John B Sanfilippo & Son Inc

NASDAQ:JBSS

Earnings Call Analysis

Company Reports Robust Q4 Performance Amid Strategic Expansion

In Q4 2024, the company saw net sales rise by 15.1% to $269.6 million, with the Lakeville acquisition contributing $44.2 million. However, excluding Lakeville, sales fell by 3.8%. Gross profit decreased by 8.6% to $50 million, primarily due to lower selling prices and reduced sales volume. Net income declined to $10 million from $14.7 million in the previous year. Looking forward, the company aims to enhance volume growth and expand its product offerings, supported by the new Lakeville operations and a recently leased 400,000 square foot warehouse. The company reiterates its long-term goal to become a $2 billion business.

Strong Fiscal Finish Amid Challenges

In the fourth quarter of fiscal 2024, our company reached an important milestone, achieving over $1 billion in net sales for the first time in its history. This accomplishment is remarkable, especially given the volatile economic landscape influenced by inflation that affected consumer spending in subsequent quarters. The net sales increased by 15.1%, amounting to $269.6 million, spurred by a $44.2 million contribution from the Lakeville acquisition. However, without this acquisition, net sales actually decreased by 3.8% due to declining sales volumes and competitive pricing pressures.

Key Financial Metrics Reflecting Mixed Results

While the overall gross profit for the fiscal year saw a slight increase of 1.2% to $214.1 million, the gross profit margin steadily declined from 21.2% to 20.1%, mainly influenced by the acquisition. The fourth quarter experienced a decrease in gross profit of 8.6%, attributed to lower selling prices and the impact of Lakeville. Net income for fiscal year 2024 dropped to $60.2 million, or $5.15 per diluted share, slightly down from $62.9 million in the previous year. Investors should be cautious regarding these metrics as they suggest an ongoing struggle against economic headwinds.

Inventory and Operating Expenses: A Closer Look

The inventory on hand increased by 13.7% compared to the previous fiscal year, chiefly due to the Lakeville acquisition. Notably, operating expenses rose by $2.2 million in the fourth quarter. Excluding Lakeville, the expenses increased by $300,000 primarily due to higher incentive and equity compensation costs. As a percentage of net sales, operating expenses marginally decreased to 13.1% from 14.2% year-on-year, showcasing improved efficiency driven by higher sales. Understanding how these factors play into future profitability is crucial for potential investors.

Market Trends and Brand Performance Insight

In Q4, the broader snack category showed signs of stabilization, with overall sales down just 0.8% in pounds. This is a positive indicator compared to earlier quarters. However, specific subcategories such as recipe nuts and snacks faced more severe decreases, revealing a trend of consumers gravitating toward cheaper alternatives. The Fisher brand's sales declined significantly by 11% in dollars and 9% in pounds, prompting the company to innovate promotional strategies and products aimed at recapturing market share. Insight into these brand performances could indicate future growth paths.

Strategic Initiatives for Future Growth

Looking forward to fiscal 2025, management is keen on leveraging the success of its private brand offerings and expanding the nut and trail mix businesses. The acquisition of a large warehouse facility is expected to enhance production capabilities. The ambitious target is to evolve into a $2 billion enterprise, which hinges on the successful execution of these plans. Such forward-looking strategies are vital for investors assessing the company's ability to adapt and grow in a challenging retail environment.

Guidance and Expectations: A Mixed Outlook

Management projects that the efforts put into Lakeville operations should yield positive results in fiscal 2025. The anticipated impact on revenue growth indicates potential stabilization after a challenging year. However, investors need to remain vigilant regarding broader market conditions, including price increases for raw materials like chocolate and cashew nuts, which could hinder profitability. The guidance emphasizes a focus on innovation and strategic partnerships, both crucial for sustaining growth in the competitive snack segment.

Earnings Call Transcript 2024-Q4

[Jeffrey Sanfilippo, executive]

[Audio Gap] Welcome to the 2024 fourth quarter earnings conference call. Thank you for joining us. On the call with me today is Frank Pellegrino, our CFO; and Jasper Sanfilippo, our COO. We may make some forward-looking statements today. These statements are based on our current expectations involve certain risks and uncertainties. The factors that could negatively impact results 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.

I'm proud to report a successful and historic fiscal 2024 as we exceed $1 billion in sales for the first time in our company's history. We also successfully executed a key component of our strategic plan by further diversifying our product offerings through the acquisition, integration and optimization of our Lakeville bar facility and operations. We raised our annual dividend by 6.3% to $0.85 per share and supplemented our annual dividend with an additional special dividend of $1.25 per share, both of which will be paid on September 11, 2024. These results were due to our team's unyielding perseverance and leadership as we navigated through a challenging operating environment in fiscal 2024.

