Q3 2020 Earnings Call

Our business required even more effort in our employees delivered with the majority of our orders shipping on time and complete.

This truly demonstrates how committed are team members are in fulfilling our obligation to provide food to American consumers during these difficult times.

While we're meeting these unprecedented challenges we took many measures to improve the safety of our employees.

The company established to Cobot 19 crisis management team that meets daily to discuss risk faced by the company and mitigation strategies.

We quickly began implementing work from home requirements for the majority of our office employees staggering shifts in breaks for our production employees installing partitions on lines were social distancing could not be affected performing daily temperature screening for all employees upon arrival and providing face mask for all employees and requiring there yet.

Throughout our facilities.

We also recognized the need to take a different approach to our employee compensation. During this period. Consequently, we temporarily increased manufacturing employee compensation by 10% based on hours worked extended personal time off weeks for those who are self in self quarantine Oreo and provided weekly allowances to cover costs incurred.

I heard by those employees working from home.

We also committed to supporting our communities and donated products valued at over a half million dollars to provide peanut butter and snacks to food banks no Kate located near our major customers.

Our facilities in the current third quarter, and we continue to donate food in these areas to help families and need.

Going forward, we expect sales volume in our consumer distribution channel to normalize as consumers adjust to the current circumstances.

Foodservice sales, which are within our commercial ingredient channel had it had been growing this fiscal year and are within our and such sales represented 10% of our total sales volume in the current year to date period.

However, we expect our foodservice sales to decline significantly in the coming months until his travel restrictions and restaurant closings are lifted.

Our procurement team is working closely with our domestic and global suppliers to source and maintain 'cause consistent inventories of raw materials ingredients and packaging to provide a steady supply of our products to our customers and consumers.

Turning to a sales view by Jvs channel and the consumer channel as Mike mentioned, it increased by 11.9% in dollars and 19.3% in volume in the third quarter.

Sales on was driven mainly by increased sales of trail and snack mixes and peanuts and to a lesser extent from increased sales of cashews almonds and mixed nuts with existing private bank customers.

We did see a spike as a result of pantry loading in March and we anticipate our consumer volume will remain steady going forward as consumers will eat more at home and order online with the stay at home and travel restrictions in place.

Net sales in commercial ingredient distribution channel decreased by 6.6% in dollars and increased by 9% in sales volume.

As I previously mentioned, we anticipate foodservice sales volumes to decline in the coming quarter. As a result of cobot 19, but our teams are working hard to manage our inventories and look for growth opportunities and they will be ready for business when travel restrictions and stayed home orders are lifted.

Net sales in the contract packaging distribution channel decreased by 17.8% in dollars and 6.4% in sales volume.

One of our major customers in this channel provides a lot of products for convenience stores and with Kogan 19 restrictions in place. We believe this business will continue to be flat to declining in the coming months until travel restrictions are lifted.

Turning to category updates for the quarter and for the fiscal year as always the market information I'll be referring to as I reported data and for today is for the period ending March 22nd 2020, when I refer to Q3, I'm, referring to 13 weeks of the quarter ending March 22nd.

References to changes in volume or price our versus the corresponding period, one year ago.

We look at the category and Iras total us definition, which includes food drug mass Walmart military and other outlets and 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 Fireeye and the term velocity refers to the sales per point of distribution.

First let's review some category dynamics, the total not category increased in sales dollars and pound volume by 5% and 6% respectively in the third quarter.

Overall prices for the quarter decreased 1% versus the prior year.

The volume growth in the current third quarter was attributed in part to pantry loading by consumers in anticipation of the shelter in place directives that ultimately occurred.

The last two weeks of the quarter sales for the overall category increased 36% in dollar sales and 41% in pound volume versus last year. The previous 11 weeks are the category flat in sales versus a year ago.

Now I'll talk about each category in a little more in depth, starting with recipe nuts.

