Thank you for standing by. My name is Gail, and I will be your operator for today's call. At this time, I would like to welcome each and every one of you to the John B. Sanfilippo & Son, Inc. Third Quarter Fiscal Year 2025 Operating Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] It is now my pleasure to turn today's call over to John B. Sanfilippo & Son, Inc. Chief Executive Officer, Jeffrey Sanfilippo. Please go ahead.

Thank you Gail. Good morning, everyone, and welcome to our 2025 third quarter earnings conference call. We appreciate you joining us. On the call with me today is Frank Pellegrino, our CFO. 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 the 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. I am encouraged to share the positive results and improvements we've made in our financial performance this quarter. Although we saw a decrease in sales volume during the third quarter, we improved our gross profit and achieved a 50% increase in diluted earnings per share. This was driven by, among other things, strategically controlling our costs and the continued alignment of our selling prices with increasing commodity acquisition costs. When we exclude the impact of inventory valuation on the current quarter's gross profit, there is a modest sequential improvement. Like other snack food companies, our third quarter performance was impacted by a challenging macroeconomic and consumer environment. The sales volume decline, coupled with the risk of additional declines due to rising retail selling prices and changing consumer behavior, underscores our strategic priority to execute on our Long-Range Plan and adapt our strategies to meet evolving customer needs. To support this, we are committed to investing in our future growth, planning to spend approximately $90 million on equipment to expand our domestic production capabilities and improve our related infrastructure by the end of fiscal 2026. This historic investment in production equipment and infrastructure in our US facilities reflects our confidence in domestic…

Thank you, Jeffrey. Starting with the income statement, net sales for the third quarter of fiscal 2025 decreased 4% to $260.9 million compared to net sales of $271.9 million for the third quarter of fiscal 2024. The decrease in net sales was due to a 7.9% decrease in sales volume, or pounds sold to customers, which was partially offset by a 4.2% increase in the weighted average sales price per pound. The increase in the weighted average selling price primarily resulted from higher commodity acquisition costs for all major tree nuts. Sales volume declined for substantially all major product types in the third quarter. Sales volume decreased 9.2% in the Consumer Distribution Channel, primarily due to an 8.3% decrease in private brand sales volume. The private brand volume decrease was due to a 16% reduction in bars' volume, mainly due to reduced sales to a mass merchandising retailer following an increase in bar sales from a national brand recall in the third quarter of fiscal 2024. Our strategic decision to reduce sales to a grocery retailer and lost distribution in our grocery retailer further contributed to the decline in bars volume. Additionally, decreases in sales of almonds, snack nuts, and trail mix caused by higher retail prices and the discontinuation of peanut butter at the same mass merchandising retailer contributed to the overall reduction in sales volume. These declines were partially mitigated by increased sales of walnuts and pecans at the same retailer along with new distribution at two grocery store customers. Sales volume decreased 12.9% for our branded products, primarily driven by a 33.8% reduction in Orchard Value Harvest sales, mainly due to delayed orders from a major customer in the non-food sector. Sales volume decreased 8.3% in the Commercial Ingredients Distribution Channel, mainly driven by decreased sales volume…

Thanks, Frank. Turning to category updates, I'll share the category and brand results for the quarter. All the market information I'll be referring to is Circana panel data, and for today it is the period ending March 30, 2025. When I refer to Q3, I'm referring to 13 weeks of the quarter ending March 30, 2025. References to changes in volume are versus the corresponding period one year ago. For pricing commentary, we are using scanned data from Circana, which includes food, drug, mass, Walmart, military, and other outlets, and we are referring to average price per pound. We are using the nut, trail mix, and bar syndicated views of the category as defined by Circana. In the latest quarter, we continued to see modest growth in the broader snack aisle as defined by Circana. Volume and dollars were up 2% and 3%, respectively. This is consistent with the performance we saw in Q2. In Q3, the snack nut and trail mix category was down 2% in pounds and up 2% in dollars as we saw prices start to rise. This is slightly worse volume performance than we saw in Q2, but similar dollar performance. We saw prices rise 2% in snack nuts and 3% in trail mixes, with almonds, mixed nuts and pistachios all showing higher prices. Fisher snack and trail mix performed worse than the category, with pound shipments down 17%. This was driven primarily by declines at a major specialty retailer due to inventory changes and not repeating a promotion. On Southern Style Nut brand, pound shipments increased 10%, driven primarily by velocity growth in mass and e-commerce. Orchard Valley Harvest brand, which primarily plays in trail mix, was down 34% in pound shipments, driven by delayed orders from a specialty retailer. Excluding that customer, pound shipments…

Thank you. [Operator Instructions] So, your first question comes from the line of Nick Otton with CWB Wealth. Please go ahead.

