EPS of $-0.23 decreased by 112% from previous year
Gross margin of 39.0%
Net income of -24.50M
"“We are anticipating flat coffee sales.”" - Tucker Marshall
The J M Smucker Company (SJM) QQ2 2025 Results Analysis — Mixed Revenue Momentum with Margin Pressure and Strategic Levers in Pet, Coffee, and Snacking
Executive Summary
Smucker delivered a credible top-line performance in QQ2 2025 with revenue of $2.271 billion, up 17% year over year and 6.9% quarter over quarter, driven by strong demand in Uncrustables and the ongoing Hostess integration momentum. However, the quarter featured negative net income ($-24.5 million) and a mid-teens to low-20% gross-margin range in the near term for certain portfolios due to green coffee inflation and pricing actions, which weighed on profitability despite a solid gross profit of $886.1 million and a 39.0% gross margin. Management emphasized a disciplined approach to pricing, margin protection, and debt paydown, while signaling a constructive longer-term outlook anchored by Hostess synergies, continued Uncrustables growth, and a broader snacking recovery.
Strategically, Smucker is navigating through a multi-quarter transition: completing the Wortmann divestiture (impacting 2025 earnings by approximately $0.10 per share in the year, offset by debt reduction), realizing $100 million of cost synergies from the Hostess integration by FY2026 (split between FY2025 and FY2026), and expanding high-velocity SKUs (e.g., Uncrustables) with new product introductions and capacity expansion. Management remains confident in a base-business growth framework of roughly 2.5% to 3% for the year, with price versus volume balanced across segments.
Near-term guidance reflects ongoing coffee green-coffee inflation and pricing, with a stated expectation of flat coffee sales in Q3 and gradual improvement into Q4 as price actions take effect. The company also highlighted the resilience of the pet category in a cautious macro environment and the potential for later-stage benefits from divestitures to support deleveraging.
Net Income: $(24.5)M; net income margin -1.08% (YoY -112.57%, QoQ -113.24%), driven by non-operating items and interest, despite a solid gross margin beat.
EPS: $(0.23); diluted $(0.23) per share; weighted-average shares ~106.4–106.7M.
Financial Highlights
Revenue, profitability and cash flow in QQ2 2025 showed a mixed picture:
- Revenue: $2.271B, YoY +17.16%, QoQ +6.87% (four-quarter data shows strong top-line momentum).
- Gross Profit: $886.1M; gross margin 39.01% (YoY +22.36%, QoQ +11.15%).
- Operating Income: $169.7M; operating margin 7.47% (YoY -43.23%, QoQ -51.44%), reflecting ongoing cost pressures and mix effects.
- Net Income: $(24.5)M; net income margin -1.08% (YoY -112.57%, QoQ -113.24%), driven by non-operating items and interest, despite a solid gross margin beat.
- EPS: $(0.23); diluted $(0.23) per share; weighted-average shares ~106.4–106.7M.
- Cash Flow: Operating cash flow $404.2M; free cash flow $317.2M; net change in cash $9.7M; cash at end of period $49.2M.
- Balance Sheet: Total assets $20.02B; total liabilities $12.39B; total debt $8.38B; net debt $8.33B; equity $7.63B; liquidity metrics imply tighter near-term coverage (current ratio 0.58, quick ratio 0.27).
- Key leverage actions: Wortmann divestiture impact ~10c to 2025 earnings; debt-paydown plan of $300M from divestiture proceeds; Hostess cost synergies targeted at $100M by FY2026.
- Segments and portfolio dynamics: Strength in Uncrustables and pet-related products; near-term softness in coffee margins due to green coffee inflation; pet and sweet baked snacks contributing to offsetting strength in other areas.
- Guidance and outlook: 2025 EPS midpoint guided to $9.90 (from prior reductions and subsequent stabilization); the company reiterates a constructive longer-term view with 2026 EPS expected to exceed the long-term algorithm as deleveraging and synergies accrue.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
2.27B
17.16%
6.87%
Gross Profit
886.10M
22.36%
11.15%
Operating Income
169.70M
-43.23%
-51.44%
Net Income
-24.50M
-112.57%
-113.24%
EPS
-0.23
-112.04%
-113.22%
Key Financial Ratios
currentRatio
0.58
grossProfitMargin
39%
operatingProfitMargin
7.47%
netProfitMargin
-1.08%
returnOnAssets
-0.12%
returnOnEquity
-0.32%
debtEquityRatio
0.13
operatingCashFlowPerShare
$3.8
freeCashFlowPerShare
$2.98
dividendPayoutRatio
-467%
priceToBookRatio
1.58
priceEarningsRatio
-123.24
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Key management takeaways from the QQ2 2025 earnings call, grouped by themes:
- Strategy and growth initiatives:
• Mark Smucker: “We will be launching a big fantastic new marketing and advertising campaign in the new year, which we believe will be very relevant to consumers and really speak to the emotional connection to the brand.” (Strategy, Brand and Marketing)
• Ken Goldman question on Hostess synergies prompts a reaffirmation from Tucker Marshall: “We are still committed to $100 million of achievement by the end of our fiscal year 2026… we should be able to achieve that $100 million outlook even after completing the Wortman divestiture.” (Synergies and Execution)
- Portfolio and category dynamics:
• Tucker Marshall: “The base business is about two and a half to three [percent], and within that you’re probably equally split between volume mix and price on a full-year basis.” (Pricing vs. volume framework)
• Mark Smucker: “Snacking trends continue to remain positive across multiple categories.” (Market conditions)
- Near-term headwinds and hedges:
• Tucker Marshall: “We’re seeing ongoing green coffee inflation and the need to take a second round of pricing… coffee margins are expected to move from the low-to-mid 20s into the mid-20s and low-20s in Q3–Q4.” (Coffee pricing and margins)
• Mark Smucker: “We would like to emphasize that in coffee we will pass cost changes up and down as needed and manage the business to protect consumer value.” (Pricing discipline)
- Investor posture and milestones:
• Mark Smucker: “We’re looking at investor day on December 10 in New York City; a lot of discussion around strategic priorities and long-term growth.” (Guidance and investor engagement)
- Quotes to note for sentiment:
• “Execution across base fundamentals” and “display and distribution expansion” to drive Hostess results (Strategy and execution).
