Good afternoon. Our next presenting company is John B. Sanfilippo & Son, trades on the Nasadq under the ticker symbol JBSS. A 102-year-old company with a fourth generation of family management. If you've bought any kind of Great Value or Good & Gather brand in a Walmart or Target that involves a nut or now a bar, there's a very good chance that you're having the product that these guys make. Here today to start off the presentation is Mike Finn, the company's Controller, and with him here as well is Jeffrey Sanfilippo, the company's CEO. Michael?
Thank you.
Thanks for the introduction. We've got goodies in the back of the car.
Good morning, everyone. Can you hear me all right? All right. Thank you. Yes, my name's Michael Finn. I'm the Corporate Controller, and I'm going to talk you through the fiscal 2024 results, and then we'll give a recap through Q3 this year. Just real quick, we may make some forward-looking statements today. These represent our current expectations and beliefs concerning future events and are not guarantees. Just real quick, as an overview, we're an almost $1.1 billion company. We have what we believe is the largest nut processing facilities in the world. With our September acquisition of 2023, we're also a snack bar manufacturer. We operate in three distribution channels: the consumer channel, which is about 82% of our business; the commercial ingredients channel; and the contract manufacturing channel, each approximately 10%. We're vertically integrated in three nut types: pecans, walnuts, and peanuts.
Commodity procurement expertise is critical since there's no futures or hedges for these commodities. As John noted, this is a fourth generation family managed company. Moving on, let's take a look at our sales by product type. Nut and trail mixes, snack and trail mixes make up approximately 25% of our portfolio. With our recent snack bar acquisition, those represent approximately 11% of our gross sales last year, but this year they're up to at least about 14%. Our business model provides us a competitive advantage and foundation to deliver consistent results. If you look in the top left there, sales volume over the last 10 years has grown at almost 4% CAGR. Our diluted EPS over the last 10 years has also grown at 8.1%. Our operating income is approximately 8%, and our stock price has grown at almost a 16% CAGR through fiscal 2024.
Now, we currently have experienced a decrease in price due to margin and volume challenges, but we're still at approximately 9% CAGR. How does this translate to profitability? You can see we've consistently grown our volume over the last 10 years. The net sales price is dependent on the underlying commodity, which will cause volatility. Translating to profitability, our EBITDA dollars have increased since fiscal 2024, and in the last three years, we've generated $100 million of EBITDA in each year. You can also see a similar trend in EBITDA per pound sold. Profitability growth is one of our main objectives, but we are also just as focused on returning value to our shareholders and investing back into the business. Eight years ago, we started a dividend policy and paid our first annual dividend of $0.50 per share.
We've increased that annual dividend each subsequent year. We've also consistently supplemented that annual dividend with a special dividend that's ranged from $2-$4.80 per share. The management team continues to focus on returning profits to our shareholders. In addition, we continue to invest in the business, spending over $28 million in CapEx last fiscal year. Through three quarters of this fiscal year, we've invested over $37 million in the business. We've created a strong foundation for our future profitable growth. We have a very strong balance sheet. We've decreased our debt to equity and debt to EBITDA to near record low levels. As I mentioned earlier, we made a strategic acquisition to increase our snack bar capabilities. Purchase price was about $59 million, more than half of which was inventory.
We got a great deal on this acquisition and actually recorded a $2 million bargain purchase gain, whereas most acquisitions might generate tens of millions of dollars of goodwill. This helped accelerate our product diversification and allows us to offer a full line of snack bars to our private label customers. Fiscal 2024 sales of this acquisition were about $120 million, and that was just in three quarters. This year, it should be about $150 million. Regarding net sales by distribution channel, you can see that our consumer channel has grown significantly in the last 10 years to 82% of our portfolio. This is a deliberate change in our business strategy to shift to the more value-added channels. Let's review sales by distribution channel. Our consumer channel is about 82%, and in 2024, it went up 11% in sales.
This was driven by private label growth as well as our snack bar acquisition, E-commerce growth, and some growth into the club channel as well. Commercial ingredients, on the other hand, decreased 10% to about $110 million in sales. This was largely driven by competitive pricing issues. Our shift away from industrial customers is really just a risk strategy and part of our business priorities. Finally, our contract manufacturing channel was about $84 million in sales. Again, also a decrease from the previous year. Unfavorable pricing drove volume down, and our largest customer in this channel canceled a new product launch. I apologize for the eye chart here, but I can help explain this. The vertical bars represent our gross margin percentage every quarter for the last 10 years.
