Yahoo Finance

Frank Pellegrino

Thank you, Jeffrey. Starting with the income statement. Net sales for the second quarter of fiscal 2025 increased 3.4% to $301.1 million, compared to net sales of $291.2 million in the second quarter of fiscal 2024. The increase in net sales was due to a 7.1% increase in sales volume, which is defined as pounds sold to customers, which was partially offset by a 3.4% decrease in the weighted average sales price per pound. Decrease in the weighted average selling price primarily resulted from higher sales volume of lower-priced bars, granola, and private brand recipe nuts.
Additionally, strategic pricing decisions and competitive pricing pressures contributed to the overall decrease in the weighted average selling prices and contributed to increased sales volume. Sales volume increased 2.9% in the consumer distribution channel, primarily due to a 4% increase in private brand sales volumes.
The private brand volume increase was due to a 27.6% growth in bars volume from a mass merchandising retailer returning to normalized inventory levels. Sales volume increased 3.4% for our branded products, which includes Fisher recipe nuts, Fisher snack nuts, Orchard Valley Harvest, and Southern Style Nuts. The decrease in branded sales volume was mainly attributable to a 3.8% increase in sales volume of Fisher recipe nuts due to increased merchandising activity at several customers.
Additionally, the sales volume of Southern Style Nuts increased 11.8%, driven by a return to normalized inventory levels and increased sales velocity at a club store customer. Sales volume increased 1.4% in the commercial ingredients distribution channel due to higher sales of peanut crushing stock to peanut oil processors and distribution to a new food service customer, which was partially offset by lost business to another customer.
Sales volume increased 55.6% on the contract manufacturing distribution channel, primarily due to increased granola volume processed in our Lakeville facility. This increase was partially offset by reduced peanut and cashew sales volume to a major customer due to soft consumer demand.
Gross profit decreased $5.7 million or 9.8% compared to the second quarter of last year, driven by competitive pricing pressures and strategic pricing decisions as well as higher commodity acquisition costs for most tree nuts. The decrease was partially offset by improved profitability of bars.
Second quarter gross profit margin as a percentage of net sales decreased to 17.4%, compared to 19.9% for the second quarter of fiscal 2024, due to the reasons previously mentioned. Total operating expenses for the second quarter increased $2.5 million as compared to the prior-year quarter due to a one-time $2.2 million bargain purchase gain associated with the Lakeville acquisition, which did not recur in the current quarter. The increase was also driven by higher freight, rent and compensation expenses, which were significantly offset by decreases in incentive compensation, consulting and marketing expense.
Total operating expenses for second quarter of 2025 increased to 10.9% of net sales from 10.4% for last year's second quarter due to the reasons previously mentioned and partially offset by a higher net sales base.
Interest expense was $800,000 for the second quarter of fiscal 2025, compared to $1.1 million for the second quarter of fiscal 2024, primarily due to lower average debt levels. Net income for second quarter of fiscal 2025 was $13.6 million or $1.16 per diluted share, compared to $19.2 million or $1.64 per diluted share for the second quarter of fiscal 2024.
Now we'll take a look at inventory. The total value of inventories on hand at the end of the current second quarter increased $8.5 million or 4.3%, compared to the total value of inventories on hand at the end of the prior-year comparable quarter. The increase is mainly due to higher commodity acquisition costs for almost all major tree nuts and chocolate as well as higher on-hand quantities of almonds and cashews.
The weighted average cost per pound of raw nut and dried food increased 33.7% year over year, mainly due to higher commodity acquisition costs for almost all major tree nuts.
Moving on to year-to-date results. Net sales for the first two quarters of the current year increased 9.9% to $577.3 million compared to the first two quarters of fiscal 2024. Excluding the 2025 first-quarter impact for the Lakeville for acquisition, net sales increased 2.2% to $536.8 million. The increase in net sales was primarily attributed to a 4.1% increase in sales volume, which was partially offset by a 1.9% decrease in the weighted average selling price per pound.
Sales volumes increased by 14.9% due to increased sales volume in all channels, mainly driven by the impact of the Lakeville acquisition. Gross profit margin decreased 4.8% to 17.1% of net sales. The decrease was mainly attributable to lower selling prices due to competitive pricing pressures and strategic pricing decisions, along with increased commodity acquisition costs for almost all major nut commodities. This was partially offset by improved profitability of bars.
Total operating expenses for the current year-to-date remained relatively unchanged at $62.4 million, compared to $62.8 million for the first two quarters of fiscal 2024. Interest expense was $1.3 million for both the first two quarters of fiscal 2025 and fiscal 2024.
Net income for the first two quarters of fiscal 2025 was $25.3 million or $2.16 per diluted share, compared to net income of $36.8 million or $3.15 per diluted share for the first two quarters of fiscal 2024.
Please refer to our 10-Q, which was filed yesterday, for additional details regarding our financial performance for the second quarter of fiscal 2025. Now I'll turn the call over back thank to Jeffrey to provide additional comments on our operating results for second quarter and discuss category trends.