• “Discretionary nature of pet treating” discussed in the context of category demand and pricing promotions (Market dynamics).
“We are anticipating flat coffee sales.”
— Tucker Marshall
“We will be launching a big fantastic new marketing and advertising campaign in the new year, which we believe will be very relevant to consumers and really speak to the emotional connection to the brand.”
— Mark Smucker
Forward Guidance
Outlook and strategic trajectory for Smucker is anchored in a managed balance of pricing, volume, and portfolio optimization, with monetization of on-going synergies and divestitures:
- Near-term guidance: QQ2 2025 commentary supports a path to 2025 full-year EPS around $9.90 (midpoint), with the company highlighting flat to modestly positive top-line momentum in the back half and a focus on offsetting cost inflation through pricing and cost-reduction measures.
- Coffee pricing and elasticity: Management acknowledged green coffee inflation requiring pricing actions; margins in coffee are expected to compress into the low- to mid-20s in Q3–Q4 as price actions take hold. The company intends to pass through cost movements to preserve value while monitoring elasticity and consumer tolerance.
- Hostess synergies and portfolio rationalization: A $100 million cost-synergy target by FY2026 remains a core driver of margin improvement; execution improvements are expected to translate into stronger display, distribution, and co-promotions with legacy brands. The company also highlighted a plan for a packaging refresh and new value constructs (e.g., one-dollar packs) to bolster volume and mix.
- Divestitures and deleveraging: Wortmann divestiture is expected to contribute roughly $0.10 per share in 2025, offset by debt paydown of proceeds (estimated at $300 million), resulting in a roughly neutral to modestly accretive effect on earnings in the year.
- Growth catalysts and risk factors to monitor:
• Uncrustables demand momentum with capacity expansion and new products (e.g., Raspberry Uncrustable, peanut butter-only SKU) supporting a path toward $1B+ in revenue in 2026.
• Measured Meow Mix and dog/cat treat promotions amid broader pet-category volatility; macro consumer caution can temper near-term growth in discretionary snacks.
• GLP-1 weight loss drugs and related consumer trends: Smucker indicated no material current impact but will continue monitoring trends and pursuing relevant innovations to meet evolving consumer needs.
• Currency and input costs: Coffee input costs remain a key sensitivity; ongoing hedging and pricing discipline will be essential to sustain margins across the portfolio.
Summary: The investment thesis rests on leveraging Hostess synergies, accelerating Uncrustables growth, and maintaining disciplined pricing and cost-management to offset coffee inflation and pet-category dynamics. Investors should watch: (1) execution and distribution gains in Hostess and sweet baked snacks, (2) the pace of deleveraging post-Wortmann, (3) price realization in coffee and other high-input segments, and (4) the trajectory of Uncrustables toward the $1B revenue milestone by 2026.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
SJM Focus
39.01%
7.47%
-0.32%
-123.24%
CAG
26.50%
12.60%
3.23%
11.53%
K
36.40%
15.40%
10.40%
14.34%
GIS
36.90%
20.60%
8.65%
11.47%
HRL
17.40%
8.74%
2.40%
25.63%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Moderate-to-positive intermediate-term outlook predicated on robust top-line growth from Uncrustables and pet/snack categories, anchored by Hostess synergies and continued deleveraging post-Wortmann. The stock’s upside rests on delivering sustained margin expansion through pricing discipline, efficient cost management, and successful execution of growth initiatives. Key investor watchpoints include: (1) progression toward the $1B Uncrustables revenue milestone by 2026, (2) realization of Hostess cost synergies and broader category growth, (3) coffee margin stabilization via pricing and cost controls, and (4) debt reduction trajectory and liquidity management.
Key Investment Factors
Growth Potential
Growth is anchored in Uncrustables expansion (production ramp and new SKUs), Hostess synergies yielding 100M in cost savings by FY2026, and sustained momentum in pet treats. Key milestones include achieving $900M in Uncrustables revenue this year and aiming for >$1B by 2026, supported by capacity expansion and demand-generation marketing.
Profitability Risk
Key risks include continued green coffee inflation impacting coffee margins, potential weak consumer response to price increases, GLP-1 drug headwinds affecting snacking demand, competitive responses in pet and snack categories, and execution risk related to Hostess integration and the Wortmann divestiture timing.
Financial Position
Healthy operating cash flow generation (operating cash flow $404.2M; free cash flow $317.2M) supports deleveraging post-divestiture, but near-term liquidity metrics show pressure (current ratio 0.58) given total debt of $8.38B and limited cash balance.
SWOT Analysis
Strengths
Diversified portfolio across pet, coffee, and snack categories reducing exposure to a single end-market shock
Strong brand equity with Meow Mix/Milk-Bone, Folgers, Uncrustables, and Hostess co-branding opportunities
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