What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-29 compared with 2023-02-28 · 157 added, 201 removed, 160 unchanged (69% of the section changed)

1 unchanged sentence

(Dollars and shares in millions, unless otherwise noted, except per share data)

This discussion and analysis deals with comparisons of material changes in the unaudited condensed consolidated financial statements for the three and nine months ended January 31, 2023 and 2022.

This discussion and analysis deals with comparisons of material changes in the unaudited condensed consolidated financial statements for the three months ended July 31, 2023 and 2022.

All comparisons presented are to the corresponding period of the prior year, unless otherwise noted.

On April 28, 2023, we sold certain pet food brands to Post.

The transaction included the Rachael Ray Nutrish , 9Lives , Kibbles ’n Bits , Nature’s Recipe , and Gravy Train brands, as well as our private label pet food business, inclusive of certain trademarks and licensing agreements, manufacturing and distribution facilities in Bloomsburg, Pennsylvania, manufacturing facilities in Meadville, Pennsylvania and Lawrence, Kansas, and approximately 1,100 employees who supported these pet food brands.

Under our ownership, these brands generated net sales of $1.5 billion in 2023, primarily included in the U.S.

Retail Pet Foods segment.

Net proceeds from the divestiture were $1.2 billion, consisting of $683.9 in cash, net of a preliminary working capital adjustment and cash transaction costs, and approximately 5.4 million shares of Post common stock, valued at $491.6 at the close of the transaction.

We recognized a pre-tax loss of $1.0 billion upon completion of this transaction during the fourth quarter of 2023 within other operating expense (income) – net in the Statement of Consolidated Income, which is subject to the finalization of the working capital adjustment and cash transaction costs.

The net proceeds and pre-tax loss will be finalized during the second quarter of 2024.

Furthermore, during the first quarter of 2024, we began entering into equity forward derivative transactions under an agreement with an unrelated third party to facilitate the forward sale of the Post common stock.

As of July 31, 2023, approximately 1.1 million shares of the available 5.4 million shares of Post common stock were hedged under the contract.

Subsequent to July 31, 2023, all 5.4 million shares of Post common stock were hedged and will settle for $466.3 during the third quarter of 2024.

On January 31, 2022, we sold the natural beverage and grains businesses to Nexus.

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The transaction did not include Santa Cruz Organic nut butters, fruit spreads, syrups, or applesauce.

Under our ownership, the businesses generated net sales of $106.7 in 2022, primarily included in the U.S.

Retail Consumer Foods segment.

Final net proceeds from the divestiture were $98.7, which were inclusive of a working capital adjustment and net of cash transaction costs.

We recognized a pre-tax gain of $28.3 related to the natural beverage and grains businesses within other operating expense (income) – net in the Condensed Statements of Consolidated Income, of which $26.7 was recognized during the second half of 2022, and the remaining $1.6 was recognized upon finalization of the working capital adjustment during the first quarter of 2023.

On December 1, 2021, we sold the private label dry pet food business to Diamond Pet Foods.

The transaction included dry pet food products sold under private label brands, a dedicated manufacturing facility located in Frontenac, Kansas, and approximately 220 employees who supported the private label dry pet food business.

The transaction did not include any branded products or our private label wet pet food business.

Under our ownership, the business generated net sales of $62.3 in 2022, included in the U.S.

Retail Pet Foods segment.

Final net proceeds from the divestiture were $32.9, which were net of cash transaction costs.

Upon completion of this transaction during the third quarter of 2022, we recognized a pre-tax loss of $17.1, within other operating expense (income) – net in the Condensed Statement of Consolidated Income.

Final net proceeds from the divestiture were $98.7, net of a working capital adjustment and cash transaction costs.

We recognized a pre-tax gain of $28.3 related to the natural beverage and grains businesses, of which $1.6 was recognized during the three months ended July 31, 2022, within other operating expense (income) – net in the Condensed Statement of Consolidated Income, upon finalization of the working capital adjustment.

For additional information on these divestitures, see Note 4:

Divestitures.

We are the owner of all trademarks referenced herein, except for the following, which are used under license:

Dunkin’ is a trademark of DD IP Holder LLC, and Rachael Ray is a trademark of Ray Marks II LLC.

The Dunkin’ brand is licensed to us for packaged coffee products, including K-Cup ® pods, sold in retail channels such as grocery stores, mass merchandisers, club stores, e-commerce, and drug stores.

Information in this document does not pertain to products for sale in Dunkin’ restaurants.

Dunkin’ is a trademark of DD IP Holder LLC used under three licenses (the “Dunkin’ Licenses”) for packaged coffee products, including K-Cup ® pods, sold in retail channels, such as grocery stores, mass merchandisers, club stores, e-commerce, and drug stores, as well as in certain away from home channels.

The Dunkin’ Licenses do not pertain to coffee or other products for sale in Dunkin’ restaurants.

K-Cup ® is a trademark of Keurig Green Mountain, Inc., used with permission.

Trends Affecting our Business

The spread of the novel coronavirus (“COVID-19”) throughout the United States and the international community has had, and will continue to have, an impact on financial markets, economic conditions, and portions of our business and industry.

During 2022, we experienced significant input cost inflation and a dynamic macroeconomic environment, which we anticipate will persist through the remainder of 2023.

In addition, the higher costs required us to implement material price increases across all of our businesses in 2022, and we anticipate the price elasticity of demand will remain elevated during the remainder of 2023 as consumers continue to respond to broader inflation pressures.

During 2023, we continued to experience disruption in our supply chain network, including labor shortages and the supply of certain ingredients, packaging, and other sourced materials, which has resulted in the continued elevation of transportation and other supply chain costs.

It is possible that more significant disruptions could occur if the COVID-19 pandemic and certain geopolitical events continue to impact markets around the world, including the impact of e-commerce pressures on freight charges and potential shipping delays due to supply and demand imbalances, as well as labor shortages.

We also continue to work closely with our customers and external business partners, taking additional actions to ensure safety and business continuity and maximize product availability.

During the first quarter of 2024, we continued to experience a dynamic macroeconomic environment, which we anticipate will persist through the remainder of 2024, although with less volatility than experienced in 2023.

In addition, an increase in costs may require us to implement price increases across our business in 2024, and we anticipate the price elasticity of demand will remain elevated throughout 2024 while consumers continue to experience broader inflationary pressures.

Furthermore, in support of our long-term growth goals, we have introduced a company-wide transformation initiative to focus on deliberately translating our continuous improvement mindset into sustainable productivity initiatives to grow our profit margins and reinvest in our Company to enable future growth and cost savings.

It is possible significant disruptions in our supply chain could occur if certain geopolitical events continue to impact markets around the world, including the impact of potential shipping delays due to supply and demand imbalances, as well as labor shortages.

