John B. Sanfilippo & SON 2027 Q1 Earnings Call

Good morning everyone, and welcome to our 2027 first quarter earnings conference call. Thank you for joining us. On the call with me today is Frank Pellegrino, our CFO and President, and Jeffrey Sanfilippo, our Executive Chairman. We may make some forward-looking statements today. These statements are based on our current expectations and may involve certain risks and uncertainties. The factors that could negatively impact results are explained in 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. First, I would like to take this opportunity to thank my brother, Jeff, for his exceptional leadership, guidance, and vision. Through Jeff's 20-plus years as CEO, he has well-positioned the business for great success.

Frank, the management team, and myself are looking forward to working with Jeff as he moves into his new role as Executive Chairman. I am honored to serve as Chief Executive Officer and build upon the strong foundation of our company. We remain committed to profitable growth, operational excellence, disciplined capital allocation, and maintaining our financial strength while continuing to deliver exceptional service to our customers. We delivered a solid start to our fiscal 2027 in a difficult economic environment. Sales volume was unchanged from the prior year period, marking our third consecutive quarter of stable or improving volume performance. While last year's exceptionally strong first quarter diluted EPS provided a difficult comparison, we improved diluted EPS by more than 50% compared to the fourth quarter of fiscal 2026, demonstrating a meaningful improvement in profitability and positive momentum during the 2026 calendar year.

Looking ahead, we remain focused on executing our strategic priorities and believe we are well-positioned to build on this momentum throughout fiscal 2027. Our long-range plan defines our future growth priorities focused on accelerating our private brand business with key customers in high-growth snacking categories, most notably private brand bars, while expanding branded distribution behind Orchard Valley Harvest and Fisher through insight-driven product and packaging innovations. Execution of our long-range plan is anchored in delivering value-added solutions and high-quality innovative products based on our extensive nut and consumer expertise. Growth in private brand bars will be supported by capacity expansion and a robust innovation pipeline aligned with consumer trends such as protein bars. For our branded nut and trail mix business, we are focused on attracting new consumers through product innovation, broader distribution across traditional and alternative channels, and expanded purchasing occasions.

Promotion and advertising investments are focused on driving branded growth, supported by an omni-channel strategy across recipe nuts, snack nuts, and trail mix. Our long-range plan also includes growth through product and packaging innovation. To support these initiatives, we made significant capital investments in equipment and infrastructure improvements to expand our production capabilities, improve efficiency, and enhance product offerings for our customers. Price inflation and consumer sentiment continue to be a challenge for the snack category across many food segments. We faced significant supply chain cost increases over the past year, and our teams have worked hard to mitigate margin compression through pricing adjustments and efficiency gains. Our team also worked hard to drive additional costs out of our operations and supply chain and manage our inventory levels. Demand planning becomes challenging when consumer behavior changes and markets become volatile.

We are prioritizing resources to work with our key retail partners on better forecasting and order planning. This is the busy season for our nut and trail business. Our sales, marketing, operations team have done a great job building our business for the upcoming holiday season, and we are in full swing with shipments to customers. As we have shared on previous calls, the inflationary environment has changed consumer behavior and have seen them shift to more value-focused retailers such as club stores. Our teams have worked hard to expand our retail distribution in clubs and alternative channels with innovative product and pack sizes. Our OVH brand has gained a new rotation at a key club retailer, and the rollout of our OVH Go-Go Protein snack item is gaining traction, and we gained new distribution at a major grocery retailer.

I am proud of our R&D team for creating amazing innovative snack products and building a pipeline for future growth. A call out to our sales team, who provided value in building collaborative partnerships with major retailers across the country. I will now turn the call over to Frank Pellegrino to provide additional information on our financial performance for our first quarter.

Thanks, Jasper. Starting with the income statement. Net sales for the first quarter of fiscal 2027 decreased by 3.5% to $288.1 million with our net sales of $298.7 million for the first quarter of fiscal 2026. The decrease in net sales was due to a 3.6% decrease in the weighted average selling price per pound, which is primarily attributable to a shift in product mix toward lower priced items. In lower selling prices for walnuts, trail and snack mix products, and peanuts resulting from lower commodity acquisition costs. These decreases were partially offset by higher selling prices for pecans and almonds due to higher commodity acquisition costs. Sales volume decreased for all major product types except for peanuts, walnuts, and pecans, all of which experienced volume growth in the quarter.

