Q2 2020 Earnings Call
Second quarter fiscal 2020 operating results conference call at this time, all participants are in listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone if you require any further assistance. Please press star zero I would.
Now, let's say in the conference over to your Speaker Mr., Michael Valentine Chief Financial Officer. Please go ahead sorry.
Thank you Shirley good morning, everyone and welcome to our 2022nd quarter earnings Conference call.
Thank you for joining us today on the call with me are Jeffrey Sanfilippo, our CEO and Jasper Sanfilippo our COO.
Before we start a we want to alert you to the fact that we may make some forward looking statements today.
Statements are based on a current expectations and they involve certain risks and uncertainties.
The factors that could negatively impact results are explained in the various FCC filings that we have made including Form 10-K .
We encourage you to refer to these filings to learn more about these risks and uncertainties that are inherent in our business.
Starting with the income statement.
Net sales for the second quarter fiscal 2020 decreased by 2.7% to 246.4 million.
In comparison to net sales for the second quarter fiscal 2019.
$253.3 million.
Declining net sales was primarily due to lower selling prices, which resulted from a shift in sales volume from higher priced pecans, and walnuts lower priced drill and snack mixes peanuts cashews.
Lower selling prices for pecans, and cat cashews, which resulted from lower commodity acquisition cost for these nut types also contributed to the overall reduction and selling prices.
The decline in net sales for lower selling prices was largely offset by a 4.8% increase in sales volume, which we define as pounds sold to customers.
Sales volume increased by 4.2% in our consumer distribution channel, mainly from increased sales of snack nuts, and trailing snack mixes from distribution gains with new and existing private brand customers.
Increased sales for Orchard Valley harvest in southern style not brands also contributed to the sales volume increased and the consumer channel.
Sales volume increased in the commercial ingredients channel by 14.5% that was mainly due to distribution gains with newspapers foodservice customers increased sales of peanut crushing stock to peanut oil processors.
Sales volume decline in the contract packaging channel by 2.5% primarily from a reduction in promotional and merchandising activity by some of our customers in this channel.
Looking at sales volume for our brands in our consumer channel Fisher recipe nut volume decreased by 29.8% as a result of last holiday displayed distribution at a major cost for in favor of their private brand recipe nuts.
6.5% increase in sales volume for Orchard Valley Harvest was primarily driven by distribution gains at new and existing customers as well as the introduction of new products.
The 6.4% decrease in cells buying for Fisher snack nuts resulted mainly from reduced promotional activity for in shelf units.
He had a customer who does not report to higher right.
The 42.9% increase in sales line from southern style Lux came from increased promotional activity.
Net sales for the first two quarters that the current fiscal year increased to 464.3 million from 457.6 million for the first two quarters last year.
Chris and that sales was attributable to a 6.8% increase in sales volume and the and the year to date comparison.
Increase in net sales from sales volume increase was largely offset by lower selling prices.
And the reduction in lower selling prices resulted primarily from those factors that led to lower selling prices in the quarterly comparison.
Sales volume increased by 10% in the consumer distribution channel primarily from.
Presales of snack nuts.
Trailing snack mixes from distribution gains with new and existing private brand customers.
The increase sales broader barely harvests in southern style not brands also contributed to sales volume increased and the consumer channel.
Sales volume increased by 6.3% and the commercial ingredients channel for the same reasons I noted in the quarterly comparisons and sales volume declined and contract packaging channel by 7.9% and that was primarily from reduction in unit outs weights implemented by major customer roughly a year ago for its entire product line.
And a reduction in promotional and merchandising activity by some customers in this channel.
Second quarter gross profit increased by $7.1 million and gross profit margin as percentage of net sales increased to 20.3% for the second quarter fiscal 2020 from 16.9% for the second quarter fiscal 2019.
Increases in gross profit and gross profit margin were mainly due to increased sales volume.
Manufacturing efficiencies reduce manufacturing spending and lower acquisition cost for pecans and cashews.
Gross profit for the first two quarters of the current year increased by $16.4 million.
Gross profit margin again as a percentage of net sales increased to 19.9% from 16.6% for the same period last year.
The increases in gross profit and gross profit margin in the year to date comparison occurred primarily for the same reasons I started I cited in the quarterly comparison.