We also continue to work closely with our customers and external business partners, taking additional actions to ensure safety, business continuity, and maximize product availability.

We have maintained production at all our facilities and availability of appointments at distribution centers.

Furthermore, we have implemented measures to manage order volumes to ensure a consistent supply across our retail partners during this period of high demand.

Furthermore, we have implemented measures to manage order volumes to ensure a consistent supply across our retail partners during periods of high demand.

However, to the extent that high demand levels or the current supply chain environment continues to disrupt order fulfillment, we may experience volume loss and elevated penalties.

Although we do not have any operations in Russia or Ukraine, we continue to monitor the environment for any significant escalation or expansion of economic or supply chain disruptions, including broader inflationary costs, as well as regional or global economic recessions.

During 2023, the conflict between Russia and Ukraine primarily impacted the price of grains, oils, and fat-based products, which may continue to have an adverse impact on our results of operations during the remainder of 2023.

Overall, the impact of COVID-19 and the conflict between Russia and Ukraine, including broad-based supply chain disruptions and rising levels of inflation, remain uncertain and ultimately depend on the length and severity of the conflict and the pandemic, inclusive of the introduction of new strains of the virus;

the federal, state, and local government actions taken in response to the pandemic;

vaccination rates and effectiveness;

and the macroeconomic environment.

We will continue to evaluate the nature and extent to which COVID-19 and the conflict between Russia and Ukraine will impact our business;

supply chain, including labor availability and attrition;

consolidated results of operations;

During the first three months of 2024, we continued to experience high volatility in the price of grains, oils, and fat-based products as a result of the conflict between Russia and Ukraine, which may continue to have an adverse impact on our results of operations during the remainder of 2024.

Overall, broad-based supply chain disruptions and the impact of inflation remain uncertain.

We will continue to evaluate the nature and extent to which supply chain disruptions and inflation will impact our business;

results of operations;

financial condition;

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Results of Operations

Three Months Ended January 31, Nine Months Ended January 31,

2023 2022 % Increase (Decrease) 2023 2022 % Increase (Decrease)

Three Months Ended July 31,

2023 2022 % Increase (Decrease)

Net sales $ 1,805.2 $ 1,873.0 (4) %

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% of net sales 16.8 % 9.6 %

Net income $ 208.5 $ 69.7 n/m $ 509.4 $ 429.6 19

Net income per common share – assuming dilution $ 1.95 $ 0.64 n/m $ 4.77 $ 3.96 20

Net income $ 183.6 $ 109.8 67

Net income per common share – assuming dilution $ 1.79 $ 1.03 74

Adjusted gross profit (A)

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Refer to “Non-GAAP Financial Measures” in this discussion and analysis for a reconciliation to the comparable GAAP financial measure.

Three Months Ended January 31, Nine Months Ended January 31,

Three Months Ended July 31,

2023 2022 Increase

(Decrease) % 2023 2022 Increase

Net sales $ 1,805.2 $ 1,873.0 $ (67.8) (4) %

Private label dry pet food divestiture — (9.4) 9.4 — — (62.3) 62.3 1

Natural beverage and grains divestiture — (36.1) 36.1 2 — (106.7) 106.7 2

Pet food brands divestiture — (374.1) 374.1 20

Foreign currency exchange 3.8 — 3.8 —

Net sales excluding divestitures and foreign currency exchange (A)

Net sales excluding divestiture and foreign currency exchange (A)

$ 1,809.0 $ 1,498.9 $ 310.1 21 %

Amounts may not add due to rounding.

(A) Net sales excluding divestitures and foreign currency exchange is a non-GAAP financial measure used to evaluate performance internally.

(A) Net sales excluding divestiture and foreign currency exchange is a non-GAAP financial measure used to evaluate performance internally.

This measure provides useful information to investors because it enables comparison of results on a year-over-year basis.

Net sales in the third quarter of 2023 increased $159.2, or 8 percent, which includes $45.5 of noncomparable net sales in the prior year related to divestitures.

Net sales excluding divestitures and foreign currency exchange increased $211.9, or 11 percent.

Higher net price realization contributed a 15 percentage point increase to net sales, primarily reflecting list price increases for each of our U.S.

Retail segments and for International and Away From Home.

The favorable net price realization was partially offset by a 4 percentage point decrease from volume/mix, primarily driven by the U.S.

Retail Coffee segment.

Net sales in the first nine months of 2023 increased $329.3, or 6 percent, which includes $169.0 of noncomparable net sales in the prior year related to divestitures.

Net sales excluding divestitures and foreign currency exchange increased $516.9, or 9 percent.

Higher net price realization contributed a 15 percentage point increase to net sales, primarily reflecting list price

increases for each of our U.S.

Retail segments and for International and Away From Home, partially offset by the unfavorable impact of customer returns and fees related to the Jif peanut butter product recall.

The favorable net price realization was partially offset by a 6 percentage point decrease from volume/mix, primarily driven by the U.S.

Retail Coffee segment and manufacturing downtime related to the recall.

Net sales in the first quarter of 2024 decreased $67.8, or 4 percent, which includes $374.1 of noncomparable net sales in the prior year related to the divestiture of certain pet food brands.

Net sales excluding the divestiture and foreign currency exchange increased $310.1, or 21 percent.

Favorable volume/mix contributed 13 percentage points to net sales, primarily driven by Jif peanut butter due to lapping the impact of the product recall in the prior year, contract manufacturing sales related to the divested pet food brands, and coffee products.

Higher net price realization contributed 8 percentage points to net sales, primarily due to list price increases for our U.S.

Retail Pet Foods and U.S.

Retail Consumer Foods segments and for International and Away From Home and the favorable impact of lapping customer returns and fees related to the Jif peanut butter product recall in the prior year.

Operating Income

The following table presents the components of operating income as a percentage of net sales.

Three Months Ended January 31, Nine Months Ended January 31,

2023 2022 2023 2022

Three Months Ended July 31,

Gross profit 36.3 % 29.5 %

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Amortization 2.2 3.0

Other intangible assets impairment charge — 7.3 — 2.5

Other special project costs — 0.1 — 0.1

Other operating expense (income) – net (0.1) (1.4)

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Amounts may not add due to rounding.

Gross profit increased $72.7, or 11 percent, in the third quarter of 2023, primarily reflecting a favorable net impact of higher net price realization and increased commodity and ingredient, manufacturing, and packaging costs, inclusive of the unfavorable impact related to the Jif peanut butter product recall, partially offset by a lower contribution from volume/mix and the noncomparable impact of the divested natural beverage and grains businesses.