In Q3, the recipe nut category increased 8% in dollars and 13% in pound volume prices for the category decreased 4% versus last year, Walmart and pecan pricing decreased by 4% and 7% respectively.

Our Fisher recipe nuts decreased 24% in dollar sales and 23% impound sales for the quarter.

As a result Fisher share in the category decreased seven points pound share points versus last year.

The decrease in sales volume for Fisher resulted from lost distribution at a major customer that we've talked about in the past.

In traditional grocery, which IRA caused the us food channel Fisher recipe increased 29% in pound volume behind an increase of total points of distribution of 22%.

Fisher continues to be the brand share leader in the recipe category when using the broader multi outlet definition and within the us food channel.

Now, let's turn to the snack category in Q3, the snack category increased 7% in dollar sales, 10% in pound sales pricing declined 2% versus last year in the snack category.

Fisher snack increased 25% in sales dollars, an 18% in pound volume in Q3 promotional sales for the brand increased by 17% in total distribution increased by 19% driving sales.

Fisher and rose never fried continues to expand beyond the core Fisher geography, and increase in pound sales by 85%.

Upon velocity and total points of distribution increased by 5% and 6% respectively versus last year.

Oven rose never fried contributed 64% of the growth of the Fisher snack business. In addition to the successful quarter trial and repeat continued to be solid consumers are purchasing the product and joined their experience and repeat purchasing the item, which is a good sign for long term success.

In Q3, the produce category was flat in dollars and decreased 5% in pound volume sales and prices increased 5%.

Orchard Valley harvest decreased 17% in dollars and 15% pounds.

And OVH pound share decreased two tenths of a point versus last year.

The volume decline was due to lost distribution related to the reduction in shelf space in the produce section at a major customer.

Obviate shipments are up which is attributable to distribution of new items with a current customer that does not report data to IRA and new brand distribution within traditional grocery.

Two recent Orchard Valley harvest line extensions are spreading that peanut butter Antarctic Pete chips are available at a limited number of retailers the spread into peanut butter taps into the popular consumer behavior of dipping fruits and vegetables and nut butters for healthy snacking.

OVH spread and it makes the east makes that easy with a wide malv hummus like tub.

Both Linacs and OVH Chickie chip offers offering taps into the consumer desire for more plant based snacks.

Both line extensions are being supported with in store merchandising and social and digital consumer support.

It's still too early to report on their specific performances, but we are excited about the potential to expand the brand into the nut butter and the chip categories.

In closing it is an extraordinary it is extraordinary how the world has changed since our last earnings call just three months ago at the end of January.

We will face challenges and the remaining periods of fiscal 2020, and there will be headwinds going into fiscal 2021 as a result of the cobot 19 pandemic.

But our company and our team of dedicated leaders and frontline associates throughout our organization, our steadfast and strong we will adapt quickly to their dramatic changes in consumer behavior and seize opportunities where they arise. The company has strong brands in our portfolio with enormous opportunities for growth.

We have a manufacturing footprint that can meet new consumer demand for retailer private brands and our branded business in E Commerce.

We will continue to prioritize the health and productivity of our associates and follow the most up to date guidance from health authorities to ensure we are doing all that we can in our manufacturing facilities and offices to keep everyone safe.

Lastly, we have the REIT strategies and business model continues to continue to grow and provide exceptional value and innovation for our customers and consumers and our shareholders.

That was proud that we announced last night that the company will be paying a $1 per share dividend, which will be paid out in June.

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.

Okay. Thank you, Jeff we will now open the call to questions. Norma can you. Please queue up the first question.

Okay.

Thank you as a reminder to ask a question you need to kind of star one on your telephone to withdraw your question. Please press the pound Kate please standby will only compound the kunaev off.

Our first question comes from Chris Mcginnis affinity and company. Please begin.

Good morning, Thanks for taking my question and nice quarter.

Can you can you maybe just dig in a little bit I'm, just around co vision and the pantry loading that you talked about just maybe the impact you've seen on business in April does that benefit continue at least on the consumer side and then.

