Q1 2020 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome good enjoying b. sanfilippo when time Inc. first quarter fiscal tiny tiny operating results conference call. At this time, all participants why aren't you know listen only mode.
Students because presentation there will be a question and answer session. He has a question Dream decision you will need to press star one on the telephone.
If you think why any assistance. Please go ahead, sorry zero.
I would now like Deanda conference over to Speaker today, Mr., Mike Valentine Chief Financial Officer. Thank you. Please go ahead Sir.
Thank you Mark one.
Good morning, everyone and welcome to our fiscal 2021st quarter earnings Conference call. Thank you for joining us today on the call with me today is Jeffrey Sanfilippo, our CEO Jasper Sanfilippo our C O.
Before we start we want to alert you to the fact that we may make some forward looking statements today.
Payments are based on a current expectations and they involve certain risks and uncertainties.
Factors that could negatively impact results are explained in the various FCC filings that we have made including Form 10-K and on occasion Form 10-Q , we encourage you to refer to these filings for one more about the risks and uncertainties that are inherent in our business.
Starting with the income statement net sales for the first quarter fiscal 2020 increased by 6.6%.
$217.8 million comparison to $204.3 million for last years first quarter.
The increase in net sales resulted from a 9.1% increasing sales volume.
Which we define as pounds sold to customers.
I agree snack sales from volume was offset in part by lower selling prices, primarily for cashews, and pecans and walnuts, which in turn resulted from lower commodity acquisition costs.
Increasing sales volume came from 17.4% increase.
Sales volume in the consumer distribution channel.
This was offset in part by 13% decline in sales volume in the contract packaging distribution channel and that was due to a reduction in unit outlays owns wage implemented by a customer for its entire product line in this channel.
And reduced promotional activity by another customer in this channel.
Sales volume was relatively unchanged in the commercial ingredients channels.
Sales volume increased in the consumer distribution channel was mainly due to increased sales of private brand snack nuts and trail mixes.
Distribution gains with existing and new customers.
Now looking at sales volume for our brands and the consumer channel sales volume for Fisher recipe nuts fell by 30.3% as result of lost distribution for some items due to the continued expansion of private brand recipe nut offerings at a major customer.
Sales volume for Orchard Valley harvest spread increased by 12.4% and that was mainly from increased sales with existing customers.
Fisher snack nut sales volume declined by 8% due to loss airline business and club business.
Southern style knots brand sales volume increased by 40.3% due to distribution gains with new grocery customers primarily.
Gross profit increased by 28.2% to $42.2 million in the first quarter fiscal 2000, its wanting compared to $33 million in last year's first quarter.
Gross profit margin as a percentage of net sales increased to 19.4% and the current quarter from 16.1% for the first quarter fiscal 2019.
The increases in both gross profit and gross profit margin were primarily due to the increase in sales volume and also the lower commodity cost for cashes pecans and walnuts.
Total operating expenses declined to 10.6% of net sales for the current first quarter from 11.2% of net sales for last year's first quarter and total operating expenses increased by $300000.
The increase in total operating expenses resulted mainly from an increase in compensation expense, which was largely offset by declines in shipping advertising and amortization expenses.
Interest expense in the quarterly comparison declined by $400000 and that was due to lower average debt levels. During the current first quarter.
As a result will be Bob net income was $12.9 billion or dollar 12 per share diluted.
Compared to $6.6 million or 57 cents per share dilutive for last year's first quarter.
Now taking a quick looked at inventory.
Total value of inventories on hand at the end of the current first quarter declined by $24.6 million.
Were 13.6% compared to the total value of inventories on hand at last year's first quarter.
The decline in total inventory value was primarily attributable to lower acquisition cost for pecans, cashews and walnuts as well as lower quantities on hand for finished goods.
The weighted average cost per pound of our raw nut and dried fruit input stocks on again at the end of the current first quarter decreased by 25.9% compared to the weighted average cost at the end of the first quarter of last year.
This decline was due to lower acquisitions cost for pecans cashes, walnuts and a shift in product mix in our inventory to lower cost peanuts.
At this time I will now turn the call over to Jeff Sanfilippo, Our CEO , who will provide further additional comments on our operating results for the current first quarter Jeff.
Thank you Mike good morning, everyone.
The first quarter fiscal 2020 marks the third consecutive quarter in which we reported record net income and record earnings per share first quarter diluted EPS nearly doubled to a record dollar 12 per share.
We also continued our goal of returning profits to our stockholders by increasing our regular annual dividend by 9% to 60 cents per share and supplemented that with a special dividend of $2.40 per share both of which were paid in the fiscal 2021st quarter I'm very proud of the entire jvs as team for.