Operating income increased $167.3, or 111 percent, primarily reflecting the increase in gross profit and lapping of a $150.4 intangible asset impairment charge in the prior year, partially offset by a $44.9 increase in selling, distribution, and administrative (“SD&A”) expenses.

Our non-GAAP adjustments include amortization expense and impairment charges related to intangible assets, special project costs, gains and losses on divestitures, the change in net cumulative unallocated derivative gains and losses, and other one-time items that do not directly reflect ongoing operating results.

Gross profit increased $102.3, or 19 percent, in the first quarter of 2024, primarily reflecting a favorable net impact of higher net price realization and increased costs and favorable volume/mix, including the price and cost benefits from lapping the impact of the Jif peanut butter product recall.

The increase in gross profit was partially offset by the noncomparable impact of the divested pet food brands.

Operating income increased $123.8, or 69 percent, primarily driven by the increase in gross profit, a $30.2 decrease in selling, distribution, and administrative (“SD&A”) expenses, and a $15.8 decrease in amortization expense as a result of the divested pet food brands, partially offset by a $24.5 decrease in net other operating income, primarily due to lapping the prior year insurance recovery from the Jif peanut butter product recall.

Our non-GAAP adjustments include amortization expense and impairment charges related to intangible assets, special project costs, gains and losses on divestitures, the change in net cumulative unallocated derivative gains and losses, and other infrequently occurring items that do not directly reflect ongoing operating results.

Refer to “Non-GAAP Financial Measures” in this discussion and analysis for additional information.

Gross profit excluding non-GAAP adjustments (“adjusted gross profit”), primarily reflecting the exclusion of the change in net cumulative unallocated derivative gains and losses as compared to GAAP gross profit, increased $27.0, or 4 percent, in the third quarter of 2023.

Operating income excluding non-GAAP adjustments (“adjusted operating income”) decreased $20.3, or 5 percent, as compared to the prior year, further reflecting the exclusion of the prior year impairment charge.

Gross profit decreased $24.6, or 1 percent, in the first nine months of 2023, primarily reflecting a lower contribution from volume/mix and the noncomparable impact of the divested natural beverage and grains businesses, partially offset by a favorable net impact of higher net price realization and increased commodity and ingredient, manufacturing, and packaging costs, inclusive of the unfavorable impact related to the Jif peanut butter product recall.

Operating income increased $69.2, or 10 percent, primarily driven by the lapping of the prior year $150.4 intangible asset impairment charge, partially offset by a $71.3 increase in SD&A expenses and the decrease in gross profit.

Adjusted gross profit, primarily reflecting the exclusion of special project costs and the change in net cumulative unallocated derivative gains and losses as compared to GAAP gross profit, decreased $31.7, or 2 percent, in the first nine months of 2023.

Adjusted operating income decreased $82.0, or 8 percent, as compared to the prior year, further reflecting the exclusion of the impairment charge.

Gross profit excluding non-GAAP adjustments (“adjusted gross profit”), primarily reflecting the exclusion of the change in net cumulative unallocated derivative gains and losses, as compared to GAAP gross profit, increased $57.0, or 10 percent, in the first quarter of 2024.

Operating income excluding non-GAAP adjustments (“adjusted operating income”) increased $61.7, or 23 percent, as compared to the prior year, further reflecting the exclusion of amortization expense.

Interest Expense

Net interest expense decreased $1.6 and $6.2 in the third quarter and first nine months of 2023, respectively, primarily due to a net favorable impact of the repayment of Senior Notes and the issuance of debt in the prior year.

Net interest expense decreased $7.0 in the first quarter of 2024, primarily due to an increase in interest income, reflecting higher interest rates as compared to the prior year, and a decrease in interest expense related to our commercial paper program, as there was no balance outstanding as of July 31, 2023.

For additional information, refer to Note 7:

Debt and Financing Arrangements.

Income taxes increased $27.0, or 68 percent, in the third quarter of 2023, and increased $6.0, or 4 percent, in the first nine months of 2023, primarily due to the increase in income before income taxes, partially offset by a lower effective income tax rate of 24.3 and 23.9 percent for the third quarter and first nine months of 2023, respectively.

The 2022 effective income tax rates were 36.4 percent for the third quarter and 26.4 percent for the first nine months.

Income taxes increased $23.5, or 75 percent, in the first quarter of 2024, primarily due to the increase in income before income taxes and a higher effective income tax rate of 23.0 percent, as compared to 22.2 percent for the first quarter of 2023.

During both the current and prior years, the effective income tax rates varied from the U.S.

statutory income tax rate of 21.0 percent, primarily due to the impact of state income taxes.

The effective income tax rates for the three and nine months ended January 31, 2022, were also impacted by an unfavorable one-time deferred tax impact of an internal legal entity simplification.

We anticipate a full-year effective income tax rate for 2024 of approximately 23.9 percent.

The full-year effective income tax rate does not include the unfavorable impact related to the goodwill to be disposed with the anticipated sale of certain pet food brands, which is expected to close during the fourth quarter of 2023, subject to certain closing conditions, including the receipt of regulatory approval.

For further information, refer to Note 12:

Divestitures and Note 13:

Income Taxes.

Restructuring Activities

This is inclusive of certain restructuring costs associated with the divestitures of the Crisco, Natural Balance , private label dry pet food, and natural beverage and grains businesses.

For additional information related to the divestitures, see Note 4:

Divestitures.

During 2021, we substantially completed an organizational redesign related to our corporate headquarters and announced plans to close our Suffolk, Virginia, facility as a result of a new strategic partnership for the production of our liquid coffee products.

During 2022, we completed the transition of production to JDE Peet’s N.V.

Furthermore, the restructuring program was expanded during the third quarter of 2022 to include certain costs associated with the divestitures of the private label dry pet food and natural beverage and grains businesses, as well as the closure of our Ripon, Wisconsin, production facility to further optimize operations for our U.S.

Retail Consumer Foods business.

We completed the closure of the Ripon facility during the third quarter of 2023, as planned, and anticipate the remaining restructuring activities will be completed by the end of 2023.

We expect to incur total costs of approximately $65.0 associated with the restructuring activities, of which more than half of these costs are expected to be other transition and termination costs associated with our cost reduction and margin management initiatives, inclusive of accelerated depreciation.

The remaining costs represent employee-related costs.

We have incurred total cumulative restructuring costs of $60.2, of which $1.6 and $7.6 were incurred during the third quarter and first nine months of 2023, respectively.

Special Project Costs

A restructuring program was approved by the Board during 2021, associated with opportunities identified to reduce our overall cost structure, optimize our organizational design, and support our portfolio reshape, and was further expanded in 2022 to include the costs associated with the divestitures of the private label dry pet food and natural beverage and grains businesses as well as the closure of certain production facilities.

