Good morning, and welcome to The J.M. Smucker Company's Fiscal 2021 Fourth 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 questions and answers after the prepared remarks. Please limit yourself to two questions during the Q&A session, and re-queue if you have additional questions. I will now turn the conference over to Aaron Broholm Vice President, Investor Relations. Please go ahead, sir.

Good morning, and thank you for joining us for our fiscal 2021 fourth quarter earnings conference call. In a moment, Mark Smucker, President and CEO will give an overview of the quarter's results and an update on our strategic initiatives. Tucker Marshall, our CFO, will then provide a detailed analysis of the financial results and our fiscal 2022 outlook. During today's call, we will make forward-looking statements that reflect our current expectations about future plans and performance. These statements rely on assumptions and estimates and actual results may differ materially due to risks and uncertainties. I encourage you to read the full disclosure concerning forward-looking statements in this morning's press release, which is located on our corporate website at jmsmucker.com. We also posted a slide deck summarizing the quarterly results, including additional information regarding net sales by segment and cost of products sold for fiscal 2021. Included in the slide deck are schedules summarizing net sales, excluding divestitures for fiscal years 2019 through 2021. The slides will be archived on our website along with a replay of this call. Additionally, please note we use non-GAAP results to evaluate performance internally, as detailed in the press release. If you have additional questions after today's call, please contact me. I will now turn the call over to Mark Smucker.

Thank you, Aaron. Good morning, everyone, and thank you for joining us. Fiscal 2021 was a year like no other. In the face of unprecedented challenges, we delivered outstanding results. Moreover, we believe the business is at an inflection point and we are delivering against our strategic and executional plans. We are emerging from the pandemic, along with recent strategic actions, a much stronger company. From the outset of the pandemic, we prioritized the well-being of our employees, funded relief activities for our communities and produced a record amount of products for consumers and their pets. Our people are resilient and moved with speed and agility to adapt our business, all while executing our consumer-centric growth strategy and making progress toward our four execution priorities; these are, driving commercial excellence, streamlining our cost infrastructure, reshaping our portfolio, and unleashing our organization to win. These priorities are essential to position our Company for sustainable long-term growth. I'll first share some examples of the progress we are making toward our priorities before turning to a few highlights from the fourth quarter and our fiscal year 2022 outlook. Our first execution priority is driving commercial excellence. Throughout the past year, significant changes in our industry demand a rethink of CPG commercial models. We adapted our approach to deliver what customers' and consumers' need and want more efficiently. These changes included standing up a new sales model with two distinct teams; one focused on pet and the other on our Consumer Foods and Coffee businesses. The benefits from improved in-store execution and leveraging insights combined with additional advertising and improved reach through new digital media models have been a driving factor for our market share gains. Our new commercial delivery model also includes an increased focus on e-commerce, which, for the full year, accounted…

Thank you, Mark. Good morning, everyone. I'll begin by giving an overview of fourth quarter results which finished above our expectations. Then, I'll provide additional details on our financial outlook for fiscal 2022. Net sales decreased 8%. Excluding the impact of divestitures and foreign exchange, net sales decreased 3%. This was primarily driven by unfavorable volume mix due to lapping the prior year stock-up during the beginning of the pandemic, most notably for pet food and our Canadian baking business. Higher net price realization was a 1 percentage point benefit, primarily driven by peanut butter and our pet business. Adjusted gross profit decreased $79 million or 10% from the prior year. This was mostly driven by unfavorable volume mix, the non-comparable impact of the divested businesses and higher costs, partially offset by the higher net pricing. Adjusted operating income decreased $120 million or 28%, reflecting the decreased gross profit and higher SD&A expenses. The increase in SD&A expense was primarily driven by increased marketing investments and incentive compensation, partially offset by reduced selling and distribution costs. Below operating income, interest expense decreased $3 million and the adjusted effective income tax rate was 23.3% compared to 23.4% in the prior year. Factoring all this in along with share repurchases that resulted in a weighted average shares outstanding of 108.9 million, fourth quarter adjusted earnings per share was $1.89. I'll now turn to fourth quarter segment results beginning with U.S. retail pet foods. Net sales decreased 12% versus the prior year. Excluding the non-comparable net sales for the divested Natural Balance business, net sales decreased 6% versus the prior year. Net sales grew at a 2% CAGR on a two-year basis, excluding the divestiture. Dog snacks continue to perform well, decreasing just 1% in the fourth quarter after a growth of 12%…

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

Good morning, everybody. Thanks for the question.

