The J. M. Smucker Company (SJM) Q1 2021 Earnings Call Transcript

The J. M. Smucker Company (NYSE: SJM) Q1 2021 earnings call dated Aug. 25, 2020

Corporate Participants:

Aaron Broholm — Vice President, Investor Relations

Mark T. Smucker — President and Chief Executive Officer

Tucker H. Marshall — Chief Financial Officer

Analysts:

Andrew Lazar — Barclays Capital — Analyst

Faiza Alwy — Deutsche Bank — Analyst

Ken Goldman — J.P. Morgan — Analyst

David Driscoll — DD Research — Analyst

Christopher Growe — Stifel Nicolaus — Analyst

Rob Dickerson — Jefferies — Analyst

Jason English — Goldman Sachs — Analyst

Rob Moskow — Credit Suisse — Analyst

Pam Kaufman — Morgan Stanley — Analyst

Presentation: 

Operator

Good morning and welcome to The J. M. Smucker Company’s Fiscal 2021 First Quarter Earnings Conference Call. This conference is being recorded and all participants are in a listen-only mode. We will open the conference up for question 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 over to Aaron Broholm, Vice President, Investor Relations. Aaron, please go ahead sir.

Aaron Broholm — Vice President, Investor Relations

Good morning and thank you for joining us for our fiscal 2021 first 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 and fiscal year priorities. Tucker Marshall, CFO, will then provide detailed analysis of the financial results and our fiscal 2021 outlook.

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 a supplementary slide deck summarizing the quarterly results. The 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.

Mark T. Smucker — President and Chief Executive Officer

Thank you Aaron. Good morning everyone and thank you for joining us. Our nation, families, and colleagues have experienced unprecedented events and challenges over the past six months. The COVID-19 pandemic has upended our way of life and societal awareness about racial injustice has been magnified. Companies, like ours, as corporate citizens have a responsibility to lead and act to help overcome these challenges. I am proud of our employees who have served our constituents, produced record volumes, while maintaining high quality and safety standards and delivered exceptional results, all amidst many personal sacrifices. I am incredibly thankful for their dedication and continued commitment to each other and our shared values.

At Smucker, we pride ourselves on living and applying our basic beliefs, which include people and ethics, as guide posts for everything we do. We advocate for the mutual respect of every individual while remaining steadfast in our commitment to a positive and inclusive work environment for everyone.

With our shared values and history as a foundation, we know more needs to be done, which is why we have accelerated our inclusion and diversity efforts with several new initiatives including, signing the CEO Action for Diversity & Inclusion pledge to show our support for marginalized groups, introducing unconscious bias training for our employees, committing $500,000 to organizations that advocate for inclusion, racial Justice, and the advancement of underrepresented people, participating in the stop hate for profit social media advertising movement, and designating June 10 as a company paid holiday beginning next year. We are committed to building on these initiatives to become a more inclusive and diverse organization while supporting efforts to ensure our communities become more equitable and just.

The global COVID-19 pandemic has made the operating environment, dynamic and challenging to predict. We have built an organization well prepared to adapt to this period of rapid change and our employees continue to execute at a high level. Supporting an approximately $400 million year-over-year increase in net sales over the past two quarters, resulting in adjusted EPS growth over 30%.

In the first quarter, net sales increased 11% versus the prior year, with each business outperforming our expectations. In the coffee, consumer foods and International retail businesses, demand remained elevated throughout the quarter, driven by increased at-home consumption and retailers rebuilding inventory levels that were depleted in March and April from consumer stock up. Results in the pet food and snack segment were slightly better than expected. With consumption growth continuing for our cat food and pet snacks brands while some pantry destocking was evident for dog food. Finally, declines for the away from home business moderated ahead of our expectations as re-openings occurred earlier than anticipated.

Adjusted earnings per share was $2.37, an increase of 50%. Benefiting from increased sales volume, improved profit margins related to mix and operating leverage, and reduced SD&A expenses. Due to stronger than anticipated first quarter results, along with revised assumptions for the remainder of the year, we have increased our full year expectations to include net sales flat to up 1% versus the prior year and adjusted earnings per share of $8.20 to $8.60.

On our fourth quarter call, I highlighted that to effectively build on our long-term strategy to lead in the best categories, build brands consumers love and be everywhere, it was imperative to deliver against four specific priorities for this fiscal year. These priorities are first, drive consistent net sales growth; second, increased focus on financial discipline with an emphasis on maintaining or improving our strong profit margins and cash flow generation; third, harness our full suite of capabilities to strengthen our commercial execution and build competitive advantages; and fourth, maintain our commitment to our company’s purpose of feeding connections that help us thrive. Now more than ever, we need to strengthen our connections with consumers, customers, suppliers, employees, communities, and our shareholders.

While there is still work to do, we are off to a great start in delivering against these priorities. Let me provide some examples from the first quarter. We capitalized on the increased demand created by the shift to elevated at-home consumption, with a second consecutive quarter of double-digit sales growth. Further, market share trends improved sequentially throughout the quarter for several of our categories as we return to producing our full breadth of products, including the Jif brand, which in the latest four-week period has regained three share points since mid-May when our on-shelf assortment was limited.

