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The J M Smucker Company (SJM) Q1 2022 Earnings Call Transcript

SJM Earnings Call - Final Transcript

The J M Smucker Company (NYSE: SJM) Q1 2022 earnings call dated Aug. 26, 2021

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 — Analyst

Ken Goldman — J.P. Morgan — Analyst

Chris Growe — Stifel — Analyst

Bryan Spillane — Bank of America Merrill Lynch — Analyst

Alexia Howard — Bernstein — Analyst

Rob Dickerson — Rob Dickerson — Analyst

Jason English — Goldman Sachs — Analyst

Pamela Kaufman — Morgan Stanley — Analyst

Ryan Bell — Consumer Edge Research — Analyst

Presentation:

Operator

Good morning, and welcome to The J.M. Smucker Company’s Fiscal 2022 First Quarter Earnings Question-and-Answer Session. This conference is being recorded and all participants are in a listen-only mode. [Operator Instructions]

I will now turn the conference over to Aaron Broholm, Vice President, Investor Relations. Please go ahead, sir.

Aaron Broholm — Vice President, Investor Relations

Thank you. Good morning, and thank you for joining our fiscal 2022 first quarter earnings question-and-answer session. I hope everyone has had a chance to review our results as detailed in this morning’s press release and Management’s pre recorded remarks, which are available on our corporate website at jmsmucker.com. Additionally, we will post an audio replay of this call at the conclusion of this morning’s Q&A session.

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. Additionally, we use non-GAAP results to evaluate performance internally. I encourage you to read the full disclosure concerning forward-looking statements and detailed on our non-GAAP measures in this morning’s press release.

Available today on the call is Mark Smucker, President and Chief Executive Officer; and Tucker Marshall, Chief Financial Officer. We will now open the call for questions. Operator, please queue up the first question.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question today is coming from Andrew Lazar from Barclays. Your line is now live.

Andrew Lazar — Barclays — Analyst

Great, thanks so much for the question. I guess, I’m sure there’ll be plenty of discussion around inflation and cost and pricing and what not. So I’d like to focus a bit on your prepared remarks on the recovery of the Nutrish brand, which is lagging expectations. You mentioned currently evaluating additional actions to better position the business. I guess, are you able to unpack that a bit more for us? Are we talking about further potential portfolio sort of optimization moves or repositioning the brand or it’s or it’s pricing position in the category or really something else entirely? I’m just trying to get a better handle on sort of why it’s lagging and what actions are being contemplated? Thanks so much. Sure, Andrew. Thanks for the question. It’s Mark Smucker. Good morning. Let me just make a couple of very brief comments just about the business in general and I will answer the Nutrish question. Just want to acknowledge first of all that we are very pleased with the results this quarter. It’s our sixth quarter in a row of meeting or exceeding expectations. If you look at in the prepared remarks and you back out some of the noise in terms of divestitures and when we look at an apples to apples, the total company grew 1%. All of our U.S. businesses grew and on a two-year stack, we saw that 6% topline that growth. So the point here is that underlying business fund to mend mantals [Phonetic] remains strong. Demand is still there. Our investments almost across every part of our business are working. Our brands are strong. I mean, just looking at the share growth, two thirds of our portfolio growing. A couple of years ago that was like a quarter of our brands were growing. So we are very pleased with the progress and the way we’ve been able to execute throughout the last, particularly the last 18 months in the pandemic. And so really, really one of the only spots where we have not been satisfied is on Nutrish dry dog. Even the pet business itself grew in line with our algorithm. If you look on a two-year stack, its about a 3% growth and we’ve said our algorithm is 3 to 4. So we have been meeting that and seeing growth in dog snacks and cat food, etc. So really isolated to Nutrish, that dry dog, we do remain committed to the brand. We have continued our portfolio and packaging optimizations. We are — it’s still at the early stages of the big life launch. So we clearly believe that there is still potential for the brand. Specifically though, we have not been satisfied with some of our marketing investment and feel that they have not delivered the requisite return and so we are actually pulling back on some of those marketing investments, still supporting the master brand and big life, but making sure that the dollars we’re spending there are truly going to make a difference and we’re going to pull back temporarily and reevaluate some of those investments. And so that’s why we said the full recovery of the Nutrish brand will be delayed throughout the remainder of this fiscal year. All right. Thank you for that. Appreciate it.

