Business context and reporting period
John B. Sanfilippo & Son processes and markets nuts and related foods through consumer, commercial ingredients, contract packaging and export channels. The filing is for the third quarter of fiscal 2012, ended March 29, 2012, and the first 39 weeks of fiscal 2012. This differs from the request metadata’s “2010 Q3”; the filing itself identifies the period as 2012 Q3. Fiscal 2012 ends June 28, 2012.
Financial performance
Dollar amounts below are in millions unless stated otherwise.
| Metric | Quarter ended Mar. 29, 2012 | 39 weeks ended Mar. 29, 2012 | Prior comparable period |
|---|---|---|---|
| Net sales | $153.8 | $533.9 | $137.4; $507.8 |
| Gross profit / margin | $22.1 / 14.4% | $79.3 / 14.9% | $10.0 / 7.3%; $57.8 / 11.4% |
| Operating income (loss) | $4.0 | $25.3 | $(7.6); $5.8 |
| Net income (loss) | $1.4 | $13.2 | $(5.6); $0.6 |
| EPS, basic | $0.13 | $1.24 | $(0.53); $0.06 |
| Interest expense | $1.4 | $4.0 | $1.7; $4.7 |
Sales grew 11.9% in the quarter and 5.1% year to date. Management attributed growth primarily to price increases following higher commodity costs: quarterly sales volume was virtually unchanged, while 39-week volume declined 7.6%. Gross margin improved as selling prices aligned better with commodity acquisition costs; manufacturing efficiencies also contributed. The 39-week effective tax rate was 34.7%.
Liquidity, cash flow and debt
- Cash was $2.7 million at March 29, 2012. Current assets were $229.6 million and current liabilities $145.1 million, giving working capital of approximately $84.6 million.
- Inventories were $176.9 million, up $47.9 million from June 30, 2011 and $18.8 million year over year. Higher nut costs and purchase timing were cited.
- Cash used in operating activities was $12.2 million for the first 39 weeks, improved from $27.3 million used a year earlier. Inventory growth was the major cash use; financing activities provided $19.3 million.
- Revolver borrowings were $68.9 million; current maturities of long-term debt were $10.2 million and long-term debt was $40.2 million. Total reported debt, including current maturities and revolver borrowings, was approximately $119.2 million. Available credit was $40.6 million under a $117.5 million revolving commitment. The company reported compliance with credit and mortgage covenants.
- Capital expenditures were $6.0 million year to date; management expected approximately $8.0 million for fiscal 2012. Management expected cash, operating cash flow and available credit to fund operations and capital needs for the next 12 months.
Material changes, outlook and risks
- Commercial ingredients and contract packaging sales rose strongly in the quarter, while consumer and export volumes were pressured by higher prices and weaker demand. Fisher-branded consumer volume fell 27.1% in the quarter and 20.5% year to date; private-label volume also declined.
- Peanut prices for the 2011 crop had risen more than 100% year over year, reflecting reduced acreage, drought-related lower yields and poor carryover quality. The company said contracts with growers secured most of its peanut requirements and limited its exposure to the increase. Tree-nut costs also remained high; management expected commodity costs to remain relatively stable for the rest of fiscal 2012, though above historical averages.
- Key risks include the ability to pass through commodity cost increases without further demand or volume declines, crop availability and inventory valuation, customer concentration or loss, competition, food safety and product recalls, litigation, and financing availability. Around 75% of office space at the Elgin Site remained vacant; a sale of the Old Elgin Site was not assured.
- The wage-and-hour class action settlement received final court approval. The company paid $2.6 million and recorded a $0.665 million current asset for an expected reverter payment in fiscal Q4 2012. Management said other legal proceedings were not expected to materially affect results, while cautioning that unfavorable outcomes remain possible.
- The Credit Facility maturity was extended to July 15, 2016. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Confirm the period: this is fiscal 2012 Q3, not 2010 Q3, and compare the quarter and 39-week results separately.
- Track whether price increases continue to offset higher nut costs without worsening customer losses or volume declines.
- Monitor inventory levels, working-capital needs, operating cash flow, revolver usage and covenant headroom.
- Check realization of the expected $0.665 million settlement reverter and final resolution of the wage-and-hour case.
- Assess commodity crop conditions, customer/channel concentration, Elgin property occupancy or sale prospects, and upcoming debt-rate/reset obligations.