Other highlights include net sales growth of over 50% for the Crisco brand and 35% for Smucker’s Uncrustables in the consumer food segment. And the Folgers, Dunkin’ and Cafe Bustelo brands each grew double-digits in the coffee segment. We expect the consumer and coffee momentum to continue into the second quarter as we maximize production and add more variety back to shelves.

We also delivered another quarter of net sales growth in pet, led by the continued strong performance for our cat food and dog snacks portfolios, which grew 13% and 9% respectively. We continue to take actions to improve our competitive positioning in the dog food category, primarily for our premium brands.

Across our entire portfolio, we are adapting brand-building activities to attract and retain new consumers. Key metrics for consumer purchasing behavior were positive in the quarter, including household penetration growth of over 1.6 million households versus the prior year, a nearly 150 basis point improvement in repeat rate and a high single-digit increase in dollars per buyer. This means more consumers are purchasing our brands, they are repeating purchases at a higher rate and they are spending more than before.

Our second fiscal 2021 priority is an increased focus on financial discipline. We are partnering with our customers to manage pricing, where appropriate, such as in peanut butter where a reduction in crop yields has resulted in increased cost. We have also optimized planned marketing spend for several brands by re-allocating resources to brands with capacity for faster growth such as Folgers, which grew 13% in the US retail coffee segment in the quarter. A new advertising campaign for Folgers is beginning to air this week, with content relevant to the current environment focused on attracting new consumers. We firmly believe the current environment will translate into long-term structural changes in consumer behavior and continued growth opportunities.

Finally, we continue to sharpen our focus on productivity and efficiency of our spend as SD&A expenses declined 6% in the quarter. The pricing discipline, reprioritization of marketing spend across categories, and continued productivity focus, are just a few examples of our margin management activities. When considering these activities and a focus on execution, we were able to deliver sales and profit growth for the quarter. We look forward to providing more information about our margin management program during our upcoming Investor Day in October. An example of how we leverage our capabilities to improve commercial execution and build competitive advantages are the investments that we have made in our e-commerce capabilities to support our strategic growth imperative to be everywhere. In the first quarter, our total e-commerce sales grew over 70% and represented 12% of our US retail sales. We anticipate e-commerce growth to remain sticky as consumers are increasingly adopting and maintaining online grocery shopping habits as a result of the pandemic, including many first time online grocery shoppers that discovered the convenience and benefits of pickup and delivery options.

Fourth and finally, is the continued commitment to our purpose. The actions I previously mentioned around inclusion and diversity are an example of some of the work our teams are doing. And I believe through the passion of our employees, we will continue to make continued progress throughout the year.

In summary, I would like to reinforce a few key points. One, our business performed very well this quarter and we exceeded our expectations in a uniquely challenging period. Two, we remain confident in our consumer-centric growth strategy and have significantly improved performance across many of our category. Three, we continue to adapt and be agile in this changing environment focused on maintaining and growing our consumer base, and growing our categories and market share. And four, while there will always be more work to do our strong start and continued business momentum has put us in a position to deliver our financial commitments for the fiscal year.

Before turning it over to Tucker, I want to again recognize our Vice Chairman and former CFO, Mark Belgya, who will retire September 1 and Kathryn Dindo and Gary Oatey, who both retired from our Board of Directors last week. I am grateful for the council they have provided and thank them for their continued commitment and contributions to our company. We wish them all the best in the future. Finally, we are excited to welcome Susan Chapman-Hughes and Jodi Taylor, who are elected to our Board of Directors last week. We look forward to the expertise and oversight Susan and Jodi will provide in critical areas that support our company’s future growth.

I’ll now turn the call over to Tucker.

Tucker H. Marshall — Chief Financial Officer

Thank you, Mark. Good morning, everyone. Let me begin by giving an overview of first quarter results. Before providing an update on our financial outlook for fiscal 2021. Net sales increased 11%, driven by the favorable volume/mix due to elevated at home consumer demand and associated retailer inventory replenishment, partially offset by a decline in away from home channels. We estimated that the continued implications of COVID-19 contributed approximately two-thirds of the sales growth this quarter, including both increased at-home consumption and retailer inventory replenishment.

Adjusted gross profit increased $89 million or 13% from the prior year, driven by the positive contribution from volume/mix and a slight reduction of costs related to pet manufacturing. Adjusted operating income grew $114 million or 39%, reflecting the increased gross profit and reduced SD&A expenses. Within SD&A, general and administrative expense declined $15 million and marketing expense decreased $11 million, reflecting a shift in timing for certain initiatives and a benefit for media efficiencies and not working expense reduction. These reductions more than offset increased distribution expense of $6 million attributable to increased volume and expenses related to the consolidation of distribution centers within the pet business. Below operating income, interest expense decreased $3 million. The adjusted effective income tax rate was 24.4% compared to 25.2% in the prior year. Factoring all this in, first quarter adjusted earnings per share was $2.37 compared to $1.58 in 2020, increase of 50%.