Living such strong results to kick off the year.
The 9.1% sales volume growth was driven by success in or consumer distribution channel, which accounted for approximately 70% of total sales volume in the current first quarter is.
A significant portion of this increase was attributed primarily from distribution gains for private brand products as Mike mentioned the company has been successful not only expanding items with existing customers, but also gaining additional retail accounts, we continue to enhance our innovation pipeline across our big business segments and brands to support.
This growth.
Sales volume growth for our stillness downloads and Orchard Valley Harvest brands also contributed to the sales volume growth in the consumer distribution channel.
Sales volume growth for Orchard Valley Harvest brand has been especially impressive with a compounded annual growth rate of approximately 27%. Since we started reporting on sales volume performance for the brand in fiscal 2015.
We continue to face headwinds with our Fisher recipe brand had a major customer due to a competitive private brand program as I've discussed in past earnings calls however, the sales and marketing teams have done an incredible job gaining expanded just distribution and other retailers to offset potential volume declines going forward.
We believe our holiday promotional and merchandising programs I'm very competitive and are intended to allow fisher to compete against private brands more effectively.
As we entered the harvest season, we have seen acquisition costs for walnuts and almonds begin to increase in the 2019 crop year, which falls into our current 2020 fiscal year.
We also continue to see declining acquisition costs for cashews peanut prices are relatively flat versus last year and the cotton harvest has just begun so we don't have visibility yet on how prices will compare to last year.
So we believe in our inventory positions are well aligned with our commitments and selling prices going into this busy holiday season.
Turning to sales by our business channels.
Net sales in the consumer distribution channel increased $11.7 million or 12.7% in sales volume increased 17.4% in the first quarter fiscal 2020 compared to fiscal 2019.
The sales volume growth as I mentioned earlier was driven by increased sales of private brand snack nuts and trail mixes. The consumer teams have been successful in building valuable retailer partnerships to pursue private brand opportunities, but we also continue to invest in our brands the consumer sales and marketing teams were busy launching and selling in several new.
New branded product lines. This past quarter I will discuss this when I cover category updates.
As Mike mentioned that sales and sales volume in the commercial ingredients distribution channel was relatively unchanged in the first quarter fiscal 2020. The commercial ingredient teams are focused on developing stronger customer relationships with key distributors and executing the placement and sell in of our branded products at a major non commercial.
Business customer.
Net sales in the contract packaging distribution channel decreased by 13.9% in dollars and 13% in sales volume in the first quarter of fiscal 2020.
We reported declines in this channel for the past several quarters as a result of a key customer downsizing weights and other factors, but we believe the volume going forward should level off with a few new pieces of business that will begin shipping and the remaining quarters of this fiscal year.
Turning to category updates in the snack recipe and produce segment, let me share review of our branded performance and consumption trends, both for the quarter and for the fiscal year.
As always the market information I'll, referring to as I reported data and for today. It is for the period ending September 22nd 2019, when I refer to Q1, I'm, referring to 13 weeks of the quarter ending September 22nd.
References to changes in volume or price versus the corresponding period, one year ago.
We look at the category and I rise total U.S. definition, which includes food drug mass Walmart military and other outlets unless otherwise specified and we when we discuss pricing, we're referring to average price per pound.
Breakouts of the recipe snack and produce categories are based on our custom definitions developed in conjunction with our eye and the term velocity refers to the sales per point of distribution.
First let me review some category dynamics, the total not category increased in sales dollars and pound volume by 1% in Q1 overall prices in Q1 were flat versus the prior year.
Now I'll talk about each category more in depth, starting with recipe nuts in first quarter. The recipe nut category decreased 4% in dollars and increased 4% in pound volume sales prices decreased on walnuts, and pecans by 11% and 6%, respectively, resulting in a 2% pound volume increase on walnuts.
And a 5% increase on pecans.
Our Fisher recipe nut decreased 22% in dollars and 25% in pound sales for the quarter versus last year. As a result Fisher share in that category decreased 5.8 pounds share points versus last year.
The sales line declined for Fisher recipe nuts resulted from Los distribute lost distribution as I mentioned on items in a retailer that continue to expand their private brand program.
In the food grocery channel Fisher recipe increased 9% in pound volume driven by an increase of total points of distribution of 18%.
Now, let me turn to the snack category in Q1, the snack category increased 2% in dollar sales and 1% in pound sales Fisher snack increased 8% in sales dollars and declined 3% in pound volume sales in Q1 decrease in dollar sales as a result in shifting product mix from Peanuts, cashews and Ms.
Nuts, the brand increased in total distribution points by 21% as Fisher oven roasted never fried expanded beyond the core Fisher geography.
