Q3 2023 John B. Sanfilippo & Son Inc. Earnings Call
Speaker 1: Thank.
Speaker 2: Good day and welcome to the John B. Samfilippo & Sons, Inc. 3rd Quarter fiscal 2023 operating results conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. Instructions are given at that time.
Speaker 2: As a reminder, this call is being recorded. I would now like to turn the call over to Jeffrey Sanfilippo, CEO . You may begin.
Speaker 3: Thank you. Good morning, everyone, and welcome to our 2023 third quarter earnings conference call.
Speaker 3: Thank you for joining us.
Speaker 3: On the call with me today is Frank Pellegrino, our CFO , and Mike Vinson, our Vice President and Corporate Controller.
Speaker 3: We may make some forward-looking statements today. These statements are based on our current expectations and involve certain risks and ensure that ourBaltimoreans and. That is the
Speaker 3: The factors that could negatively impact results are explained in the various SCC filings that we have made, including forms 10-K and 10-Q. We encourage you to refer to the filings to learn more about these risks and uncertainties that are inherent in our business.
Speaker 3: I am proud to report record diluted earnings per share for our third quarter and our second quarter of double-digit diluted earnings for shared growth.
Speaker 3: This raw performance was mainly driven by volume, growth, and all three of our distribution channels, as our net sales increased by $20 million, or 9.1%, compared to last year's third quarter.
Speaker 3: I'm especially proud of this accomplishment given the ongoing challenging operating and inflationary environment.
Speaker 3: Our Board of Directors met yesterday and approved a $1.50 per share special dividend, reinforcing our goal of creating long-term shareholder value by returning capital to our shareholders.
Speaker 3: The dividend will be paid June 22nd, 2023 to stockholders of record as of June 1st, 2023. As announced last quarter, we began to ship our new product line of private brand nutrition bars to mass merchandising retailers during the third quarter.
Speaker 3: and anticipate shipping private brand nutrition bars to additional customers during the fourth quarter.
Speaker 3: We have received favorable feedback from our retail partners and expect to gain additional nutrition bar customers in subsequent quarters.
Speaker 3: As we look ahead to the fourth quarter and to fiscal 24, we are focused on executing our long-range plan to accelerate volume growth and deliver sustainable earnings growth.
Speaker 3: We will continue to optimize our cost structure, focus on portfolio optimization, diversify our product offerings, and increase flexibility as we continue to respond to the ongoing macroeconomics volatility.
Speaker 3: Our strong operating results would not be possible without the dedication of our talented employees who continue to exceed expectations and create value for our customers and shareholders.
Speaker 3: At this time last year, we were just completing our pricing action to help offset inflationary input costs that most companies faced in 2022.
Speaker 3: And in Q3 last year, we were also overcoming supply chain challenges.
Speaker 3: We are in a much better supply and trade environment today, and we are cycling against a full year where consumers have reacted to higher retail prices at the shelf.
Speaker 3: While there has been demand destruction as a result of the higher prices, we are monitoring consumer behavior and demand trends in all of our categories as retail prices have stabilized.
Speaker 3: We created a long-range plan that defines our future growth priorities.
Speaker 3: And over the past several years, the company has made significant investments in our manufacturing capabilities to support those growth strategies.
Speaker 3: The peanut butter line in our Bainbridge, Georgia facility was upgraded to enhance the quality of our product portfolios and expand capacity.
Speaker 3: As a result, we have increased our peanut butter business with several key customers in our consumer and food service segments.
Speaker 3: The most significant equipment investment and new product capability we've made is manufacturing high quality energy bars.
Speaker 3: We developed an extraordinary cross-functional team to enter a new category for JBSS in a short period of time.
Speaker 3: The hard work, dedication, and leadership demonstrated by our innovation, R&D, engineering, operations, procurement, quality, tech services, marketing, and sales departments has transformed the company.
Speaker 3: JBFS is executing our growth strategy to diversify beyond snack and recipe nuts.
Speaker 3: And our entry into the energy bar category is a great start.