Let me now turn to segment results, beginning with pet foods. Net sales increased 3%. Cat achieved 13% growth, led by the 9Lives and Meow Mix brands. And dog snacks grew 9%, led by growth for Milk-Bone and Pup-Peroni. While still relatively small, cat snacks increased over 20% driven by the Nutrish brand. Dog food sales decreased mid-single digits, driven by declines for the Natural Balance and Nature’s Recipe brands and private label dog food, slightly offset by growth for the Kibbles ‘n Bits brand. Nutrish dog food sales were down slightly due to lower pricing. Pet food segment profit increased 4% compared to the prior year, driven by lower cost related to manufacturing, increased volume/mix and reduced marketing and selling expenses, partially offset by increased promotional activity.

Turning to the coffee segment. Net sales increased 23%, led by K-Cups, which grew over 40%. Growth occurred across all brands in the segment, including a 13% net sales increase for the Folgers brand, while the Dunkin’ and Cafe Bustelo brands both continued their strong trends growing 35% and 58% respectively. Coffee segment profit increased 42%, primarily reflecting the favorable volume/mix.

In consumer foods, net sales increased 22%. Sales for the Smucker’s brand grew 25%, inclusive of strong growth for Uncrustables, frozen sandwiches, fruit spreads, and ice cream toppings. Sales for the Jif brand grew 14%, including volume/mix growth related to refilling retailer shelves and increased at-home consumption along with a reduction in promotional activity. Consumer Foods segment profit increased 62%, due to the benefit from increased volume/mix, higher net price realization, and lower SD&A expense, partially due to the lapping of expenses included in the prior year related to the start-up of the new Uncrustables production facility.

Lastly, in international and away from home, net sales declined 9%. The away from home business contracted 33%, primarily driven by a significant declines in the coffee and portion control products due to the continued impact of COVID related changes in consumption behavior. International net sales grew 21%, with the largest gains in the Canadian baking ingredients categories. Segment profit decreased 4%, primarily reflecting higher costs, partially attributable to the deleveraging of fixed costs in the away from home business and lower volume/mix, partially offset by reduced SD&A expenses.

First quarter free cash flow was $332 million, which represented $184 million increase from the prior year, reflecting a decrease in net working capital requirements in the growth and earnings, partially offset by an increase in capital expenditures of $4 million. Capital expenditures for the quarter were $77 million, representing 3.9% of net sales. We finished the quarter with cash and cash equivalent balances at $397 million compared to the prior fiscal year end of $391 million. We paid down debt during the quarter resulting in a total debt balance of $5.4 billion. Based on a trailing 12-month EBITDA of approximately $1.8 billion, our leverage ratio stands at 2.9 times. The combination of the improvement in earnings and debt repayments over the past two quarters has resulted in our leverage ratio falling below our 3 times stated target. We continue to prioritize the use of cash toward dividends and debt repayments for the remainder of the fiscal year, while evaluating other strategic uses of cash to support future growth and shareholder value.

Let me now provide additional color on our revised outlook for fiscal 2021. COVID-19 implications continue to impact our financial results and create uncertainty in our full year fiscal 2021 projections. Changes in consumer purchasing behavior, retailer inventory levels, macroeconomic conditions and any supply chain disruption could materially impact our future results. 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 flat to up 1% compared to the prior year, which reflects the strong sales performance in the first quarter with expectation for growth rates to moderate in our US retail segments throughout the remainder of the fiscal year. The lapping of the $185 million benefit to net sales in the fourth quarter of fiscal 2020 and significant sales decline in our away from home operating segment remain headwinds. We now anticipate gross profit margin of 37.5% to 38%, SD&A expenses are projected to increase approximately 1% to 2%, reflecting a desire to balance reinvestment and return throughout the remainder of the year. Total marketing spend is projected to remain in the range of 6% to 6.5% of net sales, with the step-up from the first quarter to occur in the second quarter.

Other items that are unchanged from our prior guidance include underlying momentum for the business, including continued double-digit growth for the Smucker’s Uncrustables brand, coffee growth led by the Dunkin’ and Cafe Bustelo brands and continued strength for dog snacks and cat food. The discontinuation of Jif Power Ups which contributed $20 million of net sales in the prior year, a $20 million sales decline related to distribution contraction for private label dog food, and effective tax rate of approximately 24%, and a weighted average share count of approximately 114 million. Taking all these factors into consideration, we anticipate adjusted earnings per share in the second quarter to be flat to down slightly reflecting the low-single digit sales growth and a step up in SD&A expenses. For the full year adjusted earnings per share is expected to range from $8.20 to $8.60 and a full year free cash flow to range from $925 million to $975 million, with capital expenditures of $300 million.

In closing, let me reiterate Mark’s opening comments. First quarter results exceeded expectations as the team continues to execute during this dynamic time. And we remain committed to maintaining financial discipline that will deliver long-term value to our shareholders.

Thank you for your time. We will now open the call to your questions. Operator, please queue up the first question.

Questions and Answers: 

Operator

Thank you. The question-and-answer session will begin at this time. [Operator Instructions] Our first question today comes from Andrew Lazar from Barclays. Your line is now live.

Andrew Lazar — Barclays Capital — Analyst

Thanks very much. Good morning, everybody.

Mark T. Smucker — President and Chief Executive Officer

Good morning, Andrew.