Additionally, we recognized and rewarded our talented team members for their outstanding contributions in executing our strategic plan. I am so proud of our associates across the company. We worked hard on expanding our product portfolio. Their dedication to quality, service and innovation, their commitment to our customers and consumers is remarkable.

Our snack and nutrition bar offering generated approximately $131 million in net sales for the fiscal year, of which $120 million was related to the Lakeville acquisition. In addition, we made substantial progress in optimizing the operations in Lakeville, ahead of schedule, and are excited about the expected impact it will have on our operating results in fiscal 2025 and beyond. Through the hard work of our team, our net sales from Lakeville operations were at the top end of our original range and dilution per share on the Lakeville acquisition. In the last -- and for the fiscal year was approximately $0.17 per share, which was significantly better than our original expected per share dilution of $0.80 to a $1.00.

For the past year, our consumer channel has faced significant headwinds with declining consumption due to inflation and other economic factors in the snack, trail and recipe nut categories. Our fourth quarter results, although strong, were impacted by investments we made with our customers what we anticipate will deliver future benefits through category growth and increased sales volume.

Looking ahead for fiscal '25, we are focused on accelerating our volume growth by expanding on the success of our private brand bar portfolio, rebuilding our nut and trail business through price pack architecture and innovation and expanding our manufacturing capabilities. We recently leased a new 400,000 square foot warehouse in Huntley, Illinois, just a few miles from our Elgin headquarters. We plan to move our warehouse operations to that facility, which will free up about 250,000 square feet of space to expand production in bars and nut and trail mix packaging.

We are confident we can continue to deliver strong operating results and create long-term value for our shareholders through the execution of our long-range plan to become a $2 billion business. We are nuts about creating real food that brings joy, nourishes people and protect the planet. JBSS is executing on that mission.

I'll now turn the call over to Frank to discuss our financial performance.

[Frank Pellegrino, executive]

Thank you, Jeffrey. Starting with the income statement. Net sales for the fourth quarter of fiscal 2024 increased 15.1% to $269.6 million, incurred net sales of $234.2 million for the fourth quarter of fiscal 2023. Net sales for the current fourth quarter included approximately $44.2 million of net sales in the Lakeville acquisition. Excluding the Lakeville acquisition, net sales decreased $8.9 million or 3.8%. The decline was due to a 1.9% decrease in sales volume, which is defined as pounds sold to customers, combined with a 1.9% decrease in the weighted average sales price per pound. The decrease in the weighted average selling price primarily resulted from lower selling prices for all major nut types due to competitive pricing pressures and strategic pricing decisions.

Sales volume declined for peanuts, almonds, pecans and walnuts, which was partially offset by sales volume increases for cashews and snack and trail mix in the fourth quarter. Sales volumes increased 31% in consumer distribution channel, primarily due to the Lakeville acquisition, and sales volume predominately consists of private brand bars and accounted for a 35.4% increase in private brand sales. Excluding the impact of the Lakeville acquisition, sales volume increased 1.8% in the consumer distribution channel, primarily due to a 1.5% increase in private brand sales volume.

The sales volume increase for our private brand and consumer distribution channel was mainly driven by new peanut butter distribution and increased volume of mixed nuts at a mass merchandising retailer due to retail pricing adjustments, which were partially offset by decreased consumer demand for almonds at the same retailer. Distribution of snack and trail mix at a new grocery retailer and increased distribution of snack and trail mix at current grocery store retailer was tempered by lower consumer demand for snack and trail mix products at another mass merchandising.

The 4.3% increase in sales volume for our branded products, which includes Fisher recipe nuts, Fisher snack nuts, Orchard Valley Harvest and Southern Style Nuts, the consumer and distribution channel was primarily attributable to a 21.8% increase in the sales volume of Orchard Valley Harvest due to enhanced promotional activity at grocery store retailer and new rotational distribution at a club store customer.

Sales volume decreased 5% in the commercial ingredients channel, primarily due to reduced distribution caused by competitive pricing pressures at several customers and nonrecurring peanut butter sales at a food service distributor that occurred in the fourth quarter of fiscal 2023. Excluding the impact of the Lakeville acquisition sales volume decreased 6.3% and in the commercial ingredients distribution channel.