Speaker 3: And we are excited about the opportunities ahead to grow this business segment.
Speaker 3: As I mentioned last quarter, the snack bar category is around $8 billion in size across Omni channels and $6.6 billion in IRI new low and consistently grew for over a decade until the pandemic started.
Speaker 3: Post-COVID, it has bounced back with strong dollar growth this past year.
Speaker 3: One of the white spaces in the category is high quality retailer brand offerings.
Speaker 3: And we believe JBSS can become the partner of choice in the nutrition bar segment for retailer brands given our strong track record of quality, service, and innovation.
Speaker 3: We also announced the acquisition of the Just the Cheese brand completed during the second quarter of fiscal 23.
Speaker 3: We are excited to add the brand to our portfolio as it complements our current brand offerings in the smart category.
Speaker 3: And the acquired production capabilities will help accelerate growth of our private brand and food service customers.
Speaker 3: The chief category is an exciting new business segment for JPSS.
Speaker 3: We recently gained new distribution for this brand in our consumer channel with shipments beginning at the end of our fourth quarter.
Speaker 3: There are also plans for this new product capability to develop inclusions and mixes to differentiate our brand and to offer to our private brand partners.
Speaker 3: In addition to entering new product categories, a long-range growth plan also includes transforming our branded portfolio.
Speaker 3: I mentioned on our last call the relaunching and rebranding of our Orchard Valley Harvest product portfolio. The new product and packaging are just entering the market now.
Speaker 3: and we are focused on expanding distribution, building brand awareness and trial with innovative marketing programs.
Speaker 3: and allocating a portion of the sales to support our partner, Conscious Alliance, to help end child hunger.
Speaker 3: We will report more on our OVH performance in future earnings calls.
Speaker 3: At this time, I'll turn the call over to Frank to discuss our financial performance.
Speaker 4: Okay, thank you Jeffrey. Starting with the income statement, net sales for the third quarter of fiscal 2023 increased 9.1%, 238.5 million, and net sales of 218.6 million for a third quarter of fiscal 2022.
Speaker 4: The increase in net sales was attributable to a 5.0% increase in sales volume.
Speaker 4: which is defined as pound-soaked customers.
Speaker 4: and a 3.9% increase in weighted average sales price per column. The increase in the weighted average selling price was mainly attributable to the normalization of selling prices with 3.9 acquisition costs.
Speaker 4: as well as higher commodity acquisition costs for peanuts and dried fruits.
Speaker 4: Sales volume increased 2.1% in the consumer distribution channel, primarily due to a 2.1% increase in sales volume for our private brands, partially offset by a 0.6% decrease in sales volume for branded products.
Speaker 4: New private brand peanut butter business at a mass merchandising retailer and increased peanut butter distribution at a grocery store retailer were substantially offset by lost distribution with a private brand grocery customer that occurred in the fourth quarter of fiscal 2022.
Speaker 4: Excluding this loss of distribution, private brand sales volume grew by 4.7%.
Speaker 4: The sales volume decrease for our brand of products, which includes Fisher recipe nuts, Fisher snack nuts, Orchard Valley Harvest, and Stoddard style nuts was mainly attributable to a 15.7% decrease in the sales volume of Fisher snack nuts.
Speaker 4: due to decreased merchandising activity at a major customer and a seasonal rotation at a club store has not repeat in the current order.
Speaker 4: This decrease was significantly offset by a 20.8% increase in sales volume of orchard value harvests.
Speaker 4: due to the timing of sales of major customers in the non-food sector, who delayed their orders from a previous quarter, and increased promotion support at that same customer.
Speaker 4: Sales volume increased 18.9% in the commercial ingredients channel due to a 30.5% increase in sales volume to food service customers due to increased peanut butter distribution and existing customers.
Speaker 4: Sales volume increased 7.5% in the contract packaging distribution channel, primarily due to increased peanut and cash distribution and an existing customer.
Speaker 4: Third quarter gross profit margins as a percentage of net sales increased to 20.9%, compared to 18% for the third quarter fiscal 2022 as margins have returned to more normalized levels.