Andrew Lazar — Barclays Capital — Analyst

I wanted to start, you’re expecting continued momentum into fiscal 2Q on the topline and I’m just trying to get a sense if that’s now primarily going to be due to elevated consumption levels or if there is some impact from ongoing retailer inventory fill as well? I guess I’m trying to get a sense of whether you would expect sort of consumption or scanner data to better approximate what 2Q sales would look like?

Mark T. Smucker — President and Chief Executive Officer

Thanks, Andrew. It’s Mark. I would say, largely the bulk of the inventory restock is behind us. There will probably be some potentially moderating, but we are seeing the trends in consumption continue. We commented in the prepared remarks, specifically about peanut butter and the latest four, we’re seeing our share come back. So for the vast majority of our — of our brands, we are seeing some pretty decent consumption take away. Our focus is just going to remain largely on supporting our customers and our consumers. As long as we continue in this environment, that’s really our number one priority to make sure that we’re getting our products, our brands and large assortment of them to the shelves.

Andrew Lazar — Barclays Capital — Analyst

Thanks for that. And then thinking out a little bit, you have a bunch of package food companies that are now really just admittedly beginning to talk a little bit about taking some of the learnings from the pandemic and sort of making some longer-term structural changes as a result of it. Some have clearly stated that they’re not going back to a sort of pre-pandemic cost structure. And I realize it’s still early and you’re all still managing through this crisis, but I guess Smucker had the opportunity to — to take a bit of a fresh look maybe at its cost structure, and if so, maybe even if it’s just kind of thinking through what maybe some of the bigger potential buckets of opportunity might be that you could, sort of target as a result of maybe some of the learnings that you’re getting out of sort of going through all of this. Maybe it’s too early, but to dimensionalize, maybe the magnitude of some of those potential opportunities. Thank you.

Mark T. Smucker — President and Chief Executive Officer

Yeah Andrew, it’s Mark again. Clearly, we have maintained a really good cadence of cost discipline throughout this and I think one of the things that the pandemic has taught us is that we can and will be agile and very focused on those things that are really going to drive the business. So just our ability to adapt the partnerships that we’ve strengthened with our customers, the ways in which we are targeting and reaching our consumers, I think we’ve learned that we can do those things and remain — and remain extremely focused on where we are going to find growth. As it relates specifically to our cost structure, you know we have exercised a high degree of cost discipline, but I would stop short of going any further than that and we may potentially discuss that a bit at our Investor Day in October.

Andrew Lazar — Barclays Capital — Analyst

Thanks so much everybody.

Operator

Thank you. Our next question today is coming from Faiza Alwy from Deutsche Bank. Your line is now live.

Faiza Alwy — Deutsche Bank — Analyst

Yes, hi, good morning.

Mark T. Smucker — President and Chief Executive Officer

Good morning.

Faiza Alwy — Deutsche Bank — Analyst

I wanted to talk about of the pet business. First of all, I know you had talked about potential destocking in this quarter and I wanted to see if one that happened this quarter or if you’re still expecting any destocking the rest of the year? And then I was also curious on channel dynamics around pet food. So you mentioned that overall e-commerce was 12% of sales, I’m wondering how much of that was pet and how those sales trended versus the specialty channel?

Tucker H. Marshall — Chief Financial Officer

Faiza this is Tucker. I will start as it relates to your question around destock and then Mark will take some of the channel dynamic portion of the question. As it relates to the first quarter, we did anticipate that there would be some destocking within pet. The answer to the question is, yes. However, it came later in the quarter. The month of May was a particularly strong month for us as it relates to our pet food business across both cat snack and dog. It began to moderate across all three as the quarter went on. And will continue to moderate into the second quarter, but big picture, the destock did occur.

Mark T. Smucker — President and Chief Executive Officer

Yeah and this is Mark. Just to comment a little bit on the channel dynamics. What we have seen is the pet specialty channel continues to exhibit some softness, but there continues to be a general shift consumers going to e-commerce. One thing that was unique, just to build on Tucker’s comment is the total dog category was actually down in the quarter largely because of the destock. That’s the first time in a very long time that you would see the dog food category having been down. As I said in my last comments, we do view that has — we’re largely through much of that, but I think the important point to note is that our total pet business is up and we’ve seen great growth in both cat and pet snacks. And so that has clearly been a positive as well as performance for our innovation.

Faiza Alwy — Deutsche Bank — Analyst

Okay. That’s really helpful. Can you, sorry, did you give, I’m just curious how much of the — like what percentage of your sales in pet are now e-commerce?

Mark T. Smucker — President and Chief Executive Officer

Roughly — it depends on the cat — on the segment of the category, it’s about 15% to 20%. We can get the more accurate number and give that to you offline.

Faiza Alwy — Deutsche Bank — Analyst

Okay. That’s helpful. Thank you so much.

Operator

Thank you. Our next question today is coming from Ken Goldman from J.P. Morgan. Your line is now live.

Ken Goldman — J.P. Morgan — Analyst

Hi, good morning. Just to clarify, I think you said COVID contributed two-thirds of the sales growth this quarter, and that included consumer demand and the retailer replenishment. I may have missed it, but did you break down what that two-thirds was between heightened demand from the consumer and what the retail load might have been?

