John B. Sanfilippo & Son, Inc.

Good day, and thank you for standing by. Welcome to the John P. Sanfilippo and Son, Inc. Fourth Quarter and Full Year 2023 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 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jeffrey Sanfilippo, CEO. Please go ahead.

Thank you, Abigail. Good morning, everyone, and welcome to our 2023 Fourth Quarter Earnings Conference Call. Thank you for joining us. On the call with me today is Frank Pellegrino, our CFO. Hello. 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 the filings to learn more about these risks and uncertainties that are inherent in our business. I'm pleased to report our strong financial performance in fiscal 2023 as we navigated through a challenging operating environment and elevated levels of inflation and delivered a record diluted earnings per share for the fiscal year. This is the fifth consecutive year JVSS has delivered record year-end earnings. These results validate the actions taken during the last 12 months to respond to the numerous headwinds we faced and is a testament to the hard work across the organization to execute our strategies. We raised our annual dividend by 6.7% to $0.80 per share and supplemented our annual dividend with a special dividend of $1.20 per share, both of which will be paid on September 13, 2023. This strong performance would not be possible without our talented team members whose conviction, agility, and determination are unrivaled. JBSS also achieved an important milestone towards our goal of diversifying our product offerings during the second half of the fiscal year. We launched a new product line of private brand nutrition bars and sold over $4.2 million of this bar product to a number of our key retail partners. Our nutrition bars have been well received by our retail partners and their customers who enjoy a great product at an attractive price point. We have a great momentum as we expect to continue to grow distribution and gain additional private brand nutrition bar customers in subsequent quarters. I'm so proud of our associates across the company who worked hard on expanding our product portfolio. Their dedication to quality service and innovation and their commitment to our customers and consumers is absolutely remarkable. Despite the supply chain and cost challenges we faced with raw materials, labor, and freight, we still succeeded in maintaining competitive pricing and best in class quality and service levels. These results demonstrate the underlying strength and resiliency 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 customer and supplier partnerships. In addition to achieving record results and maintaining best-in-class quality and service, we also invested in people, innovation, and new manufacturing capabilities. We invested in our brands to reposition and reinvigorate them. Looking ahead to fiscal 2024, we are focused on accelerating our volume growth by capitalizing on the success of our private brand nutrition bars, also strategically investing in our brands, partnering with our key private brand customers, and exploring strategic acquisition opportunities. 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. There are three clear goals on our path to become a $2 billion business. grow our private brand customer business with value-added snack solutions based on our extensive industry and manufacturing expertise. We invested heavily in consumer insights to develop products, pack sizes, and price points that meet changing consumer needs. And we invested in innovation to develop delicious products that differentiate our portfolio and bring excitement to the snack category. Number two, we invigorate our JVSS brand and crack the code on distribution. We are focused on growing our branded business by reaching new consumers and expanding locations that carry our Fisher, Orchard Valley Harvest, Squirrel, and Southern Roasted products across current and alternative channels. One example of this, we allocated significant time and resources to launching our Orchard Valley Harvest brand this past year. The marketing team and our creative partners have developed a new look and new brand position for OVH and recently launched a fun campaign you can see across social media outlets around the country. Another example is our food service team, which worked hard to expand our non-com front-of-house distribution for Fisher and OVH to thousands of locations throughout the United States. Third, diversify the portfolio to accelerate growth. We are focused on expanding our product offerings beyond nuts, as we've done by entering the energy bar business. We're also working on expanding distribution of our OBH chickpea chip product line. And this past year, we acquired the Just the Cheese Company, which spreads our product reach into the cheese snack category and provides amazing tasting cheese crisps for own trail mixes and snack mixes. We are excited to add Just the Cheese to our branded portfolio as it complements our current brand offerings in the snack category. And the acquired production capabilities will help accelerate growth with our private brand and food service customers. Our mission is we are nuts about creating real food that brings joy, nourishes people, and protects the planet. And JVSS is executing on this mission. JVSS is committed to diversity. Human talent is a critical component of our success, and we recognize that our business is stronger and more successful if supported by a diverse workforce. The company continues to recruit, maintain, and promote diversity among our employees and foster an inclusive environment where differences are celebrated. The JBSS Diversity, Equity, and Inclusion Council expanded our employee resource groups, provided training and oversight, and enhanced our DEI initiatives. JVSS is committed to being good stewards of the planet and its resources. Our ESG team established baselines for our environmental goals this year, which include reducing our carbon footprint, preparing for recycling-ready film usage, and reducing our use of composite cans and switching to 100% PET. Lastly, JVSS is committed to social goals to assist in ending food insecurity educate the next generation of farmers on sustainable practices, and support the growth and betterment of our associates. I'll now turn the call over to Frank to discuss our financial performance.

