Market Overview

John B. Sanfilippo & Son, Inc. Quarterly Net Sales Increased by 4.9% on Strong Sales Volume Growth in the Consumer Distribution Channel

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Quarterly Overview:

  • Net sales increased by 4.9%
  • Sales volume increased by 1.7%
  • Gross profit decreased by 2.1%
  • Net income decreased by 16.7%

Fiscal Year Overview:

  • Net sales increased by 5.0%
  • Sales volume increased by 3.4%
  • Gross profit decreased by 2.2%
  • Net income decreased by 10.3%

John B. Sanfilippo & Son, Inc. (NASDAQ:JBSS) (hereinafter
the "Company") today announced operating results for both its fiscal
2018 fourth quarter and fiscal year ended June 28, 2018. Net income for
the fourth quarter of fiscal 2018 was $5.6 million, or $0.49 per share
diluted, compared to net income of $6.7 million, or $0.59 per share
diluted, for the fourth quarter of fiscal 2017. Net income for fiscal
2018 was $32.4 million, or $2.83 per share diluted, compared to net
income of $36.1 million for fiscal 2017, or $3.17 per share diluted.

Fiscal 2018 fourth quarter net sales increased by 4.9% to $211.5 million
from net sales of $201.6 million for the fourth quarter of fiscal 2017
due to a 3.2% increase in the weighted average selling price per pound
and a 1.7% increase in sales volume, which is defined as pounds sold to
customers. The increase in the weighted average selling price primarily
resulted from a shift in sales volume to the consumer distribution
channel where selling prices per pound are typically higher than selling
prices per pound in the commercial ingredients and contract packaging
distribution channels. Sales volume increased in the consumer
distribution channel by 14.0%, which was primarily driven by increased
sales of private brand trail mixes, peanuts and almonds. Increased sales
of Orchard Valley Harvest produce products also contributed to
the increase in sales volume in the consumer distribution channel. Sales
volume also increased in the consumer distribution channel due to Southern
Style
snack mix sales now being categorized in this channel. Southern
Style
product sales were previously included in the contract
packaging distribution channel until our acquisition of the Squirrel
Brand
business in the second quarter of fiscal 2018. Sales volume
increased in the commercial ingredients distribution channel as sales of Squirrel
Brand
products in the current quarter were included in this channel,
while sales of these products were included in the contract packaging
distribution channel in last year's fourth quarter. The decrease in
sales volume in the contract packaging distribution channel was
primarily attributable to that distribution channel reclassification and
the loss of some bulk business with an existing contract packaging
customer.

Sales volume for our branded products in the consumer distribution
channel changed as follows:

   

Fisher recipe nuts

2.5%

Orchard Valley Harvest

97.9%

Fisher snack nuts

(6.1)%
 

Fisher recipe nut sales volume increased primarily due to
distribution gains with new and existing customers. The sales volume
increase for our Orchard Valley Harvest brand came primarily from
distribution gains with new customers. The sales volume decline for Fisher
snack nuts was mainly due to reduced display activity at a major
customer.

Fiscal 2018 net sales increased by 5.0% to $888.6 million from $846.6
million for fiscal 2017 mainly due to a 3.4% increase in sales volume.
Sales volume increased 11.1% in the consumer distribution channel for
the same reasons stated in the quarterly comparison. Sales volume
declined in the commercial ingredients distribution channel due to the
loss of a bulk almond butter customer that occurred in the second
quarter of fiscal 2017. Sales volume declined in the contract packaging
distribution channel for the same reasons stated in the quarterly
comparison.

Gross profit was $32.9 million in the fourth quarter of fiscal 2018
compared to $33.6 million for the fourth quarter of fiscal 2017. Gross
profit margin decreased to 15.6% of net sales in the fourth quarter of
fiscal 2018 from 16.7% for the fourth quarter of fiscal 2017. The
decreases in gross profit and gross profit margin were due primarily to
higher commodity acquisition costs for walnuts in the fourth quarter.

Gross profit declined by 2.2% to $138.8 million in fiscal 2018 from
$141.9 million in fiscal 2017. Gross profit margin decreased to 15.6% of
net sales for fiscal 2018 from 16.8% for fiscal 2017. The declines in
gross profit and gross profit margin were due primarily to higher
commodity acquisition costs for walnuts and higher acquisition costs for
pecans for the first two quarters of the current fiscal year.

Total operating expenses increased by $1.0 million, and total operating
expenses, as a percentage of net sales, decreased slightly to 10.6% from
10.7% in the quarterly comparison. The increase in total operating
expenses in the quarterly comparison was mainly attributable to
increases in shipping, advertising and sales commission expenses, which
were largely offset by a decrease in incentive compensation expense.
Total operating expenses also included $0.8 million in amortization
expense associated with the acquisition of the Squirrel Brand
business, which occurred in the second quarter of the 2018 fiscal year.