The restructuring activities were considered complete as of April 30, 2023.

The costs incurred associated with these restructuring activities included other transition and termination costs related to our cost reduction and margin management initiatives, inclusive of accelerated depreciation, as well as employee-related costs.

We incurred total cumulative restructuring costs of $63.7.

For further information, refer to Note 3:

Restructuring Costs.

Special Project Costs.

Segment Results

We have three reportable segments:

Retail Pet Foods, U.S.

Retail Coffee, and U.S.

Retail Consumer Foods.

Retail Coffee, U.S.

Retail Consumer Foods, and U.S.

Retail Pet Foods.

The presentation of International and Away From Home represents a combination of all other operating segments that are not individually reportable.

Retail Pet Foods segment primarily includes the domestic sales of Rachael Ray Nutrish, Meow Mix , Milk-Bone , 9Lives , Kibbles ’n Bits , Pup-Peroni , and Nature’s Recipe branded products;

Retail Coffee segment primarily includes the domestic sales of Folgers , Dunkin’ , and Café Bustelo branded coffee;

Retail Consumer Foods segment primarily includes the domestic sales of Smucker’s and Jif branded products;

Retail Pet Foods segment primarily includes the domestic sales of Meow Mix , Milk-Bone , Pup-Peroni , and Canine Carry Outs branded products.

International and Away From Home includes the sale of products distributed domestically and in foreign countries through retail channels and foodservice distributors and operators (e.g., health care operators, restaurants, lodging, hospitality, offices, K-12, colleges and universities, and convenience stores).

Three Months Ended January 31, Nine Months Ended January 31,

Three Months Ended July 31,

2023 2022 % Increase

(Decrease) 2023 2022 % Increase

Retail Pet Foods $ 758.6 $ 696.6 9 % $ 2,252.8 $ 2,046.2 10 %

Retail Coffee $ 625.1 $ 597.9 5 %

Retail Consumer Foods 464.0 311.1 49

Retail Pet Foods 441.0 729.0 (40)

International and Away From Home 275.1 235.0 17

Segment profit:

Retail Pet Foods $ 109.0 $ 95.7 14 % $ 349.4 $ 275.2 27 %

Retail Coffee $ 170.1 $ 145.9 17 %

Retail Consumer Foods 105.7 54.8 93

Retail Pet Foods 81.3 120.3 (32)

International and Away From Home 36.4 16.6 119

Segment profit margin:

Retail Pet Foods 14.4 % 13.7 % 15.5 % 13.4 %

Retail Coffee 27.2 % 24.4 %

Retail Consumer Foods 22.8 17.6

International and Away From Home 13.0 12.9 11.7 14.2

Retail Pet Foods 18.4 16.5

Retail Pet Foods segment net sales increased $62.0 in the third quarter of 2023, inclusive of the impact of $9.4 of noncomparable net sales in the prior year related to the divested private label dry pet food business.

Excluding the noncomparable impact of the divested business, net sales increased $71.4, or 10 percent.

Higher net price realization increased net sales by 16 percentage points, primarily reflecting list price increases across the portfolio, partially offset by a decreased contribution from volume/mix of 5 percentage points, primarily driven by decreases for cat food and dog snacks.

Segment profit increased $13.3, primarily reflecting a favorable net impact of higher net price realization and increased commodity and ingredient, manufacturing, and packaging costs, partially offset by higher marketing spend and the unfavorable volume/mix.

Retail Pet Foods segment net sales increased $206.6 in the first nine months of 2023, inclusive of the impact of $62.3 of noncomparable net sales in the prior year related to the divested private label dry pet food business.

Excluding the noncomparable impact of the divested business, net sales increased $268.9, or 14 percent.

Higher net price realization increased net sales by 17 percentage points, primarily reflecting list price increases across the portfolio, which was partially offset by a lower contribution from volume/mix of 4 percentage points, primarily reflecting decreases for cat food and dog food.

Segment profit increased $74.2, primarily reflecting a favorable net impact of higher net price realization and increased commodity and ingredient, packaging, manufacturing, and transportation costs, partially offset by the unfavorable volume/mix.

International and Away From Home 13.2 7.1

Retail Coffee

Retail Coffee segment net sales increased $73.3 in the third quarter of 2023.

Net price realization contributed a 19 percentage point increase to net sales, primarily reflecting list price increases across the portfolio.

Unfavorable volume/mix decreased net sales by 8 percentage points driven by the Folgers and Dunkin’ brands.

Segment profit decreased $9.4, primarily reflecting the unfavorable volume/mix, partially offset by a favorable net impact of higher net price realization and increased commodity and manufacturing costs.

Retail Coffee segment net sales increased $192.7 in the first nine months of 2023.

Net price realization contributed a 22 percentage point increase to net sales, primarily reflecting list price increases across the portfolio.

Unfavorable volume/mix decreased net sales by 11 percentage points driven by the Folgers and Dunkin’ brands.

Segment profit decreased $34.9, primarily reflecting the unfavorable volume/mix and higher marketing spend, partially offset by a favorable net impact of higher net price realization and increased commodity and manufacturing costs.

Retail Coffee segment net sales increased $27.2 in the first quarter of 2024, reflecting a 4 percentage point increase to net sales from volume/mix, primarily driven by the Folgers and Café Bustelo brands.

Segment profit increased $24.2, primarily reflecting decreased commodity costs and favorable volume/mix.

Retail Consumer Foods

Retail Consumer Foods segment net sales increased $1.1 in the third quarter of 2023, inclusive of the impact of $34.7 of noncomparable net sales in the prior year related to the divested natural beverage and grains businesses.

Excluding the noncomparable impact of the divested businesses, net sales increased $35.8, or 9 percent.

Net price realization contributed a 6 percentage point increase to net sales, primarily reflecting list price increases across the portfolio.

Volume/mix increased net sales by 3 percentage points, primarily driven by an increase for Smucker’s Uncrustables ® frozen sandwiches.

Segment profit decreased $5.4, primarily reflecting higher manufacturing and packaging costs, inclusive of costs related to the Jif peanut butter product recall, increased marketing spend, and the noncomparable segment profit in the prior year related to the divested natural beverage and grains businesses, partially offset by higher net price realization and the favorable volume/mix.

Retail Consumer Foods segment net sales decreased $132.4 in the first nine months of 2023, inclusive of the impact of $101.8 of noncomparable net sales in the prior year related to the divested natural beverage and grains businesses.

Excluding the noncomparable impact of the divested businesses, net sales decreased $30.6, or 3 percent.

Volume/mix decreased net sales by 6 percentage points, primarily driven by downtime related to the Jif peanut butter product recall and decreases for fruit spread products, partially offset by an increase for Smucker’s Uncrustables frozen sandwiches.