Thank you, Jeffrey. Starting with the income statement, the 2022 fourth quarter fiscal year contained an additional week compared to the same period in our current fiscal 2023. Net sales for the fourth quarter of fiscal 2023 decreased 9.1% $234.2 million compared to net sales of $257.7 million for the fourth quarter of fiscal 2022. The decrease in net sales was mainly due to a 9% decrease in sales volume, which we define as pound sales to customers. Excluding the estimated impact of the actual week, net sales decreased approximately 2.1%. Sales volume decreased in all three distribution channels in the current fourth quarter. Sales volume decreased 6.9% in consumer distribution channel, primarily due to a 4.7% decrease in sales volume for our private brands and a 15.4% decrease in sales volume for our branded products. Excluding the estimated impact of the extra week, sales volume in the consumer distribution channel increased by 0.3%. The sales volume decrease in private brand sales was mainly driven by the extra week, which was partially offset by new peanut butter and nutrition bar business and a mass grocery dieting retailer. Excluding the estimated impact of the extra week, private brand sales volume grew by approximately 2.6%. The sales volume decrease for our branded products, which includes Fisher Recipe Nuts, Fisher Snack Nuts, Orchard Valley Harvest, and Southern Style Nuts was mainly attributable to a 29.1% decrease in the sales volume of fish or snack nuts due to decreased promotional activity at two major customers. Sales volume for southern style nuts decreased 26.5%, predominantly due to reduced promotional activity at a current club store customer and a sales volume associated with the extra week. Excluding the impact of the extra week, branded sales volume decreased by 8.9%. sales volume decreased 9.8% in the commercial ingredients channel, primarily due to the extra week in the fourth quarter, and a 33.1% decrease in sales volume of bulk products to other food manufacturers, which is driven by reduced consumption from softened consumer spending. Excluding the estimated impact of the extra week, sales volume decreased by 2.8%. Sales volume decreased 21% in the contract packaging distribution channel, due to decreased peanut distribution by a major customer in this channel. Excluding the estimated impact of the actual week, sales volume decreased by 15%. Growth profit for the fourth quarter of the current year decreased 1.5 million, or 2.6%, to 54.7 million, due to a lower net sales base, while growth profit margin increased to 23.4% in net sales for the current fourth quarter, compared to 21.8%, in the fourth quarter of fiscal 2022. The increase in gross profit margin was mainly attributable to lower acquisition costs for all major tree nuts, which was partially offset by higher acquisition costs for peanuts. Total operating expenses and employee comparison increased 1.4 million, while total operating expenses as percent of net sales increased to 14.2% from 12.3%. The increase in total operating expenses in quarterly comparison was mainly due to an impairment of minority investment, increase in marketing and related consulting expenses, incentive compensation expense, and loss in asset disposals. These increases were partially offset by decreases in freight and equity compensation expense. The increase in total operating expenses as percent of net sales was due to lower net sales rates. Interest expense decreased to $300,000 for the fourth quarter of fiscal 2023 from $500,000 due to lower average debt levels. Net income was $14.7 million or $1.26 per share diluted for the fourth quarter of fiscal 2023 compared to $17.4 million or $1.50 per diluted share. Now let's take a look at inventory. The total value of inventories on hand at the end of the current fiscal year decreased 31.9 million, or 15.6%, compared to total value of inventories at the end of fiscal 2022. The decrease in the value of total inventories was primarily due to lower commodity acquisition costs for all major tree nuts and lower quantities of work in process and finished visit inventory. This decrease was partially offset by higher acquisition costs for peanuts and other raw materials. As a result of lower commodity acquisition costs, the weighted average cost per pound of raw nut and dry fruit input stocks on hand at the end of the current support quarter decreased 24.3%. Moving to year-to-date results, fiscal 2023 net sales increased 4.6% to $999.7 million compared to fiscal 2022 net sales of $955.9 million. The increase in net sales is primarily attributable to a 6.5% increase in the weighted average selling price per pound, which is partially offset by a 1.8% decrease in sales volume, primarily due to sales volume decreases in the consumer and contract packaging channels. Excluding the estimated impact of the extra week, net sales increased by 6.6%. Sales volume decreased 1.8%, primarily due to sales volume decreases in consumer and contract packaging channels. Excluding the estimated impact of the extra week, sales volume growth will be flat. Gross profit for the current fiscal year increased 6% to $211.6 million, and gross profit margin increased slightly to 21.2% from 20.9%. Total operating expenses for fiscal 2023 increased $9.2 million to $121.4 million, primarily due to reasons cited before, as well as an increase in base compensation, in addition to a non-recurring gain of approximately $2.3 million from the sale of our Garysburg Narconic facility, which occurred in the first quarter of fiscal 2022. These increases are partially offset by decreases in freight expenses. Net income for fiscal 2023 was $62.9 million, or $5.40 per share diluted, compared to $61.8 million, or $5.33 per diluted share. Please refer to our 10-K, which was filed yesterday, for additional details regarding financial performance for the fourth quarter and fiscal 2023. I will now turn the call over back to Jeffrey to provide additional comments on our operating results for fourth quarter and discuss category trends.

