Business context and reporting period
John B. Sanfilippo & Son, Inc. processes and distributes nuts and other food and snack products through consumer, commercial ingredients, and contract packaging channels. The supplied filing is the Form 10-Q for the quarter ended September 29, 2016 (first quarter of fiscal 2017), compared with the quarter ended September 24, 2015. This does not match the request metadata of “2015 Q1.”
Financial performance
Amounts are in millions of dollars, except per-share data and percentages.
| Metric | Quarter ended Sep. 29, 2016 | Comparable 2015 quarter | Change |
|---|---|---|---|
| Net sales | $222.3 | $225.8 | (1.5%) |
| Gross profit / margin | $36.5 / 16.4% | $33.2 / 14.7% | Gross profit +9.8% |
| Operating income / margin | $16.6 / 7.4% | $13.7 / 6.1% | +20.5% |
| Net income | $10.2 | $8.0 | +27.4% |
| Diluted EPS | $0.89 | $0.71 | Up $0.18 |
| Operating cash flow | $41.6 | $41.0 | +$0.6 |
| Capital expenditures | $3.7 | $7.6 | Down $3.9 |
- Sales volume rose 9.7%, while weighted-average selling price per pound fell 10.3%, primarily reflecting lower walnut and almond commodity costs.
- Operating expenses increased 2.4% to $19.9 million; expenses were 9.0% of sales versus 8.6%.
- Cash declined to $1.4 million from $2.2 million at June 30, 2016. Current assets were $228.1 million and current liabilities $88.4 million, implying working capital of approximately $139.8 million and a current ratio of about 2.6.
- Revolver borrowings were $1.3 million; current and long-term debt totaled approximately $31.2 million, excluding revolver borrowings. Available credit was $112.6 million, net of outstanding letters of credit. The company reported covenant compliance.
- Net cash used in financing was $38.8 million, including the $28.2 million special dividend paid during the quarter. Net cash decreased $0.9 million.
Material changes and management commentary
- Consumer-channel sales increased 2.2% and contract-packaging sales increased 11.8%; commercial-ingredient sales decreased 16.8%. Consumer branded products represented approximately 39% of consumer sales, up from 32%.
- Management attributed improved gross profit and margin mainly to increased volume, lower walnut and almond acquisition costs, and better alignment of pecan selling prices and costs.
- Inventory was $147.2 million, down 21.7% year over year, mainly due to lower walnut and almond acquisition costs. Raw nut and dried-fruit input volume rose 4.8%, while its weighted-average cost per pound fell 29.9%.
- The company estimated its liability and inventory cost for newly procured inshell walnuts using currently available information. Final grower payments were to be determined in the second and/or third fiscal quarters; any difference from estimates would affect results when determined.
Outlook, risks, and unusual items
- Management expected net cash from operations and available credit to fund operations for the next 12 months. Fiscal 2017 capital expenditures were estimated at approximately $12.5 million.
- Management expected commercial-ingredient sales to continue declining in the second quarter because an existing customer was changing to a vertically integrated almond-butter supplier. Lower almond and walnut selling prices were also expected to weigh on sales comparisons until lower retail prices supported increased volume.
- The July 2016 credit amendment extended the revolving facility maturity to July 7, 2021, reduced borrowing and unused-line fees, and permitted qualifying quarterly dividends or stock repurchases subject to an aggregate annual limit and availability conditions.
- On November 1, 2016, the board declared a further $2.50-per-share special dividend, expected to total approximately $28.3 million and payable December 13, 2016. This was subsequent to the quarter.
- Risks include volatile commodity costs and inventory estimates, customer and competitive pressures, food safety and regulatory matters, and possible unfavorable litigation outcomes. The filing says there were no significant changes to the risk factors disclosed in the 2016 Form 10-K. The company reported no material change in its market-risk assessment.
- Approximately 69% of the Elgin office building was vacant; the company noted that leasing the space was uncertain and could require further capital expenditures. It also disclosed an unfunded supplemental retirement plan and related-party debt associated with the Selma property leaseback.
Important facts for investors to verify
- Confirm the intended reporting period: the filing is for fiscal 2017’s first quarter, not 2015 Q1.
- Track walnut grower settlements and any resulting adjustment to estimated inventory costs or liabilities.
- Assess whether volume growth can offset lower commodity-driven selling prices, particularly in commercial ingredients.
- Review the cash and credit impact of the subsequent $28.3 million special dividend alongside planned capital spending.
- Monitor customer concentration and the commercial-ingredient customer transition, commodity exposure, and food-safety or litigation developments.