Good morning, Andrew.

To start off, maybe with the inflation outlook, it's not surprising that your '22 guidance leans more heavily on the sales growth rather than the margin to kind of reach your EPS targets. Do you see the expectation for organic sales growth in '22 as a target with maybe the appropriate level of conservatism built in? And if so, sort of what underpins your confidence in this outcome given the comparisons and the still weaker performance in pet that you're still working on sort of turning around and things of that nature? And then I've just got a follow-up. Thanks.

Andrew, good morning. You are correct. On a comparable net sales basis, we are intending on being up about 2% at the midpoint of our guidance range. That growth is predominantly driven by the benefits of higher net price realization that we will see in the second quarter and beyond for the balance of the fiscal year. But underlying that, we do see some organic growth through our portfolio. As you think about the continued momentum of the Uncrustables brand within the consumer business, as you think about the advancement of both Cafe Bustelo and Dunkin' in coffee and then you also think about the performance of our pet snacks business within the pet portfolio, and then we are anticipating on seeing a return of growth within the away-from-home business which we experienced in the fourth quarter. And then, I would also share that despite the continued at-home consumption that we intend to experience, we are also factoring any deceleration there as well that is factored into our top line along with some price elasticities due to the increase that we are taking throughout the portfolio on the price front. So, that's how we're seeing the composition of the top line at this point. I'll pause and see if Mark has anything else from a strategic front.

I think Tucker answered that very well.

Great. And then, you mentioned planning for elasticities and such, and I think you had mentioned that in terms of the balance -- in terms of the organic sales growth you expect between price and volume that, it will be primarily pricing, which makes sense given the actions that you've taken but that suggest that you still do you expect, I guess some -- even though it might be very modest, sort of volume improvement in '22 as well on an organic basis. Did I -- am I hearing that correctly? I just want to make sure.

Andrew, I think if you work through the math what you'll find out is that the pricing -- the price increase that is being taken is being reduced by some down volume on a year-over-year basis, because of factoring in the deceleration and increased at-home consumption, along with the potential price elasticity assumption that we've made there. So when you look at volume, mix, other, we would intend for that to be down in a low single-digit basis.

Great. Thanks so much to everybody.

Thank you.

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

Hi, good morning.

Good morning.

Hi, I had just two questions for you. I didn't want to ask about your ability to rebuild inventory as it's something you've been and the industry has been kind of chasing here throughout the past year. Can I just to get a sense of maybe where those stand and then if you expect those to rebuild back to let's call it normal levels, in line with your sales by the end of the year?

Hey Chris, this is Mark. Thanks for the question. I have been incredibly proud of this team and how they've been managing through the supply challenges of the past 16 months or so. I think we have fared very well in the scheme of things in just -- just in terms of our supply meeting demand. It has not been easy. But again, I think we have continued to perform reasonably well. It will take us the better part of the front half of the year for our inventories to get back to what we would consider sort of normal levels. But again, just managing the supply-demand dynamics on a daily, if not hourly, basis has really allowed us to perform.

Okay, thank you. And then just one other question I have for you, which is in relation to your expectation for SD&A costs to be down 4% for the year, that's a little bit more than decline in sales. What I'm trying to ultimately get to is that you have that cost savings program in place for this year, you talked about some restructuring and some things -- some lower cost coming through there. Is that -- so that $50 million number that we were looking at before, is that primarily coming through SD&A or is that also flow through in cost of goods sold? Just to understand kind of where those costs are coming through and is that still a good number for lower cost for the year?

Chris, as you think about the SD&A change year-over-year and the decrease, that's primarily driven by our ongoing cost and margin management programs, inclusive of our organizational realignment. And so you would see a portion of that $50 million come through. That is also inclusive of us continuing to sharpen the pencil on our marketing spend, not only from a non-working perspective, but also from a timing of marketing spend, where we spend a bit more in the fourth quarter. And so that's what you're seeing coming through. And then lastly, I would just acknowledge that we did have an incentive compensation reset as well year-over-year due to the strong performance in FY '21.