Operator

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

Ken Goldman — J.P. Morgan — Analyst

Hi, thanks so much. I wanted to just dig in a little bit. One of the questions we’re getting this morning is not only on the first quarter but on the second quarter. The timing of shipments versus what we saw at Nielsen [Phonetic] or really just takeaway overall beyond Nielsen as well. First, whether there is any mismatch between those two in the quarter just reported? And then does your outlook for the second quarter include any assumption that maybe some of your customers will buy a little bit ahead of some announced price increases? Thank you.

Tucker H. Marshall — Chief Financial Officer

Ken, Good morning. As it relates to first quarter shipments, the first quarter from a big picture perspective came in line with expectations, but we did have two areas that were a bit softer than anticipated. One, due to labor and transportation issues throughout the entire network. There were some shipments left on the dock that occurred at the end of July, that should pick up into August. And secondly, due to some specific situations with two e-commerce retailers, our e-com in the quarter was a little bit softer. So we would anticipate in the second quarter and beyond, shipments to recover and then also a bit of return in the e-commerce channel.

Ken Goldman — J.P. Morgan — Analyst

Okay, great. That’s helpful. And then just quickly to follow-up on something. I appreciate you don’t buy forward or hedge everything out. You still have some exposure to spot markets each quarter, but I’m a little surprised what the near-term headwind? Is this much worse, right, in particular for 2Q. So is there any way to help us order or size some of the incremental cost challenges, whether it’s direct inputs for foodstuffs or packaging or labor, just so we better understand a little bit what’s hitting you harder than you initially thought?

Tucker H. Marshall — Chief Financial Officer

Ken, as we came into the fiscal year, we were anticipating mid single-digit cost inflation as a percent of our total cost of goods sold. Now we’re seeing high single-digit cost inflation as a percentage of our total cost of goods sold. The change from our initial expectation is really driven within our commodity ingredients area, transportation and then packaging. And when you think of commodity ingredients, there have been a few factors that have been driving that. One is weather related. So that would impact coffee, particularly with Brazil weather patterns. The second was also weather patterns in the West, specifically the Pacific Northwest that impacted fruit. So those are two areas of commodities or ingredients where we’ve seen inflation come through, particularly in the second half of our fiscal year.

Transportation due to the volatility and tightness of supply chain continues to be real, not only from a labor standpoint, but also from a unit standpoint, and just an overall sort of backlog in the system that has persisted throughout the entire pandemic. And then on the packaging front, packaging continues to have the implications of just ongoing pricing pressures that continue candidly from the weather disruption that occurred in the winter time frame in Texas due to the freeze. And so as a result of this persistent inflation, we continue to manage through very effectively, not only through our supply chain and relationships with our suppliers and the great work by our teams, we’ve got to acknowledge this inflation in our P&L, and we need to recover it, and we are going to recover it through additional pricing actions this fiscal year that we anticipate in the second and third quarters in order to recover that. So we do believe this is a timing impact. And as a result of the timing impact, it should have pressure on the margin that we noted as well. But I do want to acknowledge two things. We remain confident in the way we’ve executed throughout the entire pandemic and we will going forward. And I also want to acknowledge that this is not a symptom specific to Smucker candidly. This is a symptom specific to the entire economy.

Ken Goldman — J.P. Morgan — Analyst

Understood. Thank you very much.

Operator

Your next question is coming from Chris Growe from Stifel. Your line is now live.

Chris Growe — Stifel — Analyst

Hi, good morning.

Mark T. Smucker — President and Chief Executive Officer

Good morning.

Chris Growe — Stifel — Analyst

Hi, I just had a quick question to follow-up on some of the supply chain issues and kind of the labor-related issues. I guess I want to understand the degree to which those are an incremental factor in the lower gross margin outlook in relation to the inflation? Is there one that’s more than the other? Just how to frame those two in relation to the gross margin softness you’re going to see relative to your previous guidance?