Sales volume increased 16.9% in the contract manufacturing distribution channel due to increased granola volume processed in our Lakeville facility for a major customer in this channel. Excluding the impact of the Lakeville acquisition, sales volume decreased 20.7% in the contract manufacturing distribution channel due to reduced peanut distribution by a major customer caused by soft consumer demand. Additionally, the prior year comparable quarter was positively impacted by a new product launch at another customer, which did not reoccur in the current quarter.

Gross profit for our fourth quarter of the current year decreased $4.7 million or 8.6% to $50 million. Excluding the $3.3 million in gross profit related to Lakeville acquisition, gross profit decreased by approximately $8 million due to decreased selling prices, reduced sales volume and product mix manufacturing inefficiencies. Gross profit margin decreased to 18.5% of net sales in the current fourth quarter compared to 23.4% in the fourth quarter of fiscal 2023, mainly due to higher net sales base from the Lakeville acquisition. Excluding the Lakeville acquisition, gross profit margin decreased to 20.7% due to reasons previously mentioned.

Total operating expenses in the quarterly comparison increased $2.2 million, of which $1.9 million were directly related to our Lakeville acquisition. Excluding the Lakeville acquisition, total operating expenses increased by $300,000, primarily due to the increase in incentive and equity compensation, which was partially offset by a decrease in advertising expenses. Additionally, the prior comparable quarter was negatively impacted by onetime impairment of a minority investment, which should not reoccur in the current quarter.

Total operating expenses as a percentage of net sales decreased to 13.1% from 14.2% in the prior year fourth quarter due to a higher net sales base resulting from the Lakeville acquisition. Excluding the Lakeville acquisition, total operating expenses as a percentage of net sales increased to 14.9% from 14.2% due to the reasons previously mentioned and a lower net sales base.

Interest expense increased to $500,000 for the fourth quarter of fiscal 2024 from $300,000 in last year's quarter. Net income was $10 million or $0.86 per share diluted for the fourth quarter of fiscal 2024 compared to $14.7 million or $1.26 per diluted share.

Now taking a look at inventory. The total value of inventory on hand in the current fiscal year increased by $23.6 million or 13.7% compared to total value of inventories at the end of fiscal 2023. The increase in total value of inventories was primarily due to the $21.8 million of additional inventory associated with the Lakeville acquisition. Excluding the Lakeville acquisition, the value of total inventories on hand increased $1.8 million or 1.1% year-over-year due to higher quantities of inshell pecans and walnuts and higher commodity acquisition costs for walnuts. This was offset by lower quantities of finished goods and pecan meats and lower quantities and commodity acquisition costs for peanuts and cashews.

The weighted average cost per pound of raw nut and dried fruit input stock on hand, excluding the impact of the Lakeville acquisition, decreased 9.2% year-over-year mainly due to higher quantities of inshell pecans and walnuts on hand.

Moving on to year-to-date results. Fiscal 2024 net sales decreased 6.7% to $1.07 billion compared to fiscal 2023 net sales of $999.7 million primarily due to Lakeville acquisition. Excluding the impact of the Lakeville acquisition, net sales decreased 5.3% to $946.9 million, primarily attributable to a 3.3% decline in sales volume and a 2% decrease in the weighted average selling price per pound. Sales volume increased 12.3%, primarily due to the Lakeville acquisition. Excluding the impact of the Lakeville acquisition, sales volume decreased 3.3% due to sales volume decreases in all 3 distribution channels.

Gross profit for current fiscal year increased 1.2% to $214.1 million, and gross profit margin decreased from 21.2% to 20.1% of net sales primarily due the Lakeville acquisition, which was partially offset by lower commodity acquisition costs for all major tree nuts. Total operating expenses for fiscal 2024 decreased $7.5 million to $129 million, primarily due to increases in incentive compensation, incremental direct operating expenses associated with the Lakeville acquisition, increased advertising expense and charitable food donations. These increases were partially offset by the onetime bargain purchase gain in the Lakeville acquisition and a decrease in freight expense.

Net income for fiscal 2024 was $60.2 million or $5.15 per diluted share compared to $62.9 million or $5.40 per diluted share.

I will now turn the call back over to Jeffrey to provide additional comments on our performance for the current quarter and fiscal year.

[Jeffrey Sanfilippo, executive]

Thanks, Frank, for the financial updates. Now let's shift to consumption activity and category updates. I will share some category and brand results with you for the quarter. As always, the market information I'll be referring to is Circana reported data, and for today, it is for the period ending June 16, 2024. When I refer to Q4, I'm referring to 13 weeks of the quarter ending June 16, 2024.