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

Hi, good morning. Thank you.

Good morning.

One of the questions I'm getting today is, if your expectation for volume and mix is may be slightly optimistic for this year? I think you said to expect it to be down low-single digits. But when I look at it, you're guiding to a pretty big increase in Uncrustables, maybe over $100 million. That adds, again very rough math, 1.5% or so to your volume. And that, I guess, would imply that the rest of your business will be down maybe closer to mid-single digit, which doesn't really seem that aggressive to me. So, I just wanted to make sure that I'm thinking about that math in the right way that really for coffee and pet and everything excluding Uncrustables, you are kind of considering something in that low maybe closer to mid-single digit volume mix decline for this year?

Yes. Ken, I would break it down this way and maybe just take it by each of the businesses to help you -- answer your question, I think in consumer, what we are seeing is continued growth across the Uncrustables brand as you've noted. I think what you're seeing is, continued momentum in the spreads business, but that should be down year-over-year just due to the lapping of the unprecedented year. And then, you come into the coffee portfolio, we should continue to see growth and strength in the Cafe Bustelo and Dunkin' Brands, but you will see a deceleration in the Folgers brand because of just the intense stock up in consumption throughout the year. But we still believe in the strength of that brand and its underlying performance. As you come into the pet category, we should continue to demonstrate growth in pet snacks across that portfolio and then continue to work through the performance not only on Meow Mix and its delivery, but also in the stabilization of just the overall dog food portfolio. And so, what we have thought about in crafting the volume/mix side of this is; is just one, the year-over-year impact of just deceleration and at-home consumption. What we've also considered is, is how we can continue to advance the momentum in the business due to what we've captured through the pandemic. And then lastly is that we just acknowledge that we've had to take into effect some price elasticities as we've taken pricing across basically the entire portfolio. And then lastly, I don't want to leave out the Away From Home or Canadian businesses, but we intend, particularly for Away From Home to come back to growth. We're kind of anticipating that growth return to get to kind of 80% to 90% of pre-pandemic levels.

Okay. That is helpful. And then my follow up is also on Uncrustables, probably because that's where my model was most off. But Mark, you talked about Uncrustables, you gave some numbers. I think a $130 million in the quarter, $400 million for the year. You mentioned these numbers, I think in the context of your retail consumer segment. I just wanted to confirm though that these are figures for the entire business, right, including international and Away From Home? So if that's the case, can you remind us what the rough breakout is of those sales in that consumer business versus Away From Home? Thank you for that.

Yes, you're right, Ken. It is the total Uncrustables business, those numbers, and it's approximately a 70-30 split between retail and Away From Home. We continue to bring new capacity online to make sure that we're meeting demand, so that's why we continue to have a lot of optimism around that brand.

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

Great, thanks so much. So, I guess first question I have is just on the trade. I think, Mark, you had mentioned or maybe it was Tucker, part of the offset of the cost inflation is reduced trade. I'm just curious if you could provide some color as to kind of how you -- how you view the trade spend environment currently, just kind of given what seems to be kind of a light year last year vis-à-vis cost inflation? So if you would be, let's say, spending a bit less on trade, do you kind of believe then it's likely that the industry itself is kind of headed that way this year just given other costs? Then I have a follow-up.

Hey Rob, it's Mark. The trade environment as we see it is generally returning to normal. I would remind you guys that trade is one of the levers we use for pricing. And depending on our underlying costs and where our trade levers are, we could use that lever in our pricing actions. But you will see net pricing across almost all of our categories come through likely in the second quarter as a lot of our pricing actions will be taking effect in July. But for the most part, the trade environment is not dissimilar from what it has been historically.

Okay, fair enough. And then, Tucker, more of a housekeeping question, but feel like I need to ask. It looks like what's implied in the EPS guidance is kind of a sizable derivative gain. So maybe if you could -- and I just didn't hear you touch on that in the prepared remarks. Maybe if you could just kind of touch on what that is? And then kind of given how those gains are recorded, is there volatility potential in that gain or is sort of what you wind up seeing as of April-end fiscal '21 essentially booked for '22? And that's it, thank you.