The horizontal lines are the costs of our major commodities, with pecans, cashews, and almonds being the top three from a cost perspective. As you can see, the nut prices are volatile, but we're still able to deliver a consistent gross margin. Let's quickly review the retail nut category. You can see that the price per pound has increased since fiscal 2020, which has negatively impacted the category volume and the dollar share. We believe as retail prices start to decrease, this trend will reverse. Consumers value the health benefits of nuts and will increase their consumption as retail selling prices decrease. Now, in the current fiscal year, we've seen the opposite occur. Prices are still going up.
Consumers are either buying cheaper snacks or they're leaving the snack channel entirely, and the nut channel is flat to down a percent or two in sales volume. I will now turn it over to Jeffrey.
Thanks, Michael.
Thanks, Jeffrey.
Good afternoon, everyone. Thank you for being here. Every big corporation has a mission. Our mission is we're nuts about creating real food that brings joy, nourishes people, and protects the planet. We have three specific growth pillars that I'll cover. Expand consumer reach. Today, we have a very low penetration of where you can find our products. Our branded products, very low ACV. Our focus is to find where consumers are shopping or buying snacks and making sure that our products are available for them. E-commerce is an area where we continue to see people growing and buying snack items online. We're focused on building out our E-commerce platform, both with Amazon, with Walmart.com, Kroger.com, and Target. A big focus on expanding where consumers can find our products. Create value with key customers. Private label is the biggest piece of our business today.
Walmart is our largest customer, as they are many CPG companies. Target is number two. Trader Joe's has just moved into the third position. Frito-Lay, which is part of our co-manufacturing division, is number four. We are focused on creating value for them. We invest heavily in consumer insights to make sure that we're bringing new products to market that consumers are looking for and really understanding consumption trends within the snacking category. Now, the bar opportunity. We've been a nut and trail company for 100 years, and we decided to look at alternative categories to invest and diversify our product portfolio. Bars made sense to us. They use a lot of nuts and nut butters in different snack bars, so it was an easy transition. It also is a much faster-growing category than nut and trail.
Private label penetration is much smaller in the bar category. You can see it's a $9.6 billion category today. The left pie chart is nutrition bars. Think of Clif Bar, Quest Bar, any energy bar. That's part of the nutrition bar category. Breakfast bar is typically your fruit and grain bars. Think of Nutri-Grain Bar. Granola and all other is really the chewy granola type of bars. Today, our biggest focus is on nutrition. That's the biggest part of the category. We're investing in building out our nutrition bar platform. The volume today is mainly made up of chewy granola and fruit and grain bars.
What's exciting is if you look at the private label nut and trail business, even though the volume is down, Michael touched on kind of price inflation and commodity costs, there's no futures trading in the nut industry. We have to be experts at procurement, and we have to make sure that we have good access to what's happening in the fields. We have field buyers out there watching the walnut crop, the peanut crop, pecan crop. We know what's happening both from a supply standpoint and from a quality standpoint. Although we've seen declines in the category today, we've started to see it stabilize over the last couple of periods. Our hope is that as we get better commodity prices for this next year crop, we can look at promotional pricing to get lower retail prices. We're also focused on price pack architecture.
We're making smaller bags to get that price point on the shelf down for consumers to be able to afford to purchase. This is not just specific to the nut category. If you look to the entire snack category today, whether it's Hormel or Frito-Lay or Kraft Heinz, really food stocks in general are struggling because of different consumption and increasing costs. Goods today. So much higher concentration in nut and snacks. We see this as a great opportunity because we already supply a lot of the major retailers with their nut and trail mix program. We have a really good relationship, leverage foundation with our key retail partners. In comparison, when you look at the bar category, it's only 7% private label. The reason for that is twofold. Number one, there's not a lot of capacity in the bar category today.