Net price realization contributed a 4 percentage point increase to net sales, primarily driven by list price increases for the Smucker’s brand, partially offset by declines for Jif peanut butter, inclusive of the unfavorable impact of customer returns and fees related to the recall.

Segment profit decreased $80.0, primarily reflecting higher commodity and ingredient, manufacturing, and packaging costs, inclusive of costs related to the recall, the impact of the noncomparable segment profit in the prior year related to the divested natural beverage and grains businesses, and the unfavorable volume/mix, partially offset by higher net price realization and lower marketing spend.

Retail Consumer Foods segment net sales increased $152.9 in the first quarter of 2024.

Volume/mix increased net sales by 28 percentage points, primarily driven by Jif peanut butter and Smucker’s Uncrustables ® frozen sandwiches.

Net price realization contributed 22 percentage points to net sales, primarily reflecting a favorable impact of lapping customer returns and fees related to the Jif peanut butter product recall.

Segment profit increased $50.9, primarily reflecting a net favorable impact of lapping the recall and favorable volume/mix for Smucker’s Uncrustables frozen sandwiches, partially offset by an unfavorable net impact of increased costs and higher net price realization.

Retail Pet Foods

Retail Pet Foods segment net sales decreased $288.0 in the first quarter of 2024, inclusive of the impact of $367.7 of noncomparable net sales in the prior year related to the divestiture of certain pet food brands.

Excluding the noncomparable impact of the divested brands, net sales increased $79.7, or 22 percent.

Favorable volume/mix contributed 12 percentage points to net sales, primarily reflecting $50.6 of contract manufacturing sales related to the divested pet food brands and the Milk-Bone brand, partially offset by the Pup-Peroni brand.

Higher net price realization increased net sales by 10 percentage points, primarily reflecting list price increases across the portfolio.

Segment profit decreased $39.0, primarily reflecting the impact of noncomparable segment profit in the prior year related to the divested brands, higher marketing spend, and increased

distribution costs, partially offset by a favorable net impact of higher net price realization and increased costs and favorable volume/mix.

International and Away From Home

International and Away From Home net sales increased $22.8 in the third quarter of 2023, including $7.2 of unfavorable foreign currency exchange and the noncomparable impact of $1.4 of net sales in the prior year related to the divested natural beverage and grains businesses.

Excluding the noncomparable impact of foreign currency exchange and the divested businesses, net sales increased $31.4, or 12 percent, reflecting a 17 percent and 6 percent increase for the Away From Home and International operating segments, respectively.

Net price realization contributed a 15 percentage point increase to net sales for the combined businesses, primarily driven by increases for coffee products and baking mixes and ingredients, partially offset by a decreased contribution from volume/mix of 3 percentage points, primarily driven by baking mixes and ingredients and coffee products.

Segment profit increased $3.4, primarily reflecting a favorable net impact of higher net price realization and higher commodity costs.

International and Away From Home net sales increased $62.4 in the first nine months of 2023, including $18.6 of unfavorable foreign currency exchange and the noncomparable impact of $4.9 of net sales in the prior year related to the divested natural beverage and grains businesses.

Excluding the noncomparable impact of foreign currency exchange and the divested businesses, net sales increased $85.9, or 11 percent, reflecting a 17 percent and 5 percent increase for the Away From Home and International operating segments, respectively.

Net price realization contributed a 13 percentage point increase to net sales for the combined businesses, primarily driven by increases for coffee products, baking mixes and ingredients, and frozen handheld products, partially offset by the unfavorable impact of customer returns and fees related to the Jif peanut butter product recall and a decreased contribution from volume/mix of 1 percentage point.

Segment profit decreased $11.8, primarily reflecting the impact of the recall and higher commodity costs, partially offset by higher net price realization.

Financial Condition – Liquidity and Capital Resources

International and Away From Home net sales increased $40.1 in the first quarter of 2024, including the noncomparable impact of $6.4 of net sales in the prior year related to the divested pet food brands and $3.8 of unfavorable foreign currency exchange.

Excluding the noncomparable impact of the divested brands and foreign currency exchange, net sales increased $50.3, or 22 percent, reflecting a 21 percent and 24 percent increase for the Away From Home and International operating segments, respectively.

Favorable volume/mix contributed 14 percentage points to net sales for the combined businesses, primarily reflecting increases for portion control and peanut butter products, inclusive of the impact of lapping the Jif peanut butter product recall in the prior year.

Net price realization contributed 8 percentage points to net sales for the combined businesses, primarily driven by list price increases across the portfolio, partially offset by increased trade spend.

Segment profit increased $19.8, primarily driven by favorable volume/mix, reflecting the recovery from the Jif peanut butter product recall, and a favorable net impact of higher net price realization and increased costs.

LIQUIDITY AND CAPITAL RESOURCES

Our principal source of funds is cash generated from operations, supplemented by borrowings against our commercial paper program and revolving credit facility.

At January 31, 2023, total cash and cash equivalents was $104.2, compared to $169.9 at April 30, 2022.

Total cash and cash equivalents decreased to $241.1 at July 31, 2023, compared to $655.8 at April 30, 2023.

The following table presents selected cash flow information.

Nine Months Ended January 31,

Three Months Ended July 31,

Net cash provided by (used for) operating activities $ 217.9 $ (39.0)

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(A) Free cash flow is a non-GAAP financial measure used by management to evaluate the amount of cash available for debt repayment, dividend distribution, acquisition opportunities, share repurchases, and other corporate purposes.

The $8.0 increase in cash provided by operating activities in the first nine months of 2023 was primarily driven by lower working capital requirements in 2023, partially offset by the $70.0 contribution to our U.S.

qualified defined benefit pension plans during the first quarter of 2023 and lower net income adjusted for noncash items in the current year.

The cash required to fund working capital decreased compared to the prior year, primarily related to a favorable net impact of increased accounts payable and inventory levels, primarily driven by timing and input cost inflation.

A decrease in incentive compensation also contributed to the lower cash requirements in 2023.

Cash used for investing activities in the first nine months of 2023 consisted primarily of $332.3 in capital expenditures, primarily driven by investments in the new manufacturing and distribution facilities in McCalla, Alabama, and capacity expansions in Longmont, Colorado, to support growth for the Smucker’s Uncrustables brand, as well as plant maintenance across our facilities.

The use of cash in 2023 was partially offset by a decrease in collateral pledged of $21.2 in our derivative cash margin account.

Cash used for investing activities in the first nine months of 2022 consisted primarily of $244.5 in capital expenditures, which reflected capacity expansion at our Longmont facility, as well as plant maintenance across our facilities.

