Filing summary
Period discrepancy: The request identifies 2018 Q3, but the supplied filing is John B. Sanfilippo & Son, Inc.’s unaudited Form 10-Q for the quarter ended March 26, 2020 (fiscal 2020 Q3). Comparisons below are with the quarter ended March 28, 2019 and the corresponding 39-week periods. Dollar figures are in millions unless stated otherwise.
Business context
The company processes and distributes nuts and related snack foods through consumer, commercial ingredients, and contract packaging channels, using branded and private-label products. Its fiscal year ends in June. The filing reports both the quarter and the first 39 weeks of fiscal 2020.
Financial performance
| Metric | Q3 FY2020 | Q3 FY2019 | 39 weeks FY2020 | 39 weeks FY2019 |
|---|---|---|---|---|
| Net sales | $211.6 | $201.8 | $675.9 | $659.4 |
| Gross profit | $42.8 | $38.8 | $135.0 | $114.7 |
| Gross margin | 20.2% | 19.2% | 20.0% | 17.4% |
| Operating income | $19.4 | $15.4 | $62.9 | $42.1 |
| Net income | $13.5 | $10.3 | $43.9 | $28.2 |
| Diluted EPS | $1.17 | $0.90 | $3.80 | $2.45 |
| Operating cash flow | — | — | $35.0 | $42.8 |
Q3 sales rose 4.9%, while sales volume increased 13.7% and weighted-average selling price per pound fell 7.8%. Year-to-date sales increased 2.5%, with volume up 9.0% and average selling prices down 6.0%. Management attributed improved gross profit and margins to volume, manufacturing efficiencies and, year to date, lower pecan and cashew acquisition costs. Operating margin was 9.2% in Q3 versus 7.6%; year to date it was 9.3% versus 6.4%.
Liquidity, debt and cash flow
- At March 26, 2020, cash was $1.0 million, current assets $262.8 million and current liabilities $135.2 million.
- Revolver borrowings were $38.2 million; the company reported $76.2 million of remaining availability after letters of credit. Long-term debt, including current maturities but excluding revolver borrowings, was approximately $21.9 million. Total liabilities were $187.4 million.
- Operating cash flow was $35.0 million, down $7.9 million year over year, primarily because inventory used $31.5 million of cash. Capital expenditures were $10.6 million; cash dividends paid were $57.3 million. Net cash decreased $0.6 million.
- The company said available cash, operating cash flow and credit availability should be sufficient for operations over the next 12 months despite COVID-19. It was in compliance with credit and mortgage covenants at quarter-end.
- The $117.5 million revolving facility was amended and extended to March 5, 2025. Fiscal 2020 capital expenditures were estimated at $12–14 million.
Material changes, outlook and risks
- Consumer-channel sales increased 11.9% in Q3, while commercial ingredients fell 6.6% and contract packaging fell 17.8%. Contract packaging weakness included lost business after a customer expanded internal processing. Fisher recipe-nut volume also declined following lost distribution to private label.
- Management estimated about one-third of Q3’s volume increase was due to COVID-19 pantry loading. March volume was up 23.6% year over year; food-service orders faced significant cancellations. The company expected consumer strength and food-service weakness to continue into Q4, but emphasized uncertainty.
- COVID-19 risks include demand shifts across channels, customer credit and collection risk, supply-chain disruption, facility or workforce interruptions, and added costs. The company described employee precautions and supplier coordination; its facilities had not been significantly affected at the time of the filing. Expected additional Q4 pandemic-related costs were less than $1.0 million, subject to change.
- Walnut acquisition costs had increased; pecan and cashew costs had declined. Management cited commodity costs, pricing competition, private-label competition and changing consumer preferences as continuing challenges.
- A fire at the Garysburg, North Carolina roasting room in October 2019 destroyed roasting equipment and damaged other areas. Third-party roasting was being used; the company expected no material fiscal 2020 financial or service impact, had insurance coverage, and was considering permanently ceasing facility operations after completing the current peanut crop. Approximately $2.0 million of cleanup and capital-asset damage had been incurred; an insurance advance of $1.5 million had been received and a further $1.4 million receivable recorded.
- On April 29, 2020, after quarter-end, the board declared a special $1.00-per-share dividend payable June 17, 2020 to holders of record May 27.
- Ordinary-course legal proceedings were not expected by management to materially affect results, though unfavorable outcomes remain possible. Lease accounting adoption recognized $5.4 million of right-of-use assets and $5.3 million of lease liabilities and did not materially affect earnings or cash flow.
Investor verification priorities
- Confirm the intended reporting period: the supplied filing covers fiscal 2020 Q3, not 2018 Q3.
- Track whether COVID-related pantry-loading demand persists and how food-service and restaurant weakness affects sales, margins and receivables.
- Review inventory levels, commodity acquisition costs, and working-capital cash use alongside the increase in revolver borrowings.
- Monitor the Garysburg facility’s transition, insurance recoveries and any closure-related costs.
- Verify the payment and funding of the post-quarter $1.00-per-share special dividend and its effect on liquidity and covenant headroom.