Hi, guys. Just wanted to start the questions off on the tariff exposure. So, for that 15% to 20% raw materials exposure, do you think you'll be able to pass off this cost to your customers just in general, because it's everyone in the industry affected?

Yeah, so everyone is affected in the industry. We are focused on the main commodities that drive the biggest value in tariffs. Those are -- there's three or four key items, key customers that those impact. So, we're having discussions today or we've had discussions with our customers about when those increases impact their finished goods on the shelf. And so, we will work to pass on those tariffs with our key customers. Some of the smaller items where it's less than a 10% increase on finished goods, we will see about optimizing kind of production, managing inventory on those. But the key items that have the most volume and value, those will have passed on increases to customers.

So, like if that 46% comes back overall, you'll pass it off on for Vietnam, for example?

Correct.

And then, I guess, on your cashews business, like just trying to do some rough math last night after your release, like what -- it kind of looks like it's a breakeven business. Is that fair to say, or is it like what's the kind of earnings in that area overall?

Which commodity, sorry? Was that cashews?

Yeah, your cashews and mixed nuts segment.

No, it's a profitable segment. I think if the 46% tariffs come across, that would be a challenge to, one, to get those price increases through and then the impact to consumer demand will be dramatic. But currently cashews and mixed nuts are consistent with our overall profit profile.

Yeah, I would add. So, over the last couple of years, since cashew prices came down to almost historic lows, we did see growth in the cashews segment in the snack category. I think with these higher prices that are even separate from the tariffs, just the commodity supply and demand, we've seen increase in cashews, I think you'll see a shift in consumption away from cashews to almonds, peanuts, and some of the other lower-priced retail products, but still a profitable item for us. But as Frank said, with these increases in tariffs potentially, you could see more demand destruction as we do pass those increases on.

And then, if you can't pass them on, would you just get out of the cashew business overall?

So, it's still a big piece of the business. I don't know if we would get out of it completely. I will say if these higher tariffs do hit, just like we're having conversations with key retailers today at pepitas that come mainly from China with a 145% increase, those discussions are taking place when those potential increases hit finished goods in July, August. So, the questions are whether the retailers will still continue those items or hold off and wait until prices come back down and just not have them available on the shelf. We have seen some retailers that are doing just that. There's a straight pepita item that is sold at retail, some of those retailers are saying let's just not buy the item and wait until those markets come down again.

And Nick, one add-on to cashews, if the 45% or so tariffs from Vietnam do come back, like Jeffrey said, consumer demand would decline, which will result in the underlying cashew price has declined because of the lower demand. So, in theory, some of the increase due to the tariff will be offset by a lower commodity cost of the underlying cash flow.

And then, would you just be set up to, like, you could capture this back though where like you said consumers buy more peanuts, pecans, walnuts, something like that as well...

Absolutely.

I guess, they'll switch to that...

Yeah, we anticipate...

I guess -- just for myself, so I have some understanding, just on the inventory transition that you discussed, so do you still expect to be in that $0.60 per pound gross margin level range in the next quarter and going forward with the price increases that you put in place?

The price increases went in place during the current quarter. I think, Nick, the best way to look at it is if you look at our gross profit section, if you just back out the impact of the inventory valuation, which we cited in the release in the Q, and that should be a good indication of what our gross profit per pound should be going forward.

Okay. And then, that $90 million spend, is that the addition of two more bar lines to your bar business overall?

So, Nick, good question. It's a big investment we're making. It's a combination of things. So, we do believe there's opportunity for growth in the bar category. So, some of that $90 million is going towards bar infrastructure. As we talked about in previous calls, we moved our warehouse distribution center to Huntley, Illinois, just down the street, to free up space in our Elgin headquarters to expand production. So, a big chunk of that will go to expanding bar capabilities, but also other parts of our business to expand production capacity.

I was just wondering too like you're comped on incremental capital at 10%. So, I was wondering is that the hurdle rate or what's the underwriting return that you're expecting on that investment.

That's correct. 10% is the correct number to use.