An increase in collateral pledged of $15.4 in our derivative cash margin account also contributed to the use of cash in 2022, which was partially offset by net proceeds from the divested private label dry pet food and the natural beverage and grains businesses of $130.2.

Cash used for financing activities in the first nine months of 2023 consisted primarily of dividend payments of $321.8 and a net decrease in short-term borrowings of $185.2.

Cash used for financing activities in the first nine months of 2022 consisted primarily of long-term debt repayments of $1,157.0 and dividend payments of $311.1, partially offset by $797.6 in long-term debt proceeds.

The $256.9 increase in cash provided by operating activities in the first three months of 2024 was primarily driven by lower working capital requirements in 2024, lapping the $70.0 contribution to our U.S.

qualified defined benefit pension plans in the prior year, and higher net income adjusted for noncash items in the current year.

The cash required to fund working capital decreased compared to the prior year primarily driven by the moderation of input cost inflation related to our inventories and an increase in cash from trade receivables due to the timing of sales and payments, partially offset by a decrease in cash for accounts payable due to timing.

Cash used for investing activities in the first three months of 2024 consisted primarily of $150.3 in capital expenditures, primarily driven by investments in Smucker’s Uncrustables frozen sandwiches to support the new manufacturing and distribution facilities in McCalla, Alabama, as well as plant maintenance across our facilities.

Cash used for investing activities in the first three months of 2023 consisted primarily of $88.3 in capital expenditures, primarily related to the new manufacturing and distribution facilities in McCalla, Alabama, partially offset by a decrease of $12.2 in our derivative cash margin account balances.

Cash used for financing activities in the first three months of 2024 consisted primarily of the purchase of treasury shares of $372.0 and dividend payments of $105.2.

Cash provided by financing activities in the first three months of 2023 consisted primarily of a net increase in short-term borrowings of $207.0, partially offset by dividend payments of $105.1.

Supplier Financing Program

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We have no economic interest in a supplier’s decision to enter into these agreements.

Our obligations to our suppliers, including amounts due and scheduled payment terms, are not impacted by our suppliers’ decisions to sell amounts under these arrangements.

As of January 31, 2023, and April 30, 2022, $416.1 and $314.3 of our outstanding payment obligations, respectively, were elected and sold to a financial institution by participating suppliers.

During the first nine months of 2023 and 2022, we paid $1,069.9 and $774.8, respectively, to a financial institution for payment obligations that were settled through the supplier financing program.

Our rights and obligations to our suppliers, including amounts due and scheduled payment terms, are not impacted by our suppliers’ decisions to sell amounts under these arrangements.

As of July 31, 2023, and April 30, 2023, $434.6 and $414.2 of our outstanding payment obligations, respectively, were elected and sold to a financial institution by participating suppliers.

During the first three months of 2024 and 2023, we paid $441.7 and $338.8, respectively, to a financial institution for payment obligations that were settled through the supplier financing program.

Contingencies

We, like other food manufacturers, are from time to time subject to various administrative, regulatory, and other legal proceedings arising in the ordinary course of business.

We are currently a defendant in a variety of such legal proceedings, including certain lawsuits related to the alleged price-fixing of shelf stable tuna products prior to 2011 by a business previously owned by, but divested prior to our acquisition of, Big Heart Pet Brands, the significant majority of which were settled and paid during 2019 and 2020.

While we cannot predict with certainty the ultimate results of these proceedings or potential settlements

associated with these or other matters, we have accrued losses for certain contingent liabilities that we have determined are probable and reasonably estimable at January 31, 2023.

Based on the information known to date, with the exception of the matters discussed below, we do not believe the final outcome of these proceedings would have a material adverse effect on our financial position, results of operations, or cash flows.

In addition to the legal proceedings discussed above, in May 2011, we were named a defendant in CERT v.

Brad Barry LLC, et al., which alleged that we, in addition to Defendants who manufacture, package, distribute, or sell packaged coffee, failed to provide warnings for our coffee products of exposure to the chemical acrylamide as required under Proposition 65.

In August 2020, the trial court granted the Defendants’ motion for summary judgment based on a 2019 regulation clarifying that cancer warnings are not required for coffee under Proposition 65.

CERT appealed the ruling in November 2020 to the California Court of Appeals for the Second Appellate District, which affirmed the trial court's decision.

CERT then petitioned for further appeal to the California Supreme Court, which was denied on February 15, 2023.

The California Supreme Court will send the case back to the trial court to affirm judgement in favor of the Defendants thereby effectively concluding this litigation.

We are also defendants in a series of putative class action lawsuits that were originally filed in federal courts in California, Florida, Illinois, Missouri, New York, Texas, and Washington D.C., but have been transferred to the United States District Court for the Western District of Missouri for coordinated pre-trial proceedings.

We are currently a defendant in a variety of such legal proceedings, and while we cannot predict with certainty the ultimate results of these proceedings or potential settlements associated with these or other matters, we have accrued losses for certain contingent liabilities that we have determined are probable and reasonably estimable at July 31, 2023.

Based on the information known to date, with the exception of the matters discussed below, we do not believe the final outcome of these proceedings will have a material adverse effect on our financial position, results of operations, or cash flows.

We are defendants in a series of putative class action lawsuits that were transferred to the U.S.

District Court for the Western District of Missouri for coordinated pre-trial proceedings.

The plaintiffs assert claims arising under various state laws for false advertising, consumer protection, deceptive and unfair trade practices, and similar statutes.

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The outcome and the financial impact of these cases, if any, cannot be predicted at this time.

Accordingly, no loss contingency has been recorded for these matters as of January 31, 2023, and the likelihood of loss is not considered probable or estimable.

Accordingly, no loss contingency has been recorded for these matters as of July 31, 2023, and the likelihood of loss is not considered probable or estimable.

However, if we are required to pay significant damages, our business and financial results could be adversely impacted, and sales of those products could suffer not only in these locations but elsewhere.

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In May 2022, we initiated a voluntary recall of select Jif peanut butter products produced at our Lexington, Kentucky facility and sold primarily in the U.S., due to potential salmonella contamination.

At that time, we also suspended the manufacturing of these products at our Lexington facility and temporarily paused shipments from our Memphis, Tennessee, facility.

No other products produced at our other facilities were affected by this recall.

In June 2022, we resumed manufacturing and shipping at our Lexington facility, as well as shipping from our Memphis facility.

We partnered with retailers to restock Jif peanut butter products during the first quarter of 2023 and anticipate a return to normal levels by the end of 2023.

During the three and nine months ended January 31, 2023, approximately $20.0 and $110.0 of direct costs were recognized, respectively, net of insurance recoveries, related to customer returns, fees, unsaleable inventory, and other product recall-related costs, primarily within our U.S.

