Q2 2024 John B. Sanfilippo & Son Inc Earnings Call

Yeah.

Good day, and thank you for standing by and welcome to the John B essentially born son sake second quarter fiscal 2024 operating results conference call. At this time all participants are in a listen only mode. After the speaker's 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.

I Didnt mentioned message advising your hands raised to withdraw your question. Please press star one again, please be advised that today's conference is being recorded I would now like.

I'll hand, the conference over to your first speaker today Jefferies essentially bow CEO. Please go ahead.

Thank you Victor.

Good morning, everyone and welcome to our 'twenty 'twenty four second quarter earnings conference call. Thank.

Thank you for joining us.

On the call with me today is Frank Pellegrino, our CFO.

We may make some forward looking statements today.

Statements are based on our current expectations and they involve certain risks and uncertainties.

The factors that could negatively impact results are explained in the various SEC filings that we've 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.

Starting with the overall corporate for performance, we delivered a record second quarter net sales of $291 million.

This beats the previous Q2 sales record of $279 million in fiscal 2016.

In addition, we delivered a very strong 13, 1% increase in diluted earnings per share, which includes the dilutive impact of the Lakeville acquisition.

This was a significant quarter for our company as it represents the first quarter of financial results that includes our recent lakeville acquisition.

The Lakeville business increased our quarterly sales volume by 11 6 million pounds or 14, 4% over the second quarter of fiscal 'twenty three.

And increased quarterly net sales by approximately $28 $7 million or 10, 5% over the second quarter of fiscal 'twenty three.

We also sold approximately $1.9 million of our own internally developed nutrition bars, which complements the snack bars produced in lakeville.

Furthermore, at the beginning of December we completed key integration steps for the Lakeville acquisition now begun optimizing the facilities operations.

We are in a great position to grow our business and the Lakeville plant.

And we have our first major customers visiting the manufacturing facility in the coming months.

This time last year I mentioned that Jbs S was excited to enter the $8 billion snack bar category across Omnichannel.

The white space in the category is high quality retailer brand offerings.

And now Jbs S is positioned to become a partner of choice in the nutrition and snack bars section for private brands, given our strong track record of quality service and integration.

I would like to personally thank each member of the integration team for all their hard work.

Personal sacrifices and dedication to successfully complete the lakeville transition in less than three months.

I'm so proud of leaders we have here at Jbs S.

The company has proven it can integrate businesses into our portfolio as we build bench strength for future M&A.

And we are confident we will see value creation from this latest acquisition as we execute our growth strategies to further diversify our capabilities and product portfolio.

The management team is focused on executing the company's long term strategic plan for growth to become a $2 billion business.

This quarter I want to highlight our commercial ingredient channel.

While the channel only represents approximately 11% of our net sales. The foodservice component is an important focus for growth.

Our team continues to advance strategic partnerships across distributors in key non commercial operators.

These partnerships serve to mitigate supply risk and supports sustained growth over time.

That commercial has been a key catalyst for boats back of house ingredient sales and foodservice branded retail growth.

Since the beginning of fiscal 'twenty three non commercial has provided 2.4 million pounds of growth and.

And J P. S S branded items, including Fisher and Orchard Valley harvest snacks have been placed in over 40000, new points of distribution, which include micro markets vending and foodservice retail outlets.

We see the non commercial space, continuing as a strategic growth area for the company.

We are executing our growth strategies by investing in our people and our culture.

We are being intentional in diversifying our workforce and creating a robust and inclusive leadership team across the organization.

We are being intentional in improving our impact on the environment and being good stewards in the communities, where we live and work.

I am proud of the hard work and progress our corporate responsibility team is making to define a framework for our goals and execute initiatives.

We are living our mission to create real food that brings joy nurses people and protect the planet.

I will now turn the call over to Frank Pellegrino, our CFO to provide additional information on our financial performance for second fiscal quarter.

Thank you Geoffrey.

Starting with the income statement net sales for second quarter of fiscal 2024 increased six 2% to $291 2 million compared to net sales of 274.3 million for second quarter of fiscal 2023.

Net sales for second quarter of fiscal 2024 include approximately $28 7 million of net sales in the Lakeville acquisition.

Excluding the Lakeville acquisition net sales decreased $11 8 million or four 3%.

The decrease in net sales was due to a 1.7% decrease in the weighted average sales price per pound.

We're at two 6% decrease in sales volume, which is defined as pounds salt to customers.

Sales volume for Peanuts, and all major tree nuts declining the current second quarter.

The decrease in the weighted average selling price primarily resulted from lower commodity acquisition costs for most major tree nuts.

Which was partially offset by higher commodity acquisition costs for peanuts.

Sales volume increased 15, 3% in the consumer distribution channel, primarily due to Lakeville acquisition, whose sales volume is almost exclusive exclusively private brand bars.

Excluding the impact of the Lakeville acquisition sales volume decreased two 8% in the consumer distribution channel primarily due to a 10.5% decrease in sales volume for our branded products, which include Fisher recipe nuts Fisher.

Fisher snack nuts Orchard Valley harvest and southern style nuts.

The sales volume decrease for our branded products was mainly attributable to a 12, 6% decrease in sales volume for Fisher recipe nuts, due to soft consumer demand across mass merchandising and grocery retailers and less merchandising activity at several grocery retailers.

Sales volume for southern style nuts decreased 36, 7% due to reduced distribution and promotional programs at a club store customer.

The above branded decreases were partially offset by 15, 5% increase in sales volume for Orchard Valley harvest, which was mainly due to increased distribution at a major customer in the non food sector.

Private brand sales volume in the consumer distribution channel increased by 22% due to their lakeville acquisition.

Excluding lakeport acquisition, there was a 2.3% decrease in private brand sales.

Due to soft consumer demand at a mass merchandising retailer allow us fewer seasonal items at a narrowed mass merchandising retailer.

These decreases were partially offset by increased distribution of seasonal items at a grocery retailer.

Sales volume increased six 5% in the commercial ingredients channel due to a onetime sale associated with the Mako acquisition.

Excluding the Mako acquisition sales volume increased two 8% due to increased <unk> sales to several existing foodservice and industrial customers.

This increase was partially offset by decreased volume at foodservice distributor due to competitive pricing pressures.

Sales volume decreased eight 6% in the contract packaging distribution channel, primarily due to fewer seasonal items reduced promotional activity at a major customer and item.

Discontinuance at another customer.

Second quarter gross profit margin as a percentage of net sales decreased to 19, 9% compared to 26% for our second quarter fiscal 2023.

The decrease in gross profit margin was mainly due to <unk> acquisition, which negatively impacted gross profit by approximately three 3% or $2 9 million.

Of which $1 2 million or one time expenses.

Excluding lakeport acquisition gross profit margin increased by approximately 260 basis points, mainly due to lower commodity acquisition costs for most major tree nuts increased manufacturing efficiencies improved product mix and reduce noncompliant inventory.

Gross profit increased $1.4 million or two 5%, mainly due to higher net sales base.

Excluding lakeport acquisition gross profit increased approximately $4 3 million or 7.7% due to same reasons cited for the gross profit margin increase.

Total operating expenses for a second for the current second quarter decreased $1.7 million in Macquarie comparison, mainly due its a one time $2.2 million bargain purchase gain associated with the Mako acquisition.

This decrease was partially offset by approximately 1.2 million and operating expenses associated with Allegro acquisition.

We're at 600000 or one time expenses.

Excluding lakeport acquisition total operating expenses decreased 700000, mainly due to decreases in freight and advertising spend which was partially offset by increases in incentive compensation charitable food donations and insurance expense.

Total operating expenses for the current second quarter decreased to 10, 4% of net sales.

From 11.7% for last years second quarter due to the reasons noted above.

And a higher net sales base visa Lakeville acquisition.

Excluding the impact of the Lake for acquisition total operating expenses as a percentage of net sales increased slightly to 11, 9% from 11, 7%.

Interest expense for the current second quarter increased to $1 1 million from 600000 for the second quarter of fiscal 2023, primarily due to the higher average debt levels due to lake or acquisition and higher weighted average interest rates.

Net income for the second quarter of fiscal 2024 was $19 2 million or a dollar in 64 cents per diluted share compared to $16 9 million or $1 45 per diluted share for our second quarter fiscal 2023.

Now taking a look at inventory.

The total value of inventories on hand at the end of the current second quarter increased $24 3 million or 14% compared at par value of inventories on hand at the end of the second quarter of fiscal 2023.

The increase was mainly due to the $36 2 million of inventory associated with the <unk> acquisition.

Excluding the <unk> acquisition.

Sort of inventory on hand decreased $12 million or six 9% year over year.

The decrease in value of inventories was primarily due to lower quantities of work in process raw materials, and Laura on hand quantities and lower commodity acquisition costs for almonds and cashews.

Partially offset by higher quantities of pecans, and walnuts and higher commodity acquisition costs for peanuts and walnuts.

Excluding the impact of the <unk> acquisition, the weighted average cost per pound of raw nut and dried fruit input stocks on hand at the end of the current quarter decreased nine 8% compared to weighted average cost per pound at the end of the second quarter of fiscal 2023 and was mainly due to the reasons mentioned previously.

Moving on to the year to date results.

Net sales for first two quarters of the current year decreased by <unk>, 3% to $525 3 million compared to the first two quarters of fiscal 2023.

Excluding the impact of Allegro acquisition net sales decreased five 7%.

$496 6 million.

The.

Net sales, excluding lakeville was primary attributable to a 4.9% decline in sales volume and a 0.8% decrease in weighted average selling price per pound.

Sales volume increased two 3% excluding.

Operator: Go to Beadaholique.com for all of your beading supplies needs! Beading supplies needs! Today, and thank you for standing by, welcome to the John B. Sanfilippo & Sons Second Quarter Fiscal 2024 Operating Results Conference Call. At this time, all participants are in a listen-only mode.

Excluding the impact of acquisitions sales volume decreased four 9%, primarily due to sales volume decreases in the consumer and contract packaging channels.

Gross profit margin increased one 6% to 21, 9% of net sales.

Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 101 on your telephone. You will then hear an automated message advising that your hand is raised.

The increase in gross profit margin was mainly attributable to lower commodity acquisition costs for all major tree nut commodities, except peanuts and was partially offset by the impact of the Lakeville acquisition as noted previously.

Operator: To withdraw your question, please press star 101 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jeffrey Sanfilippo, CEO. Please go ahead.

Okay.

Total operating expenses for the current year to date period increased $2 5 million to $62 8 million. The increase in total operating expenses was mainly due to increases in advertising expense Ingram.

Jeffrey T. Sanfilippo: Thank you, Victor. Good morning, everyone, and welcome to our 2024 second quarter earnings conference. Thank you for joining us. On the call with me today is Frank Pellegrino, our CFO. We may make some forward-looking statements today. These statements are based on our current expectations, and they involve certain risks and uncertainties. The factors that could negatively impact results are explained in the various SEC filings that we have made, including Forms 10-K and 10-Q. We encourage you to refer to those filings to learn more about these risks and uncertainties that are inherent in our business.

Incremental operating expenses associated with the <unk> acquisition and charitable food donations.

These increases were offset by one time bargain purchase gain previously cited and a decrease in freight expense.

Net income for the first two quarters of fiscal 2024, it was $36 8 million or $3.15 per diluted share compared to net income of $32 5 million or $2 79 per diluted share for the first two quarters of fiscal 2023.

Please refer to our 10-Q, which will be filed later today for additional details regarding our financial performance for our second quarter fiscal 2024.

Jeffrey T. Sanfilippo: Starting with overall corporate performance, we delivered a record second quarter net sales of $291 million. This beats the previous Q2 sales record of $279 million in fiscal 2016. In addition, we delivered a very strong 13.1% increase in diluted earnings per share, which includes the dilutive impact of the Lakeville acquisition. This was a significant quarter for our company as it represents the first quarter of financial results that includes our recent Lakeville acquisition. The Lakeville business increased our quarterly sales volume by 11.6 million pounds or 14.4% over the second quarter of fiscal 23, and increased quarterly net sales by approximately 28.7 million dollars or 10.5 percent over the second quarter of fiscal 2020. We also sold approximately $1.9 million of our own internally developed nutrition bars, which complements the snack bars produced in Lakeville. Furthermore, at the beginning of December, we completed key integration steps for the Lakeville acquisition and have begun optimizing the facility's operation.

Now I'll turn the call back over to Geoffrey to provide additional comments on our operating results for our second quarter fiscal 2024 and discuss CAGR charts.

Thanks Blake.

For the financial updates.

Continue to navigate a challenging operating environment.

Yes.

And causes consumers will.

It will take some time now to give you a category and brand results for the first for the second quarter.

As always the market information I'll be referring to is their contact reported data and for today. It is for the period ending December 31 2023.

When I refer to Q2, I'm, referring to 13 weeks in the quarter ending December 31 23.

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

We look at the category answer Canada's total U S definition, which includes food drug mass Wal Mart military and other outlets unless otherwise specified and when we discuss pricing we are referring to average price per pound.

Breakouts of recipe snack and produce are based on our custom definitions developed in conjunction with their content.

Jeffrey T. Sanfilippo: We are in a great position to grow our business in the Lakeville plant, and we have our first major customers visiting the manufacturing facility in the coming months. This time last year, I mentioned that JBSS was excited to enter the $8 billion snack bar category across Omnichannel. The white space in the category is High Quality Retailer Brand Offerings. And now, JBSS is positioned to become a partner of choice in the nutrition and snack bar section for private brands, given our strong track record of quality service and integration. I would like to personally thank each member of the integration team for all their hard work, personal sacrifices, and dedication to successfully complete the Lakeville transition in less than three months. I'm so proud of the leaders we have here at JBSS.

And the term velocity refers to the sales per point of distribution.

In the latest quarter, we saw continued to see a shift in consumer behavior, not just in the net and trailed categories, but in the broader snack aisle as defined by <unk>.

We are seeing volume declines no longer offset by prices across the entire snack aisle as consumers tightened their budgets in response to stubbornly high food prices.

Covid era, snap and student loan benefit sending and future economic uncertainty is impacting consumer behavior.

The snack aisle declined three 6% in volume and was relatively flat in dollars in Q2 of.

This is down from a two 3% volume decline and a 3% dollar growth rate in Q1.

The total nut and trail mix category was down four 4% in dollars and down four 8% in pound volume in Q2.

Jeffrey T. Sanfilippo: The company has proven it can integrate businesses into our portfolio as we build bench strength for future M&A, and we are confident we will see value creation from this latest acquisition as we execute our growth strategies to further diversify our capabilities and product portfolio. The management team is focused on executing the company's long-term strategic plan for growth to become a $2 billion business. This quarter, I want to highlight our commercial ingredient channel. While the channel only represents approximately 11% of our net sales, the food service component is an important focus for growth. Our team continues to advance strategic partnerships across distributors and key non-commercial operators. These partnerships serve to mitigate supply risk and support sustained growth over time.

This is a decline versus what we saw last quarter.

Overall price increases across the category have moderated with price per pound flat versus the prior year.

While prices have stabilized the price per pound is still close to a five year high.

Now I will cover each segment in more depth, starting with recipe nuts.

The recipe nuts were down seven 5% in dollar sales and down two 6% in pound sales.

This is declining performance versus what we saw in Q1.

During the holiday season, we saw consumers choose either smaller entry pack sizes or very large value pack sizes. This is a common shifts we are seeing as consumers look to stretch their dollars even during holiday meal planning.

Rice's of recipe nuts were down 5% versus last year, driven by walnuts and pecans.

Jeffrey T. Sanfilippo: That commercial has been a key catalyst for both back-of-house ingredient sales and food service branded retail. Since the beginning of fiscal 23, non-commercial has provided 2.4 million pounds of growth, and JBSS branded items, including Fisher and Orchard Valley Harvest snacks, have been placed in over 40,000 new points of distribution, which include micromarkets, vending, and food service retail outlets. We see the non-commercial space continuing as a strategic growth area for the company. We are executing our growth strategies by investing in our people and our culture. We are being intentional in diversifying our workforce and creating a robust and inclusive leadership team across the organization who are intentional in improving our impact on the environment and being good stewards in the communities where we live and work. I am proud of the hard work and progress our corporate responsibility team is making to define a framework for our goals and execute initiatives.

Our Fisher brand declined in Q2 after almost two years of consistent growth as we lost promotional programs and promotional space of a major grocery customer and the major mass customer fit.

Fisher declined 13% in dollars and 14% in pounds.

The brand still is the nut brand recipe nut leader and we are actively working on ways to engage consumers with the right price pack architecture and promotions.

Now I'll turn to the snack category.

In Q2 snack nuts were down 3% in dollar sales and down 4% in pounds. This is consistent with the performance we saw in Q1.

Pricing continues to stabilize in the snack nut category with prices relatively flat.

Sure snack performed worse than the category down 27% in dollars and 25% in pounds.

This continues to be driven by significant distribution loss in the mass channel combined with velocity softness in food.

Frank Pellegrino: We are living our mission to create real food that brings joy, nourishes people, and protects the planet. I will now turn the call over to Frank Pellegrino, our CFO, to provide additional information on our financial performance for our second fiscal quarter. Thank you, Jeffrey.

We are continuing to find the right balance between pricing and promotional strategy to optimize our performance.

Private label snacks are performing slightly better than the category only down 2% in dollars and down 3% in pounds.

Trail and snack mixes were down 2% in dollars and down 4% in pounds in Q2 slightly worse than the performance we saw in Q1.

Frank Pellegrino: Starting with the income statement, net sales for the second quarter of fiscal 2024 increased 6.2 percent to $291.2 million compared to net sales of $274.3 million for the second quarter of fiscal 2023. Net sales for the second quarter of fiscal 2024 include approximately 28.7 million of net sales from the Lakeville acquisition. Excluding the Lakewood acquisition, net sales decreased $11.8 million, or 4.3%. The decrease in net sales was due to a 1.7% decrease in the weighted average sales price per pound, combined with a 2.6% decrease in sales value, which is defined as pounds sold to customers, sales volume for peanuts and all major tree nuts declined in the current second quarter. The decrease in the weighted average selling price primarily resulted from lower commodity acquisition costs for most major tree nuts, which was partially offset by higher commodity acquisition costs for peanuts

<unk> of trail mix were up 2% slightly less than the last quarter.

Our southern style nuts brand declined 25% in dollars and 33% in pounds.

Declines were entirely driven by lost distribution in the club channel.

However, the brand continues to grow in mass.

Private brands the share leader in trail mixes performed slightly worse than that category down 3% in dollars and 5% in pounds.

Lastly, produce nuts declined 6% in dollar sales and 8% in pound volume in Q2 slightly worse than the performance we saw in Q1.

Our produced nut brand Orchard Valley harvest declined 15% in dollar sales and 9% in pound sales driven by distribution declines at a mass retailer.

On a positive note the brand is seeing significant growth in the food channel growing 15% in dollars and 20% in pounds.

We are continuing to drive awareness and trial of our new products and packaging at retail.

Frank Pellegrino: Sales volume increased 15.3% in the consumer distribution channel, primarily due to the Lakeville Acquisition, whose sales volume is almost exclusively private brand bars. Excluding the impact of the Lakeville acquisition, sales volume decreased 2.8% in the consumer distribution channel, primarily due to a 10.5% decrease in sales volume for our brand and products, which include Fisher Recipe Nuts, Fisher Snack Nuts, Orchard Valley Harvest, and Southern Style.

In addition to reporting on the net and trail mix categories. We will begin to report on the snack bar category given our recent acquisition.

This quarter, we will report high level performance of the snack bar category and private label snack bars as defined by <unk> for.

For the same 13 weeks ending December 31 2023.

We are actively working on defining the right segmentation and reporting for this category. So we can come with a more detailed view of poor performance in future calls.

Frank Pellegrino: The sales volume decrease for our branded products was mainly attributable to a 12.6% decrease in sales volume for Fisher Recipe Nuts due to soft consumer demand across mass merchandisers and grocery retailers and less merchandising activity at several grocery retailers. Sales volume for Southern Style Nuts decreased 36.7% due to reduced distribution and promotional programs at a club store customer. The above branded decreases were partially offset by a 15.5% increase in sales volume for Orchard Valley Harvest, which is mainly due to increased distribution and a major customer in the non-food sector. Private brand sales volume, the consumer distribution channel, increased by 20.2% due to the Lakeville acquisition.

In Q2, the snack bar category declined one 3% in dollars and four 2% in pounds snap.

Snackbar pricing increased by 3% in Q2.

Private label buyers continue to grow in dollars up 10, 10, 1% and pounds were up two 1%.

Private label bars continue to expand in stores picking up 5% more in total points of distribution, while prices rose seven 8%.

We continue to see positive momentum in private label in the snack and nutrition bar categories.

In closing we start the second half of fiscal 'twenty, four with cautious optimism as we expand our product offerings in the snack bar category.

At the same time, the snack nut and trail categories are facing headwinds with declining consumption.

Frank Pellegrino: Excluding the Lakeville acquisition, there was a 2.3% decrease in private brand sales, again due to soft consumer demand at a mass merchandiser, along with fewer seasonal items at another mass merchandiser. These decreases were partially offset by increased distribution of seasonal items at a grocery retailer. Sales volume increased 6.5% in the commercial ingredients channel due to a one-time sale associated with the LACOE.

Our sales and marketing teams are working hard to expand distribution and determine the most efficient price pack architecture to entice consumers back to the category and turnaround sales velocity.

Our R&D insights and tech services teams are designing a pipeline of differentiated and innovative products to bring to market.

And our operations procurement administration and continuous improvement teams continue to look at ways to optimize our manufacturing and supply chain to reduce costs.

Frank Pellegrino: Excluding the Lakeville acquisition, sales volume increased 2.8 percent due to increased peanut butter sales to several existing food service and industrial customers. However, this increase was partially offset by decreased volume at a food service distributor due to competitive pricing pressure. Sales volume decreased 8.6% in the Contract Packaging Distribution Channel, primarily due to fewer seasonal items, reduced promotional activity at a major customer, and item discontinuance at another customer. Second quarter gross profit margin, as a percentage of net sales, decreased to 19.9%, compared to 20.6% for the second quarter of fiscal 2023.

As always we will continue to respond to challenges, including the current economic and operating environment and the recent category contraction.

I believe we have the right team initiatives and strategies to overcome these challenges to provide differentiated value to our customers and consumers and deliver long term shareholder value.

Our management team and all our associates continue to work hard to expand our business to build stronger brands to build more innovative product platforms and to provide higher levels of quality and service.

Frank Pellegrino: The decrease in gross profit margin was mainly due to the Lakefield acquisition, which negatively impacted gross profit by approximately 3.3% or 2.9 million, of which 1.2 million were one-time expenses. Excluding the Lakeville acquisition, gross profit margin increased by approximately 260 basis points, mainly due to lower commodity acquisition costs for most major tree nuts, increased manufacturing efficiencies, improved product mix, and reduced non-compliant inventory. Gross profit increased 1.4 million or 2.5%, mainly due to higher net sales base. Excluding the Lakewood acquisition, gross profit increased approximately $4.3 million, or 7.7%, due to the same reasons cited for the gross profit margin increase. Total operating expenses for the current second quarter decreased $1.7 million in the quarterly comparison, mainly due to a one-time $2.2 million bargain purchase gain associated with the Lakeville acquisition. This decrease was partially offset by approximately $1.2 million in operating expenses associated with the late acquisition. Upward of $600,000 was a one-time expense.

Jbs S is positioned well for strong results in the future.

We appreciate your participation in the call and thank you for your interest in the company.

We will now open the call to questions.

Victor to queue up the first question.

And at this time, we will conduct a question and answer session. As a reminder to ask a question you're going to press star one on your telephone.

For name to be announced to withdraw your question. Please press star one again please.

Please standby, we compile the Q&A roster.

One moment for our first question.

Our first question will come from the line of Nick <unk> from <unk>. Your line is open.

Hi.

This quarter it looked like the core business, but not did about 38 cents a pound in operating profit and I was wondering is that sustainable.

Thanks.

Look at that that number.

Nick I'm not sure.

Hi.

Come up that number.

I would just removing that everything without lakeville, just the core business.

That seems a little bit low to me, it's going to go back to our records I don't think its that loan.

Frank Pellegrino: Excluding the late acquisition, total operating expenses decreased $700,000 mainly due to decreases in freight and advertising spend, which was partially offset by increases in incentive compensation, charitable food donations, and insurance. Total operating expenses for the current second quarter decreased at 10.4% of net sales, from 11.7% for last year's second quarter due to the reasons noted above and a hired Nutshells based Visa Lakeville acquisition. Excluding the impact of the Lakeville acquisition, total operating expenses as a percentage of net sales increased slightly to 11.9% from 11.7%. Interest expense for the current second quarter increased to $1.1 million from $600,000 for the second quarter of fiscal 2023, primarily due to the higher average debt levels due to the LACOR acquisition and higher weighted average interest.

On operating not like a gross profit at 78 or 79 I just meant like.

EBITDA or EBIT sorry.

Yes, I think.

What that clarification, yes that does make sense now as you know we are.

Switching commodity acquisition cycle, so again, our prices reset in Q3 and Q4. So if you go back to the historical operating <unk> per pound.

Should it be maintaining consistent operating income per pound based on historical averages which is in that.

High twenties, low 30 cents per pound.

And then.

For the industry. It sounds like it was just shrinking in general so as planters called back on their promotional activity.

They've reallocated promotions from their peanut platform now, they're focusing more on their cash your platform. So they just shifted some of their investment spending.

Frank Pellegrino: Net income for the second quarter of fiscal 2024 was $19.2 million, or $1.64 per diluted share, compared to $16.9 million, or $1.45 per diluted share, for the second quarter of fiscal 2020. Now, taking a look at inventory. The total value of inventories on hand at the end of the current second quarter increased to $24.3 million, or 14%, compared to the total value of inventories on hand at the end of the second quarter of fiscal 2023. The increase was mainly due to the $36.2 million of inventory associated with the Lakeville acquisition. Including the Lakeville acquisition, the value of total inventories on hand decreased $12 million, or 6.9%, year over year.

But they are still very aggressive to build share in the category.

Paul.

Yes.

Basically by two main questions that I have a couple more but I have to run.

Okay. Thank you.

Thank you one moment our next question.

Okay.

Our next question comes from the line of Lance James from RBC Global asset management. Your line is open.

Thanks, Congratulations on the quarter.

Just wondering what your takeaways early on.

Any positive or negative surprises from the Lakeville acquisition anything you've been.

Frank Pellegrino: The decrease in the value of inventories was primarily due to lower quantities of work in process, raw materials, and lower on-hand quantities and lower commodity acquisition costs for almonds and cashews, partially offset by higher quantities of pecans and walnuts and higher commodity acquisition costs for peanuts and walnuts. Excluding the impact of the Lakewood acquisition, the weighted average cost per pound of raw nut and dried fruit input stock on hand at the end of the current quarter decreased 9.8% compared to the weighted average cost per pound at the end of the second quarter of fiscal 2023 and was mainly due to the reasons mentioned previously. Moving on to the year-to-date results, net sales for the first two quarters of the current year decreased by 0.3 percent to 525.3 million compared to the first two quarters of fiscal 2023; excluding the impact of the Lakewood acquisition, net sales decreased 5.7% to $496.6 million. The decrease in net sales, excluding Lakeville, was primarily attributable to a 4.9% decline in sales volume and a 0.8% decrease in the weighted average selling price per pound.

Surprised about in either direction, so far early on.

So the team has done a great job in looking at the operation looking at.

Personnel, there and optimizing what we believe is the right structure going forward to drive costs out of that operation I think we were pleasantly surprised on the opportunities to increase the margin profile in that facility and so the team is working extremely hard on turning that around fast than the other.

The opportunity is the quality that that facility produces we've had a lot of customer discussions and sent samples from that facility and a lot of positive feedback from our retail partners are so we're very optimistic about building the volume growth in that facility pretty quickly.

Great. The other question I would have you you've done extensive studies.

On your.

Your customer base and demand for not from snacks et cetera over.

A different demographic groups would you say that.

Recent.

Recent data there is in line with our consistent with the studies that you have done or are there any <unk>.

Frank Pellegrino: Sales volume increased 2.3%, including the impact of the Lakeville acquisition; sales volume decreased 4.9% primarily due to sales volume decreases in the consumer and contract packaging; gross profit margin increased 1.6% to 21.9% in that sale. The increase in gross profit margin was mainly attributable to lower commodity acquisition costs for all major tree nut commodities, except peanuts, and was partially offset by the impact of the Lakeville acquisition, as noted previously. Total operating expenses for the current year-to-date period increased $2.5 million to $62.8 million.

Short term surprises in either a positive or negative direction.

So obviously, we continue to do studies on consumer as we look at our product portfolio as we look at price points, we're looking at consumer behavior.

A little bit surprised on some of the declines we're seeing in the snack and trail mix category typically during a recession or tight economics, we see consumers shift from expensive mixed nuts, cashews pecans down to peanuts and cheaper trail mixes.

One of the first times, we've seen consumers actually leave the category completely and it's not just not and trail mix, we're seeing them be the snack category overall, and which is a little bit surprising at the same time, we see inflation in the retail prices are at five year highs at least for nuts and trail mix. So we understand different price.

Frank Pellegrino: The increase in total operating expenses was mainly due to increases in advertising expenses, Incremental operating expenses associated with a late full acquisition, and charitable food donation. These increases were offset by a one-time bargain purchase gain previously cited in a decrease in credit. Net income for the first two quarters of fiscal 2024 was $36.8 million, or $3.15 per diluted share, compared to net income of $32.5 million, or $2.79 cents per diluted share, for the first two quarters of fiscal 2020. Please refer to our Thank You, which will be filed later today, for additional details regarding our financial performance for the second quarter of fiscal 2024. Now I turn the call back over to Jeffrey to provide additional comments on our operating results for the second quarter of fiscal 2024 and discuss the category.

Point architecture is so important and that's what we're focused on right now is to get some retail prices that make sense for consumers and bring them back into the category.

Terrific again, congratulations on a solid quarter and that's it from my questions great. Thank you. Thank you.

Thank you once again Thats star one for questions one moment for any questions to queue up.

And I'm not showing any further questions I'll turn the call back over to Jeffrey for any closing remarks. Thank you Victor.

We appreciate your interest in GBS as we appreciate the questions and look forward to our third quarter results that concludes the call for our second quarter of fiscal 'twenty four. Thank you very much and have a great day.

Frank Pellegrino: Thanks, Frank, for the financial update. We continue to navigate a challenging operating environment characterized by elevated retail sales, total prices, and cautious consumers. I'll take some time now to give you category and brand results for the second quarter. As always, the market information I'll be referring to is Circana's reported data, and for today, it is for the period ending December 31st, 2023.

Thank you. Thank you for your participation in today's conference. This does conclude the program and you may now disconnect everyone have a great day.

Okay.

Jeffrey T. Sanfilippo: When I refer to Q2, I'm referring to 13 weeks in the quarter ending December 31st, 23. References to changes in volume or price are versus the corresponding period one year ago. We look at the category answer Canada's total U.S. definition, which includes food, drug, mass, Walmart, military, and other out, unless otherwise specified, and when we discuss pricing, we're referring to average price per pound.

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Jeffrey T. Sanfilippo: Breakouts of recipes, snack, and produce are based on our custom definitions developed in conjunction with SIRKANA, and the term velocity refers to the sales per point of distribution. In the latest quarter, we continued to see a shift in consumer behavior, not just in the nut and trail categories but in the broader snack aisle, as defined by Circona. We are seeing volume declines no longer offset by prices across the entire snack aisle as consumers tighten their budgets in response to stubbornly high food prices. The COVID era snafu, student loan benefits ending, and future economic uncertainty is impacting consumer behavior.

Jeffrey T. Sanfilippo: The snack aisle declined 3.6% in volume and was relatively flat in dollars in Q2. This is down from a 2.3% volume decline and a 3% dollar growth rate in Q1. The total nut and trail mix category was down 4.4% in dollars and down 4.8% in pollen volume in Q2. This is a decline versus what we saw last quarter. Overall price increases across the category have moderated, with price per pound flat versus the prior year.

Jeffrey T. Sanfilippo: While prices have stabilized, the price per pound is still close to a five-year low. Now we'll cover each segment in more depth, starting with recipe number. Recipe Nuts were down 7.5% in dollar sales and down 2.6% in pounds. This is a decline in performance versus what we saw in Q1. During the holiday season, we saw consumers choose either smaller entry pack sizes or very large value pack sizes. This is a common shift we are seeing as consumers look to stretch their dollars even during holiday meal planning. Prices of recipe nuts were down 5% versus last year, driven by walnuts and pecans. Our Fisher brand declined in Q2 after almost two years of consistent growth as we lost promotional programs and promotional space at a major grocery customer and a major mass customer. Fisher declined 13% in dollars and 14% in pounds.

Jeffrey T. Sanfilippo: The brand still is the brand recipe nut leader, and we are actively working on ways to engage consumers with the right price, pack architecture, and promotion. Now I'll turn to the snack category. In Q2, snack nuts were down 3% in dollar sales and down 4% in pounds. This is consistent with the performance we saw in Q1. Pricing continues to stabilize in the snack nut category with prices relatively flat. Fisher snack foods performed worse than the category, down 27% in dollars and 25% in pounds. This continues to be driven by significant distribution loss in the mass channel combined with velocity, softness, and food.

Jeffrey T. Sanfilippo: We are continuing to find the right balance between pricing and promotional strategy to optimize our performance; private label snacks are performing slightly better than the category, only down 2% in dollars and down 3% in pounds. Trail and Snack Mixes were down 2% in dollars and down 4% in pounds in Q2, slightly worse than the performance we saw in Q1. Prices of trail mix were up 2%, slightly less than the last quarter. Our southern style nut brand declined 25% in dollars and 33% in pounds. The declines were entirely driven by lost distribution in the club channel. However, the brand continues to grow in mass. Private Brands, the market leader in trail mixes, performed slightly worse in the category, down 3% in dollars and 5% in pounds.

Jeffrey T. Sanfilippo: Lastly, produce nuts declined 6% in dollar sales and 8% in pound volume in Q2, slightly worse than the performance we saw in Q1. Our produce nut brand, Orchard Valley Harvest, declined 15% in dollar sales and 9% in pound sales, driven by distribution declines at a mass retailer. On a positive note, the brand is seeing significant growth in the food channel, growing 15% in dollars and 20% in pounds. We are continuing to drive awareness and trial of our new products and packaging at retail. In addition to reporting on the nut and trail mix categories, we will begin to report on the snack bar category given our recent acquisition. For this quarter, we will report high-level performance of the Snack Bar category and Private Label Snack Bars, as defined by CIRCON, for the same 13 weeks ending December 31st, 2023.

Jeffrey T. Sanfilippo: We are actively working on defining the right segmentation and reporting for this category so we can come with a more detailed view of performance in future calls. In Q2, the snack bar category declined 1.3% in dollars and 4.2% in pounds. Snack bar prices increased by 3% in Q2. Private label bars continue to grow in dollars, up 10.1%, and pounds were up 2.1%. Private label bars continue to expand in stores, picking up 5% more in total points of distribution, while prices rose 7.8%.

Jeffrey T. Sanfilippo: We continue to see positive momentum in private label in the snack and nutrition bar category. In closing, we start the second half of fiscal 24 with cautious optimism as we expand our product offerings in the snack bar category. At the same time, the snack nut and trill categories are facing headwinds with declining consumption.

Jeffrey T. Sanfilippo: Our sales and marketing teams are working hard to expand distribution and determine the most efficient price pack architecture to entice consumers back to the category and turn around sales velocity. Our R&D, Insights, and Tech Services teams are designing a pipeline of differentiated and innovative products to bring to market. And our operations, procurement, administration, and continuous improvement teams continue to look at ways to optimize our manufacturing and supply chain to reduce costs.

Jeffrey T. Sanfilippo: As always, we will continue to respond to challenges, including the current economic and operating environment and the recent category contraction. I believe we have the right team, initiatives, and strategies to overcome these challenges to provide differentiated value to our customers and consumers and deliver long-term shareholder value. Our management team and all our associates continue to work hard to expand our business, to build stronger brands, to build more innovative product platforms, and to provide higher levels of quality and service. JBSS is positioned well for strong results in the future.

Operator: We appreciate your participation in the call and thank you for your interest in the company. We'll now open the call to questions. Victor, please ask the first question. Thank you, and at this time, we will conduct a question and answer session. As a reminder, to ask a question, you need to press star 11 on your telephone and wait for a name to be announced.

Operator: To withdraw your question, please press star 11 again, please stand by, we'll compile the Q&A roster. One moment for our first question. Our first question will come from the line of Nick Odden from CWB Wealth. Your line is open. Just in the quarter, it looks like the core business of the nuts made about 38 cents a pound in operating profit. And I was wondering, is that sustainable?

Nick Odden: Thanks. Yeah, I have to look at that number. Nick, I'm not sure.

Jeffrey T. Sanfilippo: How did you come up with that number? I was just removing everything without Lakeville, just the core, not the... that seems a little bit low. So we have to go back to our records. Yeah, I don't think it's that low.

Nick Odden: Oh, I mean on operating not like a gross profit. It's 78 or 79 cents. I just meant EBITDA or EBIT. Yeah, I think, you know... With that clarification. Yeah, that does make sense.

Jeffrey T. Sanfilippo: No, as you know, we are in the Switching Commodity Acquisition Cycle. So again, all our prices are reset in Q3 and Q4. So if we go back to our historical operating income per pound, we should be maintaining consistent operating income per pound based on historical averages, which is in the high 20s and low 30 cents per pound.

Nick Odden: And then, um.., for the industry, it sounds like it was just shrinking in general. So his plans have pulled back on their promotional activity. They've reallocated promotions from their peanut platform. Now they're focusing more on their cashew platform. So they've just shifted some of their investment spending, but they're still very aggressive to build share in the category. Yeah, that's basically my two main questions.

Nick Odden: I have a couple more, but I have to run. Thank you. Thank you. One moment for our next question. Our next question comes from Lance James from RBC Global Asset Management. Your line is open.

Lance James: Thanks. Congratulations on the quarter. Just wondering what your takeaways early on are, any positive or negative surprises from the late bill acquisition, anything you've been surprised about in either direction so far early on?

Jeffrey T. Sanfilippo: So the team has done a great job looking at the operation, looking at the personnel there, and optimizing what we believe is the right structure going forward to drive costs out of that operation. I think we're pleasantly surprised by the opportunities to increase the margin profile in that facility. And so the team's working extremely hard on turning that around fast.

Jeffrey T. Sanfilippo: I think the other opportunity is the quality that that facility produces. We've had a lot of customer discussions and sent samples from that facility, and we've gotten a lot of positive feedback from our retail partners. So we're very optimistic about building the volume and growth in that facility pretty quickly.

Lance James: Great. And the other question I would have is whether you've done extensive studies on your customer base and demand for nuts and snacks, etc., across different demographic groups.

Jeffrey T. Sanfilippo: Would you say that, you know, recent data there is in line with or consistent with the studies that you have done, or are there any short-term surprises in either a positive or negative direction? Sure. So, obviously, we continue to do studies on consumers. We look at product portfolios.

Jeffrey T. Sanfilippo: We look at price points. We're looking at consumer behavior. You know, we're a little bit surprised by some of the declines we're seeing in the snack and trail mix category. Typically, during a recession or tight economics, we see consumers shift from expensive mixed nuts, cashews, and pecans down to peanuts and cheaper trail mixes. It's one of the first times we've seen consumers actually leave the category completely. And it's not just nuts and trail mix; we're seeing them leave the snack category overall, which is a little bit surprising. At the same time, we see inflation in retail prices at five-year highs, at least for nuts and trail mix.

Lance James: We understand that different price point architecture is so important, and that's what we're focused on right now is to get some retail prices that make sense for consumers and bring them back into the category. Terrific. Again, congratulations on a solid quarter. And that's it for my questions.

Jeffrey T. Sanfilippo: Great. Thank you. Thank you. Thank you. Once again, that's.11 for questions.

Operator: One moment for any questions to queue up, and I'm not showing any further questions. I'll turn the call back over to Jeffrey for any closing remarks. Thank you, Victor. We appreciate your interest in JBSS. We appreciate the questions and look forward to our third quarter results. This includes the call for our second quarter fiscal 24.

Jeffrey T. Sanfilippo: Thank you very much, and have a great day. Thank you. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone have a great day.