Tucker H. Marshall — Chief Financial Officer

Ken, good morning. This is Tucker. We did not isolate the breakdown of the two-thirds component between consumption and retailer inventory replenishment. I think that’s pretty hard for us at this point to sort of isolate. But what we do see is, is obviously continued momentum due to COVID, but we also see underlying momentum in the business as well.

Ken Goldman — J.P. Morgan — Analyst

Okay. I’ll follow up offline on that one. And then just for my follow up, any implications in your guidance from school closures, excuse me, on any particular part of your business, just thinking Uncrustables, maybe some other areas, just trying to figure out what you’re factoring in your guidance versus maybe some of the risks out there from some demand being a little bit less than what you might have expected a year ago at this time?

Tucker H. Marshall — Chief Financial Officer

Ken, I would respond in saying that we have not factored anything into our guidance due to school closures. Obviously back-to-school is a component of our fiscal year, we feel very comfortable with the way we’ve approached back-to-school both at plan and where we stand today. In the away from home business, as you may recall, it has an Uncrustables component and that Uncrustables component does service schools. And we continue to provide product to those schools because they are feeding America despite the fact that those school districts may be closed.

Ken Goldman — J.P. Morgan — Analyst

Thank you.

Mark T. Smucker — President and Chief Executive Officer

Thanks, Ken.

Operator

Thank you. Your next question today is coming from David Driscoll from DD Research. Your line is now live.

David Driscoll — DD Research — Analyst

Great, thank you and good morning.

Mark T. Smucker — President and Chief Executive Officer

Good morning, David.

Tucker H. Marshall — Chief Financial Officer

Good morning.

David Driscoll — DD Research — Analyst

Wanted to start off back with the top line sales numbers, the sales growth. Ken asked it, but like it was — he was asking about the two-thirds of the COVID, can you just simply say what the retail inventory replenishment contributed to the top line in the quarter? I mean is it like half the number, because the differential between the scanner data and today’s results really large. So, I know there is an e-commerce piece in here that’s not measured, there is other unmeasured channels, but my guess is that the retail inventory replenishments like half the difference between consensus expectations and what happened? Tucker, can you comment on that.

Tucker H. Marshall — Chief Financial Officer

David again we have quantify that we believe two-thirds of the over delivery is associated with COVID. Again a portion is consumption, a portion of it is inventory rebuilds at retailers. We do see continued positive scans across our coffee and consumer business. There is elements within pet that continue to perform. There is some softness, as Mark talked about in dog. But I think what we would guide you to is to make your own estimation as it relates to what our performance is and then what you’re seeing both in consumption as well. It’s our best look, but we just don’t feel comfortable quantifying that impact at this time.

David Driscoll — DD Research — Analyst

Okay. On the guidance, first quarter beats by like $0.70 versus consensus. Full year is raised $0.30, why doesn’t the full-year go up by the magnitude of the beat? And Mark, it sounds like you’re more optimistic on the year, but yet just mathematically, the final three quarters are a little bit less than what we all previously had because of the nature of the magnitude of the 1Q beat. So just hoping you guys could just talk a little bit about that. I mean, I feel like there is an element of conservatism, it just a really hard environment, I respect that. But would appreciate your comments.

Tucker H. Marshall — Chief Financial Officer

Yeah David, as it relates to the approximately $0.79 over deliveries from the prior year about $0.15 of that was anticipated or planned. The balance, half of it is due to the increased at-home consumption, the retailer replenishment, better performance in our away from home business in the quarter. And so we are taking that portion, which is about $0.30 to $0.35 and feeling comfortable to put that into our guidance range. The remainder, which is about $0.30 or so, really reflects favorable SD&A expenses across the company, consistent almost all businesses that we are anticipating to come back into the second quarter and beyond. And that’s largely driven by timing, an example would be marketing that we did not spend in the first quarter that we anticipate in the second quarter. And then additionally some promotional activity and other reinvestment considerations. So that’s really where the breakdown of the $0.79 year-over-year or roughly your $0.70, as you asked.

The last comment I would make as it relates to guidance is that we are very focused in making sure that we are providing visibility and transparency about our results, which were quite strong for the quarter. Again, what we’re seeing for the second quarter and again the back half remains uncertain for the obvious reasons of just living through a pandemic. And so as a result of that, we will just continue to provide updates as we get through each subsequent quarter and come through the totality of the fiscal year.

David Driscoll — DD Research — Analyst

That was super helpful. Thank you, and I’ll pass it along.

Operator

Thank you. Our next question today is coming from Chris Growe from Stifel. Your line is now live.

Christopher Growe — Stifel Nicolaus — Analyst

Thanks, good morning.

Mark T. Smucker — President and Chief Executive Officer

Good morning, Chris.

Christopher Growe — Stifel Nicolaus — Analyst

Hi, I just had a question, a bit of a follow-on to earlier questions in relation to your sales growth outlook for the year. As I think about your outperformance or I should say the growth in revenue in the first quarter, it largely equals that $185 million headwind you’ve outlined from the prior-year comp. And I’m just curious therefore that you’re looking therefore, it seems like a more modest sales growth in Q2 and Q3. I want to make sure I was looking at the proper way and then also to understand kind of what’s behind that, or what you see happening as we progress through the quarters in terms of at-home food consumption? And then of course, you’ve talked a lot about inventory, any further inventory changes?