As we've discussed on previous calls Fisher of and Rose never fried offers consumers a full line of full lineup of nuts that our dry roasted not roasted in oil, including whole cashews deluxe mixed nuts mixed nuts, with peanuts, almonds, and pecans any unique allmand cost you blend as well as peanuts.
We continue to support the brand with an integrated marketing plan of in store merchandising and customer programming radio targeted digital and social media marketing and emphasize the brand is performing well, where we have achieved our shelf price objectives, and we hope to expand into new markets in the future.
In Q1 to produce nut category decreased 4% in dollar sales and 3% in pound volume sales OVH or produce Nebraska decreased 4% in dollars and increased 7% in pounds and I are I reporting customers OVH share pound increased two tenths of a point versus last year.
And were flat dollar sales share versus year ago.
Total points of distribution increased by 2% versus last year.
Fortunately harvest launch two exciting new products in the first quarter, bringing pure and simple good news to the specialty nut butter and chips categories. The brand spread in did peanut butter offers consumers a natural non GMO peanut butter packaging that tub for easy dipping as well as a more traditional use of spreading on Brad so.
Voters are being sold into the produce section of stores to tap into the consumer behavior trends of snacking on fruits and vegetables with peanut butter.
We also launched Orchard Valley harvest CIC, Pete ships, which are laid crispy chips made from Chippies consumers are increasingly looking for interesting salty snack alternatives to potato chips and Orchard Valley harvest Chippy chips taste, great, while offering consumers three grams of protein per serving.
It's too early to tell how the new products are doing but initial feedback from retailers is encouraging.
In closing it takes a talented group of dedicated employees across an entire organization to deliver consistent strong results as we have done here at Jbs says.
Im very proud of every person in their company their leadership and commitment to providing outstanding service and value to our customers and consumers is best in class and I believe the best in our industry.
Success also requires smart strategies for sustainable growth to maintain a competitive advantage to be differentiated to be a valuable partner and to remain relevant. The leadership team has spent the past few months reviewing our current strategies, we assessed what we're doing well and what we can improve upon we've evaluated competitor.
There's markets our supply chain and consumer consumption trends, we are in the process of defining what our strategic plans will be for the next three years to continued to deliver consistent consistent strong results.
The management team and our dedicated employees have a steadfast commitment to develop business plans that create shareholder value and provide relevant profitable value added products and services to our customers and consumers. We appreciate your participation in the call and thank you for your interest in our company I will now turn the call back over to Mike.
Alright. Thank you Jeff at this time, we will open the call two questions March Lynn would you. Please queue up the first question.
As a reminder to ask a question you will need to press star one and your telephone to your question pricey pankey ore to ash.
Tim by all the compiler cleaning roster.
Again, ladies and gentlemen, if you have a question at this time. Please press star and then the number one on your tax shown telephone.
Your first question comes from the line of credit connecting your line is open.
Hi, good morning.
Thanks for taking my questions nice quarter.
I ask you will start to see maybe some price increase and starting to come back into the raw materials, how does that change the competitive landscape and I guess also means you had into the holiday season how.
Can you be both take market share maybe in this kind of environment. Thank you.
Tim can you repeat the question I missed the first couple sentences sorry.
No no.
No just on your start to see some raw material kind of price on them.
The increase how does that change the competitive landscape that's out there and then especially as you start the hands or the holiday season.
Thanks advantages that give you don't mind touching there.
Yes, so lot of the prices already are committed not just from us from for most people in our space holiday programs, usually get committed in the middle of the year. So not a lot of activity can take place beyond what's already been committed from a pricing standpoint.
The big challenges as these markets increase like all means we're seeing in walnuts is what kind of pricing commitments people had prior to two new crop we feel our inventory positions are very well balanced and so we're not going to.
Be able to we won't be in a position where that will negatively impact us, but a lot of struggled to take big opportunities when prices are going up on other hand, when prices come down like we're seeing with cashews just gives us some opportunities to do a little more promotions or deeper promotions, where we have some flexibility from a pricing standpoint.
Well, if there are different merchandising so yes.
And I know you mentioned that it's early but the new product offerings in the developed would be the border and that chips. Just can you maybe just talk a little bit of about where where you're you're starting that out and maybe how big versus maybe some other brands.
Just where are your distribution points are just trying to deal with the scope how big that could possibly be thank you sure sure. So so that both programs are in or Orchard Valley harvest brand portfolio. Our current HCV or distribution is about 45% for Orchard Valley Harvest brand. We believe this is it's a new product line, both the nut butters sides going.
Be focused in the produce section we literally just launched it within the last four weeks. So we havent seen velocity numbers per se that give us any any basis on how well it's doing but we're confident that the consumer feedback. We've received is very positive and retailer feedback we've received as positive so lot of opportunities too.
