John B. Sanfilippo & Son, Inc.

Good day and thank you for standing by. Welcome to the John B. Sanfilippo & Son fourth quarter and fiscal 2021 year-end 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 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, Please press star zero. I would now like to hand the conference over to your speaker today, Mike Valentine, Chief Financial Officer. Please go ahead.

Thank you, Shannon. Good morning, everyone, and welcome to our 2021 fourth quarter and fiscal year earnings call. Thank you for joining us today. On the call with me today are Jeffrey Sanfilippo, our Chief Executive Officer, and Jasper Sanfilippo, our Chief Operating Officer. Before we start, I want to remind you that we may make some forward-looking statements today. These statements are based on our current expectations and involve certain risks and uncertainties that are inherent in our business. The factors that could negatively impact results are explained in the various SEC filings 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'll start the call by covering financial highlights for the 2021 fourth quarter and fiscal year. The current fourth quarter net sales increased 1.2% to $206.7 million, compared to net sales of $204.2 million for the fourth quarter of fiscal 2020. The increase in net sales was due to a 9.6% increase in sales volume, which we define as pounds sold to customers. The increase in net sales was offset in large part by a 7.6% decrease in their weighted average selling price per pound. The decline in the weighted average selling price per pound resulted from a decline in commodity acquisition costs for all of the major tree nuts that we buy. Sales volume increased in the consumer distribution channel by 2.5%. The volume increase in the consumer channel was primarily driven by increased sales of private brand snack and trail mix products from new distribution earned with existing customers. Sales volume increases for our Orchard Valley Harvest products and Fisher Snack Nuts also contributed to the sales volume increase in the consumer distribution channel. Sales volume in the consumer channel accounted for 73.2% of our total sales volume in the current fourth quarter. Sales volume increased 49.5% in the commercial ingredients distribution channel, and that was primarily due to a 117.1% increase in sales volume to food service customers. The increase in food service volume was attributable primarily to the lifting of indoor dining restrictions in restaurants throughout the U.S. Now looking at sales volume for brands in our consumer channel, Fisher Recipe Nut volume decreased 38.9%, and that was in large part due to lost shelf space in favor of private brand products at one customer and competitive pricing pressure at another customer. The 23.1% increase in sales volume for Orchard Valley Harvest brand primarily came from increased foot traffic in stores at a major customer in the apparel and home goods sector and also increased promotional activity at another customer. Fisher's Snack Nut volume increased 6.9%, and that was mainly due to increased sales of in-shelf units to a major customer in preparation for our discontinuance of that product line. Sales volume for Southern Style Nuts decreased 3.6%, and that was as a result of the discontinuance of an item at a major customer. Fiscal 2021 net sales decreased 2.5% to $858.5 million, Thank you for joining us today. Sales volume increased 6.4% in the consumer channel. The volume increase was driven by increased sales of private brand trail mixes, snack mixes, and snack nuts from new distribution earned at existing customers. Also, a shift in preference to lower-priced private brand products and growth in snacking as many consumers continue to purchase food for consumption at home. Increased sales of Fisher's Snack Nuts also contributed to the sales volume increase in the consumer channel. Sales volume declined 13.9% in the commercial ingredients channel, and that was due to a 13.6% decline in sales volume in our food service business and a decline in sales of peanut crushing stock to peanut oil processors. The decline in food service sales volume was attributable to nationwide restrictions on indoor dining at restaurants, and a decline in air travel due to COVID-19, primarily in our first three quarters. Sales volume decreased 8.2% in the contract packaging channel, primarily as a result of the impact of lower foot traffic in convenience stores on a major customer's business, and again, that was due to COVID-19. Gross profit increased to $46.8 million in the fourth quarter of fiscal 21, compared to $40.7 million and last year's fourth quarter, and gross profit margin was 22.6% in net sales compared to 20% in the prior year's fourth quarter. The increases in gross profit and gross profit margin were due primarily to lower commodity acquisition costs for all major tree nuts and also increased sales volume. Gross profit for fiscal 21 increased to $185 million from $175.8 million in fiscal 2020. Gross profit margin increased to 21.5% of net sales from 20% for fiscal 2020. The increases in gross profit margin and gross profit were again due to lower commodity