John B. Sanfilippo & Son, Inc. (NASDAQ:JBSS) Q3 2024 Earnings Call Transcript

John B. Sanfilippo & Son, Inc. (NASDAQ:JBSS) Q3 2024 Earnings Call Transcript May 5, 2024

John B. Sanfilippo & Son, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day, and welcome to the John B. Sanfilippo & Son’s Third Quarter Fiscal 2024 Operating Results Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I would like to turn the call over to Jeffrey Sanfilippo, CEO. Please go ahead.

Jeffrey Sanfilippo: Thank you, Michelle. Good morning, everyone, and welcome to our 2024 third quarter earnings conference call. Thank you for joining us. On the call with me today is Jasper Sanfilippo, our COO; and 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 these filings to learn more about these risks and uncertainties that are inherent in our business. 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 and increased our quarterly net sales by approximately $46.9 million or 19.7% over the third quarter of fiscal ’23.

Our integration has made great progress in optimizing the operations in Lakeville, and we currently expect it to become accretive to our operating income during the upcoming fourth quarter, which is significantly ahead of our initial schedule. We also sold in the third quarter approximately $3.2 million of our own internally developed nutrition bars from our Elgin, Illinois manufacturing facility. This complements the snack bars produced in Lakeville. I’d like to personally thank all our employees who have worked with passion, dedication, and a sense of urgency to optimize the operations in Lakeville and continue to drive improvements. The company just held our Board of Directors meeting in Lakeville where the officers had a chance to tour the plant.

I am so proud of the management team in that facility who are now part of the JBSS family. Their commitment to quality, safety, and customer service is remarkable. Even though we continue to operate in an environment of elevated retail selling prices and cautious consumers, our consumer distribution channel delivered strong results. Our private brand business reversed two consecutive quarters of decreasing sales volume. While our 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 at a major e-commerce customer for our branded products. This time last year, we started seeing signs of a challenging operating and inflationary environment.

Despite these headwinds, our company executed our strategies, optimized our cost structure and supply chain and created capabilities to expand our product offerings. In Q3 of fiscal ’23, we started shipping our first private brand bars to a major retailer. Since that time, we’ve gained new private brand business at many other retailers across the country. We continue to receive favorable feedback from our partners and expect to gain additional new customers in subsequent quarters. And we are working on numerous innovative sales opportunities utilizing our new bar capabilities. Our Board of Directors met yesterday and approved a $1 per share special cash dividend, reinforcing our goal of creating long-term shareholder value by returning capital to our shareholders.

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Q&A Session

The dividend will be paid on June 20, 2024 to stockholders of record as of May 31, 2024. Looking ahead to the fourth quarter and fiscal ’25, we are optimistic about the contributions of the Lakeville acquisition to our operating results based on the current performance for an ongoing and expected future operational improvements. We initially estimated the current fiscal year dilution due to the Lakefield acquisition to range from $0.80 to $1 per diluted share, which we have now updated to $0.25 to $0.50 per diluted share as a direct result of our team’s excellence in optimizing the operations in Lakeville during the third quarter. 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.

Consumers have reacted to higher retail prices at the shelf, and there have been demand destruction because of increased prices. Our insights team has done an extraordinary job understanding price elasticities in the nut 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 to execute this strategy with other retail partners. In addition to entering new product categories such as the snack and nutrition bars, our long-term growth plan also includes transforming our branded portfolio. Last year, the company relaunched and rebranded our Orchard Valley Harvest product line. The new products and packaging have had mixed results in the market, and we are assessing next steps for the brand.

This is a difficult environment for most brands across the snack category as consumers have tightened their wallets due to current inflationary pressures. While we continue to focus on expanding distribution, building brand awareness, and trial with innovative marketing programs and allocating a portion of the sales of OVH to support our partnership with Conscious Alliance to help end child hunger. I’ll now turn the call over to Frank to discuss our financial performance.

Frank Pellegrino: Thank you, Jeffrey. [Indiscernible] statement. Net sales for the third quarter of fiscal 2024 increased $33.3 million or 14% to $271.9 million, deferred net sales of $238.5 million for the third quarter of fiscal 2023. Net sales for the current third quarter include approximately $46.9 million of net sales from the Lakeville acquisition. Excluding Lakeville acquisition, net sales decreased $13.6 million or 5.7%. The decline was due to a 4.3% decrease in the weighted average sales price per pound combined with a 1.4% decrease in sales volume, which is defined as pounds sold to customers. Decrease in weighted average on price primarily resulted from lower commodity acquisition costs for all major tree nuts except walnuts, which was partially offset by higher commodity acquisition costs for peanuts.