References to changes in volume or price are versus the corresponding period one year ago. We look at the category on Circana'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 the average price per pound. Breakouts of the recipe, snack and produce nut subcategories are based on our custom definitions developed in conjunction with Circana. The snack bar category is the syndicated view as defined by Circana, and the term velocity refers to the sales per point of distribution.

In the last quarter, we started to see stabilization in the broader snack category. Snack aisle as defined by Circana declined 0.8 point in pounds and 0.3 point in dollars. This is an improvement versus the trends we were seeing in Q3. The total nut and trail mix category was down 2% in dollars and down 1% in pound volume in Q4, this is better performance than we saw last quarter. Nut and trail mix prices have moderated and price per pound declined 1% versus the prior year. We are still seeing consumers trade down to less expensive snacks, pack sizes and nut types and deals seek as broader food and essential prices remains elevated.

Now we'll cover each subcategory in more depth. Starting with recipe nuts. The recipe nut sub category was down 5% in dollars and 4% in pound sales. This is a decline in performance versus what we saw in Q3. Pricing is stable with both walnuts and pecans, the bulk of this subcategory, being flat to slightly down on a price per pound basis. Our Fisher brand declined in Q4 driven mainly by velocity performance in the grocery channel. Fisher declined 11% in dollars and 9% in pounds, on par with the performance we saw in Q3. The brand was flat in the mass channel. 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 plan for this holiday season.

Now let me turn to the snack subcategory. In Q4, the snack category was down 3% in dollar sales and down 2% in pound sales. This is an improvement versus the performance we saw in Q3. Pricing continues to stabilize and price is flat versus a year ago. Fisher snack performed worse than the subcategory, down 29% in dollars and 33% in pounds. This continues to be driven by significant distribution losses. We are actively working on new promotional plans and new products that give the consumers new exciting products with the value they were looking for. Revenue of snack nuts are performing consistent with the subcategory, down 4% in dollars and down 1% in pounds.

The trail and snack mix subcategory was down 2% in dollars and down 2% in pounds in Q4, an improvement versus last quarter. Prices of trail mixes were flat versus a year ago. Our Southern Style Nut brand grew 2% in dollars and 6% in pounds, driven by strong velocity performance in mass and club. Private brands, the share leader in trail mix performed slightly worse than the subcategory, down 3% in dollars and pounds, driven by poor performance in the mass channel. Our last subcategory, produce nuts, declined 1% in dollars and grew 1% in pound volume in Q4, better than the performance we saw in Q3.

Our produce nut brand, Orchard Valley Harvest, performed better than the subcategory, up 10% in dollar sales and 16% in pound sales, driven by velocity and distribution gains in the grocery channel. We are entering year 2 of our relaunch and are excited to introduce new products and pack sizes to continue momentum on this brand.

Now we will switch to the snack bar category. In Q4, the snack bar category declined 6% in pounds and 4% in dollars. We are continuing to see the effect of the total recall of the major branded snack bar player earlier this year. Snack bar pricing increased by 2% in Q4. Private label bars continued to grow 14% in dollars and 12% in pounds. Private label bars continue to expand in stores, picking up 12% more in TDP distribution, while prices rose 2%. We continue to see positive momentum in private label in this category with dollar share in the quarter, up 1.2 points versus last year.

In closing, we see great opportunities to build our bar business and enter new snack bar segment and innovative products. Our Fisher recipe portfolio, the #1 brand in the recipe category, is well positioned for a successful holiday season coming out in Q2. We do continue to face challenges in the future on a macro level, which includes declining consumption trends in the snack category. Also higher costs for chocolate and cashew nuts due to supply and demand. However, our sales and marketing, R&D and procurement teams are working with a sense of urgency to find solutions to overcome these headwinds.

Through fiscal '23, the company achieved 5 consecutive years of record earnings. While we did not continue that performance trend this year, our teams accomplished so much in fiscal 2024 that will position JBSS for strong growth and profitability in the future. These results demonstrate the underlying strength and resilience of our company. These achievements are also a testament to the fortitude of our business model, the commitment of our people and the mutual trust and depth of our customer and supplier partnerships.

We are executing our growth strategies, implementing continuous improvement projects throughout the company to optimize our cost structure, and we continue to invest in our brands and processes to better serve our customers and consumers and create value for our shareholders. We appreciate your participation in the call and thank you for your interest in our company. I will now open the call to questions.

[Operator]

[Operator Instructions] I'm showing no questions at this time. I would now like to turn it back to Jeffrey for closing remarks.

[Jeffrey Sanfilippo, executive]

We'd like to thank you for participating in our earnings call today. Have a great day. Thank you.

[Operator]

This concludes the participation in today's conference. You may now disconnect.