Speaker 4: The prior comparable quarter was negatively impacted by higher-risk anticipated commodity acquisition costs and other inflationary costs increases.
Speaker 4: Gross profit increased 10.4 million or 26.3 percent due to the same reasons contributing to the increase in gross profit margins as well as increased sales loss.
Speaker 4: Total operating expenses for the third and third quarter increased $6 million in the quarterly comparison due to increases in incentive and base compensation, consumer insight research, and related consulting expenses..
Speaker 4: as well as a one-time gain in the comparable quarter, which does not reoccur in the current quarter.
Speaker 4: These increases were partially offset by a decrease in credit expense. Total operating expenses for the current third quarter increased 11.7% of net sales and 10.1% for last year's third quarter due to reasons I just cited. Interest expense for the current third quarter increased to $600,000.
Speaker 4: or $1.02 per deluge share for a third quarter fiscal 2022.
Speaker 4: per deluge share for the third quarter fiscal 2022. Now taking a look at inventory.
Speaker 4: The total value of inventory on hand at the end of the current third quarter decreased 0.8 million or 9.8 percent in part to the end of the third quarter fiscal 2022.
Speaker 4: The decrease in the value of inventories was primarily due to lower climatic acquisition costs for all major tree nuts. Partially offset by higher acquisition costs for peanuts and other raw materials.
Speaker 4: and higher-end chain quantities of raw materials and gases.
Speaker 4: The weighted average cost per pound of raw nuts and dried fruit input stock on hand at the end of the current quarter decreased 24.1 percent compared to the weighted average of materials compared to foodic safety metrics But those horrible methods are prescribed at higher magnitude although important in order to make the progress which make them global not the best. My name is &ich
Speaker 4: cost per pound at the end of the third quarter of fiscal 2022.
Speaker 4: and was driven by Laura Epperson-Koss for all major treatments.
Speaker 4: Moving on to year-to-date results, net sales for the first three quarters of the current year increased 9.6% to 765.5 million, and occurred the first three quarters of fiscal 2022.
Speaker 4: The increase in net sales was primarily attributable to an 8.8% increase in the weighted average selling price per pound and a 0.8% increase in sales value.
Speaker 4: The sell size increase in the commercial ingredients channel and contract packaging channels were offset by spike sell size declines in the consumer channels.
Speaker 4: Gross profit margin was unchanged at 20.5%. Total operating expenses for the current year-to-date period increased $7.8 million to $88.2 million. The increase in total operating expenses was mainly due to increases in incentive-based and FV computation expense and sales growth of commercial expenses.
Speaker 4: In addition, a non-reoccurring gain of approximately $2.3 million from the sale of our Gary's Birth North Carolina facility, which occurred in the first quarter of fiscal 2022, also contributed to the overall increase. In addition, a non-reoccurring gain of approximately $2.3 million from the sale of our Gary's
Speaker 4: These increases were partially offset by decreases in advertising spend and credit expense. Net income for the first three quarters of fiscal 2023 was $48.2 million or $4.14 per diluted share. Compared to net income of $44.4 million or $3.83 per diluted share of the first three quarters of fiscal 2020. Let's go.
Please report for a thank you, which was followed yesterday, for additional details regarding our financial performance for a third quarter fiscal of 2023. Now I'm going to call over to Dr. James Leopold to provide additional comments on our operating results for third quarter fiscal of 2023 and discuss category trends. Great. Thanks, Frank. Appreciate the financial updates. Thanks, Frank.
I'd like to now share some category and brand results with you for the quarter.
As always, the market information I'll be referring to is IRI reported data, and for today it is the period ending March 26, 2023. When I refer to Q3, I'm referring to 13 weeks of the quarter ending March 26. References to changes in volume or price are versus the corresponding period one year ago.
We look at the category of RRI's total U.S. definition, which includes food, drug, mass, Walmart, military, and other outlets, unless otherwise specified. When we discuss pricing, we are referring to average price per pound. Wake up to the recipe, snack, and produce nut segments.
are based on our custom definitions developed in conjunction with IRA.