Expand not only our current HCV beginning to a lot of new retailers and then the chip chip. It's our first product lines outside of the nut category. We just see a lot of opportunities with other planned proteins and so brand new as well just launched within the last couple of weeks. It's in a few test markets at this point, that's a little bit early to tell probably the next quarter.
Paul will be able to give a little more color on how it's doing.
Okay.
I just wondered according to the Fisher recipe.
Recipe nuts.
Can you just talked.
How how your general better maybe approach for the volume decline that you saw I'm, just kind of given kind of the competitive nature.
Sure so.
Our Fisher recipe program, even there were still at only in 63% ACB. So there's still a lot of opportunities to expand that product line and other retailers I'm. Obviously, we've had some headwinds with the major retailer expanding their private brand program, taking space away from our Fisher recipe nuts, but at the same time theres lot of opportunities to make up a lot of.
Volume at other retailers and also we've got very strong promotional programs going into the holiday season with other retailers, but we feel we be potentially could expand and grow those retailers much faster. So very optimistic on what we can still do with Fisher recipe going forward.
Okay.
And then just to kind of last questions that you see solid growth on the topline.
You start to get to the back half your progress throughout the year. How do you think that holds up we've kind of see today and then same question except to start in the market for everybody thinks change there since last couple of thoughts. Thank you.
Well from a volume standpoint, Tim I think we've got a lot of new programs that were focused on especially in the commercial ingredient channel. We believe there is to be upside in the back half of the air with some the things our teams are doing in that area or the consumer team continues to obviously expand our distribution with the nut butter loan launch and then that should peak.
And then some of the other innovation products that will be looking at in the coming year. We also still feel theres private brand opportunities ahead of us that we're pursuing and so just no. We believe there's opportunities in the back half of the years, while to keep up some strong volume.
And then from a margin standpoint by 200, plus I'm not sure I'll take that Chris.
And then in respect to margins going forward. After December as we've said in the past.
As we switch from old crop to new crop of course, our costs and selling prices need to be realigned.
And as always we.
You know, it's our objective to try and maintain gross profit per pound as we do that realignment now of course, we've got a lot of work to do there a with a as Jeff mentioned, cashews and walnuts, increasing I'm, sorry, I'll walnuts and almonds, increasing in cashews decreasing.
But we do expect to have that aligned pretty quickly.
Early in the third quarter.
Great. Thanks for taking the problem and appreciate for.
North was good luck.
Okay.
Thanks, Tim Thanks.
Your next question comes from the liner team golf from Capital Management Corporation. Your line is open.
Just on another.
Great quarter.
Thank you Tim.
Was wondering when.
Uh-huh do the comparisons get easier on a year over year basis with the.
Fisher recipe nut brand.
And that large retailer that changed.
It's format.
[laughter] repeat the question sorry, I keep missed wondering when the year over year comparisons for sales get easier.
Okay, yes, without large customer that's changing their short.
Yes, I would expect we've made up a lot of volume and other retailers going into the holiday season, but it was still a big piece of our business I would say would probably it will level off by January we might see a little bit of softness in the next two months, but like I said that comers commute. The consumer team has done a great job, replacing a lot of that that volume, but definitely leveled off.
January going forward.
That.
Headwind started over a year ago. So it's.
The majority of the impact has been seen is that right.
Yes, correct.
Chris that that's basically been almost a two year process.
And that are increasing private label distribution was essentially ramped up over that period and then of course this quarter was impacted by the fact that we did not a we lost some space on the holiday display.
Areas, but I think we've pretty much loss to spot as much space.
As we are going to lose so as Jeff said going forward in January .
Should be a pretty fair comparison.
And then when we.
When you when you look at that customer.
Our your sales to that customer.
Below average margins for your consumer business.
But when we give specific customer margin information, but I would say it's in line with with other retailers.
Well congratulations again on a great quarter. Thank you. Thank you appreciate it thank you.
Again, ladies and gentlemen, if you have a collection at this time. Please press star and then the number one.
So until film.
[noise].
I'm showing no further questions anytime I would now like agenda conference everything through Valentine Sir.
Thank you March Lynn before we end the call. Please note that we will be presenting at the southwest ideas conference in Dallas on November 21, 2019. Our presentation is scheduled to begin at 140 central the presentation will be webcast live and may be accessed at the conference website www.
W. dot ideas conferences dot com.
Again, thank you everyone for your interest in JB assess and this concludes the call for our first quarter of fiscal 2020 operating results.
Ladies and gentlemen, the thinking in today's conference call. Thank you for participating you may now disconnect.
[noise] [noise].