John B Sanfilippo & Son Inc (JBSS) 2014 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to your John B. Sanfilippo & Son, Inc., fourth quarter and fiscal 2014 year-end operating results conference call hosted by Mike Valentine, Chief Financial Officer. My name is Benny and I will be your event manager this morning. (Operator Instructions). And now, I would like to hand it to Mike Valentine. Please go ahead.

Thank you, Benny. Good morning, everyone, and welcome to our 2014 fourth quarter and fiscal year earnings conference call. Thank you for joining us today.

On the call with me today is Jeffrey Sanfilippo, our CEO, and Jasper Sanfilippo, our COO.

Before we start, we want to remind everyone 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 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 will start the call by covering financial highlights for the 2014 fourth quarter and fiscal year. The current quarter net sales increased by 14.2% to a record $202.5 million, compared to net sales of $177.4 million for the fourth quarter of fiscal 2013.

The increase in net sales in the quarterly comparison came mainly from a 9.5% increase in sales volume. Sales volume increased in all distribution channels, except the export channel, for all major product types, except pecans and walnuts.

Approximately 70% of the volume increase occurred in the consumer distribution channel. The volume increase in the consumer channel came mainly from increased sales of private-brand snack nuts and private-brand peanut butter.

Increased volume for Fisher recipe nuts at existing customers also contributed meaningfully to the volume increase in that channel. We also saw a significant volume increase in the contract manufacturing channel with increased sales to existing customers in that channel.

The volume increase in the commercial ingredients channel was driven by increased almond sales to a major existing customer. The volume increase in the commercial ingredients channel was offset in part by a decline in walnut and pecan sales.

Walnut volume declined in the quarterly comparison due to timing of shipments and pecan volume declined in the quarterly comparison due to the loss of some smaller commercial ingredient customers who would not accept price increases. Sales volume declined in the export channel due to lower availability of in-shell walnuts for export.

Fiscal 2014 net sales increased by 6% to a record $778.6 million, compared to fiscal 2013 net sales of $734.3 million. The increase in net sales in the yearly comparison primarily resulted from an 8.4% increase in sales volume. Sales volume increased in all distribution channels, except the export channel, and it increased for all major product types, except walnuts and cashews.

Approximately 55% of the volume increase occurred in the consumer distribution channel. The volume increase in the consumer channel was driven by sales increases for private-brand snack nut and trail mix products. Increased sales of Fisher recipe nuts also made a significant contribution to the volume increase in the consumer channel and the annual comparison.

The increase in volume in the consumer channel from these growth drivers was offset in part by lost cashew distribution at a major existing private-brand customer earlier in fiscal 2014. Cashew distribution with this particular customer was regained in the latter part of the current fourth quarter.

As was the case in the quarterly comparison, we also saw a significant volume increase in the contract manufacturing channel with increased sales to existing customers. The volume increase in the commercial ingredients channel was driven primarily by increased sales of almonds to a major customer, as was the case in the quarterly comparison. Sales volume fell in the export channel due to reduced availability of in-shell walnuts for export.

The current fourth-quarter gross profit margin fell slightly to 16.7% of net sales from 16.8% for last year's fourth quarter. Gross profit dollars increased by $3.9 million, or 13.1%. The increase in gross profit was primarily due to increased sales volume.

Fiscal 2014 gross profit margin decreased to 15.8% of net sales from 16.3% in fiscal 2013. Gross profit dollars increased by $2.9 million, or 2.4%, as a result of increased sales volume.

The decline in gross profit margin in the fiscal-year comparison was mainly attributable to competitive pricing pressures that existed during the first half of fiscal 2014 and also to the delay in implementing price increases for higher commodity acquisition costs during the third quarter of the current fiscal year.

Total operating expenses for the fourth quarter of fiscal 2014 declined to 10.7% of net sales from 11.2% for the fourth quarter of fiscal 2013. The decline in total operating expenses as a percentage of net sales was mainly attributable to higher sales levels. The increase in total operating expense dollars was mainly attributable to increases in compensation-related expenses and shipping expenses, which resulted from higher volume. The increase in these expenses were offset in part by lower professional expenses.

Total operating expenses for fiscal 2014 fell to 9.7% of net sales from 10.7% of net sales for fiscal 2013. The decline in total operating expenses as a percentage of net sales was again mainly attributable to our higher level of sales and also to the gain on the sale of the Elgin site that we recorded in the second quarter of fiscal 2014. Lower incentive compensation expenses, advertising, and professional expenses also contributed to the decline in total operating expenses in the annual comparison.

Interest expense in the current fourth quarter declined to $1.1 million from $1.2 million from last year's fourth quarter. Interest expense for the current fiscal year fell to $4.4 million from $4.8 million for fiscal 2013.

The declines in interest expense in both comparisons were primarily attributable to lower average borrowing levels.

As a result of the above, net income increased by over 18.3% to a record $6.6 million for our fourth quarter and net income for fiscal 2014 increased by 20.8% to a record $26.3 million in the annual comparison.