I know you talked a little bit on the commercial side already.

But.

Obviously is restaurants are closed there will be a negative impact, but we're starting to see states open has those conversations conversation started to change just on that side of business. If you could just I know, it's still early but maybe just a little bit more update of what you saw in the more recent trends. Thanks.

Good questions. So we did see a little bit of of patchy loading and volume increase in the very beginning of April there was still states that are just started closing in April. So we saw pantry loading at that time.

We see the trend leveling off but I would say that as these stay at home orders and travel restrictions continue you're seeing more consumers either eat at home and Cook at home or they're ordering online for delivery and so were we expect to see that continue until these state on orders are lifted so we should see a little bit of a bump in our consumer demand going.

Forward.

The first foodservice as states do open up we are watching and monitoring them closely and as they do open up we are ready to start supplying those distributors in foodservice consumer customers in those states with products and we're starting to see a little that it's very early because theyre just starting opened up now and and a lot of the restaurants have limited capacity that they.

We're allowed to let people in and so we don't anticipate that foodservice channel coming back quickly anytime soon but the more states that lift restrictions the better that'll become in the future.

Sure understood and I guess, just thinking about the.

Commercial side, how much inventory.

On an almost that impacts the.

The demand on your side.

That you think the distributors are holding and maybe I don't know if you think about that months.

That a few months of our maybe excess inventory they have or they move through that pretty quickly.

Typically it's a month to month and a half.

Of inventory, we are working with a lot of our distributors that specific for example airline distributors with the travel restrictions were working with them to try to move the inventory that they might have in house to other locations such as food banks or places that are putting together vo kits for or families.

Okay.

And then just thinking about 9% growth you've seen before that can you maybe just dig in a little bit about what was driving that is that newer account wins is that a factor pricing in the marketplace. You, maybe just digging a little bit more because I was obviously some pretty solid growth.

It's a combination really there was no one specific things some of that was new business that we picked up last year assist especially in private brands. We've had good success with our and rose never fried Fisher distribution as I mentioned, so we saw growth there and we saw some growth with new distribution in other areas of our business. So really with a combination of a lot of different things.

Okay great.

And then maybe if you could just move onto the margin front real quick.

I don't offers a way to quantify maybe a margin benefit in the period. If there was one.

Due to the EPS or extra volume come through and then maybe on the reverse side of that.

The higher compensation safety measures are coming in.

How do you see that playing out going forward. If you don't mind on that thank you.

I'll start with.

The impact of volume on our gross profit.

So there as you know our gross profit dollars increased by.

Peter.

Okay by about $4 million.

And roughly.

25% of that is just related to manufacturing efficiencies.

And the other $3 million is just generated from the additional volume that will solve.

Okay.

So maybe a third of that.

35% says what roughly I guess movement.

A third of what.

Okay.

The program, maybe the extra extra volume coming in from Covance I was just wondering about plan anything material on the margin front, so little bit I guess.

Proportional to well, what we saw with sales.

Okay, Great and then maybe just going forward just with the new measures in place and then also the the pay increases thanks.

Also as far as the business going forward again, we're going to watch foodservice knows it's unfortunate has made a lot of good new distribution in our foodservice channel leading up to coded 19, especially with 99 non commercial places that don't sell food as a as their main priority.

And so a lot of that has stop now with these travel restrictions instead home orders. So we are going to watch what happens with these when these states lift their orders to follow up on that piece of our business. The team is looking at other opportunities E. Commerce for example in the consumer channel we've seen enormous growth there. So we're going to follow what happens in.

E Commerce, both for our brands and for some of the the private brand options that we produce they're pursuing more ecommerce platforms.

And then the cooking at home is become a big thing now that people are staying home and so we see growth in the recipe nut category and we see growth in this potential potential further growth in the snack category.

And so and as far as employees, we're going to continue to monitor the situation with our employees are we extended our the increase in compensation through may seven.