Extremely expensive investments in bar manufacturing equipment. The turnaround time is one to two years to get that equipment in once you do order it. Majority is manufactured in Europe, in Switzerland, and Germany and Italy. A lot of lead time plus investment. There is not enough capacity today in the bar category. In addition, it is such a small piece of private label at 7%. We are investing in the category. We believe over the next three to five years, it will go from what is a $150 million piece of business for JBSS today to $300-$500 million. Those are our expectations for the bar category for private label. The investments we are making are not only to reduce our costs, investing in higher operational machinery. For example, today, our equipment can do 600-800 bars a minute.
The investments we're making, those lines will do 2,500 bars a minute. Triple, quadriple the amount of volume that we can do in capacity and also drive costs out of the per unit price. Really excited about the bar category. A lot of companies and retailers want to expand their bar portfolio. We are providing an opportunity for them to do that. I'll take a quick look at our brands. Our brands are 15% of our sales today. Not huge, but still important to us because it is a high-margin piece of business for JBSS. Our brands make up 15%, as I said. Fisher recipe, it is the number one category leader in recipe nuts today. It's 59% of our total volume in retail brand. Fisher snack is a bit smaller than that. 27% is Orchard Valley Harvest.
Then a small percent, 14%, is some of our other smaller brands. We invested in a brand box or on QVC, really indulgent chocolate-coated items. That is our Squirrel Brand today. The investment, as I mentioned, e-commerce. We are in a lot of brick-and-mortar stores today, but we want to be more cognizant of where we are investing in trade and marketing. E-commerce is a perfect area for that. There are also retailers where we do not have distribution today. We do not have much distribution in the club channel, extremely important channel between Costco and Sam's and BJ's. An area of focus for us for growth opportunities in the future. Just some of the accomplishments, really focused on building out our brand portfolio, expanding our programs, using our consumer insights team to create items that consumers are looking for, innovative items.
That's been important for us as well to build out our brands. For Fisher recipe, it's educating consumers on how to use nuts as an ingredient. Millennial generation, Gen A, Gen Z, not really good, not to say good cookers, but it's not top of mind for them. They use nuts and eat nuts and a ton of snacks that they have in breakfast cereals, but they don't think of nuts when they're cooking necessarily. We want to educate younger consumers on how to use nuts, what they can use them for with different savory dishes or sweets and baking items. Our recipe brand, we had some distribution declines this past year, although we've really gained new distribution going into fiscal 2025 into 2026. We think it's still an important category. It's one of the most profitable brands that we have.
Because we're vertically integrated and we shell our own pecans, our peanuts and walnuts, we have a really good cost management with our supply chain, which allows us to be very competitive and profitable in the recipe nut category. ACV is about 47% for our brand today. Orchard Valley Harvest, really opportunities to expand that portfolio, really look at health and wellness, all natural ingredients. I think with the new administration coming in with focus on ultra-processed foods, seed oils, this brand gives us an opportunity to support those changing dynamics from food consumption and from messaging as well. We're excited about where we can grow with this brand. Then our other snack portfolio, it's more of a stabilize these brands. We're not really investing a lot in growing them.
We think there's an opportunity to manage them in some retailers, but it's not a huge investment or main focus. We're looking at other areas of the business to expand on. I touched on consumer insights. When you're a private label manufacturer, very few of our competitors really invest heavily in consumer insights. Our team, we've got a whole division that focuses on Circana. We have our own custom database with Nielsen Circana now that monitors the snack category, the trail mix category, and the bar category. We invested in this originally to build out our brands, to understand consumer dynamics and trends. What we realized is that same information we receive from our insights, we could apply to Walmart and to Trader Joe's and to Whole Foods.
We take all those consumer insights, which very few private label manufacturers do, and apply those insights to what we develop and offer to Walmart or to Trader Joe's or to Target. It really helps us provide more value for those retailers, but also it helps bring the right items to market and not just throw a bunch of items in product development against a wall and see what sticks. We are tracking conversations online. Every time there's a mention of an almond or a walnut or a flavor trend, our teams are managing what you see out there online, and we can take those insights and say, "Okay, these are the right flavors that we should be looking at for fiscal 2026 and beyond." It is an extremely important differentiation for our company. Our innovation process follows that. We have invested heavily in research and development.