acquisition costs for all the major tree nuts that we buy and also increased sales volume. Total operating expenses in the quarterly comparison increased $4.3 million and total operating expenses as the percentage of net sales increased to 14.2% from 12.3% in the quarterly comparison. The increase in total operating expenses in the quarterly comparison was mainly attributable to increases in freight, incentive compensation, and consumer insight research and relating consulting expenses. and these expense increases were offset in part by a decrease in the advertising expense. Total operating expenses for fiscal 21 increased $2.6 million and total operating expenses as a percentage of net sales increased to 11.6% from 11% in fiscal 20. The increase in total operating expenses came from increased freight expense, and increased spending on consumer insight research and related consulting expenses. Partially offsetting these was a reduction in advertising expense and a gain of $2.3 million from the final insurance recovery that was related to a fire in our Garysburg, North Carolina facility and that occurred in the second quarter of fiscal 20. Interest expense decreased to $300,000 for the fourth quarter of fiscal 21 from $500,000 in last year's fourth quarter, and interest expense for the current fiscal year decreased to $1.4 million from $2 million in fiscal 20. The decreases in both comparisons came from lower average debt levels. Debt income was a record $12.3 million, or $1.7 per share diluted, for the fourth quarter of fiscal 21, and net income for fiscal 21 was a record $59.7 million or $5.17 per share diluted. Taking a quick look at inventory, the total value of inventories on hand at the end of the current fiscal year decreased $24.1 million or 14% compared to the total value of inventories at the end of fiscal 20. The decrease in the value of total inventories was primarily due to lower The weighted average cost per pound of our raw nut and dried fruit input stocks on hand at the end of the current fourth quarter fell by 11.9%. And this decline, again, was due to lower commodity acquisition costs. Now, before I turn the call over to Jeffrey, I'd like to remind investors that this is my last earnings call as CFO. and Frank Pellegrino, our Executive Vice President of Finance and Administration, will take on that role as CFO. I leave this critical responsibility in very good hands. I'll still be involved in our IR efforts with Frank and I will remain available for investor calls at any time. Now I'll turn the call over to Jeffrey Sanfilippo, our CEO, to provide additional comments on our performance for the current fourth quarter and fiscal year. Jeffrey.

Thank you, Mike. Good morning, everyone. As was the case in the previous two quarters, we again reported record net income and diluted earnings per share for the current fourth quarter. The record results were driven primarily by rebounds in our food service business and contract packaging distribution channel. We also experienced sales volume growth in the consumer distribution channel in this quarterly comparison, which built on the significant sales growth we enjoyed in last year's fourth quarter. This growth came from distribution gains at some of our private brand customers as we demonstrated our ability to maintain superior service and quality levels while facing challenges related to the pandemic in fiscal 2020 and 2021 and numerous constraints in the global supply chain in the latter half of fiscal 21. This is the third consecutive year JBSS has delivered record net income and record EPS. In addition, we shipped over 294 million pounds to customers, which is another record for the company. The significant operating results we have achieved these past few years demonstrate the underlying strength and resilience of our organization, despite competitive pressures and the impact of COVID-19. It is 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. Due to our strong financial results over the last three quarters, we raised our annual regular dividend 7.7% to $0.70 per share and supplemented that with a special dividend of $2.30 per share both of which will be paid to our stockholders on August 25th, 2021. These most recent dividend payments mark the 10th consecutive year that we have paid dividends and we are pleased to return cash to our stockholders. And we are paying bonuses to each and every one of our exceptional JBSS employees who worked together this past year. I am so proud of the hard work, dedication, and leadership of our 1,300 team members throughout the company. They amaze me with their commitment to service our customers and they continue to work hard to support their families and support each other. A special thanks to our manufacturing teams who are so focused on operational efficiencies in production to reduce spending per pound produced while still providing best-in-class quality and service levels. In addition to achieving record results and maintaining best-in-quality class service levels, We also invested in people and added many new members from large food and beverage companies to our sales, brand marketing, innovation, and consumer insights teams as we start