No. Rob, good morning. And again, I appreciate the question. Candidly, we've gotten it from some others. So hopefully it helps clarify for the whole group. What likely you've read in the press release and our supplemental pages in the back is our reconciliation table and when we have the line item that says derivative gains and losses, that is not a new line item in our guidance table. It has been a consistent approach over the years. And what we attempted to do this year was improve the financial reporting disclosure on that line item. So, I would encourage you and others to read the footnote there that fully describes what that line item is, and again, its consistency overtime. But more specific to your question, you're likely referring to the $0.43 benefit. What that is, is it's unallocated derivative activity both hedging gains and losses that are held at corporate that will ultimately be released during the upcoming financial period in order to match a future cost. And so, those two items go hand in hand in order to deliver the guidance range of $8.70 to $9.10.

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

Hey guys, good morning. Thank you for taking the questions.

Good morning.

Just -- Tucker, just want to marry some of the comments you made around the 1Q EPS decline of around 20% to the guidance on gross margins. Just, am I thinking about it right that the 85 basis points for the year of gross margin decline, you should see something on the order of, I don't know, 200 basis points to 250 basis points decline in the first quarter, then?

Yes. So, maybe just pulling up for a second, what we are experiencing in the delivery of our fiscal year this year is two components of timing. The first component of timing is that we are seeing inflationary costs impacting the entire fiscal year with the predominance, almost 60% of that impact, occurring to us in the front half of the fiscal year or the first half of the fiscal year. But more importantly, in the first quarter is the predominance of that. And we have taken pricing action that will be reflected in the month of July, but really is having a three quarters impact. And so as a result of that, 60% of the pricing benefit that we're seeing is really coming in the back half of the fiscal year. And so, as a result of that, matching of the cost and the price recovery you're seeing the impact on the gross profit margin, not only for the first quarter, to your point, but also for the front half of the fiscal year, with improvement in the back half of the fiscal year. And so, to your point, you will see the gross profit diminution in Q1 and to some extent in Q2 and then you'll see the recovery in Q3 and Q4.

Got it. No, that's very helpful. Thank you. And then just, the second question on the topic of share repurchase, just given where the leverage profile sits and the cash flow that you're still expecting to generate this year. From a timing standpoint, should we be thinking about once you're through maybe some of the cost headwinds that would be how you would think about evaluating share repurchase or just give us any kind of additional color there would be helpful? Thank you.

Yes. So, share repurchases are definitely one component of returning cash to shareholders. But I think where we're seeing the near-term priority is; one, continuing to invest through capital expenditures in support of growth of brands like Uncrustables among others; two is, increasing the quarterly dividend; three is, continuing to pay down debt in order to maintain our leverage profile of around 2.5 times. And then, where we don't have strategic opportunity either through capital spending or through acquisition opportunities, we would then look at share repurchases as another form of returning cash to shareholders. So, hopefully that gives you a context of the upcoming priorities. But again, we are committed to that balanced capital deployment model

Thank you. Our next question today is coming from Laurent Grandet from Guggenheim. Your line is now live.

Hey, good morning, everyone, and thanks for the question. So first, I do have a follow-up regarding the guidance. So, on the two-year stack, I mean '21, '22, it seems like about 3% [ph] plus organic growth average. So it's way better than pre-COVID. So I'd like to understand specifically for '22, I mean if you can give -- be more granular in terms of what's coming from the inventory rebuild. You said it would be in the first half, what could be coming from more elevated and ad hoc sales -- and ad hoc consumption, sorry, and then market share gains. I mean, you said 55% of your business is gaining share. So if you can give us some kind of buckets as to where the growth is coming from or the outperformance is coming from? Thanks.