And the term velocity refers to the sales per point of distribution. First, the total nut and trail mix category looks flat in dollars and down 2% in pound volume in Q3.
This is actually slightly better pound rate than we saw last quarter, while retail dollars might be declined.
All segments continue to decline in pound volume Q3, while trail mix and snap nuts green dollars.
Overall, prices across the category were up in Q3 versus the prior year 3%.
Pricing has started to moderate across segments. For references, prices were up 5.3% in just Q2 of this year.
Now we'll cover each segment in more depth, starting with recipe notes.
The recipe nut segment was down 1% in dollar sales and down 3% in pound sales. This is slightly worse dollar performance than we saw in Q2, but better pound performance.
Prices of recipe nuts were up 2.1% versus last year. Price increases have moderated since the beginning of our fiscal year.
Our Fisher brand had another successful quarter, growing 20% in dollars and 21% in pounds. Fisher's performance resulted in a growing dollar share of 2.9 points, and Fisher remains the branded leader. Fisher's performance was driven primarily by increased distribution and velocity in the mass channel. Fisher's performance was driven primarily by increased distribution and velocity in
Now let me turn to the snack notes segment.
In Q3, the SNEDMA segment was up 1% in dollar sales and down 1% in pound sales.
This is slightly better than the performance we saw in Q2. Like we saw in Recipe, pricing is starting to stabilize in the snap net category, with prices up 1.6%.
Fisher Snack performed worse in the category, down 3% in dollars and 11% in pounds. On Peanuts, the largest nut type within our Fisher brand, we are continuing to see significant competitive pricing and promotional pressure.
We are executing our competitive response by balancing profitable growth and not contributing to devaluation of the peanut category.
We have also lost distribution on fisher's smaller pack sizes as consumers are looking towards larger value packs.
We continue to see strong results in the oven roasted never fried line across our large sizes.
We are focused on continuing to build distribution and drive velocities against this line.
The trail and snack mix segment was up 5% in dollars in Q3 and down 2% in pounds, relatively consistent with the performance we saw in Q2.
Prices of trail mixes were up 7.3%, slightly lasting the last quarter.
Our Southern Style Nut Brand declined 5% in dollars and 8% in pounds. We're slowly driven by the club channel as competitive and pricing pressure has increased.
The brand continues to grow in mass and grocery. Private brands continue to drive the trail mix category growth up 6% in dollars in Q3.
Our last segment, produce maps, declined 2% in dollar sales and 5% in pound volume Q3. This is slightly worse than the performance we saw in Q2.
A Produce Nut Brand or Chazale Harvest declined 14% in dollar sales and 10% in pound sales driven by distribution declines in a mass retailer offsetting strong performance in the grocery channel. We have started the repositioning and relaunch of this brand as I mentioned and we should start seeing new products flow into the market next quarter.
I'd now like to turn the call back over to Michelle to open up the line for any questions. Michelle? There was a Was universes celebration, how was it going to be like?
Thank you. If you'd like to ask a question, please press star 11. If your question has been answered and you'd like to move yourself in the queue, please press star 11 again. Again, to ask a question, please press star 11.
I'm not showing any questions. I'd like to turn the call back over to Jeffrey Sampalipo for closing remarks.
every person that helps support our business.
of challenges in the future, which include the impact of ongoing inflation in food and other input prices. It is needed to scientist, see how many people a person can tell them aoor anybody who buys
rising interest rates that reduce economic growth, and the potential for an economic downturn in the markets in which we operate. We also continue to experience a tightening in the labor market for those employed at our production facilities, which has led to increased labor costs. However, I am very confident in the strategic investments we have made in our peoples, our
quickly to overcome headlines.
new brand opportunities, as well as pursue elevated demand with our private brand retail partners.
I'm confident we have the right strategies, talents, and business models to continue to grow and provide exceptional value and innovation for our customers and consumers. We appreciate your participation in the call and thank you for your interest in our company. Have a great day.
This concludes today's conference call. Thank you for participating. You may now disconnect.
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