Jeffrey Sanfilippo

Thanks, Frank, for the financial updates. While we continue to navigate a challenging operating environment, I am proud of the efforts and results from each of our business segments to grow our volume and develop long-term business partnerships. I am confident that we have the right strategy, agility, and team to continue to deliver strong results.
Now let's turn to category updates. I'll share some category and brand results with you for the quarter. All the market information I'll be referring to is Circana panel data, and for today, it is the period ending December 29, 2024.
When I refer to Q2, I'm referring to 13 weeks of the quarter ending December 29, 2024. 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. We are referring to average price per pound. We're using the nut, trail mix, and bar syndicated views of the category as defined by Circana.
In the latest quarter, we continue to see modest growth in the broader snack outlook as defined by Circana. Volume and dollars were up 1.5% and 3.4%, respectively. This is consistent with the performance we saw in Q1 as pricing and inflation continued to stabilize.
In Q2, the snack and trail mix category performed similar to the broader snack aisle, up 1% in pounds and 2% in dollars. It's also consistent with the performance we saw in Q1. We saw prices fall 1% in snack nuts with slightly lower retail prices across all major nut types except for almonds. Trail mix's prices were flat. Fisher snack and trail mix performed on par with the category with pound shipments up 2%. This was driven primarily by growth at a major specialty retailer and e-commerce.
Our Southern Style Nuts brand pound shipments increased 12%, driven primarily by velocity growth in club, mass and e-commerce. Orchard Valley Harvest brand, which primarily plays in trail mix, was relatively flat in pound shipments and up 1% driven by strong growth in club and e-commerce, mostly offsetting declines in mass and specialty.
Commodity increases, including cocoa and some tree nuts, are resulting in higher prices for Orchard Valley Harvest. We are actively working on innovation and cost savings opportunities to help mitigate this commodity pressure. Our private label consumer and trail shipments performed in line with the category, with pound shipments relatively flat to last year.
Now let me turn to the recipe category. In Q2, the recipe nut category was down 2% in pounds and up 4% in dollars as prices for both walnuts and pecans increased during the prime holiday baking season. This is an improvement in dollar performance but a decline in volume performance in Q1.
Our Fisher recipe pound shipments performed better than the category and were up 4% in Q2, with continued strength in e-commerce, grocery and mass. Fisher continued to be the brand recipe leader and had a successful holiday season, as I mentioned.
Now we will switch to the bar category. In Q2, the bar category grew 3% in pounds and 6% in dollars as a major player continued to re-enter the market after a recall last winter. Private label continues to grow within bars, up 10% in pounds and up 13% in dollars. Our private label bar shipments are up significantly versus year ago, 28%, driven primarily by velocity growth. We continue to see positive momentum in private label in this category.
In closing, as we look ahead to the second half of fiscal 2025, we begin with cautious optimism as we see continued strong consumption of our category and improving volume consumption in the nut and trail mix categories. This is an exciting time for our company as we execute on our future growth strategies and organize the company to improve margins. We are committed to creating long-term shareholder value through these strategic initiatives and continued operational excellence.
I want to extend my thanks to all our employees for their hard work and dedication, which has been instrumental in achieving our record volume growth in Q2.
R&D, insights, and tech services teams are designing a pipeline of differentiated and innovative products to bring to market. Our operations, procurement, administration and continuous improvement teams continue to look at ways to optimize our manufacturing and supply chain to reduce costs.
As always, we will continue to respond to challenges, including the current economic and operating environment. I believe we have the right team, initiatives, and strategies to overcome these challenges to provide differentiated value to our customers and consumers and deliver long-term shareholder value.
Our management team and all our associates continue to work hard to expand our business, to build stronger brands, to build more innovative product platforms, and to provide higher levels of quality and service to our customers and consumers. We appreciate your participation in the call and thank you for your interest in our company.
We'll now open the call to questions. Lisa, please queue up the first question.

Question and Answer Session

Operator

(Operator Instructions) Nick Otton, CWB.

Nick Otton

I just wanted to start on the pricing environment and what's going on there. You're talking about it's becoming really competitive and seem to need to maintain share there. So just some further detail would be great.