Laurent, good morning. So, we did note that on a two-year stacked basis, looking at FY'22 guidance at the midpoint versus FY'20, we'd anticipate the total company to kind of be on a 3% to 4% compounded annual growth. And when we think about that, what we're seeing here is, and again, without decomposing every component is, one is the benefits of higher net pricing that are coming through this fiscal year, primarily to offset increased input commodity costs. We are also seeing the continued benefit of the momentum across the various elements of our business that I've spoken to, whether it'd be Uncrustables or advancing Dunkin' and Cafe Bustelo or the advancement of cat food. And then, as Mark spoke on the inventory front, we will continue to work to get to the right inventory levels, both within our infrastructure and also within our customers and we will continue to do that over time. But I think the first half of the fiscal year, inventory levels will still be pretty lean, just as we work through supply chains that continue to remain a bit tight but yet are still working supply chain. So that's kind of how we're thinking about that growth on a two-year stacked basis. I might just share that we are seeing performance coming through on that two-year stacked basis across the predominance of our U.S. retail businesses, all three, along with a return to growth in the Away From Home business. But again, it won't be at a 100% pre-pandemic levels by the end of this year and continued momentum in the international business as well.

Thanks. And then, more specifically on the pet food business. So, you mentioned clearly the benefit of having a specific organization focused on pets. So like to understand what are you gaining there in term of execution? Is additional displays? Is it better shelf space? If you can be a bit more explicit about what's you are getting from having a specific -- dedicated kind of organization there? And then if I may, on Rachael Nutrish, still kind of the weak brand of your portfolio in pet food. Where are you in the turnaround of that brand?

Laurent, it's Mark. So, first of all, as it relates to taking on two sales forces, which has been a great decision, if I do say so myself, because it really provides focus. And it allows our teams and businesses to really focus on the unique dynamics of the pet category and the pet consumer which is we refer to as a pet parent and the way they shop the category. So I won't go into specifics on the specific wins. But we're already seeing a higher degree of focus, a stronger degree of strategic engagement with our customers because as you know, they think about pet as a separate category as well. And so, our engagement with our retail customers is really critical and we're already starting to see the benefit of that. Our pet strategy, you will recall is focused, first and foremost, on pet snacks, the premiumization of Milk-Bone, the launch of other new products in snacks under the Meow Mix and Nutrish brands. So continuing to push out our leadership position in snacks. We have a number two position in cat and we will continue -- we've had good performance over the course of the year in Meow Mix and we will continue to support the brands in cat through traditional means as well as innovation. And then, in our dog portfolio, we continue to focus on the stabilization of the Nutrish brand, which is going reasonably well, expecting some modest growth overtime on that brand. But Nutrish for us is really a total master brand strategy. So it is not just dog food. It is snacks as well as cat and wet dog as well. And so making which -- in those cases those segments, we would expect to grow faster than our dry dog food on Nutrish. So snacks first, then cat, and then stabilization of our dog food portfolio is really where we're going to be focused going forward.

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

Hey, good morning folks. Thanks.

Good morning.

Just to make sure I've got my head wrapped around that derivative gains properly. Effectively it is benefits you have from hedge positions that give you some cost shelter this year where it looks like it adds up to around $60 million, but effectively it's the benefit that we shouldn't expect to recur again in fiscal '23. Do I have that right?

That is correct. But the one comment I would make to that is, is we will continue to layer on hedging and risk management strategies in preparation of planning for FY'23 in order to deliver FY'23. So the "bucket" never really goes to zero, right. You always have your hedging activity that comes through there at corporate and then will get allocated when it's realized against -- when it's realized against the cost. And so, what I don't want to assume that it's a one-time anomaly, it's not. If you rewind to a year ago, roughly today, you would see a very similar line item in our press release then too. Now sometimes, it's a gain; sometimes it's a loss. Like it's just -- it's depending upon the underlying strategy against the underlying cost that's embedded in your P&L.

Sure. I think the only difference between last year and this year is the parenthesis. I believe last year you put the parenthesis around gains suggesting that you were backing out gains and this year you moved it to losses suggesting you're adding back gains, which is where I think it's a little confusing, because it looks optically like you've actually flipped higher accounting for these things from one year to the next and it's obviously a fairly material benefit this year?

It was more to improve the presentation and hopefully the readability for all users of our press release inclusive of bringing a little bit more symmetry or comparability to our Form 10-K. So it was something that we did on our financial reporting front and is not a mechanic change.

Okay. One other question was about just the underlying components of the business. What are you guys expecting to happen with consumption of your products, when we get to this fall and presumably kids go back to school, people go back to work? Are you assuming that baseline consumption rolls over or do you think what we see today is barely reflective of what we can see later this year and into next?