At that time, we also suspended the manufacturing of Jif peanut butter products at the Lexington facility and temporarily paused shipments from our Memphis, Tennessee facility.

No other products produced at our other facilities were affected by the recall.

In June 2022, we resumed manufacturing at our Lexington facility, as well as shipping from our Memphis facility.

We partnered with retailers to restock Jif peanut butter products during the first quarter of 2023 and returned to normal levels at the end of 2023.

We recognized total direct costs associated with the recall of approximately $120.0, net of insurance recoveries, related to customer returns, fees, unsaleable inventory, and other product recall-related costs, primarily within our U.S.

Retail Consumer Foods segment.

The majority of the direct costs were incurred through the third quarter of 2023, and additional direct costs are expected to be minimal during the remainder of 2023.

Further, we are a defendant in five putative class action lawsuits as a result of our voluntary recall of select Jif peanut butter products.

The plaintiffs assert causes of action for negligence, breach of warranties, fraudulent concealment, unjust enrichment, and, in some of the lawsuits, violations of state consumer protection and deceptive trade practices laws.

Their claims are premised on allegations that we engaged in business practices designed to mislead the public regarding the safety of Jif peanut butter for human consumption due to the alleged presence of salmonella.

The cases are pending and consolidated in the United States District Court for the Northern District of Ohio.

Additionally, the FDA issued a warning letter on January 24, 2023, following an inspection of our Lexington facility completed in June 2022, identifying concerns regarding certain practices and controls at the facility.

We have responded to the warning letter with a detailed explanation of our food safety plan and extensive verification activities to prevent contamination in Jif peanut butter products but the FDA or other agencies may nonetheless conclude that certain practices or controls were not in compliance with the Federal Food, Drug, and Cosmetic Act or other laws.

Any potential regulatory action could result in the imposition of injunctive terms and monetary payments that could have a material adverse effect on our business, reputation, brand, results of operations, and financial performance, as well as affect pending consumer litigation associated with the voluntary recall of Jif peanut butter products.

The outcome and financial impact, if any, of the ongoing consumer litigation or potential regulatory action associated with the Jif voluntary recall cannot be predicted at this time.

Accordingly, no loss contingency has been recorded for these matters as of January 31, 2023, and the likelihood of loss is not considered probable or estimable.

Approximately $65.0 of direct costs were recognized during the first quarter of 2023, and no significant direct costs were recognized during the first quarter of 2024.

Further, the FDA issued a Warning Letter on January 24, 2023, following an inspection of our Lexington facility completed in June 2022 in connection with the Jif voluntary recall, identifying concerns regarding certain practices and controls at the facility.

We have responded to the Warning Letter with a detailed explanation of our food safety plan and extensive verification activities to prevent contamination in Jif peanut butter products.

In addition, we have worked diligently to further strengthen our already stringent quality processes, including doubling our finished product testing and tripling our environmental testing to verify the efficacy of our actions.

The FDA or other agencies may nonetheless conclude that certain practices or controls were not in compliance with the Federal Food, Drug, and Cosmetic Act or other laws.

Any potential regulatory action based on such an agency conclusion could result in the imposition of injunctive terms and monetary payments that could have a material adverse effect on our business, reputation, brand, results of operations, and financial performance, as well as affect ongoing consumer litigation associated with the voluntary recall of Jif peanut butter products.

The outcome and financial impact of the ongoing consumer litigation or any potential regulatory action associated with the Jif voluntary recall cannot be predicted at this

Accordingly, no loss contingency has been recorded for these matters as of July 31, 2023, and the likelihood of loss is not considered probable or estimable.

Capital Resources

The following table presents our capital structure.

January 31, 2023 April 30, 2022

Short-term borrowings $ — $ 180.0

July 31, 2023 April 30, 2023

Long-term debt $ 4,315.1 $ 4,314.2

Total debt $ 4,313.3 $ 4,490.6

Shareholders’ equity 7,003.4 7,290.8

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Commercial paper is used as a continuing source of short-term financing for general corporate purposes.

As of January 31, 2023, we did not have a balance outstanding under the commercial paper program.

We are in compliance with all our debt covenants as of January 31, 2023, and expect to be for the next 12 months.

As of July 31, 2023, we did not have a balance outstanding under the commercial paper program.

We are in compliance with all our debt covenants as of July 31, 2023, and expect to be for the next 12 months.

For additional information on our long-term debt, sources of liquidity, and debt covenants, see Note 7:

Debt and Financing Arrangements.

During the first nine months of 2023 and 2022, we did not repurchase any common shares under a repurchase plan authorized by the Board.

At January 31, 2023, approximately 5.8 million common shares remain available for repurchase pursuant to the Board’s authorizations.

There is no guarantee as to the exact number of shares that may be repurchased or when such purchases may occur.

In November 2021, we announced plans to invest $1.1 billion to build a new manufacturing facility and distribution center in McCalla, Alabama, dedicated to production of Smucker’s Uncrustables frozen sandwiches.

Construction of this facility began in the third quarter of 2022, with production expected to begin in calendar year 2025.

Dividend payments were $105.2 and $105.1 in the first three months of 2024 and 2023, respectively, and quarterly dividends declared per share were $1.06 and $1.02 in the first three months of 2024 and 2023, respectively.

The declaration of dividends is subject to the discretion of our Board and depends on various factors, such as our net income, financial condition, cash requirements, future events, and other factors deemed relevant by the Board.

On March 2, 2023, we entered into the 10b5-1 Plan established in accordance with Rule 10b5-1 of the Exchange Act in connection with the remaining common shares authorized for repurchase by the Board, which was approximately 3.5 million common shares as of April 30, 2023.

In accordance with the 10b5-1 Plan, our designated broker had the authority to repurchase approximately 2.4 million common shares, which commenced upon the sale of certain pet food brands on April 28, 2023, and expired 45 calendar days after the closure of the transaction.

During the three months ended July 31, 2023, we repurchased approximately 2.4 million common shares for $362.8 under the 10b5-1 Plan, and approximately 1.1 million common shares remain available for repurchase.

In accordance with the Inflation Reduction Act, a one percent excise tax was applied to share repurchases after December 31, 2022.

As a result, an excise tax of $3.6 was accrued on the repurchased shares during the first quarter of 2024 and included within additional capital in our Condensed Consolidated Balance Sheet.

During the three months ended July 31, 2022, we did not repurchase any common shares under a repurchase plan authorized by the Board.

All other share repurchases during the three months ended July 31, 2023 and 2022, consisted of shares repurchased from stock plan recipients in lieu of cash payments.