Total operating expenses for the current second quarter decreased by $700000 in the quarter quarterly comparison and as a percentage of net sales total operating expenses was unchanged at 10.4% compared to last year.
The decrease in operating expenses was due to decreases in advertising at freight expenses, which were partially offset by increases in incentive compensation and commissions expenses.
Total operating expenses for the current year to date period decreased to 10.5% of net sales from 10.7% for the first two quarters of last year and total operating expenses decreased by $400000 in the year to date comparison.
The decrease in total operating expenses for the current year to date comparison, primarily was attributable to same factors I cited in the quarterly comparison.
Interest expense was $400000 for the second quarter fiscal 2020 compared to $800000 last year and interest expense for the first two quarters of the current year decreased to $1 million from $1.7 million for the same period last year.
In both cases the decreases in interest expense were attributable primarily to lower total average debt levels.
Net income was $17.5 million or $1.52 per share.
Diluted for the second quarter fiscal 2020, compared to $11.3 million or 98 cents per share.
The second part of last year.
And both net income and EPS were record amounts for second quarter.
Net income for the first two quarters of 2020 was $30.4 million or $2.64 per share diluted compared to net income up $17.9 million or $1.56 per share diluted for the first two quarters of physical buying team.
Now taking a quick look at our inventory numbers the total value of our inventories on hand at the end of the current second quarter increased slightly compared to the total value of inventories at the end of last year's second quarter.
And the weighted average cost per pound of our run nut and dried fruit fruit input stocks on hand at the end of the second quarter increased by 7.1% compared to the weighted average cost at the end of the second quarter last year for input stocks.
The increase in the weighted average cost per pound of our input stocks was mainly due to higher acquisition cost for walnuts.
Which was offset in part by lower acquisition costs for pecans, Cashews and peanuts.
And now I will turn the call over to Jeffrey Sanfilippo, our CEO to provide additional comments on our operating results for the second quarter fiscal 2020 Jeffery.
Thank you Mike good morning, everyone.
I'd like to start my comments by acknowledging the passing this week of our former chairman and CEO Jasper Sanfilippo senior.
He led the company from 1963 to 2006 and was a strong boats or to many of us at GPS.
Adjusted the senior was an amazing father to me and my brother Jasper.
Our dad Love This company and worked hard to build the foundation for successful business, along with family members and a team of talented associates.
After he retired like Clockwork, you would call and ask me or Jasper almost every day, how his business how is the company doing.
Tuesday before he passed away, yes that question again.
The answer was.
Yes.
Quarter, a fiscal 2020 marks the fourth consecutive quarter in which we reported record net income and earnings per share.
Had a big Smile and was so proud of everyone in the company for achieving such strong consistent results.
I will miss those conversations and we will always remember Jasper sanfilippo seniors contributions to Jbs us.
There's been a very strong first half of fiscal 2020.
We paid a second special dividends during the second quarter of $2 per share providing value to our stock.
As has been the case in recent quarters, we saw strong sales volume growth in our consumer distribution channel from increased sales of private brand snack nuts and trail mixes.
He also had significant sales volume growth in the foodservice sector of our commercial ingredients channel as new relationships with group buying organizations enabled us to expand their product lines for alternative channels.
The entire organization is working hard to drive continuous improvement projects optimize supply chain efficiencies and intense jbs those margins I would like to thank our operations team for generating meaningful savings from the various efficiency initiatives. They completed during the current second quarter, which helped.
Drive our increase in gross profit.
Turning to sales would you buy gift channel.
Net sales in the consumer distribution channel increased $7.4 million for 3.8% in spilt sales volume increased 4.2% in the second quarter fiscal 2020.
Company had strong success working with key partners to drive.
Gross volume growth within their private brand programs, especially in the Snacking trail mix categories.
Sales volume for Fisher snack nuts decreased 6.4%, primarily the result of reduced promotional activity windchill peanuts.
Sales volume of Fisher recipe nuts decreased 29.8% from Los holiday distribution at a major customer as Mike mentioned earlier.
But our teams mitigated this volume declines.
The combined growth at other retailers.