Yes, Jason. The first thing I would say is, we spent a tremendous amount of effort this past year, making sure that we come out of this pandemic a stronger company. And so, that really means that focusing on the actions that we are taking and whether that's ensuring that we can retain as many of the new consumers as we gained, ensuring that we can continue to invest in marketing and in those areas where we're going to see the most growth and ensuring that we can engage with the new consumers and the proof points thus far have been that we have continued to see solid share gains as well as repeat purchase. The external factors and tailwinds that are going to continue to help us is, see, our expectation and what you're seeing across industries is that folks are not going back to work in the way they once did. So, there is going to be some hybrid approach. Our own company is no exception of how often folks are physically in an office versus at-home. And people are going to be spending more time at home, which means they're going to be treating their pets more. And in particular because we're in -- our coffee and consumer categories are focused primarily on breakfast and lunch, those two eating occasions are going to -- are going to continue to take place at home at a more elevated pace. So we think those tailwinds are going to continue to help you know more pet households, and just more people brewing coffee at home are just a couple of examples of -- on how we should continue to benefit from some of those external tailwinds.

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

Hi, thanks. Questions have been largely asked. But did you consider the benefit to consumer spending at grocery for the first five months of this year from all the government stimulus and also the SNAP benefits being unusually high. You're not alone in terms of packaged food companies that have -- sales have exceeded expectations for the first five months of the calendar year. And I'm just wondering if you think that was a factor. And if so, would it present more difficult comparisons when we're thinking about the first five months of 2022? Thanks.

Rob, it's a very good question and it's one that we've consider across our portfolio. And an example that I would use is, in coffee, right. We assume that we would have continued at-home consumption trends through the first half of the year and then it would slow down a little bit. And it's not only due to the government stimulus, but it's also due to the new -- the new lifestyle or habits or migration patterns of consumers, right. They'll balance not only working from home in a remote environment, they would go back to an office environment. So that would be one example that we did factor in. So, I guess what I would say from a planning perspective is, is that before we dove into the -- all the mechanics of the financial plan, we step back and made some assumptions around macroeconomic impacts or just overall sort of social impacts and those were considers.

Okay. And I've got one more question. I was little unclear if you were guiding to sales growth for all of your segments in fiscal '22 or whether some are expected to grow and some are expected to decline a little bit, like maybe coffee declined a little bit? I was unclear.

Yes. So, don't have the sheet right in front of me, but what we have anticipated -- just let me pull it here and I'll look it up for you, Rob. Thank you. What we have anticipated is, on a full year basis, we would see growth across pet. We'd probably see some stability across coffee. On the consumer side, you would see some growth as well. And then in your international and Away From Home, you would also see some growth due to the return of the Away From Home segment. The pet and consumer growth that we're talking about is -- again it's low-single-digits. The coffee, as I've noted, is consistent year-over-year. And you think about the international, Away From Home segment, that's probably in a mid-single digit plus just due to that recovery in Away From Home. And I would just acknowledge as the footnote there is, that's all on a comparable basis, excluding the impact of the divestiture activity year-over-year.

Sure. Okay, very helpful. Thank you.

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

Good morning, everyone.

Good morning.

Good morning.

Okay. So a couple of questions from me. First of all, on the coffee side of the business, the coffee input cost inflation seems to be -- or it's picked up, I guess a bit, since last quarter. You mentioned that you're not expecting much growth overall in sales. That means, I suspect that pricing will be up fairly meaningfully but volumes will be down fairly meaningfully. Does that mean that we should expect margins to come down reasonably sharply to maybe more normal long-term course in there [ph]? And are you getting a read that competitors will match those price increases or is it too early to tell? And then I have a follow-up.

Alexia, why don't I just talk a little bit about the -- maybe the trend in coffee to some of the cost and margin comments you made, and then Mark can talk a little bit more about the pricing component or dynamic. But we still, at big picture, remain committed to that, greater than 30% coffee margins at the segment level. We anticipate seeing a minor deceleration year-over-year, but still staying at pretty strong margins in coffee on a full year basis. But as I noted in some of my prior comments, there is a bit of timing of the pricing actions that we're taking that will really be effective in the month of July and kind of realized in Q2, Q3 and Q4 against the cost structure that's coming right in front of us in Q1. And so, you likely will see a pretty substantial margin decline in coffee in the first quarter with a nice rebound in the second, third and fourth quarters. But again, still supporting that low-30% on a year-over-year basis. So, I'll pause there and hand it to Mark just on the pricing front.