Tucker H. Marshall — Chief Financial Officer

Chris, good morning. Definitely there are two factors that are driving the inflationary environment for us. One is just the underlying input commodity and ingredient. The second is transportation as you have noted, and that has been a persistent headwind not only last fiscal year, but it continues to be one this fiscal year. And again, it is predominantly driven by the availability of labor and it’s also driven to some extent by the capacity of the system. And so that’s why we continue to manage through. We have been very successful in managing not only our long-term contracts, but also our spot rate contracts as well. We continue to do our best. But as you bring material and as you produce and ship material out, the entire network right now is impacted from a transportation standpoint, and it is — it is material.

Chris Growe — Stifel — Analyst

And so Tucker, that transportation factor. Is that half the gross margin decline? Is it that big or ingredients a bigger factor? I’m just trying to get a relative size on how big each one could be.

Tucker H. Marshall — Chief Financial Officer

Now that commodity and ingredient would be the leading factor. A very close secondary factor would be transportation and packaging if you’re thinking in terms of order of magnitude.

Chris Growe — Stifel — Analyst

Okay. And then just a follow-on to that. Is this something that you can price to, and I mean from a high level, not looking at next quarter, but just in general. Do you view these costs as transitory or is there another round of pricing? Or are you adjusting your pricing increases to account for this incremental cost you’re bearing?

Mark T. Smucker — President and Chief Executive Officer

Sure, Chris. This is Mark. As we think about cost and pricing recovery, we really try to take a holistic view and a make sure that as we’ve said before, working with our retail customers in a prudent and fair way to recover essentially the aggregate cost. And so when we look at costs and how they impact the finished product, we really look at that in totality and as we go forward with with our retail partners, just making sure that we have an open and transparent dialog of what needs to happen so that we can indeed recover those costs through our entire toolkit, whether that’s list price, net revenue optimization or what have you.

Chris Growe — Stifel — Analyst

Okay, thanks a lot.

Mark T. Smucker — President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question is coming from Bryan Spillane from Bank of America. Your line is now live.

Bryan Spillane — Bank of America Merrill Lynch — Analyst

Hey, good morning, everyone.

Mark T. Smucker — President and Chief Executive Officer

Good morning.

Bryan Spillane — Bank of America Merrill Lynch — Analyst

So I guess just coffee, or a question more specific to coffee and actually two. One is just — it sounds like or maybe I wanted to clarify that even coffee costs in the quarter were running higher, and I guess the fact that it’s going to hit you seemingly reasonably soon. Does it suggest that you just maybe your hedges were at the end or you weren’t hedged out as long as you normally we’re? Just trying to understand the dynamic of green coffee costs have clearly moved, but it seems to be impacting you pretty quickly and so just if you can kind of walk us through, I guess how you are positioned or hedged for for higher coffee costs?

Tucker H. Marshall — Chief Financial Officer

Bryan, good morning. As it relates to our cost position for the year, as we said coming into our fiscal year, we knew that we would have year-over-year cost inflation, which was inclusive of our coffee portfolio as well. And we knew that that inflation was going to begin to hit us on a 12-month basis and that we were taking initial pricing actions in July to begin to recover that initial wave of inflation. And so the margin and coffee for the quarter, but yet the margin for the entire business for the quarter does reflect that inflation ahead of the pricing recovery.

As you think about what’s happened since our initial guidance, you began to have weather impacts in Brazil that began to affect the underlying commodity. And as a result of that, we’ve been managing through how we think about delivering the balance of the year. While we’d like to give you the specifics on our hedging position, we don’t disclose that. But what we can share is that coffee costs have gone up and that we will take additional pricing actions and measures to ensure that we recover the inflationary impact that we’re seeing to the P&L.

Bryan Spillane — Bank of America Merrill Lynch — Analyst

Okay. And then I guess to the extent that the weather has been part of the issue. Is there also a, I guess a question or pressure around just availability of green coffee? Are you concerned at all about just supply of raw material?

Mark T. Smucker — President and Chief Executive Officer

Yeah, Bryan, it’s Mark. Generally speaking, the frost in Brazil which is what Tucker was referring to, over a longer period, over a 12-month period is going to have some impact on the amount of coffee that’s available. However, as one of the — we are the largest grocer in the U.S. and one of the larger grocers in the world. We still will be able to get our needs met. But as Tucker referenced, it is going to be at higher prices, which we will continue to manage through our robust set of hedging tool. So we think we can manage through it, but just acknowledge that both, just the Brazilian crop as well as some of the ongoing transportation issues are contributing to those costs.