And sales volume of Orchard Valley harvest products increased 6.5% to distribution gains at new and existing customers Campion and the introduction of new products.
Sales volume of southern sell knots increased 42.9% due to increased promotional activity.
In the commercial ingredient channel net sales increased by 8.9% in dollars and 14.5% sales volume.
The sales volume increase for the quarterly period was primarily due to distribution gains within foodservice customers.
Sales and marketing teams have done a great job expanding distribution with non commercial accounts and winning business with new distributors.
And there was also an increase sales volume peanut crushing stock to peanut oil processors in the second quarter.
Net sales in the contract packaging distribution channel decreased by 8.7% in dollars and 2.5% in volume and the second quarter.
The decline in sales by and primarily came from reduction in promotional and merchandising activities again as Mike mentioned.
The company was awarded new business in this channel from a major customer, which will start shipping in our third quarter, we anticipate a new business will have a positive impact overcoming the negative volume trends the company. His experience in this channel the past few years.
Turning to category updates I'm happy to share category brand results with me. This morning, both for the quarter and for the fiscal year to date.
As always our market information I'll be referring to retire I quoted data.
Today is where the period ending December 29 2019.
When I refer to Q2, and they're going to 13 weeks for the quarter than December 29.
References to changes in volume would price versus the corresponding period, one year ago.
We look at category, a nice total us definition, which includes food drug mass Walmart military and other outlets unless otherwise specified.
And when we discuss pricing, we're referring to average price per pound.
We go to divest snap and produce categories are based on our custom definitions developed in conjunction with Fireeye.
The term velocity first of the sales per point of distribution.
First let me review some category dynamics total not category decreased in sales dollars and pound volume by 1% in Q2.
Overall prices in Q2 increased 1% versus the prior year.
Now I'll talk about each category in a little more debt starting with recipe nuts.
In Q2, the recipe nut category decreased 5% in dollar sales driven by a drop in average price per pound as pound volume sales were flat.
Prices decreased on walnuts, and pecans by 5% and 7% respectively.
Our Fisher recipe nuts decreased 32% dollar sales in pound sales for the quarter versus last year.
As a result Fisher share in the category decreased 9.5 pounds share points versus last year.
The decrease in sales line first Fisher recipe nuts resulted from our display distribution at a major customer favored private brand best Peanuts.
And traditional grocery, which I or I called the U.S. food channel Fisher recipe increased 21 person pound volume behind the new piece of total points of distribution of 21%.
Mr continues to be the branded shared leader in the recipe category when using the broader multi outlet definition or within the U.S. food channel.
Now, let me turn to the snack category.
In Q2, the snack category increased 2% in dollars and was flat in pound sales driven by 2% increase in average cost per pound.
Fisher snack increased 17% sales dollars, 8% in pound volume sales in Q2.
The brand increased in total distribution points by 24% has Fisher I've been rose never fried expanded beyond the core Fisher geography.
Recent phone sales by 122% versus last year.
I've been roasted never fried Subline also increased pound velocity by 12%.
Addition to the successful quarter early reads on trial and repeat our solid consumers are purchasing the product enjoying their experience and repeat purchasing the item, which is goods, which is a good sign for long term success.
As we've discussed on previous calls Fisher of inroads never flight offers consumers at full line of lots that are drivers did not roasted in oil.
These include whole cashews deluxe mixed nuts mixed nuts, with peanuts, almonds, pecans, and a unique Ami cash you blend as well as straight peanuts.
As we expand into new markets, we continue to support the brand with an integrated marketing plan of in store merchandising and customer programming Leo targeted digital and social media marketing as well as asset size.
In Q2, the produce nut category decreased 5% and dollar sales and 9% in pound volume sales.
OVH, our produce enough brand decreased 22% in dollar sales and pounds that OVH share pounds includes decreased 22 points versus last year.
The volume decline was due to lost distribution related to the reduction of shelf space in the produce not section at a major customer.
In Q2, we continued to build distribution of our spread and good line of nut butters by getting shippers out in the market to gain awareness and trial of this new product.
Likewise, we gained distribution of our chippy chip line as well as the second in the second quarter, it's still early but initial feedback from retailers on our new products is encouraging.
In closing.
