John B. Sanfilippo & Son(JBSS) - 2021 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Net sales for Q2 fiscal 2021 decreased by 5.2% to $233.6 million compared to $246.4 million in Q2 fiscal 2020, primarily due to lower selling prices for tree nuts [5][10] - Gross profit increased by $2.8 million or 5.6%, with gross profit margin rising to 22.6% from 20.3% year-over-year [12] - Net income for Q2 fiscal 2021 was $19.9 million or $1.72 per diluted share, compared to $17.5 million or $1.52 per diluted share in Q2 fiscal 2020 [17] Business Line Data and Key Metrics Changes - Consumer distribution channel sales volume increased by 9.9%, driven by a 13.3% increase in private brand peanuts, trail mixes, and snack mixes [5][6] - Commercial ingredients channel sales volume decreased by 23.6%, primarily due to a 29.4% decline in food service sales volume attributed to COVID-19 [6][10] - Contract packaging distribution channel sales volume declined by 14.1%, impacted by lower convenience store foot traffic due to the pandemic [7][28] Market Data and Key Metrics Changes - The total nut category increased in sales dollars by 4% and pound volume by 5% in Q2, indicating a shift in consumer preferences towards smaller store formats and online shopping [30] - Fisher recipe nuts saw a 20% decline in dollar sales and 19% in pound sales, attributed to lost distribution with key retailers [32] - Orchard Valley Harvest brand experienced a 14% decline in pound sales, resulting in a pound share decline of 0.2 points [35] Company Strategy and Development Direction - The company aims to create long-term stockholder value through responsible cash use, as evidenced by the approval of a special dividend of $2.50 per share [20] - Management is focused on building stronger brands and innovative product platforms, with recent product launches such as Fisher recipe nut flowers and Rubi Real Premium Gift nuts [23][24] - The company is optimistic about returning to pre-pandemic levels in food service sales as vaccines are distributed and restrictions are lifted [26][28] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in maintaining consumer sales growth while anticipating a recovery in food service sales as the pandemic subsides [47][48] - The company is well-positioned for future growth, with a strong infrastructure and capacity to meet increased demand across all channels [58] - Management acknowledged challenges due to the pandemic but emphasized the opportunities for growth and innovation in their product offerings [36][37] Other Important Information - The total value of inventories decreased by 9.8% compared to the previous year, attributed to lower commodity acquisition costs for tree nuts [18] - Interest expense declined slightly due to a lower weighted average interest rate from reduced long-term debt [16] Q&A Session Summary Question: Can you discuss the gross margin benefits and sustainability? - Management indicated that improvements in gross margin were primarily due to lower commodity costs for tree nuts, which are expected to remain stable for the remainder of the crop year [42][44] Question: How does the pandemic impact the business segments? - Management noted a shift to e-commerce and home cooking, with expectations for a return to food service as states reopen [47][48] Question: Are there opportunities for M&A in the current environment? - Management is continually looking for M&A opportunities but has not found anything strategic that makes sense at this time [52] Question: How is the competitive landscape evolving? - Competitors are responding to changes in consumer behavior, with some aggressively expanding their distribution in the recipe nut category [53] Question: Will interest expenses decline as long-term debt is paid down? - Management confirmed that interest expenses are expected to decline as long-term debt is amortized [55] Question: What are the expectations for capital expenditures post-pandemic? - Management indicated that capital expenditures related to pandemic adjustments were minimal, with future CapEx focused on product line expansion [56]