John B. Sanfilippo & Son(JBSS) - 2022 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Net sales for Q3 2022 increased by 5.1% to $218.6 million compared to $207.9 million in Q3 2021, driven by an 8.1% increase in the weighted average sales price per pound, partially offset by a 2.8% decrease in sales volume [4][20] - Gross profit decreased by $6.6 million, with gross profit margin as a percentage of net sales dropping to 18% from 22.1% year-over-year, primarily due to higher commodity acquisition costs and inflationary pressures [14][20] - Net income for Q3 2022 was $11.9 million or $1.02 per share diluted, down from $14.7 million or $1.27 per share diluted in Q3 2021 [20][21] Business Line Data and Key Metrics Changes - Sales volume in the consumer distribution channel decreased by 5.8%, mainly due to a 57.1% decline in peanut butter sales volume linked to planned downtime for production line upgrades [5][6] - The commercial ingredients channel saw a sales volume increase of 11.2%, attributed to a 19.9% rise in sales volume to foodservice customers as restaurant conditions improved [9][13] - The contract packaging distribution channel experienced a 3.1% increase in sales volume due to new customer business starting in Q3 [9][34] Market Data and Key Metrics Changes - The total nut and trail mix category declined by 1% in dollars and 3% in pound volume in Q3, with strong growth in the trail mix segment partially offsetting declines in other segments [37] - The recipe nuts segment saw a 2% decline in dollar sales and a 6% decline in pound sales, influenced by timing shifts related to the Easter holiday [39][40] - The snack nut segment declined by 4% in dollar sales and 7% in pound sales, with all nut types except macadamias experiencing declines [42] Company Strategy and Development Direction - The company is focusing on automation and capacity expansion to optimize production and reduce reliance on temporary labor due to a challenging labor market [29][25] - Investments are being made in R&D and insights to build an innovation pipeline for brands and private brand customers, with a shift towards private brands noted [29][64] - The company aims to leverage its scale and supply chain control to create new opportunities amidst ongoing supply chain challenges [63][48] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenging operating environment due to inflationary pressures and supply chain volatility, particularly related to commodity costs and lead times [25][26] - The company expects a positive impact on Q4 from the later Easter holiday, which may shift some sales volume into that quarter [60] - Confidence was expressed in the strategic investments made to overcome challenges and drive future earnings growth [48][49] Other Important Information - Total inventory value increased by 39.1% year-over-year, primarily due to higher commodity acquisition costs for raw nuts and dried fruits [22] - Interest expense increased due to higher average short-term debt levels driven by increased commodity acquisition costs [19][20] Q&A Session Summary Question: Impact of inflationary environment and supply chain issues - Management highlighted that sunflower oil supply issues from Ukraine are a concern, leading to efforts to find substitute oils [54] - Inflationary pressures on wages and equipment costs have been significant, with automation investments made to mitigate labor shortages [56] Question: Expectations for Q4 due to later Easter - Management indicated that the later Easter holiday should positively impact Q4 sales [60] Question: Consumer distribution and marketing investments - Management noted ongoing efforts to build distribution and monitor shifts in consumer preferences towards lower-priced products [62][64] Question: Changes in package sizes and consumer behavior - Management observed sustained demand for larger package sizes, but anticipated that continued inflation might lead consumers to seek smaller items [65] Question: Commercial business growth and market share - Management confirmed that distribution points have increased compared to pre-COVID levels, positioning the company for further growth in the foodservice channel [67]