Sales volume decreased 6.7% in the consumer distribution channel, primarily due to a 6.3% reduction in private brand sales volume. The decline was driven mainly by lower nut and trail mix volume and, to a lesser extent, lower bar volume. Bar sales were impacted by softness in mainstream bars and consumer migration to smaller pack sizes, partially offset by successful launch of a new better-for-you bar offering and an expanded bar business with an existing customer. Nut and trail mix sales volume was negatively impacted by lower sales to several existing customers, driven by category softness in snack and trail mix products and peanuts, reduced promotional activity, and the impact of previously lost business. These declines were partially offset by new business to a grocery retailer and additional recipe nut volume to three existing customers.

Sales volume increased 3.7% in the commercial ingredients distribution channel, mainly driven by increased sales of peanut crushing stock to peanut oil processors. In addition, food service sales increased modestly due to new business, customer growth, and favorable order timing. These increases were partially offset by lower industrial sales resulting from planned business exits, lower customer demand, and unfavorable order timing. Sales volume increased 41.3% in the contract manufacturing distribution channel, primarily due to increased snack nut sales to an existing customer, which was partially offset by non-repeat of a prior year granola sales opportunity. Gross profit decreased $5.2 million or 9.6% to $48.9 million compared to last year's first quarter, driven by competitive pricing pressures and timing of pricing actions for peanuts, bars, snack, and trail mix. Additionally, manufacturing expenses increased due to higher freight, equipment repairs and maintenance, and rent costs.

Gross profit declined to 17% of net sales, compared to 18.1% for the first quarter of fiscal 2026, due to the reasons previously mentioned and an unfavorable shift in product mix. Total operating expenses increased $2.5 million year-over-year, primarily driven by increases in professional fees, freight costs, rent expense, and compensation expense. These increases were partially offset by lower incentive compensation expense. Total operating expenses as a percentage of net sales increased to 10.3%, from 9.1% in the prior comparable quarter, due to the reasons previously mentioned and a lower net sales base. Interest expense was $700,000 for the first quarter of fiscal 2027, compared to $1 million for first quarter of fiscal 2026 due to lower borrowings under our credit agreement.

Net income for the first quarter of fiscal 2027 was $13.2 million, or $1.11 per diluted share, compared to $18.7 million or $1.59 per diluted share for the first quarter of fiscal 2026. Now taking a look at inventory. The total value of inventories on hand at the end of this year's first quarter remained substantially consistent with last year's first quarter. However, weighted average cost per pound of raw nut and dry fruit input stock on hand decreased 20.6% year-over-year, primarily due to higher on-hand quantities of peanuts, both in shell and meats, purchased at lower costs, partially offset by higher acquisition costs of pecans and almonds. Please refer to our Form 10-Q for additional details regarding our financial performance for the first quarter of fiscal 2027. Now I turn the call back over to Jasper to provide additional comments.

Thanks, Frank, for the financial update. Success requires smart, strategic, and the right business model for sustainable growth. It also requires a talented and committed group of leaders across the organization. We have all of those elements of success at JBSS. Turning over to category data. I will review first quarter category trends and then discuss the shipment performance of businesses. Unless otherwise noted, market volume and dollar trends are based on Circana panel data for the 13 weeks ended September 27, 2026, compared with the same period last year. Pricing trends reflect Circana MULO+ average price per pound. Category references use Circana nut, trail mix, and bar syndicated definitions. We will start with the broader snack aisle, as defined by Circana. In the first quarter, category volume was essentially flat, declining just 0.3%, while dollar sales increased 4.5%, driven by higher prices.

This represented a modest deceleration in volume compared with the fourth quarter. Within snack nuts and trail mix, category volume declined 6% and dollar sales declined 3%, consistent with the volume softness we saw last quarter. Average prices per pound increased 4% in snack nuts, with increases across all nut types, and 6% in trail mixes. Our private label consumer snack and trail shipments underperformed the category, with first quarter pound shipments down 8% versus last year. The decline reflected category softness, reduced shelf space at a mass merchandiser, and weaker performance from innovation at a national grocer. Turning now to the recipe nuts category. In the first quarter, the recipe nut category continued its positive momentum, with category volume up 9% and dollar sales up 10%. Growth was driven by private label as a discount retailer expanded its store count.

Average price per pound was flat overall, although results varied by nut type. Almond and walnut prices declined while pecan prices increased. Our private label recipe nut shipments outperformed the category, with first quarter pound shipments up 29% versus last year. The robust performance reflects significant distribution gains across both grocery and mass merchandising channels. Turning next to the bars category. In the first quarter, bars category volume was essentially flat, down 0.3%, while dollar shares increased 6%. This represented a moderation in volume compared with last quarter. Dollar growth continued to be led by national brands in the protein bar segment. Private label volume declined 10%, and dollar sales declined 5%, reflecting the consumer shift towards protein bars, where national brands are more heavily represented, as well as reduced private label distribution in the mass and club channels.