Tucker H. Marshall — Chief Financial Officer

So Chris, big picture, I think the perspective that you’ve taken is correct. We are beginning to see a moderation of growth, particularly into the second quarter within our coffee and consumer business. We’re also experiencing that within our pet business. And I would also remind you that even — even though we did perform better than anticipated in our away from home business in the first quarter, we do anticipate significant and extended declines in that business for Q2, Q3 and Q4. And then as you know noted, we do have that comp in the fourth quarter that we do need to lap. And then further back to the comment I provided to David is that we’re still working through what the back half truly looks like and we’ll have a better — better visibility that as the — as the months in the quarters go by. But I think big picture you framed it correctly.

Christopher Growe — Stifel Nicolaus — Analyst

Okay, thank you for that. And then just a question on your — with your debt level now moving below your target, I’m just trying to think about the cash priorities for the year. You have a very strong free cash flow outlined for the year, maybe you could just give a quick thought on like the M&A environment and kind of how the pipeline looks or has been affected by COVID I guess? And then — then to think about other areas of cash use obviously debt reduction, but also share repurchase activity? Thank you.

Tucker H. Marshall — Chief Financial Officer

Chris, I’ll address the capital deployment aspect and then I’ll ask Mark to comment on the broader M&A market. As it relates to our capital deployment or cash deployment for the fiscal year, we remain committed to generating that approximate $925 [Phonetic] million worth of free cash flow. We are prioritizing continuing to pay quarterly dividends. We did just increased the quarterly dividend in the month of July. We also are prioritizing continuing to pay down our term loan that continues to position us for strength across the balance sheet. And then we do need to keep our eyes open opportunistically as it relates to how and where and when we bringing back share repurchases to support shareholder value and then also how we consider the deployment of cash into M&A opportunities. And I’ll hand it to Mark to talk a little bit about the M&A front.

Mark T. Smucker — President and Chief Executive Officer

Yeah, Chris, just on the M&A front, as you know, we always are — have lines in the water, if you will. Just, you know, making sure that we are seeing and have access to some of the opportunities that may be out there. I would say generally speaking, it has been relatively light, but as Tucker pointed out we are getting ourselves into a position where we could participate in the M&A market, if the right opportunity came, but at this point there really is no — no new news to report and we will just continue to monitor.

Christopher Growe — Stifel Nicolaus — Analyst

Thank you.

Operator

Thank you. Our next question today is coming from Rob Dickerson from Jefferies. Your line is now live.

Rob Dickerson — Jefferies — Analyst

Great. Thank you so much. Look, I think I heard you say Mark, a number of times, the term financial discipline, right. It sounds like there was a little in there about optimized pricing margin management. So maybe if you could just provide a little bit additional color on that, just around kind of the bigger brand focus, better margin mix, and the potential, it sounds like there is some potential for strategic pricing, although I also heard you say you know the marketing will re-emerge as we kind of probably get throughout the year. And then also, there could be some increased promotional activity. So just trying to kind of right size, kind of that margin — the margin trajectory for the year and ongoing around pricing margin mix, inclusive of promotional activity and marketing? Thanks.

Mark T. Smucker — President and Chief Executive Officer

Rob, thanks for the question. You’re right, financial discipline is one of our foundational priorities, particularly for this year as it would be for any year, but we really are focused on it this year. Tucker already spoke to obviously debt and just our cash generation, but we are very focused on our margin profile, making sure that we can maintain, and ultimately improve our margins. And that really comes from a continuous improvement mindset, which we have done a great job just in terms of our margin management from a cost — internal cost standpoint. But we will continue to be very focused on strategic pricing and our recent actions in peanut butter support that. We mentioned briefly in the script that we have — we did — we have seen some cost increases on peanuts largely because of crop quality. But we were able to partner very closely with our retail customers in order to manage that in a very judicious way, making sure that we are able to pass along our costs in an appropriate way of course. So those will all be components of how we continue to manage our profitability going forward.

Rob Dickerson — Jefferies — Analyst

Okay. And then I guess secondly, just on pets, I think in the prepared remarks — in the release you say there is potentially some increased trade spend in pet food. And then you also stated there is improving competitive positioning may be in some of your premium brands. So maybe if you could just kind of dimensionalize kind of — what that increased trade spend was for? And then why you see the competitive positioning within premium improving? That’s it, thanks.

Mark T. Smucker — President and Chief Executive Officer

Right. So in our — in our pet business, I would say from a macro perspective Rob, we are seeing the pet category perform largely as it normally does. You know pets, I’ve said this before, pets always heated [Phonetic] home. So the — so the increase from stay-at-home consumption is largely focused on humans. So the pet category itself I would just — I would say is largely continues to — to — the dynamics are very similar to what they normally would be pre or post-COVID. It is a competitive environment, on Nutrish specifically our net pricing is down from a year ago, which was part of our targeted actions to improve the performance of that brand, but increased trade in general I think is we’re not seeing that largely across the entire pet portfolio.

Rob Dickerson — Jefferies — Analyst

Okay, got it. Thank you so much.