Thank you, Frank, for the financial updates. I'll now share some category and brand results with you for the quarter. As always, the market information I'll be referring to is IRI reported data, and for today it is for the period ending June 18th, 2023. When I refer to Q4, I'm referring to 13 weeks of the quarter ending June 18th, 2023. References to changes in volume or price are versus the corresponding period one year ago. 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, when we discuss pricing, we are referring to average price per pound. Breakouts of the recipe, snack, and produce nut segments are based on our custom definitions developed in conjunction with IRI. And the term velocity refers to the sales per point of distribution. The total nut and trail mix category was down 1% in dollars and down 2% in pound volume in Q4. This is consistent with the rates we saw last quarter. Overall, price increases across the category continue to moderate with price per pound up 1.6% in Q4 versus the prior year. For reference, prices were up 3% in Q3. Now we'll cover each segment in more depth, starting with recipe nuts. The recipe nut segment was down 3% in dollar sales and up 2% in pound sales. This is a slightly worse dollar performance than we saw in Q3, but better pound performance. Prices of recipe nuts were down 4.5% versus last year, driven by walnut price declines. Our Fisher brand had another successful quarter, growing 15% in dollars and 12% in pounds. Fisher's performance resulted in growing dollar share by 2.5 points and remains the branded leader. Fisher's performance was driven primarily by increased distribution in the mass and grocery channels. Now let me turn to the snack segment. In Q4, the snack segment was down 1% in dollars and down 3% in pound sales. This is slightly worse than the performance we saw in Q3. Pricing continues to stabilize in the snack net category with prices up 1.5%. Fisher's snack performed worse than the category, down 7% in dollars and 12% in pounds. On peanuts, the largest nut type within our brand, we are continuing to see significant competitive pricing and promotional pressure. We are executing our competitive response by balancing profitable growth and not contributing to devaluation of the peanut category. We have also lost distribution on Fisher's snack smaller pack sizes as consumers are looking towards larger value packs. We continue to see strong results in the oven roasted, never fried line across our large sizes. We are focused on continuing to build distribution and drive velocities against this line. The trail and snack mix segment was up 3% in dollars and down 1% in pounds in Q4, relatively consistent with the performance we saw in Q3. Prices of trail mix were up 4.8%, slightly less than the last quarter. Our southern style nuts brand declined 8% in dollars and 12% in pounds. The clients were solely driven by the club channel as competitive and pricing pressure has increased resulting loss resulting in lost distribution. The brand continues to grow in mass. Private brands continue to drive the trail mix category, growth of up 3% in dollars in Q4. Our last segment, produce nuts, declined 2% in dollars and 3% in pound volume in Q4. And this is consistent with the performance we saw in Q3. Our produce nut brand, Orchard Valley Harvest, declined 25% in dollars and 18% in pound sales, driven by distribution declines at a mass retailer. We have started the repositioning and relaunch of this brand, and with products flowing into the market now. In closing, JBSS management and all our team members are excited about the future. We see great opportunities to build our bar business and enter new snack segments. Our Fisher Recipe brand, the number one brand in the recipe category, is well positioned for another successful holiday season. And our sales teams are working with a sense of urgency to expand distribution of Orchard Valley Harvest nut mixes, chickpea chips, and salad toppers supported by strong marketing programs. We do face several challenges in the future on the macro level, which includes sustained inflation, higher interest rates, and the potential for an economic downturn. This may have a negative impact on consumer behavior and consumption volume. In addition, the steady tightening in the labor market for those employed at our production facilities may continue to lead to increased labor costs. Fiscal 23 was a strong year, especially considering the dramatic changes in the marketplace. 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 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 the company. Abigail, I will now open up the call to questions.