We've got a strong team in our headquarters in Chicago that really monitor flavor trends and are really bringing really innovative new items to market. There's also a lot of new technology and adhesions to be able to create flavorful nuts that don't have as many ingredients or adhesives to keep the flavor tied to the nut. That is going to help us bring even more healthier products to market with less type of ingredients. From a long-term strategy, we are focused on our private brand program. It is the biggest piece of our business today. We're going to continue to work with Walmart and Target and Whole Foods, all the big retailers. Kroger is one where we do very little business with today, but they are now starting to purchase snack and energy bars from us.
That's a brand new business that we're building out with Kroger. Club Channel, I touched on Costco and Sam's. We do very little business today. With the new manufacturing that we're putting in with these bar investments, we'll be able to supply Club Channel with competitive bars for their product line because the volume is so big in the Club Channel. Then transform our brands. We're going to still focus on our brands. Even though a small piece of our business, it's still important from a margin perspective. Then diversify our portfolio. Bars was our first investment to diversify out of the snack and trail mix category, but there are other categories that we'll look at down the road. Cookie category, the cracker category in private label. We're looking at popcorn.
Pretzels would be one that would make sense for us because we already use millions of pounds of pretzels in our snack mixes. To be vertically integrated in pretzel manufacturing would be a key to growth in the future. With that, do you have any questions for the team? Yes.
How much is Texas going to be spending to increase the bar per minute from 6,800 to 2,000?
Sure. You want to cover that?
That investment's going to be about $90 million. Wow. Okay. Half of which we spent in the current fiscal year. The other half we'll spend in next fiscal year. Okay.
Increasing your CapEx budget significantly for those two years?
Absolutely. Yeah. Yeah. Typically, we're about $28-$30 million CapEx a year. With the $90 million investment, split over two years. Sorry? Machinery? Oh, gosh. Bühler, who else?
It's Switzerland, Italy, and Germany are the three main countries. Yeah. Syntegon is one of the big ones. Packaging, I'm not sure which one that is, but that's where the best equipment is made right now.
Yes. Organic trends. So organic growth, not organic. So those volume statistics you put up there, those are nominal, not organic, right?
Right. No, it's total category. That includes organic.
It includes your taxes
If I look at your organic volumes over a five-year period, what does that look like?
So I would say on the nut and trail, it's relatively flat. Consumers, two reasons. One, the difference between organic nuts and non-organic.
I mean, just total nut sales. So if I took total growth in total.
Oh, okay. Yeah.
And I exclude your acquisitions. What is the?
Oh, organic. Not organic foods. Okay. Got it. Yep. Got it. For growth without acquisitions.
Yeah. I think it's still the same answer. It's probably a slight increase year over year. Does that mean it's trending roughly population growth? Population, yeah, I would say. Consumption of nuts per person is level. Yeah, I would say it's level.
Yeah, We've seen 1-3% kind of category growth. If you looked at the last three to five years, it has been growing, the nut and trail category specifically, total category. There's been 1-3% CAGR has been kind of the historic level. We saw a decline this past year, I think partly because of the economy, inflation, just consumption in general. Now it's started to flatten out. We're not seeing any declines in the category. I would expect with pricing to come back down again, you'll see that growth get back to that 1-3% CAGR. Got it.
It is not like nut consumption per person is in some kind of secular decline.
No.No. It is fairly flat. Yep.
That was one. Two, this competitive pricing. May I ask who?
Competitive pricing. On the branded side. Pricing on price too. Sure. You guys are probably a low-cost, vertically integrated system. Sure. Sure. On the branded side, Planters, which is owned by Hormel, that is the biggest brand share in the branded category for snack and trail. Their competitor, you have Blue Diamond, West Coast.
Are these the people who are causing you to lose your ball? Because they are coming under you on price.
Yeah. Planters would be one. Hormel, once they bought the brand from Kraft Heinz years ago, it was already a declining brand when they bought it.
They've invested so much in trade support to try to regain some of that market share. At some points, they've been cheaper than the private label that we supply in some of those retailers. That's been part of the demand declines as a result of Hormel spending a lot of money on the brand. You have other play. Blue Diamond is another one that spends really heavily on building their ACV, in some cases cheaper than the private label. That's cyclical. They can't continue that. It's really just kind of maintaining and trying to gain whatever market share they can. Brands have done it. We have private label competitors, of course, as well. You have some pretty significant competitors there too.