In November 2021, we announced plans to invest $1.1 billion to build a new manufacturing facility and distribution center in McCalla, Alabama, dedicated to the production of Smucker’s Uncrustables frozen sandwiches.

Construction of this facility began in 2022, with production expected to begin in calendar year 2025.

The project demonstrates our commitment to meet increasing demand for this highly successful product and deliver on our strategy to focus on brands with the most significant growth opportunities.

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Absent any material acquisitions or other significant investments, we believe that cash on hand, combined with cash provided by operations, borrowings available under our revolving credit facility and commercial paper program, and access to capital markets, will be sufficient to meet our cash requirements for the next 12 months, including the payment of quarterly dividends, principal and interest payments on debt outstanding, and capital expenditures.

However, as a result of the current macroeconomic environment, including the ongoing impacts of COVID-19 and the conflict between Russia and Ukraine, we may experience an increase in the cost or the difficulty to obtain debt or equity financing, or to refinance our debt in the future.

However, as a result of the current macroeconomic environment, we may experience an increase in the cost or the difficulty to obtain debt or equity financing, or to refinance our debt in the future.

We continue to evaluate these risks, which could affect our financial condition or our ability to fund operations or future investment opportunities.

As of January 31, 2023, total cash and cash equivalents of $17.1 was held by our foreign subsidiaries, primarily in Canada.

As of July 31, 2023, total cash and cash equivalents of $21.1 was held by our foreign subsidiaries, primarily in Canada.

We have not repatriated foreign cash to the U.S.

during the first nine months of 2023.

during the first three months of 2024.

Material Cash Requirements

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Transactions with related parties are in the ordinary course of business and are not material to our results of operations, financial condition, or cash flows.

As of January 31, 2023, there were no material changes to our material cash requirements as previously reported in our Annual Report on Form 10-K for the year ended April 30, 2022.

As of July 31, 2023, there were no material changes to our material cash requirements as previously reported in our Annual Report on Form 10-K for the year ended April 30, 2023.

NON-GAAP FINANCIAL MEASURES

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The Board also utilizes certain non-GAAP financial measures as components for measuring performance for incentive compensation purposes.

Non-GAAP financial measures exclude certain items affecting comparability that can significantly affect the year-over-year assessment of operating results, which include amortization expense and impairment charges related to intangible assets, special project costs, gains and losses on divestitures, the change in net cumulative unallocated derivative gains and losses, and other one-time items that do not directly reflect ongoing operating results.

Non-GAAP financial measures exclude certain items affecting comparability that can significantly affect the year-over-year assessment of operating results, which include amortization expense and impairment charges related to intangible assets, special project costs, gains and losses on divestitures, the change in net cumulative unallocated derivative gains and losses, and other infrequently occurring items that do not directly reflect ongoing operating results.

Income taxes, as adjusted is calculated using an adjusted effective income tax rate that is applied to adjusted income before income taxes and reflects the exclusion of the previously discussed items, as well as any adjustments for one-time tax related activities, when they occur.

While this adjusted effective income tax rate does not generally differ materially from our GAAP effective income tax rate, certain exclusions from non-GAAP financial measures, such as the one-time deferred state tax impact of the internal legal entity simplification during the third quarter of 2022, can significantly impact our adjusted effective income tax rate.

While this adjusted effective income tax rate does not generally differ materially from our GAAP effective income tax rate, certain exclusions from non-GAAP results can significantly impact our adjusted effective income tax rate.

These non-GAAP financial measures are not intended to replace the presentation of financial results in accordance with U.S.

Rather, the presentation of these non-GAAP financial measures supplements other metrics we use to internally evaluate our businesses and facilitate the comparison of past and present operations and liquidity.

Rather, the presentation of these non-GAAP financial measures supplements other metrics we use to internally evaluate our business and facilitate the comparison of past and present operations and liquidity.

These non-GAAP financial measures may not be comparable to similar measures used by other companies and may exclude certain nondiscretionary expenses and cash payments.

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See page 21 for a reconciliation of net sales adjusted for certain noncomparable items to the comparable GAAP financial measure.

Three Months Ended January 31, Nine Months Ended January 31,

2023 2022 2023 2022

Three Months Ended July 31,

Gross profit reconciliation:

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Change in net cumulative unallocated derivative gains and losses (10.4) 33.8

Cost of products sold – special project costs 1.0 6.8 4.9 17.5

Cost of products sold – special project costs (A)

Adjusted gross profit $ 644.4 $ 587.4

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Amortization 39.8 55.6

Other intangible assets impairment charge — 150.4 — 150.4

Gain on divestitures – net — (9.6) (1.6) (9.6)

Loss (gain) on divestitures – net (1.2) (1.6)

Change in net cumulative unallocated derivative gains and losses (10.4) 33.8

Cost of products sold – special project costs 1.0 6.8 4.9 17.5

Other special project costs 0.6 2.0 2.7 5.1

Cost of products sold – special project costs (A)

Other special project costs (A)

Adjusted operating income $ 331.7 $ 270.0

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Amortization 39.8 55.6

Other intangible assets impairment charge — 150.4 — 150.4

Gain on divestitures – net — (9.6) (1.6) (9.6)

Loss (gain) on divestitures – net (1.2) (1.6)

Change in net cumulative unallocated derivative gains and losses (10.4) 33.8

Cost of products sold – special project costs 1.0 6.8 4.9 17.5

Other special project costs 0.6 2.0 2.7 5.1

Cost of products sold – special project costs (A)

Other special project costs (A)

Other infrequently occurring items:

Unrealized loss (gain) on investment in equity securities (B)

Pension plan termination settlement charge (C)

Adjusted income before income taxes $ 297.2 $ 231.4

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Adjusted earnings per share – assuming dilution $ 2.21 $ 1.67

(A) Special project costs include certain restructuring costs, which were recognized in cost of products sold and other operating expense (income) – net in the Condensed Statement of Consolidated Income during the three months ended July 31, 2022.

For more information, see Note 3:

Special Project Costs and Note 5:

Reportable Segments.

(B) Unrealized loss (gain) on investment in equity securities includes unrealized gains and losses on the change in fair value on our investment in Post common stock and the related equity forward contract.

For more information, see Note 4:

Divestitures, Note 9:

Derivative Financial Instruments, and Note 10:

Other Financial Instruments and Fair Value Measurements.

(C) Represents the nonrecurring pre-tax settlement charge recognized during the first quarter of 2024 related to the acceleration of prior service cost for the portion of the plan surplus to be allocated to plan members within our Canadian defined benefit plans, which is subject to participant and regulatory approval before a payout can be made.

For additional information, see Note 8:

Pensions and Other Postretirement Benefits.

CRITICAL ACCOUNTING ESTIMATES AND POLICIES

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis