Q3 2024 John B. Sanfilippo & Son Inc Earnings Call

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Yeah.

Speaker Change: Good day and welcome to the John B, Sanfilippo, and Sun <unk> third quarter fiscal 2024 operating results conference call. At this time, all participants are in a listen only mode.

After the Speakers' presentation there'll be a question and answer session to ask a question. Please press star one one as.

As a reminder, this call's being recorded.

Speaker Change: I'd like to turn the call over to Jeffrey Sanfilippo, Our CEO. Please go ahead.

Jeffrey T. Sanfilippo: Thank you Michelle.

Jeffrey T. Sanfilippo: Morning, everyone and welcome towards 'twenty 'twenty four third quarter earnings Conference calls, Thank you for joining us on.

Jeffrey T. Sanfilippo: On the call with me today is Jasper Sanfilippo, our C O O and shrink Pellegrino our CFO.

Speaker Change: We may make some forward looking statements.

Jeffrey T. Sanfilippo: These statements are based on our current expectations and they involve certain risks and uncertainties.

Jeffrey T. Sanfilippo: Factors that could negatively impact results are explained in the various SEC filings that we estimate leading forms 10-K and 10-Q.

Jeffrey T. Sanfilippo: We encourage you to refer to these filings to learn more about these risks and uncertainties that are inherent in our business.

Jeffrey T. Sanfilippo: Looking at results I'm happy to report the Lakeville acquisition increased quarterly sales volume by $18 1 million pounds or 24, 1% over third quarter of fiscal 2023.

Jeffrey T. Sanfilippo: And increased our quarterly net sales by approximately $46 $9 million or 19, 7% over the third quarter of fiscal 'twenty three.

Jeffrey T. Sanfilippo: Our integration team has made great progress in optimizing the operations in Lakeville.

Jeffrey T. Sanfilippo: Currently expect it to become accretive to our operating income during the upcoming fourth quarter, which is significantly ahead of our initial schedule.

Jeffrey T. Sanfilippo: We also sold in the third quarter, approximately $3 $2 million of our own internally developed nutrition bars from our Elgin, Illinois manufacturing facility.

Jeffrey T. Sanfilippo: This complements the snack bars produced in Batesville.

Speaker Change: I'd like to personally thank all our employees, who have worked with passion dedication and sense of urgency to optimize the operations and playful.

Speaker Change: Can you to drive improvements.

Speaker Change: The company just held our board of directors meeting in Lakeville or the officers had a chance to tour the plants.

Jeffrey T. Sanfilippo: I am so proud of the management team and that facility, who are now part of the Jbs S family.

Jeffrey T. Sanfilippo: Their commitment to quality safety and customer service is remarkable.

Jeffrey T. Sanfilippo: Even though we continue to operate in an environment of elevated retail selling prices and cautious consumers our consumer distribution channel delivered strong results.

Jeffrey T. Sanfilippo: Our private brands business reversed two consecutive quarters of decreasing sales volume.

Jeffrey T. Sanfilippo: Branded business sales volume decreased in the quarter. It represented a significant improvement over the decreases we experienced over the last three quarters as we continue to see strong momentum and a major e-commerce customer for branded products.

Jeffrey T. Sanfilippo: This time last year, we started seeing signs of a challenging operating an inflationary environment.

Jeffrey T. Sanfilippo: Despite these headwinds our company executed our strategies optimized our cost structure and supply chain and creative capabilities to expand our product offerings.

Jeffrey T. Sanfilippo: Q3 of fiscal 'twenty, three we started shipping our first private brand borrowers to a major retailer.

Jeffrey T. Sanfilippo: Since that time, we have gained new private brands business that many other retailers across the country.

Jeffrey T. Sanfilippo: We continue to receive favorable feedback from our partners and expect to gain additional new customers in subsequent quarters.

Jeffrey T. Sanfilippo: And we are working on numerous innovative sales opportunities, usually utilizing our new bar capabilities.

Jeffrey T. Sanfilippo: Our board of directors met yesterday and approved a dollar per share special cash dividend reinforcing our goal of creating long term shareholder value by returning capital to our shareholders.

Jeffrey T. Sanfilippo: <unk> will be paid on June 22024 to stockholders of record as of May 31, 2024.

Jeffrey T. Sanfilippo: Looking ahead to the fourth quarter and fiscal 'twenty five we are optimistic about the contribution that will make the acquisition to our operating results based on the current performance.

Jeffrey T. Sanfilippo: Going in expected future operational improvements.

Jeffrey T. Sanfilippo: We initially estimated the current fiscal year dilution due to the late till acquisition to range from 80 cents to $1 per diluted share, which we have now updated to 25 cents to <unk> 50 per diluted share as a direct result of our team's excellence in optimizing the operations you lakeville during the third quarter.

Jeffrey T. Sanfilippo: Our strong operating results would not be possible without the dedication of our talented team members, who continue to exceed expectations and create value for our customers and shareholders.

Jeffrey T. Sanfilippo: Consumers have reacted to higher retail prices off the shelf and Aragon demand destruction because of increased prices.

Jeffrey T. Sanfilippo: Our insights team has done an extraordinary job understanding price elasticity in the nuts and trail and snack bar categories. We are testing price changes based on these insights and achieved significant initial success at a major retailer. We are monitoring this positive trend and are initiating plans.

Jeffrey T. Sanfilippo: As you execute this price strategy with other retail partners.

Jeffrey T. Sanfilippo: In addition to entering new product categories, such as the snack and nutrition bars are long term long term growth plan also includes transforming our branded portfolio.

Jeffrey T. Sanfilippo: Last year, the company relaunched and rebranded our Orchard Valley harvest product line.

Jeffrey T. Sanfilippo: Our new products and packaging it had mixed results in the market and we are assessing next steps for the brands.

Jeffrey T. Sanfilippo: It was a difficult environment for most brands across the snack category as consumers have tightened their wallets due to current inflationary pressures.

Jeffrey T. Sanfilippo: We continue to focus on expanding distribution building brand awareness and trial with innovative marketing programs and allocating a portion of the sales of <unk> to support our partnership with conscious alliance to help end childhood hunger.

Jeffrey T. Sanfilippo: I'll now turn the call over to Frank to discuss our financial performance. Thank.

Frank: Thank you Geoffrey.

Frank: Starting with the income statement net sales for the third quarter of fiscal 2024 increased $33 3 million or 14% to $271 9 million.

Frank: Net sales of $238 5 million for third quarter of fiscal 2023.

Frank: Net sales for the current third quarter included approximately $46 9 million of net sales <unk> acquisition.

Frank: So we're gonna make more acquisition net sales decreased $13 6 million or five 7%.

Frank: And was due to a four 3% decrease in the weighted average sales price per pound.

Frank: We're at one 4% decrease in sales volume.

Frank: Which is defined as pounds sold to customers.

Frank: Decrease in weighted average selling price primarily resulted from lower commodity acquisition costs for all major tree nuts, except walnuts.

Frank: It's partially offset by higher commodity acquisition costs for peanuts.

Frank: Sales volume declined for all major nut types in the third quarter.

Frank: Sales volume increased 33, 1% in the consumer distribution channel primarily.

Frank: Acquisition.

Frank: Sales volume is almost exclusively private sandbox.

Frank: Excluding the impact the Lakeville acquisition sales volume increased 3% in the consumer distribution channel.

Frank: It's eight 5% increase in private brand sales model.

Frank: The five 5% increase in sales volume for our private brand consumer distribution channel.

Frank: Driven by increased peanut butter and nutrition for our distribution.

Frank: Which was partially offset by a decrease in snack and trail mix volume and a mass merchandising retailer.

Frank: Additionally, new sales distribution of snack and trail mix at a grocery store restart.

Frank: Firstly offset by loss distribution at a drug channel customer.

Frank: The five 8% decrease in sales volume for our branded products, which includes Fisher recipe nuts Fisher snack nuts Orchard Valley harvest and southern style nuts.

Frank: Zimmer distribution channel was primarily attributable to a 15, 8% decrease in sales volume.

Frank: Snack nuts.

Frank: Due to lost distribution at a mass merchandising retailer and decreased sales volume at several grocery store retailers.

Frank: These decreases were partially offset by increased e-commerce sales volume for our branded products.

Frank: Sales volume decreased two 4% in the commercial ingredients channel due to competitive pricing pressures and not recur universe sales at a foodservice distributor that occurred in the third quarter of fiscal 2023.

Frank: This decrease was partially offset by new Pizza bar business at two other foodservice distributors and sales volume of blues granola associated with the acquisition.

Frank: Excluding the impact of the Lakeville acquisition sales volume decreased 3% in the commercial ingredients channel.

Frank: Sales volume decreased 11, 3% and the tax rate packaging distribution channel due to decreased cashews and mixed nuts distribution by a major customer due to soft consumer demand.

Frank: Okay.

Frank: Third quarter gross profit margin as a percentage of net sales decreased to 18, 1% compared to 29% for third quarter of fiscal 2023, mainly relates to higher net sales base for wasteful acquisition.

Frank: Excluding the impact of the Lakeport acquisition gross profit margin decreased slightly by 30 basis points due to higher commodity acquisition costs for peanuts walnuts. These production volume and increased expenditures related to sandy repairs and maintenance.

Frank: Complaint inventory.

Frank: <unk>.

Frank: Gross profit, which was positively impacted by approximately $3 million due to <unk> acquisition of Mercury approximately $1 7 million was related to a partial release inventory valuation reserve.

Frank: The report.

Frank: Position.

Frank: Decreased slightly by approximately $600000 or one 2%.

Frank: The same regions contributing to the decrease in gross profit margin.

Frank: Excluding the impact of the legacy acquisition gross profit decreased by $3 6 million or seven 2%.

Frank: Total operating expenses.

Frank: Our third quarter <unk> increased <unk> 9 million.

Frank: The comparison of which approximately $1 8 million directly relates to operating expenses associated with the Lakeport acquisition.

Frank: Okay.

Frank: Excluding the Lakeport acquisition total operating expenses increased $1 1 million, mainly due to an increase in incentive compensation.

Frank: Which was partially offset by decreases in freight and advertising expenses.

Frank: Total operating expenses for the current third quarter decreased 11, 3% of net sales.

Frank: Seven 7% last year's third quarter due to the reasons cited before in a higher net sales base due to the Mako acquisition.

Frank: Excluding the impact of the Lakeport acquisition or operating expenses as a percentage of net sales increased to 12, 9%.

Frank: From 11, 7% due to the reasons cited before in a lower net sales base.

Frank: Interest expense for the third quarter increased to 800000.

Frank: From 600000 for third quarter is about 2023, primarily due to higher average debt levels due to the acquisition.

Frank: Net income for the third quarter of fiscal 2024 was $13 5 million or $1.15 per diluted share compared to $50 7 million or $1 35 per diluted share for the third quarter of fiscal 2023.

Frank: Now taking a look at inventory.

Frank: Inventory on hand at the end of the current third quarter increased $20 3 million or 10, 7%, mainly due to the additional $24 9 billion of inventory associated with Allegro acquisition.

Frank: Excluding the Lakeville acquisition the value of total inventory on hand decreased $4 5 million or two 4% year over year.

Frank: The decrease in the value of total inventories was primarily due to lower quantities of finished goods and Laura quantity and commodity acquisition costs for work in process raw materials cashews and almonds.

Frank: This was offset by higher quantities of pecans, and walnuts higher commodity acquisition costs.

Frank: The weighted average cost per pound of raw nut and dried fruit input stocks on hand.

Frank: Regarding the impact of the Lakeport acquisition decreased seven 7% year over year, mainly due to higher quantities of peanuts, and ensure walnuts and pecans.

Frank: Well we're onto year to date results net sales for the first three quarters of the current year increased four 1% to $797 2 million.

Frank: And part of the first three part of fiscal 2023, primarily due to the Lakeport acquisition.