All right. And then, I guess, on bars, if we exclude that impact from one producer just being out of the market for a bit, like how did bars perform overall? Did they grow? Were they flat without this effect? I was just wondering getting down to it.

So, the exciting news is as we took on some of the -- as private label share grew within the category because of that recall, we have seen a lot of that stick. So, private label has definitely gained market share within the category, which we're excited to see. So, it's quite substantial too. The recall lasted a long time. So, consumers in some cases had no choice but to buy private label. But once they were in it, they saw the quality, the value proposition. A lot of those consumers have stayed with private label. And with this changing economy and the volatility in the market today, we're seeing a lot of consumers not only stay in private label but shift to private label for those lower retail price goods.

All right. Thanks, guys. Great quarter. Thanks. I don't have any more questions.

Thanks, Nick.

Thank you, Nick.

[Operator Instructions] All right, we see no more hands for questioning. And that concludes our Q&A session for today. I'm sorry for that. We do have another question from [Ronald Netarico] (ph) with -- a private investor. Please go ahead.

Thank you. Hey, guys. Good quarter in managing through a difficult time. Just one quick one in regards to inventory. So, I guess, A and B. One is -- the first one is, are you seeing any light at the end of the tunnel in terms of price or cost increases for many of the nuts out there outside of the tariff issues? And then, number two is, the increase in pounds and price per pound, is that telling us anything outside of seasonality?

Sure. So, I'll cover the first question, Ronald, first commodity. So, we have seen stability in some of the markets. So, cashews, for example, actually came down a little bit since they hit historic highs. We've seen some stability there. And I believe with the demand destruction that we're going to see with these high retail prices, we should expect some of those commodity prices to come down further. I would say the same for potentially almonds and some of the other nut commodities. These high retail prices, which were passed on in January, there'll be additional increases in June, July time period. Those retail prices will get tough for some consumers. So, we should expect some of those commodity costs to come down as a result of lower demand.

Right. I guess that might have been part of the strategy. And just to sneak another one in before the part B question gets answered. So, am I to understand -- are we to understand, I think from Nick asked questions about like gross margin, in the near term and we're looking at 18.5% which was ex the IVA to be like what you're shooting for...

That's on the ballpark, Nick -- I mean, Ron, yes.

Okay, thank you.

And then, your second part of your question...

Yeah, thanks.

Yeah. Inventory -- increased inventory is probably driven by two or three main reasons. One, we have an increase in whip and finished goods. We will sell through that in Q4. As you saw with our volume, we had some soft volume at the back half of a quarter. That inventory was produced and we will sell through that inventory in the first couple months of Q4. And then, the overall increased inventory is mainly driven by a mix. Now the crops that we procure from the shellers, the walnuts and pecans, we saw an increase in acquisition costs. And that crop, we maintain inventory for nine to 12 months until the next harvest. So that's driving the increase in inventory cost and value, because the crops that we don't turn in a month are increasing.

Okay. Good. And any thoughts on moving into the -- well, I guess, the larger quarters, the seasonally larger quarters are actually not necessarily imminent. So -- but do you have any, like, further updates and strategy going forward outside of what you've mentioned on CapEx?

So, strategically we're actually working on holiday programs right now, just building up promotional programs pricing, obviously I mentioned will be redone in June, July. And so, really the strategy is just to get through some of the volatility in the market, make sure that we have the right price points out there for consumers, the right product mix where if things change and the economy changes dramatically, we've got the right products on the shelf that consumers can still buy. Strategically, the investment in the bar category is important. We're going to continue with that. We believe there's a lot of growth and white space in the bar category, especially for private label. And then, M&A, obviously, always looking at it. Nothing has come up, but we're always in the -- it's always part of our strategic plan to see where we can participate in other categories and apply our competitive advantage in differentiation and manufacturing to other categories.

Okay. That's it. Good. Thanks, Jeff, and thanks, Frank. Good luck.

Thanks, Ron.

One last -- sorry for that. That concludes our Q&A session for today. I will now turn the call over back to Jeffrey Sanfilippo. Please go ahead.

Thanks, Gail. So, I appreciate everyone's participation on the call today. Thank you for the smart questions. These are volatile times and we know what to do. We know what needs to be done throughout our organization to continue to provide shareholder value and value for our customers and consumers. So, appreciate your interest in JBSS, and have a great day.

Thank you, everyone. That concludes today's call. You may now all disconnect. Have a nice day everyone.