Jeffrey Sanfilippo

Sure. So obviously, we've talked about increased commodity costs, especially in almonds, chocolate, cashews in the last couple of quarters, and now we're seeing increased cost in walnuts. And we have typically a six-month pricing review with our retail partners, so it takes time to get those price increases initiated before actually raw material cost flows through our system. So that's put margin pressure on the company.
But in addition to that, because of the volume declines in some areas such as almonds, for example, we're seeing competitive price pressure from some of the brands not raising pricing in order to kind of maintain and try to rebuild some of that volume growth.
So that puts even more pressure on some of our private brand retailers because they expect a gap between the brand leader and their private brand. So it's a combination of things that have impacted pricing. As I mentioned, we have taken pricing now on all our brands and our private brand customers. So most of that goes into effect in January and February of this quarter. So a lot of it is being initiated as we speak.

Nick Otton

And then will that take you back to like a gross margin per pound closer to over [60%] from the current 50% the last couple of quarters?

Frank Pellegrino

Hi, Nick. This is Frank. That's our long-term goal, and we have a process in place that gets back up to those historical averages. And that will occur over the next several quarters.

Nick Otton

Okay. And then just on the brands, I guess they have been losing share. Is it sustainable on their level? I understand you guys are one of the lowest cost of the industry, but can the branded keep up with not increasing price with the commodity environment?

Jeffrey Sanfilippo

Yes. It's tough to say. Obviously, brands, they have a mind of their own, and I expect them to continue to invest in the category to either build their brand equity, market share or just move some of the inventories of raw materials that they have in their system. And so it's hard to say when they would take price adjustments. I can't imagine it's going to be too far out there, but it's hard to say.
And also add that the focus we have on -- I'm sorry, yes. And the other focus, obviously, pricing is a big lever that we have, but also reducing our operating costs, our supply efficiencies, is critical, making sure that we streamline our efforts. So we expect a lot of -- some of that margin enhancement to come from just cost reduction initiatives internally.

Nick Otton

And then starting up the new lines, like you said, by the end of the fiscal year, will there be any costs associated with that that could create additional margin pressure in the next two quarters to come?

Jasper Sanfilippo

Yeah. Nick, this is Jasper. Most of the costs that we'll incur with the installation of these new lines will be capitalized. So I wouldn't imagine, other than some moving equipment around and things of that nature, I wouldn't imagine that it would have any impact on margin.

Nick Otton

And then just some more comments around Lakeville, like how this quarter was and everything. Obviously, great quarter, 28% growth there. Just after last quarter's back-to-school issues and everything.

Jasper Sanfilippo

Yeah. Lakeville, we had a bunch of one-off expenses in Lakeville, as we're moving inventory out of a third-party warehouse up there into our Huntley facility, we're still carrying a bit of a lease payment on that. That has expired at the end of Q2. We also had to temporarily install some equipment we bought in summer into that Lakeville facility to help build inventories for this year's back-to-school. So there was quite a bit of noise up there.
I think from an overall operating impact, we are really running that business for service and to build inventory, so we make sure that we hit the back-to-school numbers. So we are incurring quite a bit of overtime in that facility. But we do anticipate, with the installation of the line that we put up there temporarily, coupled with running more production in Elgin, that we'll see that facility become even more profitable than it is.

Nick Otton

And then any disclosure on just like what the dollar value -- you talked about the volume growth and everything. Like how -- what was Lakeville's dollar value in the quarter?

Frank Pellegrino

I think it's in the 10-Q, Nick. But I think it's around $40 million, was the Lakeville-related sales for the quarter.

Nick Otton

All right. And then I just -- final one just on tariffs. Because in the -- you talked about in your annual report just how you get some of your pecan business from Mexico. So just any thoughts on how it's going to affect the industry, how it affects you if the tariffs do come in?

Jasper Sanfilippo

Well, we're almost at the tail-end of buying this crop. So I don't think even if the tariffs do occur shortly, we would be still buying a lot of products from Mexico.

Jeffrey Sanfilippo

We are working with our procurement teams really across all the supply chain to make sure that we are aware and ready if tariffs do go into place either in Mexico or Canada or any part of the world, just make sure we have the right supply chain in place to overcome any issues that might occur. It is on our radar for sure.

Operator

(Operator Instructions) And at this time, there are no more questions in the queue. I'd like to turn the call back over to Jeffrey for closing remarks. Please go ahead.

Jeffrey Sanfilippo

Thank you, Lisa. Again, I want to thank all of you on the call for your interest in JBSS. This concludes the call for our second-quarter fiscal 2025 operating results. And have a great day.

Operator

Thank you all for joining today's conference call. You may now disconnect.