category. And so if you look at our coffee category, if you take into consideration K-Cups, plus the rest of the Dunkin and Bustelo business it's about half of our coffee business right there. So clearly great growth, feel good about the segments we're in playing in the right segments and very well positioned for the future.

Great, thank you very much. I'll pass it on.

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

Thank you all for dialing in today and listening. We really appreciate it. We're very pleased with our results and the prospects for our business going forward. I hope that we left you with confidence in our key priorities around commercial excellence, streamlining our cost infrastructure. Clearly the actions we've taken on reshaping our portfolio and then really wanting to ensure that we unleash our organization to win. So I wanted to take a moment to thank our employees as always, and each of you for tuning in today. Have a great weekend.

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