Frank: Excluding the impact of the <unk> acquisition net sales decreased five 7%.

Frank: $121 6 million.

Frank: Merrily attributable to a three 8% decline in sales volume and a 2% decrease in the weighted average selling price per pound.

Frank: Sales volume increased eight 8%, primarily due to <unk> acquisition.

Frank: Excluding the impact of electrical acquisition sales volume decreased three 8%, primarily due to sales volume decreases in the consumer and contract packaging channels.

Frank: Gross profit margin increased slightly from 25% 20.

Frank: 26% I'm not sales.

Frank: Total operating expenses returned year to date period increased $5 4 million.

Frank: $83 6 million.

Frank: The increase in total operating expenses was mainly due to increases in incentive compensation.

Frank: Incremental operating expenses associated with the <unk> acquisition.

Frank: <unk> expense.

Frank: And terrible food donations.

Frank: These increases were partially offset by the one time bargain purchase gains.

Frank: Position the decrease in freight expense.

Frank: Net income for the first three quarters of fiscal 2024.

Frank: Was $50 2 million or $4 30 per diluted share.

Frank: Net income of $48 2 million or $4.14 per diluted share for the first three quarters of fiscal 2023.

Frank: Please refer to our 10-Q, which was filed yesterday for additional details regarding our financial performance for the third quarter of fiscal 2024.

Frank: Now I'll turn the call back over to Geoffrey to provide additional comments on our offer results for the third quarter fiscal 'twenty, four and discuss category trends.

Geoffrey: Thanks, Frank for the financial updates.

Geoffrey: Turning to retail consumption I was here.

Geoffrey: Some category and brand results with you said at quarter.

Geoffrey: As always market information I'll be referring to is in sort of kind of our reported data and for today. It is the period ending March 24 2024.

Geoffrey: Refer to Q3, I'm, referring to 13 weeks of the quarter ending March 24th 2024.

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

Geoffrey: We look at the category answer Ken as 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.

Geoffrey: Breakouts of the recipe snack and produce nut segments are based on our custom definitions developed in conjunction Mr. Kannan.

Geoffrey: Snack bar category is the syndicated view as defined by circa Hana and the term velocity refers to the sales per point of distribution.

Geoffrey: And the last quarter, we continue to see a shifting consumer behavior and the broader snack aisle as defined by share count as we.

Geoffrey: When you see volume declines no longer offset by price across the entire snack aisle as consumers continue to tighten their budgets the.

Geoffrey: The snack aisle declined two 7% in volume it was down one 1% in dollars in Q3.

Geoffrey: This is similar to the declines we experienced in Q2.

Geoffrey: The total mud and trail mix category was down four 1% in dollars and down three 4% in pound volume in Q3.

Geoffrey: This is actually slightly better performance than we saw last quarter as nuts and trail mix prices have moderated with price per pound flat versus the prior year.

Geoffrey: Prices have stabilized the price per pound is still close to a five year high.

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

Geoffrey: The recipe nuts segment was down four 1% in dollar sales and was flat in pound sales.

Geoffrey: This is an improvement in performance versus what we saw in Q2 as we continue to see pricing declines in this category across walnuts F T times.

Geoffrey: Our Fisher recipe brand declined in Q3, driven mainly by lower distribution.

Geoffrey: Sure declined 9% in dollars and 10% in pounds.

Geoffrey: Slight improvement versus the performance we saw in Q2.

Geoffrey: Fisher is still the branded recipe nut leader and we are actively working on ways to engage consumers with the right price pack architecture and promotions as we planned for this year's holiday season.

Geoffrey: Now, let me turn to the snack nuts segment.

Geoffrey: Q3, the snack nuts segment was down four 3% in dollars and down four 1% in pound sales.

Geoffrey: This is consistent with the performance we saw in Q2.

Geoffrey: Some good news is that pricing continues to stabilize in the snack nut category.

Geoffrey: This is flat versus a year ago.

Geoffrey: Fisher snack performed worse than the category down 20%, 26% in dollars and 18% in pounds.