Bryan Spillane — Bank of America Merrill Lynch — Analyst

Okay. And if I could just sneak one last one on just same topic on coffee. Just maybe if you can give us, Mark, some perspective on. We’ve had other periods of time in coffee where there has been inflation in the industry, has had to price it through and there has been some elasticity. Can you just maybe give us some context in terms of this current situation with costs rising and having to price it through and kind of where the consumer is. Do you expect like this to be an abnormal period in terms of prices going up in elasticity or is this a pretty normal sort of course of action for again a category that has that pass through element?

Mark T. Smucker — President and Chief Executive Officer

Sure. I guess the headline there would be that as we have managed through this initial phase of pricing, which is now in effect, the elasticities that we have modeled have generally performed as expected. We can’t predict what green coffee is going to do over the long-term in terms of cost, but we are certainly not at historical high and so we would anticipate that as we think about further pricing actions in the elasticity, that we should be able to manage through that and even though no elasticity model is ever perfect, we do have confidence that will be able to manage through that in a realistic fashion.

Bryan Spillane — Bank of America Merrill Lynch — Analyst

All right, thank you for the color.

Mark T. Smucker — President and Chief Executive Officer

Thank you.

Operator

Your next question today is coming from Alexia Howard from Bernstein. Your line is now live.

Alexia Howard — Bernstein — Analyst

Good morning, everyone.

Mark T. Smucker — President and Chief Executive Officer

Good morning.

Tucker H. Marshall — Chief Financial Officer

Good morning.

Alexia Howard — Bernstein — Analyst

So can we ask about the — what the key drivers of uncertainty are, what biggest risks are I guess over the next few quarters. It seems as though the level of uncertainty around, particularly around supply chain disruption and perhaps the fragility of the supply chain has increased [Indecipherable] somewhat different from previous commodity cycles where it was literally just having to handle increased cost pressures and pricing through. Other companies are also saying it’s actually physically quite hard at the moment to get product from, whether it’s ingredients from overseas or whether shipping domestically in the U.S. because of the trucking situation. I’m just wondering what you see as the biggest sort of pain points and risks that you’re looking at over the next few quarters? What the biggest concerns are at the moment? Thank you. And I’ll pass it on.

Mark T. Smucker — President and Chief Executive Officer

Alexia, it’s Mark. As we’ve discussed thus far, we’ve talked a lot about inflation and cost pressures and that is of course the primary driver. And then the second one is supply chain as you noted. I mean, if we really want to simplify, it’s primarily those two factors. There is a lot of unknowns, of course, about the pandemic and what course that may take. We’re watching that extremely carefully. But as to the supply chain specifically, we do believe that the reason that we have had success is because of our ability to execute and manage the supply chain. There is no question that it is tight and there are a variety of issues, tightness spanning from all the way upstream to all the way o the shelf at the retailer. But I would submit that our team and our people have done such a good job of managing every single step of the way, engaging with suppliers and customers all the way through to the retail shelf that has been key to our success and so much so that it has allowed us to actually gain distribution at shelf because we generally have been able to deliver to our customers. We’ve gained some space in recent shelf set reset because of our ability to execute. And so if you think about that factor coupled with our new commercial model, which is truly focused on the retail shelf and delivering, I think that really is — has been critical to how we’ve been able to deliver results thus far, and we would anticipate continuing those trends.

Alexia Howard — Bernstein — Analyst

Thank you. And as a follow-up. Can I ask about the magnitude of pricing that you’re expecting across the portfolio. I mean, obviously, you’ve got pricing actions that have just gone into place. How much pricing do you anticipate being able to realize over the next few quarters or for the remainder of the fiscal year? Thank you, and I’ll pass it on.