Yes. Alexia, as you know, coffee is a pass-through category. And so we'll pass through cost to customers and consumers either up or down. And so we've -- that has always been the case as long as we've been in the coffee business. Of course, we have a very robust hedging strategy. We are constantly using whatever instruments that are at our disposal to ensure that the delivered cost is consistent with how we plan the business. And then, I guess the only other comment I would make about coffee is we have been very successful in our strategy to ensure that our portfolio tracks with the category. In other words, the growth of Dunkin' and Bustelo has been phenomenal and that was -- that's been intentional because we know that there has been continued premiumization. And then, of course, the shift to single serve or K-Cups, our brand outperformed the category in this last quarter. And so, we feel very good about where the total portfolio is positioned. And then some of the reinvigorating efforts that are coming on Folgers in the back half of the year should continue to help our total coffee business.

Great. And then, in the prepared remarks, you talked about having maybe something of an appetite for more deals and possible acquisitions. Can I ask which categories are you fitting in and what are the criteria that you'd be using to evaluate those?

Thanks for the question, Alexia. It starts with finding the right brands at the right price and we obviously want to be prudent in terms of the multiples that we're paying for any acquisition. Our lines are, if you will, continue to be in the water and we do continue to look at assets as they come available. We've clearly done -- have been very proactive in terms of reshaping our portfolio most recently with these two divestitures. We will continue to be committed to the three categories that we are in and to the extent that we can continue to take leading positions in those three categories, we will do so. And, as it relates to other categories, I think we wouldn't comment on potentially new categories other than to say, if there are categories that are growing and have attractive assets, we will consider them.

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

Good morning. I just wanted to build on Alexia's question about pricing. And I guess more broadly beyond coffee, can you give us a sense for the magnitude of list price increases by category and what assumptions you're making about the competitive response? And I guess how accommodating have retailers been to your planned list price increases?

Why don't I go ahead and get started here? Good morning. What we are seeing is high-single digit to double-digit specific commodity cost increases year-over-year, so the actual given commodity or unit, which is translating into a mid-single-digit increase in our total cost of goods sold, which is then, on average, looking like a low to kind of mid-single-digit price increase at the top line on average. I don't know that we're going to break it down by the given categories but I'll pause Mark and just see if there's anything to add, just on the pricing front.

Yes, Pamela, I would just add that, you know, pricing is something that we're always managing. It's part and parcel to our business. We have seen inflationary pressures throughout the last year really starting as far back as April of 2020. And so it's a critical component of our business. We feel that managing through the inflation and the pricing is manageable and in order to do that we've got to continuing to partner with our retail customers, making sure that those -- the cost recovery is justifiable and that at the end of the day it's a win-win for them as well. So, very comfortable with the actions that we need to take, and obviously built in some reasonable assumptions into our plans for the year-end guidance.

Great, thank you. And can you give an update on e-commerce penetration by segment? What are you embedding in your guidance for e-commerce growth? Given the strong growth last year, would you expect to see some shift back in store or e-commerce to continue to build on top of last year's performance?

Yes, it's Mark again, Pamela. 12% was the number I think in the script -- the scripted comments in terms of how much of our business is on e-commerce. It definitely skews towards pet and then coffee would be a second, not a close second, but a second. And again, thinking of e-commerce as both pure play as well as the click-and-collect model. We continue to focus on the profitability of that business through price pack architecture and things like that, but do not expect that consumers will return to brick-and-mortar purchases for those who have already made the migration to e-commerce. We believe that that migration is here to stay.

Right, thank you.

Thank you. We've 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.

Thank you. Thank you to all of you for taking the time today. We're incredibly proud of our performance for the fourth quarter and the year and continue to have optimism moving forward, obviously focusing strongly on ensuring that we have emerged from this pandemic a stronger company with some very keen priorities and capabilities, and just appreciate the support. And really, thank you to our employees for their delivery in this record year. Have a great weekend.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.