Geoffrey: This continues to be driven by significant distribution loss in the mass channel.

Geoffrey: We are continuing to find a balance between the right pricing and promotional strategy with margin in this competitive category.

Geoffrey: Private label snack nuts are performing consistent with the category down 5% in dollars and down three 6% in pounds.

Geoffrey: The trail and snack mix category was down 3% in dollars and down 3% in pounds in Q3 consistent with the performance we saw in Q2.

Geoffrey: Prices of trail mix were flat versus a year ago.

Geoffrey: Our southern style nuts brands declined 13% in dollars and 13% in pounds.

Geoffrey: The clients were almost entirely driven by the club channel distribution loss, we've mentioned previously.

Geoffrey: Private brands the share leader in trail mix performed slightly worse than the category down 4% in dollars and 4% in pounds driven by poor performance in the mass channel.

Geoffrey: Our last segment produce nuts declined 5% in dollars and 3% in pound volume in Q3.

Geoffrey: Slightly better than the performance we saw in Q2.

Geoffrey: Our produced nut brand Orchard Valley harvest declined 17% in dollar sales and 10% in pound sales driven by distribution declines in the mass channel.

Geoffrey: The brand is continuing to see growth in the food channel growing 4% empowers in Q3.

Geoffrey: And we continue to drive awareness and trial bar, new products and packaging it reaches.

Geoffrey: Now, we will switch to the snack bar category, which will now start reporting in our earnings calls.

Geoffrey: In Q3, the snack bar category declined six 5% in dollars and 10, 8% in pounds. This is primarily driven by a total recall of a major branded snack bar player earlier this year.

Geoffrey: NASCAR pricing increased by four 8% in Q3.

Geoffrey: Private label bars continued to grow 10, 6% in dollars and six 8% in pounds.

Geoffrey: Private label bars continued to expand in stores picking up 3% more in TTP distribution of prices rose three 6%.

Geoffrey: We continue to see positive momentum in private label in the snack and energy bar category.

Geoffrey: In closing we faced several challenges in the future, which includes the impacts of ongoing inflation in food and other input prices sustained higher interest rates and the potential for an economic downturn in the markets in which we operate.

Geoffrey: However, I am confident in the strategic investments, we have made in our people our customers and capabilities to overcome these challenges and continue to deliver strong operating results and create long term value for our shareholders.

Geoffrey: We're also cautiously optimistic that consumer demand will stabilize and slowly begin to recover in the coordinate and trail mix categories.

Geoffrey: We will continue to optimize our cost structure product portfolio and flexibility as we respond to ongoing macroeconomic volatility.

Geoffrey: Our company and our team of dedicated leaders and frontline associates throughout the organization remains steadfast in strong.

Geoffrey: We have always adapted quickly to overcome headwinds and our insights innovation R&D marketing sales and operation teams are laser focused on consumer behavior and consumption trends to develop new products pursue new branded opportunities and support increased demand from our private brand reach.

Geoffrey: Partners.

Geoffrey: We have the right strategies talent and business model to continue to grow and provide exceptional value and innovation for our customers and consumers.

Speaker Change: We appreciate your participation in the call and thank you for your interest in our company.

Speaker Change: I'll now turn the call back over to Michelle to open the line for questions Michelle.

Michelle: If you'd like to ask a question. Please press star one one.

Michelle: If your question has been answered and you'd like to remove yourself from the queue. Please press star one again.

Michelle: Moment for questions.

Michelle: Sure.

Michelle: Again, that's star one wanted to ask a question.

Michelle: I'm not showing any questions I'd like to turn the call back over to Jeffrey Sanfilippo for closing remarks.

Jeffrey T. Sanfilippo: We appreciate your participation in the call today and thank you for interest in our company.

Jeffrey T. Sanfilippo: And have a great day.

Speaker Change: Thank you for your participation. This does conclude the program and you may now disconnect everyone have a great day.

Michelle: Yeah.

Michelle: [music].

Michelle: Okay.

Michelle: [music].