our journey to reinvent and reinvigorate our brands. We also increased our investment in consumer insights, as Mike mentioned, in the current fourth quarter. With these teams largely in place, We plan on making additional investments in consumer insights, consumer research, and product innovation and development in fiscal 22. The increased investment in consumer insights will help fuel our growth and embed insights across the organization. We're investing in people and capabilities to unlock insights that address changing consumer needs and behaviors that will drive growth by enabling our marketing efforts to win the hearts and minds of new and existing customers. Notably, we're increasing our foresight capabilities that will help future-proof JBSS by using AI and social media listening tools to help us capitalize on trends and changes in consumer behavior more quickly. We have witnessed extraordinary shifts in consumption these past 17 months. and the investments we are making will establish a stronger foundation to identify opportunities faster to develop innovative products, build stronger brands and expand consumption with new consumers. Now there are headwinds that all companies face now in the coming year as we look at current trends in the world and in this country. Our management team is working hard to execute action plans to mitigate risks to our business. I will share some of the expected challenges in what we are doing. First and foremost is people. We are operating in a very tight labor market. Human capital, health and wellness, and overcoming labor shortages are a top priority. To address labor shortages, the company has increased wages for our manufacturing employees. We also increased shift differentials and starting wages for hard to fill positions, and we began seeing improvement in our fill rates. We offer referral and sign-on bonuses to our new hires and employees. In addition, we are enhancing our total team performance bonus program by introducing a payout modifier that will allow our employees to double their bonus payouts. Another major project to mitigate labor challenges is our investment in robotics for our packaging lines and material handling positions. And lastly, we expanded our use of temporary labor agencies to source and recruit people to fill positions in our operations. We also recognize that in order for our company to be successful, our employees must be healthy, well-trained, and motivated to do their best every day. We are thus relentlessly focused on attracting, retaining, and managing talent across our organization. Due to recent surges in COVID-19 in some areas of the country, we are adjusting our safety policies and practices in accordance with guidance from the U.S. Centers for Disease Control, federal, state, and local governments, and other health authorities. We also recognize that our business is stronger and more successful if supported by a diverse workforce. Our goal is to be more intentional in hiring, maintaining, and promoting diversity among our employees and fostering an inclusive environment where differences are celebrated. In fiscal 2021, we launched our Diversity, Equity, and Inclusion Council consisting of a team of employees from different functional areas to provide oversight and enhance our diversity and inclusion initiatives. We believe that training, developing, and promoting our employees is another important part of our vibrant employee culture. These measures enhance our performance and are an important component of employee satisfaction. We offer training to our employees on a variety of subjects related to professional development, workplace fundamentals, business, computer applications, and industry-specific subjects. I believe we are doing the right things to retain our team members and mitigate the impact of a tight labor market. The second headwind we face is challenges with supply chain. Most manufacturers are dealing with raw material and freight cost increases and with deliveries for those materials. Beginning with the summer of 2020, we already started experiencing variability in transportation costs due to additional demand in shipping, a general shortage of drivers, increased fuel costs and federal regulations. In addition to transportation costs, we experienced increased commodity and raw material costs, increased packaging material prices, higher general water, energy, and fuel costs, and increased labor costs. We have worked closely with our domestic and global suppliers to source and maintain a consistent supply of raw materials, ingredients, and packaging. To date, none of our manufacturing facilities have been significantly impacted by this pandemic. However, recent surges in COVID-19 cases, especially in southern Vietnam, from where most of our cashews are sourced and extensive lockdowns are in place, could have a negative impact on our operations if shipments of raw materials are delayed. But we have contingency plans in place to help reduce the negative impact if one or more of our manufacturing facilities encounters a partial or full shutdown. We closely monitor these supply chain costs and challenges, and we are very transparent with our key