Thank you. At this time, we'll conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. One moment while we compile the Q&A roster. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. One moment for our first question.

Our first question comes from Daniel Ambreef with UBS.

Your line is open.

Hello, guys, and thank you for taking my question. I've got my first one. You mentioned acquisition opportunities kind of in the beginning of the call. I was wondering if you're looking more at the branded or private label side of your business, what size you'd be looking at, and how you see valuations, how your pipeline is right now, and how large of a deal would you do given how clean your balance sheet is?

Thanks for your question. This is Frank. Our M&A strategy is twofold. We're always looking at brands in the better-for-you snack, healthy snacking categories. relatively smaller brands where we could bring those brands into our distribution channels and really accelerate the sales volume. And we're also looking at capabilities, increasing our capabilities in-house. So we have a two-pronged strategy, and we're always looking at opportunities to satisfy one of those two strategies.

Okay, great. Thanks. And you mentioned competitive pressures primarily in I was wondering if you could give a little bit more, maybe, commentary on that. Do you see that continuing in Q1? How long do those types of competitive pressures usually last? And anything you can give in terms of context going forward would be helpful.

Sure. Good question, Daniel. Yeah, actually, the last year we've seen increased spending by the largest snack brand for nuts. in the snack category. So they just continue to invest extremely heavily. I made the comment in the call about the reduction in the valuation for the peanut category. And a lot of that is attributed to just their aggressive trade spend and price point reductions. And so at some point it becomes unprofitable to try to match some of those price points. And so we're just monitoring that situation and You know, we're investing in other areas in the snack category to try to increase buy and increase growth. But definitely there's been some competitive activity with that brand, one of the major brands in the snack category. As far as the club channel, there's just so much always competition in the club channel. We think we've got some really good differentiated products that we've launched recently. We've got a couple wins with our Orchard Valley Harvest salad toppers, which is exciting for the company. And the Club Channel is a great opportunity. It's huge volume, a huge snack category. And so we just need to make sure that we're focused on putting the right product there that's profitable with the right price point for the club consumer.

Great. Thank you so much, and good luck going forward. Thank you.

Thank you. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. I'm showing no further questions at this time. I would like to turn the call back to Jeffrey Filippo for closing remarks.

Thanks, Abigail. Thank you, everyone, for your participation on the call and your interest in JVSS, and appreciate your time. Have a great day.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.