Mark T. Smucker — President and Chief Executive Officer

Thank you.

Operator

Thank you. Your next question today is coming from Jason English from Goldman Sachs. Your line is now live.

Jason English — Goldman Sachs — Analyst

Hey, good morning folks.

Mark T. Smucker — President and Chief Executive Officer

Good morning, Jason.

Jason English — Goldman Sachs — Analyst

Thank you for sliding me in. I want to come back at two topics that have already been discussed versus decoding the scanner data and trying to bridge it to your sales. You gave us the e-com growth figure of 70%, quick back of the envelope maths suggested it is adding around 500 basis points of sales growth. If we assume that 70% is not already captured in Nielsen, at least in part, so question one, is that the case, can we actually looking at the 70% and say all of that is incremental to what we’re seeing in the Nielsen data or IRI data?

Tucker H. Marshall — Chief Financial Officer

Jason, this is Tucker. I think it’s — I think it’s fair to say that the e-commerce channel is predominantly benefiting our pet business. And so therefore when you look at the measured channels and then think of e-commerce as sort of an non-measured channel, you can go ahead and make our estimation there. And then as you want to extrapolate it across the rest of the portfolio, you can, but obviously the magnitude comes through pet.

Jason English — Goldman Sachs — Analyst

Got it. That is helpful. That obviously implies that the restock was fairly substantial on the coffee and the consumer side. Switching gears to the promotional environment, you guys finished last year with trade and [Indecipherable] spend, I think at a record high 39% of net sales. How is it tracking so far? Since we’re now kind of two quarters into COVID-19, has that figure come in a substantial amount? And is there opportunity to have this prove to be a more permanent reset? In other words, really sort of ratchet that trades been back down to the low to mid 30s you are at just a couple of years ago.

Tucker H. Marshall — Chief Financial Officer

You know Jason, I think as it relates to the promotional environment, we continue to work through that on a couple of dimensions. One, promotional activity did change as we came into COVID. Promoting was reduced as it relates to pretty much coffee and consumer. And so now we need to think about how we’re bringing those promotional activities. And when we do it back across both coffee and consumer. And then a recognition that we also because of other input costs or otherwise, just making sure that we have the right price reflected on shelf as well across our entire portfolio. So I think there is maybe a little bit to what you’re sharing and asking, but I think we’re still working through what pricing and promotion mean both coming into the environment of COVID-19 and coming out of it as well.

Mark T. Smucker — President and Chief Executive Officer

Jason, it’s Mark. I would just reinforce the comment I made earlier just to respond to your comment about the restock. The restock was clearly largely fell in our first quarter and it was more specific of course to consumer and coffee. And as I said earlier, we are largely through that and in the most recent share information, you would see our share, particularly in consumer coming back and seeing some share growth. Coffee it’s been pretty much strong throughout the quarter.

Jason English — Goldman Sachs — Analyst

Yeah, shares improved, but the absolute level of measured growth, massively [Indecipherable] comparison to the type of sales you put up. So if, most of the — if most of the unmeasured channel growth is coming in pets, my conclusion is we should probably look to have the measured sales growth mean revert kind of closer to net sales growth for the rest of the year, which would suggest sharp deceleration. And tell me if I’m off base on any of that?

Mark T. Smucker — President and Chief Executive Officer

Yeah, first of all there has been significant e-commerce growth in coffee. So there has been a market shift for coffee being purchased in the e-commerce channel. So from an unmeasured standpoint, you definitely wouldn’t be seeing the coffee growth there either.

Jason English — Goldman Sachs — Analyst

Okay, that’s helpful, guys. Thank you very much.

Mark T. Smucker — President and Chief Executive Officer

Thanks.

Operator

Thank you. Our next question today is coming from Robert Moskow from Credit Suisse. Your line is now live.

Rob Moskow — Credit Suisse — Analyst

Hi, thank you. Two questions. Just to clarify, first of all on e-commerce growth, that 70% does that measure direct-to-consumer shipments or does it also include any click and collect at the grocery stores?

Mark T. Smucker — President and Chief Executive Officer

That would be both.

Rob Moskow — Credit Suisse — Analyst

Okay. So it includes the click and collect at the grocery stores, it’s quite possible that it’s showing up in the retail Nielsen data maybe?

Mark T. Smucker — President and Chief Executive Officer

I would say some of it probably, it’s hard to know if all of it would be, but yes.

Rob Moskow — Credit Suisse — Analyst

Okay. Second question is more broader, about product innovation and SKU rationalization. Mark, I think you rationalized the peanut butter line up dramatically. So I was hoping you could tell us like how many SKUs are you now producing for peanut butter? What were you producing before? And this is really a broader question for innovation philosophy, but how many of these, do you want to bring back? What will your innovation strategy be? Do you want to be less aggressive than you were in the past, mainly because you have productivity benefits from having a streamlined lineup, maybe the consumer is reverting back to trusted brands, maybe not experimenting as much. So I’m focusing on peanut butter, but I was wondering if you could kind of make a broader statement about innovation overall where there’s been so much rationalization? Thanks.