Sales volume declined for all major nut types in the third quarter. Sales volume increased 33.1% 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 increased 0.3% in the consumer distribution channel, primarily due to a 0.5% increase in private brand sales target. The 0.5% increase in sales volume for our private brands and consumer distribution channel was driven by increased peanut butter and nutrition bar distribution, which was partially offset by a decrease in snack and trail mix volume at a mass merchandising retailer. Additionally, new sales distribution of snack and trail mix at a grocery store retailer was partially offset by lost distribution at a drug channel customer.

The 5.8% decrease in sales volume for our branded products, which includes Fisher recipe nuts, Fisher snack nuts, Orchard Valley Harvest, and Southern Style Nuts in the consumer distribution channel was primarily attributable to a 15.8% decrease in sales volume for Fisher snack nuts due to lost distribution and a mass merchandising retailer and decreased sales volume at several grocery store retailers. These decreases were partially offset by increased e-commerce sales volume for our branded products. Sales volume decreased 2.4% in the commercial ingredients channel due to competitive pricing pressures and nonrecurring peanut butter sales at a foodservice distributor that occurred in the third quarter of fiscal 2023. This decrease was partially offset by new peanut butter business at two other foodservice distributors and sales volume of loose granola associated with the Lakeville acquisition.

Excluding the impact of the Lakeville acquisition, sales volume decreased 3% in the commercial ingredients channel. Sales volume decreased 11.3% in the contract packaging and distribution channel due to decreased cashew and mixed nut distribution by a major customer due to soft consumer demand. Third quarter gross profit margin as a percentage of net sales decreased to 18.1% compared to 20.9% for the third quarter of fiscal 2023, mainly related to higher net sales base from the Lakeville acquisition. Excluding the impact of the Lakeville acquisition, gross profit margin decreased slightly by 30 basis points due to higher commodity acquisition costs for peanuts and walnuts, reduced production volume and increased expenditures relating to facility repairs and maintenance, noncompliant inventory, and incentive compensation.

Gross profit, which was positively impacted by approximately $3 million due to Lakeville acquisition, of which approximately $1.7 million was related to a partial release of an inventory valuation reserve initially recorded at the acquisition date, decreased slightly by approximately $600,000 or 1.2% due to the same reasons contributing to the decrease in gross profit margin. Excluding the impact of the Lakeville acquisition, gross profit decreased by $3.6 million or 7.2%. Total operating expenses for the current third quarter decreased — increased $2.9 million in the quarterly comparison, of which approximately $1.8 million directly related to operating expenses associated with the Lakeville acquisition. Excluding the Lakeville acquisition, total operating expenses increased $1.1 million, mainly due to an increase in incentive compensation, which was partially offset by decreases in freight and advertising expenses.

Total operating expenses for current third quarter decreased 11.3% of net sales from 11.7% in the last year’s third quarter, due to the reasons cited before and a higher net sales base due to the Lakeville acquisition. Excluding the impact of the Lakeville acquisition, total operating expenses as a percentage of net sales increased to 12.9% from 11.7% due to the reasons cited before and a lower net sales base. Interest expense for the current third quarter increased to $800,000 from $600,000 for the third quarter of fiscal 2023, primarily due to higher average debt levels due to the Lakeville acquisition. Net income for the third quarter of fiscal 2024 was $13.5 million or $1.15 per diluted share compared to $15.7 million or $1.35 per diluted share for the third quarter of fiscal 2023.

Now taking a look at inventory. The total value of inventories on hand at the end of the current third quarter increased $20.3 million or 10.7%, mainly due to the additional $24.9 million of inventory associated with the Lakeville acquisition. Excluding the Lakeville acquisition, the value of total inventories on hand decreased $4.5 million or 2.4% year-over-year. The decrease in the value of total inventories was primarily due to lower quantities of finished goods and lower quantities and commodity acquisition costs for work-in-process, raw materials, cashews, and almonds. This was offset by higher quantities of pecans and walnuts and higher commodity acquisition costs for walnuts. The weighted average cost per pound of raw nut and dried fruit input stock on hand, excluding the impact of the Lakeville acquisition, decreased 11.7% year-over-year, mainly due to higher quantities of peanuts and inshell walnuts and pecans.