Tucker H. Marshall — Chief Financial Officer

Alexia, good morning. I think the way that we’ve articulated this consistently is that we’re experiencing double-digit commodity inflation that is resulting in high single-digit cost of products good sold inflation, which is then resulting in kind of low-to-mid single-digit pricing at the total company level. We haven’t necessarily disclosed by each given commodity or business the pricing amounts or actions, but that sort of formula should be able to give you a sense. And then I would also — I would also share that on a underlying organic basis, we are anticipating at the new guidance range to be up at about 2 points. And as a result of that, you’re going to see some topline pricing being offset by some underlying volume as well. And so that should help you get a revised organic of about 2.5%.

Alexia Howard — Bernstein — Analyst

Great. Thank you very much. I’ll pass it on.

Operator

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

Rob Dickerson — Rob Dickerson — Analyst

Great. Thank you so much. My first question is just a quick follow-up to Alexia’s question on kind of cadence for the year. And then this question on pricing. So Tucker, your last answer was helpful in terms of kind of how to think about that magnitude that we seeing, but kind of more specifically I’m just curious, can the coffee business actually grow revenue this year? right. This is, we always sometimes, let’s say see the topline can find but profit still growing. In this case just given this near-term pressure on costs, I’m curious could we be looking at a retail division that’s flattish for the year, maybe down a little bit? So I think that would help us also be able to right size the total company as we get through the year.

Tucker H. Marshall — Chief Financial Officer

Rob, good morning. As it relates to coffee and its growth trajectory, I think what we would say is that we’re probably anticipating kind of flat to up, based on what we’re seeing today. But that would be inclusive of additional pricing actions. I think it’s — I think it’s difficult for us at this point to continue to break down each of the business units. I think we’ve talked about kind of an underlying organic for total company being up 2.5 points. On the pricing front just from a cadence standpoint, we took pricing in July, its reflective. We’ve discussed that. We’ve also acknowledge that the additional pricing actions would likely come through in Q2 and Q3. So that also should give you a sense of timing as well.

Mark T. Smucker — President and Chief Executive Officer

Rob, I would just, it’s Mark. I just add one thing on coffee, which is — you’ll recall that our strategy has been to ensure; number one, that we’re participating in all the segments of the category, but also continue to shift the portfolio to the growing segment. So in that case, that being Dunkin, Cafe Bustelo, and K-Cups are all — all three of those are outpacing the segment or the category — we are outpacing the category, excuse me. And even the Folgers brand has continued to gain share and its growth, particularly in K-Cups has been strong as well. So we feel like as the portfolio shifts, we are delivering against our strategy.

Rob Dickerson — Rob Dickerson — Analyst

Okay, fair enough. And the follow-up kind of flows to what you were just discussing, Mark. In the prepared remarks, again referencing the coffee business, there is a line that says came in a little bit lower than expectations, just a little wider. But then there’s also the commentary around this increased distribution coming from Folgers. So just trying to kind of right-size that, like why do you think maybe things were a little bit softer than you thought? But then also at the same time, what’s really driving that increased distribution on the Folgers brand. That’s it. Thank you.

Mark T. Smucker — President and Chief Executive Officer

Yeah. If you look at coffee on a two-year basis and that two-year stack, we are seeing 8%. So that’s obviously very strong and the distribution gains that were referenced I think in the prepared remarks, were relative to primarily recent some shelf reset as well as some new up at some key customers. So those — we haven’t seen those come through our P&L yet, but that will — that will clearly be a help as we move forward.

Tucker H. Marshall — Chief Financial Officer

Rob, I’ll also remind you that a year ago we were experiencing the continued momentum of the early stages of the pandemic into our first quarter and we had the inventory replenishment in the first quarter. So there is a big, what we refer to as a COVID lap, and particularly for your consumer and coffee businesses.

Rob Dickerson — Rob Dickerson — Analyst

Yeah, I mean, bottom line is, it seems like you can get pricing in coffee that’s obviously coming through. But then once you’ve lapped the inventory build in Q1 and you get some incremental distribution, it doesn’t seem like we’re thinking of drastic elasticity as we get through the year. Is that fair? And I’ll leave it at that.

Tucker H. Marshall — Chief Financial Officer

The direction that you’re sharing seems reasonable.

Rob Dickerson — Rob Dickerson — Analyst

Got it. Thank you.