Mark T. Smucker — President and Chief Executive Officer

Absolutely Rob. Thanks for the question on peanut butter, there hasn’t been any significant rationalization of SKUs. So as we were trying to point out a little bit in the script, you know, when we — when COVID was really at its peak and we were asked by our customers to focus on the most important SKUs, we did just that. And so some of the share shifting that we saw in three months or four months ago was really a result of the fact that we were selling everything we can make, we were selling more peanut butter than anyone else out there, but it was a limited assortment. Now that we are able to — we’re still running essentially full out in our — in our two key peanut butter plants, we have actually been able to restock the — the more full assortment and so that fuller assortment is actually now getting on shelf and that is why in the latest four [Phonetic], you would start to see our share starting to grow — grow back to towards where it was before. So, significant SKU rationalization as a result of COVID, not a lot.

But I will tell you on innovation, we still are committed to innovation. As I spoke to, I think in a quarter, maybe a quarter or two ago, innovation is going to remain very important. It’s a balance between platform innovation and you know more common things like line extensions. In the quarter, innovation was — new products were 5% of our sales and roughly $100 million. So we’ve been very pleased with our innovation. I know there’s been a lot of focus on Jif Power Ups and discontinuing that was the right decision. But even on something like 1850, we recently gained quite a few new points of distribution. Well, in the thousands of new points of distribution and that brand online continues to grow very, very well. So innovation is going to continue to be very important. We feel like we’ve had some success there and we will continue to drive innovation as a one component of our top line growth.

Rob Moskow — Credit Suisse — Analyst

Okay, thank you.

Operator

Thank you. Our next question is coming from Pamela Kaufman from Morgan Stanley. Your line is now live.

Pam Kaufman — Morgan Stanley — Analyst

Hi, good morning.

Mark T. Smucker — President and Chief Executive Officer

Good morning.

Pam Kaufman — Morgan Stanley — Analyst

I was hoping that you can talk about your pricing strategy in coffee. Just based on the retail takeaway data, it suggests that you are being more competitive on price relative to competition. So how should we think about pricing and go forward margins in coffee given the inflationary coffee input cost environment?

Mark T. Smucker — President and Chief Executive Officer

Yeah Pamela, thanks for the question. I would say our coffee pricing strategy we have extremely disciplined. You know, underlying green coffee costs have been somewhat volatile, but still at historical lows. There has been some uptick in the last few weeks, particularly on [Indecipherable] and so we would expect to see some cost increase into the second quarter. That said, we have multiple levers that we use to manage our retail prices sometimes it’s trade, more recently it’s been more trade related than it has specifically pricing, but we will remain extremely disciplined on the pricing front and ensure that our margins particularly on coffee as well as across our business, but on coffee we’ve said before, maintaining those margins in the low 30-ish percent is doable.

Pam Kaufman — Morgan Stanley — Analyst

Got it. Thank you. And then I just wanted to ask about the improved gross margin guidance for 2021 and the drivers behind that. I guess, digging into the details you previously cited headwinds from fixed cost deleverage in the foodservice business, what do you initially expected to decline by about 30%. So I guess, what are your updated expectations for this business? Have you seen any improvement? And then I guess, more broadly what is your outlook for commodity input prices as it relates to the updated gross margin guidance?

Tucker H. Marshall — Chief Financial Officer

Pam, thank you. At a total company level, we feel that the gross profit margin again will range from 37.5% to 38% throughout the fiscal year. It’s largely driven by continued growth in the top line across our business, it’s also supported by better than expected commodity costs at plan. Commodities will be up year-over-year though as a clarification and then as we continue to think about the away from home business to the extent that it can continue to outperform the current expectations that will also support the margin as well.

Pam Kaufman — Morgan Stanley — Analyst

Thanks. And any updated specifics on the foodservice business, in terms of your outlook for this year?

Tucker H. Marshall — Chief Financial Officer

Yeah, so as it relates to our away from home business, we did see an improvement as it relates to our plan for the first quarter that was largely due to an assumption we made about the timing of basically society reopening and folks leaving their homes and going out to restaurants. And we did see that improvement. However, on a full year basis we still are pretty cautious about how we are seeing that business, it still is anticipated to be in a significant and extended decline and really what we’re seeing here is that the office coffee portion with folks not returning to the workplace as quickly as offsetting some of the momentum were positive that we’re seeing, for example in restaurants or other venues like that, but I would note that we continue to see great performance in the handheld aspect of the business. So again we are remaining cautious, but we’re also remaining a bit optimistic that we’ll do better in that business as well.

Pam Kaufman — Morgan Stanley — Analyst

Great, thank you.

Mark T. Smucker — President and Chief Executive Officer

Thank you.

Operator

We have reached the end of our question-and-answer session. I’d like to turn the floor back over to management for any further or closing comments.

Mark T. Smucker — President and Chief Executive Officer

Well, first of all thank you all for listening. We appreciate the support. Obviously, we’re very pleased with our results this quarter and our priority is to continue to support our customers and consumers and really make these — this growth sticky as we regained a number of new consumers. And then finally, just wanting to acknowledge that all of this is possible because of our fantastic employees and just a huge shout out to our employees because they are the ones that have really allowed us to deliver and we look forward to continuing to deliver in the quarters to come. Thank you.

Operator

[Operator Closing Remarks]