The total value of inventories on hand at the current fiscal year increased by $24.1 million, or 15.2%, compared to the value of inventories on hand at the end of fiscal 2013. The increase in the value of total inventories was primarily attributable to increased quantities of raw commodity input costs of peanuts, walnuts, and almonds. Significantly higher acquisition costs for walnuts and almonds also contributed to the increase in total value of inventory on hand.

And now I turn the call over to Jeffrey Sanfilippo, our CEO, who will provide additional comments on the performance in the current quarter and fiscal year. Jeff?

Thank you, Mike. Good morning, everyone.

I am proud of our results for the quarter and for the year as the Company achieved record net sales, record net income, and record basic earnings per share. These strong, consistent results demonstrate the success that the management team and all of our 1,300 employees are having in executing our corporate strategies and JBSS is evolving into a true consumer products company.

It is important to note that our net commodity purchases were $56.7 million higher during fiscal 2014 than fiscal 2013, due mainly to higher net acquisition costs. Drivers included the continued high demand for pecans and walnuts in China and strong global demand for almonds, and in spite of strong commodity costs, our Company performed well and created customer and shareholder value.

We were very pleased with the performance of our Fisher recipe nut brand during the current quarter and fiscal 2014, as sales volume grew by approximately 20% in both the quarterly and annual comparisons.

As a result of our category management and innovation efforts, growth in private-brand snack nut and trail mix sales to key existing customers continued to make a major contribution to our overall sales volume growth in the current quarter and fiscal year.

Finally, our ongoing continuous improvement efforts led to the achievement of meaningful manufacturing efficiency gains in the current fiscal year. I am especially proud of the fact that the savings garnered from these efforts put us in a position to fund increases in direct labor wage rates, which will allow us to attract and retain talented line operators and supervisors throughout the organization.

I would like to highlight four other accomplishments in fiscal 2014. As Mike mentioned, we sold the old Elgin site, which we originally anticipated using in connection with our facility consolidation project. This deal generated cash proceeds of $7.8 million and resulted in a pretax gain of $1.6 million during the second quarter.

Second, our strong financial position allowed us to pay a special cash dividend of $16.6 million, or $1.50 per share, to holders of common stock in December 2013, an increase of 50% on a per-share basis over the special cash dividend paid in December 2012.

Third, the Company formed a subsidiary in Shanghai, China, to expand our efforts in Asia to build our Fisher snack distribution.

And fourth, and one of the most exciting accomplishments in fiscal 2014, is the success of our Fisher recipe brand. IRI market data from June 2014 indicates that Fisher recipe nuts are the market-share leader in the overall recipe nut category, excluding wholesale club sales.

There has been great interest in the snack and ingredient nut sector in the past year, with several high-profile deals gathering attention. And while our Company does look at acquisition opportunities and strategic partnerships to drive profitable growth, we will continue to focus on our strategic plans with the following long-term goals.

One, growing Fisher and Orchard Valley Harvest into leading nut brands by focusing on consumers demanding quality nuts in the snacking, recipe, and produce categories. Two, expanding globally and building our Company into a leading international branded and private-brand snack nut company. And three, providing integrated nut solutions to create value and grow nonbranded business at existing key customers in each distribution channel.

We continue to execute portions of this strategy. In fiscal 2014, we were recognized as a top supplier by one of our largest commercial ingredient foodservice customers. We also won quality supplier of the year from one of our largest contract packaging customers. In addition, we continue to develop our Fisher brand business in China by improving our distributor network and leveraging our Shanghai trading company to support our long-term business strategy.

Also during fiscal 2014, and especially during the fourth quarter, we saw meaningful increases in Orchard Valley Harvest sales volume and sales dollars compared to the previous fiscal year.

Turning to each of our channels, net sales in the consumer distribution channel increased by 3.9% in dollars and 8.6% in sales volume in fiscal 2014, compared to fiscal 2013. As we have highlighted, Fisher brand sales volume increased by 6.7% in fiscal 2014, compared to fiscal 2013.

Fisher recipe nut sales volume increased by 22.5% from fiscal 2013. In the commercial ingredient channel, net sales increased by 8.7% in dollars and 5.8% in sales volume in fiscal 2014.

When I discuss our focus on growing JBSS brands, this strategy also applies to the commercial ingredient channel, where we have specific performance objectives to expand Fisher snack and recipe distribution with key foodservice distributors.

In our international division, net sales decreased 1.2% in dollars and 12.2% in sales volume in fiscal 2014, compared to fiscal 2013. This was a challenging year for our international division with volume declines in key markets, such as Mexico and parts of Asia.

I would consider 2014 a building year for the channel, as the Company invested in upgrading talent and researching consumer trends and packaging to optimize our product portfolio. Now we are better positioned to grow our international business in the coming year.

Contract packaging, net sales increased by 14.2% in dollars and 19.2% in sales volume. The increase in sales volume was primarily due to increased sales of almonds, trail mixes, and chocolate- and yogurt-coated products due to new product launches executed by key customers in this channel.