And we'll continue to monitor things and if we need to do that further we will do that to take care of our people.

I appreciate it. Thank you very much for taking my questions and good luck in Q4.

Okay, Chris Thanks.

Thank you.

As a reminder to ask a question, ladies and gentlemen that star one. Our next question comes from Cam call of capital Management Corp. Your line is that.

Congratulations on a great quarter.

Again and.

Our your interest expense keeps going down.

Partially to as as Paydowns that over time do you think you might be.

Three within two or three years.

While our thats it depends what type of the year, you're talking about him get on will always be drawing on our revolver from time to time and just as a reminder, that revolver usually peaks.

Near the end of our third quarter so.

That time, there I'm sure they're all there'll be some debt I think we have about three years left on our mortgages.

And we have quite a few years left on our financing obligation for our somewhat facility.

The special dividend as this is a little bit earlier in the year than one usually announced so special dividend.

That.

The.

And you have higher inventory now for seasonal reasons. So does that just mean, you're not profitable of accompany that you can.

Hey, a special dividend earlier in the year.

Well, we want to be cautious about those obviously we have.

As Jeff mentioned in the second best quarter, we've ever had in our history and for that to be a third quarter is pretty pretty unusual unremarkable.

We felt like given the performance in the quarter. It made sense for us to go ahead and pay a spring dividend.

But obviously, there's a lot of uncertainty going forward.

And if it turns out that.

We may have to reduce our special dividend that we typically pay in August for this dividend we're prepared to do so hopefully it won't come to that and we certainly are committed to paying our regular annual dividend in August.

Headwinds you face from losing our rescued not customer.

All right now those annualized now or is that no longer a headwind starting with this next quarter.

Yes, Thats really annualized now.

What we're seeing some stable and actually growth in the recipe nut category as I mentioned before because people are staying at home and cooking, but we've cycled against the lost distribution on the shelf that we experienced so you should see those numbers normalized for Fisher going forward.

Some competitors like Smucker put out announcements thing, they're cutting our promotional activity and just focusing on getting product on the shelves.

Are you considering a similar move and.

How do you see the competitive environment changing.

In recent months.

Yes, when retail perspective, we're doing the same thing a lot of it is actually being initiated by retailers, who want to limit the number of people in their stores. During this crisis and so they're reducing their promotional activity and just focusing on the key staples and the key high volume items that consumers are looking for as they come into the store. So we have seen a decrease in trades.

Spend and promotional spending as a result also little bit less shippers and different just distribution vehicles that we used to use and promote our products you're seeing some of that get mitigated as well as a result of more.

Clean store environments and less people in the store.

Well. Thank you congratulations on the new products and and the great quarter.

Thank you.

Yes.

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Thank you as a reminder, that I wanted to ask a question.

Our next question comes from Bruce Winter Investor You May begin.

Yes. Thank you when you say selling ingredient thats too.

For the Houston power bars, and stuff like that do you. So pride ingredion unsure oven roasted never pharma ingredients.

For well for ingredients, it's anything from raw materials to roasted products.

The other roles never fried is our is in our branded portfolio, our Fisher branded portfolio as we don't really.

Used that are offer that type of product in the ingredient channel, it's not a focus for us, but you're right bar businesses do use roasted or dry roasted nuts in their bars.

Our year oven roasted never fried healthier than what goes into those bars.

Well, if it's a dry roasted not that goes into of RMB, just as it would be very similar to our oven roasted ever fried correct.

Okay got it thank you.

Yeah.

Thanks.

Thank you Im showing no further questions I'd like to hand, the call back over to Mike Balow any closing remarks.

Okay. Thank you Norma.

So we appreciate everyone's interest in JV as fast and joining us on this call today.

And this concludes our call for our third quarter of fiscal 2020 operating results.

Ladies and gentlemen that concludes today's conference call. Thank you for participating you may now disconnect.

Okay.

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