Operator

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

Jason English — Goldman Sachs — Analyst

Hey folks, thanks for slotting me in. Two quick questions. I know the magnitude of inflation pressure that you’re facing in the industry, a large is facing continues to escalate and there’s certainly a lot larger than any of us anticipated a couple of quarters ago. But we’ve been talking about resumed inflation for about nine months now. You’ve got almost no price, not almost. You have no price rolling through your P&L yet, including in the areas like pet where you actually lapping deflation in the prior year. So what’s been the impediment to getting price in the system so far?

Mark T. Smucker — President and Chief Executive Officer

There hasn’t been any impediment, Jason. But most of the pricing was effective in July broadly and and it’s now on shelf. So you’re going to see that initial wave coming through in the second quarter and as we work through some of the additional pricing across our business, as Tucker mentioned earlier, it will be effective likely in the end of the second quarter or the beginning of the third quarter. So yeah, we are confident that we will be able to work through that and that will be reflected.

And I’m sorry, the first part of your question, can you repeat?

Jason English — Goldman Sachs — Analyst

No, you answered it, or good. So let me actually just slip to my second question then. It sounds like, Tucker, just sort of unpacking some of the comments you made already, pricing somewhere plus-minus 4%, implying volume somewhere minus 1.5 points or so. That looks like a lower elasticity function than you’ve historically had, which I compared it to your trade spend. And last year in your 10-K you disclosed its now 39% of sales, which is up 800 basis points from five years ago. So you’re — you now seem to be a lot more reliant on promotions to drive volume than you used to be. You look to be the only companies who actually didn’t benefit from lower trade rates during COVID. In the context of that sort of promotional dependence, shouldn’t we expect elasticity to be higher than it historically has? What gives you confidence in underwriting sort of a lower elasticity function than history?

Tucker H. Marshall — Chief Financial Officer

Jason, I would say that on a year-over-year basis, pricing is going to contribute sort of up-to-mid single digit growth and it’s going to be offset by sort of low single-digit growth of volume mix other. And what you have to be careful about in the volume mix other is; one, its underlying business momentum for the Smucker’s Uncrustables brand, continued advancement of Cafe Bustelo and Dunkin, and advancement of our pet snacks portfolio along with a return in the away-from-home business.

But then it is offset by a decrease in at-home consumption. It is also offset by supply chain disruption, which we are experiencing through our pet food portfolio, particularly in wet pet. And it’s also offset by any additional trader promotion like you’ve talked about, but that trader promotion isn’t the biggest bucket of what’s causing sort of that change. And then lastly, as I would just acknowledge that in our volume mix bucket, we also have factored in price elasticities for our pricing actions across the portfolio.

Jason English — Goldman Sachs — Analyst

Okay, guys. So there is some nice mix benefits in there to contemplate. It’s not — you’re not expecting volume to be down 1.5%. I think that’s the answer, correct?

Tucker H. Marshall — Chief Financial Officer

Correct. There is a big bucket in there to your point where there’s more than one variable.

Jason English — Goldman Sachs — Analyst

Okay, all right, thanks, I’ll pass on.

Operator

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

Pamela Kaufman — Morgan Stanley — Analyst

Hi, good morning.

Mark T. Smucker — President and Chief Executive Officer

Good morning.

Pamela Kaufman — Morgan Stanley — Analyst

Can you elaborate on the factors that contributed to the size of the margin pressure in the Pet segment this quarter? This was the lowest operating margin that you’ve reported in the segment to date. And how are you thinking about your outlook for segment profitability over the course of the year?

Tucker H. Marshall — Chief Financial Officer

Pam, good morning. As it relates to the profitability margin for the Pet food segment in the first quarter, you are correct. It did experience a decline quarter-over-quarter. I think you have to acknowledge the cost inflationary pressures in that business, driven by the underlying commodities such as animal fats and proteins along with the impact of transportation. And again, that was ahead of any pricing benefit due to pricing actions that were taken in July. So we would anticipate that profitability in pet food come back in the back half of the year as pricing begins to reflect a half-year benefit, again sort of a partial year first half and then it will be down year-over-year due to the timing of price recovery against cost inflation.