Now let's look at consumption trends in the snack, recipe, and produce categories. All the market information is reported through IRI data ending June 29, 2014, and when I refer to Q4, I am referring to 13 weeks on the quarter ending June 29.

References to changes in volume or price are versus the corresponding period one year ago. We look at the category on IRI's total US definition, which includes food, drug, mass, Walmart, military, and other outlets, unless otherwise specified. And when we discuss pricing, we are referring to average price per pound.

First, let me review some category dynamics. The total nut category increased in both pound volume and sales dollars in Q4, up 6% and 3%, respectively. The strong results were driven by growth in mixed nuts, cashews, and peanuts. All three of those nut types decreased in price versus last year.

Overall prices in Q4 increased 3% versus the prior year. Almonds and pistachios experienced the largest price increase versus last year. Almonds and pistachios increased 13% versus Q4 last year, and that resulted in a 13% pound sales decline for pistachios and a 2% pound sales decline for almonds.

For the entire 2014 fiscal year, the nut category increased 3% in pound sales and 4% in sales dollars. Cashews, peanuts, and mixed nuts had strong years, driven by a decrease in price versus last year.

Category pricing during the fiscal year increased 1% versus the prior year. Price increases were most visible in pistachios, up 15%, and almonds up 12%. Peanut prices decreased 7%, while mixed nuts and pecans experienced a price decline of 3% versus last year.

Now I will talk about each subcategory in a little more depth, starting with recipe nuts. In Q4, the recipe nut segment increased 5% in pound sales and 13% in dollar sales. The growth was driven by strong results by the three primary nut types -- walnuts, pecans, and almonds.

Our Fisher brand had a very strong year and continues to gain momentum. The Fisher brand continues its sponsorship of the Food Network and celebrity chef Alex Guarnaschelli, which was launched last year. The program includes branded vignettes on the Food Network, print advertising in Food Network magazine and other publications, as well as a fully integrated social media effort.

Fisher recipe nuts increased 27% in pound and dollar sales in Q4. The growth was driven by a 7% increase in total points of distribution and a 28% increase in pound -- base pound sales. The Fisher share in the category increased 3 points versus last year. And as mentioned before, if we exclude club items from the definition, Fisher's share increased 3.6 points.

Fisher pound velocity, pound sales divided by total points of distribution, increased 19% versus Q4 last year.

The recipe category had a strong fiscal year, increasing 5% in pound sales and 7% in dollar sales. Growth was driven by the three major nut types within this subsegment -- walnuts, pecans, and almonds. All three increased versus last fiscal year.

Fisher recipe nuts increased 21% in pound sales and 13% dollar sales versus last fiscal year.

In Q4, the snack subsegment increased 7% in pounds and 8% in dollars versus last year. Strong growth in mixed nuts, peanuts, and cashews drove these increases. Fisher snack increased 10% in pound sales and 8% in sales dollars in Q4. The growth was driven by a 5% increase in base pound sales and merchandising activity.

For the full fiscal year, the snack subsegment increased 6% in pounds and 5% in dollars versus last year, and as with the fourth quarter, mixed nuts, peanuts, and cashews drove that growth. Pound volume and sales dollars, as measured by IRI, increased in fiscal 2014 versus last year 5% and 6%, respectively. And the growth was driven by a 13% increase in base pound sales and a 53% increase in merchandising activity.

Our Orchard Valley Harvest brand had a strong fourth quarter, increasing 41% in pound sales and 28% in dollar sales. A 31% increase in total points of distribution drove that growth.

For the fiscal year, the Orchard Valley Harvest brand declined 3% in pound sales, but increased 2% in dollar sales. In fiscal 2014, we did see a 14% increase in total points of distribution for our Orchard Valley Harvest brand.

In closing, we will continue to focus on seeking profitable business opportunities. We expect to maintain our recent level of promotion and advertising activity for our Fisher and Orchard Valley Harvest brands and to develop new innovative items across our channels.

I am pleased with our record topline results, net income, and EPS in the fourth quarter and fiscal year. Now I want to thank and congratulate all of our employees for their hard work, commitment, and leadership. Overall, our strategies are working well and we intend to stay the course.

I am optimistic about our ability to grow our brands, expand into emerging international markets, and create value for key global food retailers, manufacturers, and distributors, and I'm excited about the pipeline of projects and new product introductions we are testing and will launch in the near future.

The management team remains focused on consistent execution of our corporate plans to create shareholder value, and each of our employees is focused on improving quality and service, enhancing operational efficiencies, and reducing costs throughout the supply chain to create value for our customers.

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. Thank you.

Okay, Jeff, thanks. Benny, can you queue up the first question?

(Operator Instructions). We have no questions. I will pass over to Mike to conclude the call. Thank you.

Okay, thank you, Benny. Again, thanks, everyone, for your interest in JBSS. This concludes the call for our fourth-quarter and fiscal-year 2014 operating results.

Thank you. Ladies and gentlemen, that concludes the call for today. You may now disconnect.