John B. Sanfilippo & Son, Inc. — Form 10-Q Summary
Period clarification: The supplied filing is for the quarter ended December 23, 2021 (second quarter of fiscal 2022), not 2020 Q2. Comparisons below are with the quarter ended December 24, 2020 and the corresponding 26-week periods. Amounts are in millions unless stated otherwise.
Business context and reporting period
The company processes and distributes nuts and snack foods through consumer, commercial ingredients, and contract packaging channels. Fiscal 2022 is a 53-week year ending June 30, 2022; the reported quarter and first half each comprise 13 and 26 weeks, respectively.
Financial performance and liquidity
| Metric | Quarter | 26 weeks |
|---|---|---|
| Net sales | $253.2, up 8.4% | $479.5, up 8.0% |
| Gross profit / margin | $52.2 / 20.6%, versus $52.8 / 22.6% | $104.0 / 21.7%, versus $92.1 / 20.8% |
| Operating income | $18.3, versus $27.8 | $45.6, versus $46.7 |
| Net income | $13.2, versus $19.9 | $32.5, versus $32.7 |
| Diluted earnings per share | $1.14, versus $1.72 | $2.81, versus $2.83 |
| Operating cash flow | Not separately stated | $15.8, versus $61.9 |
Quarterly sales volume rose 6.0%, and weighted-average selling price per pound increased 2.3%, partly due to a mix shift toward higher-priced products. First-half volume increased 9.7%, while average price per pound fell 1.5%, reflecting lower acquisition costs for most major tree nuts other than cashews.
At December 23, 2021, cash was $1.0; revolving borrowings were $35.9; long-term debt, including current maturities, was $12.9; and total liabilities were $184.9. The company reported $77.3 of available revolving credit after outstanding letters of credit and stated it was in compliance with financing covenants. Current assets were $257.6 versus current liabilities of $130.8.
First-half capital expenditures were $9.5. Cash dividends paid were $34.5, or $3.00 per share, compared with $28.7, or $2.50 per share, in the prior-year period. Management expects fiscal 2022 capital expenditures of approximately $18.0 and says operating cash flow and available credit should fund operations for the next 12 months.
Material changes versus the prior comparable period
- Quarterly operating income fell by $9.5 and net income by $6.6 despite higher sales. Gross margin contracted 2.0 percentage points, and operating expenses rose 35.9% to $34.0.
- Management attributed quarterly margin pressure to supply-chain-related production scheduling inefficiencies and inflation in labor, freight, and manufacturing supplies. Higher advertising and consumer research spending and freight costs also lifted selling expenses.
- First-half gross profit increased $11.9, but operating income and net income were slightly below the prior year. First-half operating cash flow declined $46.1, primarily because of increased inventory investment.
- Inventory was $178.7, up $23.4 (15.0%) year over year and $30.7 from fiscal year-end. Management cited higher commodity acquisition costs; the weighted-average cost per pound of raw input stocks was up 24.4% year over year.
- Commercial ingredients sales increased 35.2% in the quarter, supported by a 42.7% increase in foodservice volume as restaurant conditions improved. Consumer sales rose 6.0%; contract packaging sales rose 4.6%.
Outlook, risks, contingencies, and unusual items
- Management cited shortages and cost increases in transportation, packaging, imported materials, and labor, as well as delays and manufacturing inefficiencies. Some costs may stay elevated or unpredictable, and the company may not pass increases to customers promptly or fully.
- The Omicron surge could affect customer demand, employee attendance, supplier availability, and operations. The company reported contingency plans for potential facility disruptions.
- The company completed the sale of its Garysburg, North Carolina facility in the first half for approximately $4.0, recording a $2.349 gain. Prior-year comparisons included a $2.3 insurance-settlement gain that did not recur in the current quarter.
- Final prices owed to walnut growers were to be determined in the third quarter. The company had estimated the liability and inventory costs using available information; any difference from the final liability would be recognized then.
- Management expects pricing relief in some cost areas if shortages ease, but provided no quantified sales or earnings guidance. Ordinary-course legal proceedings were not expected by management to materially affect results, though unfavorable outcomes remain possible.
- Approximately 70% of rentable office area at the Elgin site was vacant, with about 29% not built out; leasing the remaining space may require further capital spending.
Most important facts for investors to verify
- Whether sales growth and improved volume can offset inflation, freight costs, and manufacturing inefficiencies—and whether quarterly margin weakness persists.
- Inventory levels, commodity acquisition costs, and the final walnut-grower liability adjustment expected in the third quarter.
- Operating cash generation and revolving-credit usage as the company funds inventory, planned capital expenditures, and dividends.
- Effects of Omicron and ongoing supply-chain, labor, and transportation constraints on production and customer demand.
- Progress leasing vacant Elgin office space and any resulting capital requirements.