Pamela Kaufman — Morgan Stanley — Analyst

Got it, thanks. And then I guess related to that, how are you thinking about your ability to take pricing in pet at a time when the business is underperforming your expectations?

Mark T. Smucker — President and Chief Executive Officer

Pam, we have been able to take pricing and pass that through and as we observed the market, we have seen our peers and competitors do similarly, and so we have confidence that we will continue to do that. And just reminding that pet snacks is really a key part of our strategy and we do lead there. So we are clearly not only in pet snacks, but in other portions of our business have been able to do so. So again, just the point, the headline being that our pet business is performing to expectations with the exception of Nutrish, and so we have delivered against our algorithm on pet.

Pamela Kaufman — Morgan Stanley — Analyst

Right. Thank you.

Operator

Thank you. Next question today is coming from Ryan Bell from Consumer Edge Research. Your line is now live.

Ryan Bell — Consumer Edge Research — Analyst

Hi, everyone. Good morning. I was just wondering how you’re thinking about some of the structural changes to your demand, not particularly around breakfast and lunch impediment given some of the incremental at-home activity that we’ve seen and how is this reflected in your guidance?

Mark T. Smucker — President and Chief Executive Officer

Ryan, Thanks for the questions. This is Mark Smucker again. As I started at the beginning of the Q&A, the demand has generally remained strong. I mean, using coffee as an example, 75% of cups consumed is still consumed at home and a lot more brewers in place. Clearly, there more pets out there and so pet snacks will continue to do — will continue to meet our expectations because consumers will continue to treat their pets and so that would be another one. And then of course, as I’ve discussed in the past, even post pandemic, however, we define that. One thing is certain, which is career professionals are going to continue to work from home more than they did pre-pandemic and that will benefit us because it speaks specifically to breakfast and lunch occasion. So particularly in our spreads, peanut butter and jelly, as well as our Uncrustables business, we would expect that to be a positive factor on our businesses.

Ryan Bell — Consumer Edge Research — Analyst

Thanks. Is there any sense for the magnitude of some of the impacts that you’re modeling into your guidance? Or is that a little bit less so for fiscal 2022 and it’s more of a longer-term question?

Tucker H. Marshall — Chief Financial Officer

Ryan, we are anticipating continued momentum in at-home consumption and our coffee portfolio as Mark acknowledged and our consumer portfolio also driven by the Uncrustables brand, along with the pet dynamics. And so as we continue to see how the pandemic plays out as we continue to ensure the investment and reinvestment in our brands for the long-term health of our business and therefore for the benefit of at-home consumption and the stickiness of households that we’ve gained, we hope to continue that momentum in this fiscal year and beyond. Today is probably not the time to quantify what we think that is, but the momentum that we’ve generated continues to perform.

Ryan Bell — Consumer Edge Research — Analyst

Thanks, that’s helpful. And then last question for me. Where do you stand having a normalized assortment is some of the supply chain issues that have been experienced?

Tucker H. Marshall — Chief Financial Officer

Ryan, we continue to focus on our two things. One is advancement of our strategy and a component of advancing the strategy is our portfolio reshape and a component of the portfolio reshape is making sure that we have the right SKUs and order to advance the given brand or category and that we would eliminate any un-performing or non-performing SKUs, and so that remains consistent in any financial plan. And then I would say beyond that, we do continue to look at our inventory levels from a working capital standpoint so that we can continue to ensure that we have the right level of raw material and finished good and support of our supply chain, but also in support of our customers and consumers. And so those are two areas where we continue to focus on in the near-term. But right now, we feel very comfortable with the assortments that we have behind the business.

Ryan Bell — Consumer Edge Research — Analyst

Great, thank you.

Operator

Thank you. I will now turn the floor back over to management to conclude.

Mark T. Smucker — President and Chief Executive Officer

Thank you for your time and interest in our call this morning. We do remain confident in our strategy and the delivery of our business, the underlying fundamentals and the fact that we are still able to continue to invest in our business to ensure that we deliver against our strategy. So we hope that many of you will be able to join us virtually for our presentation at the Barclays Global Consumer Staples Conference in a couple of weeks, and hope everyone has a great day and good weekend.

Operator

[Operator Closing Remarks]

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