With our scale and with what I believe is the differentiation, the consumer insights, the vertical integration, the control of the quality from the field to the shelf, it does not insulate us, but it just creates much better relationships with key retailers where we feel like we have still opportunities to sustain and grow with them.
What kind of price differentiation moves that order?
So pricing between brand and private label?
Between you and Planters.
Oh, sure.
That causes you to lose the order. I am wondering, are they coming under you 40%?
No.
Yeah How big of a price gap?
Yeah So typically for private label, there should be a 10-15% price gap between the brand leader and private label offering. It depends on the retailer. Some retailers are 20%-25% below the brand leader. Typically, Planters is 15, yeah, 10-15%.
When they drop 15%-20%, where they're actually cheaper than private label, that's where it becomes a problem.
Got it. Because you have a 15-point difference. Yep. And then they're dropping on the point.
Correct
That's five points versus gross margin of 18.
Yep.
I'm going to keep going there.
That's fine. Go ahead. We have nine minutes.
You said you're vertically integrated, and this is my introduction to the company. Okay, so far, you were, in my opinion, the most interesting company at this point.
Oh, thank you.
From a sourcing perspective, you're vertically integrated. You own the land?
No, We don't own the farms or the land. We have maybe 30 acres of trees, but it's really no, it's nothing. We are a 102-year-old business. We contract with growers. We bring their inshell into our facilities.
Vertical integration is walnuts, for example. We have a facility in Gustine, California, right in the Central Valley of California where walnuts are grown, almonds, pistachios. We buy them from the walnut growers. Every year, we have contracts with a majority or a big group of walnut processors. Buy their inshell, bring it to our facility. We keep it in cold storage. As we need the walnuts for orders, we crack them, clean them, sort them, package them, and then ship them. That is the vertical integration where most companies in the nut industry do not do that. They buy from companies like us that shell walnuts, and then they bring them in and package them. What that allows us to do, first of all, it is a huge investment.
When we went public in 1991, the reason we did it initially was to become vertically integrated. We invested in walnut shelling. We invested in pecan shelling in Texas, invested in expanding our peanut processing because we wanted to control the supply chain from the farmer. There were years where there were peanuts, for example. They had a huge drought in the late 1980s in Georgia and the Southeast. We could not get access to peanuts. We wanted to make sure that we protected our supply chain so that vertical integration was our way of doing that. It was a huge investment, but it allows us to control quality in the supply chain. Plus, we have really good visibility on what is happening with the crops because our field buyers are in the market all the time. We have really good relationships with our farmers.
That's been an important part. Something that people do not realize is how important that differentiation is and that kind of competitive advantage. They take it for granted.
What does your capacity utilization look like? What does waste factor look like with this kind of process?
Sure. Capacity utilization in our shelling plants is very low. We have a lot of available capacity for our pecan facility in Texas. We are probably only at maybe 60% utilization. A lot of opportunities for growth there. Walnuts, same thing. Peanuts, it is a little less capacity because we also make peanut butter in that facility. A lot of the peanuts that we buy and use are going to dry roast peanuts, but they also go into peanut butter for Trader Joe's, for example. That is probably 80% utilized at this point.
The bars is all that's relatively new for us, especially as we make this investment.
What is waste factor? Because I'm unfamiliar with the processing business.
Sure.
I have an uncle who has a farm, and the waste is tremendous. In nuts, is it something crazy or? It's not at all. It's a few percent during the shelling process.
Yeah. When we say pecans is a good example, when we buy from pecan growers, bring them in, they're inshelling the pecans, going to cold storage. Our yield is about less than 4% loss on that whole process. It's pretty sophisticated. The cracking equipment, the technology for sorting is very sophisticated in the nut industry. The yields are really, the waste is not very high.
What is kind of managing these customer relationships or the crown jewel is in some respect, in addition to your replacement industry? What is the intrinsic, let's say someone had the relationship. What is the intrinsic return on invested capital? If I had a contract and I just needed to, I could plop down a machine and start doing it. What does that earn?
It depends on how much you paid for the machine. It depends on the investment. It depends on the margin. If I were business like you. Nut and trail is higher margin than bars today. Our nut and trail business is anywhere from, this year, it's about 18.6% gross margin. We should be more at 19-20% margin on nut and trail. The bar margin today is about, what, 14-15%.