Total operating expenses increased by $1.3 million, and total operating
expenses, as a percentage of net sales, decreased to 9.3% from 9.6% in
the fiscal year comparison. The increase in total operating expenses was
mainly due to the same reasons cited in the quarterly comparison. Total
operating expenses also included $2.0 million in amortization expense
associated with the acquisition of the Squirrel Brand business.

Interest expense for the fourth quarter of fiscal 2018 increased to $0.9
million from $0.8 million for the fourth quarter of fiscal 2017.
Interest expense increased to $3.5 million for fiscal 2018 from $2.9
million for fiscal 2017. The increases in interest expense for both
comparisons were primarily due to higher debt levels and interest rates,
both of which were mainly attributable to debt resulting from the
acquisition of the Squirrel Brand business in the second quarter
of fiscal 2018.

The value of total inventories on hand at the end of the current fourth
quarter declined by $7.8 million, or 4.3%, when compared to the value of
total inventories on hand at the end of the fourth quarter of fiscal
2017. The decline in the value of total inventories was primarily due to
lower quantities on hand for walnuts and pecans. The weighted average
cost per pound of raw nut and dried fruit input stocks on hand at the
end of the current fourth quarter fell by only 0.7% as the decline in
acquisition costs for pecans was almost fully offset by increases in
acquisition costs for peanuts and walnuts.

"Our sales continue to shift to the consumer distribution channel with
another quarter of strong consumer channel volume growth. Sales in the
consumer distribution channel amounted to 65% of our total net sales
compared to 59% of total net sales for last year's fourth quarter. Sales
volume growth for private brand and Orchard Valley Harvest
products accounted for 64% and 19% of the total consumer distribution
channel volume growth, respectively," stated Jeffrey T. Sanfilippo,
Chief Executive Officer. "In respect to quarterly pound volume growth at
retail, our brands had mixed results according to IRi market data. Fisher
recipe nut pound volume decreased by 21%, while the total recipe nut
category pound volume decreased by 7%. The decline in pound volume at
retail was driven by lost distribution at a major customer due to the
introduction of private brand recipe nuts in our second quarter of
fiscal 2018. A significant amount of this lost distribution was regained
at this customer in the latter part of the current fourth quarter.
Additionally, we gained expanded distribution for Fisher recipe
nuts at two existing customers with shipments beginning in the fourth
quarter of fiscal 2018 and the first quarter of fiscal 2019. Orchard
Valley Harvest
pound volume increased by 148%, while the total
produce category pound volume increased by 1%. Fisher snack nut
pound volume increased by 9%, and Southern Style Nuts pound
volume grew by 3%, while pound volume for the total snack nut category
increased by 1%," Mr. Sanfilippo noted. "At the beginning of our current
fourth quarter, we began buying shelled walnuts from other shellers on
the spot market to cover some of our needs until the upcoming harvest.
The prices we paid for the walnuts we received in the current quarter
generally were higher than the cost of the walnuts that we were
producing in our walnut shelling plant. As we noted above, these higher
acquisition costs led to the declines in gross profit and gross profit
margin in the quarterly comparison. In the latter part of the fourth
quarter, walnut spot market prices declined, which allowed us to
purchase shelled walnuts for our expected first and second quarter needs
at prices that are aligned with our current selling prices," stated Mr.
Sanfilippo. "We were again successful in generating cash from our
operations in fiscal 2018. As a result, we increased the annual regular
dividend by 10% to $0.55 per share and supplemented that with a special
dividend of $2.00 per share, both of which were paid on August 17,
2018," Mr. Sanfilippo concluded.

The Company will host an investor conference call and webcast on
Thursday, August 23, 2018, at 10:00 a.m. Eastern (9:00 a.m. Central) to
discuss these results. To participate in the call via telephone, dial
1-844-536-5471 from the U.S. or 1-614-999-9317 internationally and enter
the participant passcode of 2764536. This call is being webcast by
NASDAQ/OMX and can be accessed at the Company's website at www.jbssinc.com.

The Company will be presenting at the Sidoti & Company Fall 2018
Conference at the Grand Hyatt in New York City on September 27, 2018.
For more information, visit Sidoti's website at http://www.sidoti.com/events.