We faced a number of challenges in the future which include among others potential acquisition cost volatility from is increasing commodity costs for walnuts as well as intensified competition on pricing and for market share from both private brand name brand products.
Our Fisher recipe nut sales.
Had been negatively impacted recently due to this increased competition for market share.
We have strong brands in our portfolio with enormous opportunities for growth.
We have a dedicated team of leaders throughout the company that are doing what matters most to deliver strong financial results and we had the REIT strategies to continue to build our business and provide exceptional value and innovation for our customers consumers.
We appreciate your participation in the call and thank you for your interest in our company.
I'll now turn the call back over to Mike.
Thank you Jeffery.
We will now open the call two questions Sheree, please queue up the first question.
As a reminder, ladies and gentlemen to ask a question do you want me to press Star one on your telephone to withdraw your question press the pound King.
Please standby wildly compiled the culinary roster.
My first question comes from Chris Mcginnis with Sidoti.
Good morning, Thanks for taking my questions and just wanted to say sorry for loss I.
I can do thank you.
Great quarter, though I did want to just start to dig in maybe a little bit about.
Maybe just on the top or the revenue around consumer.
Obviously, the snacking trail mixes have been pretty successful.
Just out of the growth from that how much of that is is it maybe newer wins versus.
You know more I guess reap more recent wins versus prior wins and I'm just trying to figure out how long of a runway do you have for that product and are you still gaining new distribution contracts at this point.
So Chris we some of it is business that is cycling against new business, we picked up a little bit less than a year ago. So some of it has been wins that were earned last year were still.
The against them, because we pick them up prior to Q2, but there is some new business that was built into Q2 that is just starting to ship now so I don't have a percentage of what that looks like but it's a combination of both business. We picked up last year and business that we just were awarded in Q2.
Okay, and maybe just to touch on on Fisher, you. Obviously ended your comments with a little bit of pressure.
In that segment.
So if you look over the next 12 months you know is there a way to gain back some of that some that distribution and how are you thinking that and that ability to gain gain your share back. Thanks.
Yes.
So a recipe Fisher recipe program is still under developed in some areas. There are some retailers that we have very little to no distribution. Our ACB. Although it is strong there's still opportunities for growth. It has become an extremely competitive category.
Both the branded site in private brand recipe programs. So it's it will be a challenge I won't deny that but the same time theres still growth opportunities to try to to sustain and build that brand in the future.
Great.
And then maybe just touch on Orchard Valley.
I know volumes were up 7% for the quarter I think in your in the in them repair prepare for prepared remarks.
You talked about a 22% decline in volume from one customer can you just maybe dig into that a little bit and would your growth for the quarter Ben that much more significant if not for that wall. So customer. Thank you.
That would be correct, so, but we have control over what retailers, how the market, how they merchandise where they put product how much space the a lot.
Produce programs in the U.S. lot of retailers are still trying to figure them out and how that make them successful and so if we had the same distribution placement that we had the prior you would've seen much stronger results with Orchard Valley harvest at the same time, we've built a lot of new distribution with the brand and so in spite of a major retailer.
[music].
That nothing successful with the quotas program, we've got to not a lot of other new volume that is going to be sitting to make up some of that that decline.
Okay and is.
As they figure out I guess, how to market. It is a possibility the that volume comes back to you.
Yes. It is yes, so we're working with retailers to help.
Strengthen their produce portman departments, and so there are opportunities to regain some of that distribution in volume.
Great.
Nexus or maybe just on the.
The commercial side that increase can you just maybe talk a little bit about <unk> of the increase in the volume how much of that was from the new distribution points versus the peanut.
Kinda byproduct.
Yeah, Mike you, probably know that number better than I do.
From a percent sure plant.
Yeah, roughly about 75% of the pound growth came from.
New distribution gains.
With new food service customers.
Great and so that's that numbers pretty sustainable going forward in terms of kind of that the the improved environment.
Correct, Yes, we've been very focused strategically on building our non commercial sales distribution in the commercial ingredient channel and so we're really just starting to see the success of efforts in the past to build that that business within noncommercial. So lot of this is just beginning now.
And then just two more questions just one on the on the contract.