partners about their potential impact. Our sales and marketing leaders are having difficult but necessary conversations now about price increases, lead times, and service level expectations. Our operations team is laser focused on driving costs out of manufacturing and other areas of the supply chain we can control, where we can reduce our costs to mitigate price inflation and service level challenges. Now I will shift to consumption activity and category updates. I will share some of the category and brand results with you for the quarter. As always, All the market information I'll be referring to is IRI reported data, and for today it is for the period ending June 20th, 2021. When I refer to Q4, I'm referring to 13 weeks of the quarter ending June 20th, 2021. References to changes in volume or price are versus the corresponding period one year ago. And when we discuss pricing, we are referring to average price per pound. The term velocity refers to the sales per point of distribution. We look at the category on IRI's total U.S. definition, which includes food, drug, mass, Walmart, military, and other outlets, unless otherwise specified. Breakouts of the recipe, snack, trail mix, and produce nut categories are based on our custom definitions developed in conjunction with IRI. As we've mentioned for the past year, COVID-19 had positive and negative impacts upon our results for fiscal 21. In this last quarter, we saw the total nut category grow 1% in both dollars and pounds, with pricing flat. However, different dynamics happened in each of the recipe, snack, trail mix, and produce subcategories, which I'll cover now, starting with recipe nuts. The recipe nut category declined 20% in dollars and 14% in pounds in Q4. The decline is due to the lapping of key lockdown months of April to June of 2020, where consumers were cooking and baking more at home compared to eating out. The Fisher brand continued to be challenged in the recipe category, with declines of 38% in dollars and 33% in pounds in Q4. Fisher not only suffered from the same lapping trend as a category, but was also challenged by distribution declines at two key retailers. While we did see some nice momentum in velocity, these gains were not sufficient to offset the distribution losses. As a result, Fisher pound share decreased by 3.4 points, ending the quarter with a pound share of 11.9%. Fisher continues to be the number one share leader in the recipe nut category. I'll now move on to the snack and trail mix categories. In Q4, the snack machinery was down 1% in both dollars and pound volume. Fisher's snack brands saw declines of 2% in dollars and pound volume during this same period, driven by distribution declines. We did see some nice gains in volume for our Fisher's snack oven-roasted, never-fried product portfolio in PET packaging structure, but it did not offset the losses in other parts of the brand. The trail mix category grew in the fourth quarter with a 10% increase in dollar volume and an 8% increase in pound volume. A large portion of consumer consumption of trail mix is away from home. So as we lap the key lockdown periods last year, this category grew in the fourth quarter as more people are spending time away from home. Our southern style nuts and trail mix brand increased 3% in dollars and 7% in pounds. While we increased promotional activity at a key retailer, discontinuation of an item at another retailer mitigated the overall performance compared to the category. Finally, I'll show the performance for produce nuts. In Q4, produce nuts category increased 9% in dollars and 4% in pound volume sales. Our Orchard Valley Harvest produce brand saw a 6% increase in pound volume with dollar volume being flat. The brand's performance was driven by increased trade and promotional activity across our multipax products. In closing, fiscal 21 was a strong year, especially considering the dynamic changes we've all experienced. This success is possible because we have talented people across our organization and we invest in them to do what matters most to drive results. We are executing our growth strategies implementing continuous improvement projects throughout the organization to optimize our cost structure, and we continue to invest in our people, our brands, and our processes to better serve our customers and consumers and create value for our shareholders. I would like to take this time now to thank Mike Valentine for his many years as our CFO and for guiding our company through both challenging years and enormously successful years. His leadership and commitment to the company have been extraordinary. For the past few years, Mike has mentored Frank Pellegrino, who will take on the role as our new CFO, starting at the close of business tomorrow. I look forward to working with Frank on these earnings calls and with investors. And as Mike mentioned, he will continue with the company and focus on his other important responsibilities with procurement, regulatory compliance, IR, and leading our contract manufacturing division. We appreciate your participation in the call and thank you for your interest in our company. I will now turn the call back over to Mike one last time.