That is where we are investing in this new operation to be able to reduce our cost in order to margin up there.
Let's walk through. You had a $90 million machine.
Yeh, Oh, about the return on that investment?
The return on investment.
Oh, okay. Like the timing of it, or?
When you look at investing in a new machine, are you thinking, "Oh, I can earn 20% on return on invested capital over the useful life of this operation?" Or, "I think my most I can earn is a 12% return on invested capital," or maybe the nut business is really profitable, 30%. I mean, we have a minimum of we want to get at least 10% and two- to three-year payback. That is the minimum hurdle. A minimum is 10. What is a great budget? What makes you jump out of your chair?
The acquisition in Lakeville, Minnesota, that one was we bought it less than book value. That's the kind of deal we want to get, where it expands your capacity, creates opportunities for you to grow that business, margin up, and not have to pay a lot for it. Are there a lot of smaller family people that you can pull up? I think you're going to see some of that this year, especially in the nut and trail category. I think with the economics, the dynamics of supply chain, the uncertainty in the markets today, we've seen rumblings of companies that are smaller competitors that are looking to either sell or do something with their business. I expect we should see that in the coming year.
Generational are there some coming years?
Yeah, I've been CEO since 2007.
One of my brothers is five years younger, so he would probably be next in line. And then the fifth generation is, let's see, they're young, 30-year-old, 26 or 28. So there's a fifth generation, but. Yeah, there's some lineage. Yeah, there's some lineage there. Yeah. But we've brought in a lot of key talent from outside the company and outside the family, which is extremely important for us.
One of your slides said that a new product was shelled. What was that about?
Which one?
Oh. Shelled? No. There was a new product that was supposed to be introduced that was shelled. Oh, that was probably a Frito launch. So that was our contract manufacturing channel. So we had volume that we expected that didn't pan out. They canceled that project. It wasn't one of ours.
Do you guys own food stocks now? Who owns food stocks here?
You have a couple. Which ones?
Unilever.
Unilever Okay. All right. Good company.
Do you supply Sprouts?
We do. Yeah. We do Sprouts with some branded items. Our Orchard Valley Harvest, we have a couple of distribution. No private label for Sprouts, but some of the branded items. Yeah. They're a good retailer.
Trying to do that?
Oh sure. You have a connection?
I've been an owner for a while.
Okay. There you go. Next earnings call, you can mention it. Yeah. Yeah. They're a good company. Good business. Yes?
How do you size that special vendor? How do you think about that?
Do I cover that?
Yeah. I mean, it's really. The more the better. That's how I say it. Yeah.
Once we meet our crop acquisition needs for the year, we finance our, we usually self-finance our own CapEx for the year.
Any M&A activity, if there happens to be any that year, any remainder would be then considered for the special business. Usually, that's declared towards the end of our fiscal year. We've already got the next fiscal year's plan in place.
Our biggest cash flow is on the commodity purchases. Depending on what the pecan price for the crop is or the walnut or almond crop, that kind of dictates sometimes what the cash flow looks like. That'll dictate what the extra dividend is.
AI help you in some way?
Sorry?
Artificial intelligence.
We are starting to use it now. We finally have our, we're going to have our first chatbot in our HR department. That's the first place where we'll use AI. Our consumer insights teams use it already, uses it already with some of the algorithms that they're doing.
I know we've got a whole training program with AI. We're a Microsoft Copilot company. We're trying to manage kind of what people do with AI within our four walls. We've got a lot of training courses where they're using Copilot for a lot of different functions. It is definitely part of our future enabler AI technology because we see there's a lot of value there to not only drive costs out, but also increase our efficiencies going forward. Robotics is a big investment. During the pandemic, when labor was so short, the return on investment for a robot that could eliminate two or three positions was within a year. We invested a lot during the pandemic in robotics.
If you were to go in our facility in Chicago today, you would see almost nobody that's physically putting a bag in a box or a box on a pallet. It's all robotics today. That's the type of automation and investments that we're making on the manufacturing.
During the current administration, are you going to emphasize the health more of the health factor
Yeah That's where the Orchard Valley Harvest brand will come in. Yeah. No preservatives, no artificial ingredients. Yep. All right. I think we're at time. I'm seeing a red button blink. Thank you, everyone. Appreciate it.