Packaging business I know, it's small piece of business now, but I guess, just how how big is an opportunity to turn things around it sounds like it's obviously pretty near term.
New contract wins.
But I can take that Jeff.
So the new volume that we picked up with an existing customer.
You know is probably going to result in something like a.
Maybe a 10% pickup in sales volume for the channel.
We also have some other existing customers will well over a year ago introduced new products that we're not successful and.
There are about ready to launch some new products hopefully they'll be successful and a you know we can get back in the and the black in that channel.
Great.
And then just last question around the margin profile, obviously I think this your.
The strongest gross margin the last 12 months of your record earnings can you maybe just dig in it sounds like there's some operating efficiency gains or manufacturing efficiencies you gained.
Talk through a little bit of how sustainable is.
Versus the prior year, obviously, a pretty big increase thanks.
Sure. Chris This is Jeff for I'll answer that a lot of the operating efficiencies kind of came across a broad areas that we focused on.
Some more software employee implementations, where we're measuring efficiencies throughout our warehouse, which made us obviously more efficient enough supply chain handling, which ultimately lowered both overtime and headcount some of it was due to capex that we invested in previous quarters.
Particularly around automation and removal of headcount. So we're pretty confident that we will continue to see those efficiencies going forward.
Yes.
And I guess just a sustainable.
If you think about a long term.
Operating margin target.
That you feel comfortable that can maybe just give a little bit of kind of thought process around that.
Okay I'll take that call. This is Mike.
So you know obviously, we've had a great calendar year.
Some of the highest margins we've experienced in quite some time.
And a lot of that really the majority of that improvement is coming from some substantial sales volume increases so I think.
And as long as we can continue this this pace of growth in respect to pounds sold to customers. You know we can expect to have a.
Higher than historical average gross profit margins.
Great. Thanks for taking the time today and good luck in Q3.
Thank you Chris.
Thanks.
Again, ladies and gentlemen, if you have a question at this time.
Please press Star then one key on your Touchtone telephone. My next question comes from Tim call with Capital Management Corporation.
Oh I'm sorry for your loss he certainly both great company.
Thank you Tim.
With the Fisher recipe nuts lost distribution.
Or loss promotional.
One year ago and they.
Second quarter.
You lost some distribution from a major customer and the same line.
That's the same major customer.
Yes that would be correct. So they they transfer since the mood.
The branded business to private brand last year and then there is this calendar year they transition additional skews to private brand. So does the same customer.
Or there's still a major customer.
For the hour.
They are a major customer, but at the same time, our sales and marketing teams have done a great job building other distribution with other retailers and building strong Fisher brand it recipe programs with.
So at this point I.
I believe that I'm not sure Howard's in the room, our Fisher recipe volume is actually greater with with the.
Other customers than they were with this this one specific customer.
Jeffrey This is Howard I'm in the room in that as a correct statement.
Okay.
Compared to original levels from three years ago, I guess for this customer art art.
Well.
What.
[laughter] there relative sales.
Have they fallen for that customer about two thirds or are they.
They are falling by half for.
[noise] like.
Through this process.
So we don't anticipate many other changes in their program, although we don't have any control over what retailers do we believe we have a great success story to go back to them with our results for this holiday season, and we've got great success stories that other retailers that have supported the brand and that we've worked with us to work on promotional act.
Tivity. So we believe we got a great success story to go back and try to regain some of that market share of market.
Let's get that we had with them and so but again, it's difficult to know exactly what retailers will do not category overall.
Go ahead.
Now there was a great explanation. Thank you very much and then a scroll brand you expect that to continue to grow at a high double digit percentage.
The school brand is another brand we have strong brands as I mentioned in our portfolio. We're really just getting started with school brand the opportunities there as our indulgent brand our significant we've created a lot of new products around the brand. We've offered a lot to retailers and I believe we're really just getting started with building distribution there.
Well. Thank you congratulations on a great quarter.
Thank you appreciate it.
Thank you I'm showing no further questions at this time I will turn the call back over to Mr., Mike Valentine for any further remarks.
Okay. Thank you Shirley.
And we'd like to thank everyone for your interest in JV assess and this concludes the call for our second quarter fiscal 2020 operating results. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
[music].