Some of the statements in this release are forward-looking. These
forward-looking statements may be generally identified by the use of
forward-looking words and phrases such as "will", "intends", "may",
"believes", "anticipates", "should" and "expects" and are based on the
Company's current expectations or beliefs concerning future events and
involve risks and uncertainties. Consequently, the Company's actual
results could differ materially. The Company undertakes no obligation to
update publicly or otherwise revise any forward-looking statements,
whether as a result of new information, future events or other factors
that affect the subject of these statements, except where expressly
required to do so by law. Among the factors that could cause results to
differ materially from current expectations are: (i) the risks
associated with our vertically integrated model with respect to pecans,
peanuts and walnuts; (ii) sales activity for the Company's products,
such as a decline in sales to one or more key customers, a change in
product mix to lower price products, a decline in sales of private brand
products or changing consumer preferences; (iii) changes in the
availability and costs of raw materials and the impact of fixed price
commitments with customers; (iv) the ability to pass on price increases
to customers if commodity costs rise and the potential for a negative
impact on demand for, and sales of, our products from price increases;
(v) the ability to measure and estimate bulk inventory, fluctuations in
the value and quantity of the Company's nut inventories due to
fluctuations in the market prices of nuts and bulk inventory estimation
adjustments, respectively; (vi) the Company's ability to appropriately
respond to, or lessen the negative impact of, competitive and pricing
pressures; (vii) losses associated with product recalls, product
contamination, food labeling or other food safety issues, or the
potential for lost sales or product liability if customers lose
confidence in the safety of the Company's products or in nuts or nut
products in general, or are harmed as a result of using the Company's
products; (viii) the ability of the Company to control expenses, such as
transportation, compensation, medical and administrative expenses; (ix)
the potential negative impact of government regulations and laws and
regulations pertaining to food safety, such as the Food Safety
Modernization Act; (x) uncertainty in economic conditions, including the
potential for economic downturn; (xi) the timing and occurrence (or
nonoccurrence) of other transactions and events which may be subject to
circumstances beyond the Company's control; (xii) the adverse effect of
labor unrest or disputes, litigation and/or legal settlements, including
potential unfavorable outcomes exceeding any amounts accrued; (xiii)
losses due to significant disruptions at any of our production or
processing facilities; (xiv) the ability to implement our Strategic
Plan, including growing our branded and private brand product sales and
expanding into alternative sales channels; (xv) technology disruptions
or failures; (xvi) the inability to protect the Company's brand value,
intellectual property or avoid intellectual property disputes; (xvii)
the Company's ability to manage successfully the price gap between its
private brand products and those of its branded competitors; and (xviii)
potential increased industry-specific regulation pending the U.S. Food
and Drug Administration assessment of the risk of Salmonella
contamination associated with tree nuts.

John B. Sanfilippo & Son, Inc. is a processor, packager, marketer and
distributor of nut and dried fruit based products that are sold under a
variety of private brands and under the Company's Fisher®, Orchard
Valley Harvest®,
Squirrel Brand®, Southern Style Nuts®
and Sunshine Country® brand names.

 
JOHN B. SANFILIPPO & SON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars in thousands, except earnings per share)

   
For the Quarter Ended For the Year Ended
June 28,   June 29, June 28,   June 29,
2018 2017 2018 2017
Net sales $ 211,505 $ 201,591 $ 888,595 $ 846,635
Cost of sales 178,592 167,958 749,776 704,712
Gross profit 32,913 33,633 138,819 141,923
Operating expenses:
Selling expenses 14,507 12,452 52,922 49,392
Administrative expenses 7,985 9,032 29,788 32,054
Total operating expenses 22,492 21,484 82,710 81,446
Income from operations 10,421 12,149 56,109 60,477
Other expense:
Interest expense 873 816 3,463 2,910
Rental and miscellaneous expense, net 214 220 1,406 1,296
Other expense 493 533 1,970 2,133
Total other expense, net 1,580 1,569 6,839 6,339
Income before income taxes 8,841 10,580 49,270 54,138
Income tax expense 3,240 3,856 16,850 18,013
Net income $ 5,601 $ 6,724 $ 32,420 $ 36,125
Basic earnings per common share $ 0.49 $ 0.59 $ 2.85 $ 3.19
Diluted earnings per common share $ 0.49 $ 0.59 $ 2.83 $ 3.17
Cash dividends declared per share $ - $ - $ 2.50 $ 5.00
 
Weighted average shares outstanding
-- Basic   11,406,009   11,349,840   11,383,080   11,317,149
-- Diluted   11,475,529   11,435,711   11,449,386   11,403,605
 
 
JOHN B. SANFILIPPO & SON, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except per share amounts)
 
June 28, June 29,
2018 2017
ASSETS
CURRENT ASSETS:
Cash $ 1,449 $ 1,955
Accounts receivable, net 65,426 64,830
Inventories 174,618 182,420
Prepaid expenses and other current assets 6,309 4,172
247,802 253,377
 
PROPERTIES, NET: 125,078 125,462
 
OTHER ASSETS:
Intangibles, net 27,304 -
Deferred income taxes 5,024 9,095
Other 10,565 10,125
42,893 19,220
$ 415,773 $ 398,059
 
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving credit facility borrowings $ 31,278 $ 29,456
Current maturities of long-term debt 7,169 3,418
Accounts payable 60,340 50,047
Bank overdraft 2,062 932
Accrued expenses 16,344 26,020
117,193 109,873
 
LONG-TERM LIABILITIES:
Long-term debt 27,356 25,211
Retirement plan 21,288 20,994
Other 7,014 6,513
55,658 52,718
 
STOCKHOLDERS' EQUITY:
Class A Common Stock 26 26
Common Stock 89 88
Capital in excess of par value 119,952 117,772
Retained earnings 127,240 123,190
Accumulated other comprehensive loss (3,181 ) (4,404 )
Treasury stock (1,204 ) (1,204 )
242,922 235,468
$ 415,773 $ 398,059

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