Business context and reporting period
John B. Sanfilippo & Son, Inc. processes and distributes nuts and snack foods through consumer, commercial ingredients, and contract packaging channels, including Fisher and Orchard Valley Harvest brands. The supplied filing is for the quarter ended March 30, 2017, and the thirty-nine weeks then ended (fiscal 2017 Q3), despite the request metadata identifying 2015 Q3.
Key financial metrics
Dollars are in millions except per-share amounts. Comparisons are with the quarter ended March 24, 2016 and the corresponding thirty-nine weeks.
| Metric | Quarter | Thirty-nine weeks |
|---|---|---|
| Net sales | $173.4; down 19.6% | $645.0; down 10.5% |
| Gross profit / margin | $28.4 / 16.4%, versus $25.6 / 11.9% | $108.3 / 16.8%, versus $103.8 / 14.4% |
| Operating income / margin | $10.4 / 6.0%, versus $5.5 / 2.5% | $46.7 / 7.2%, versus $38.9 / 5.4% |
| Net income | $6.3, versus $3.1; diluted EPS $0.55 versus $0.27 | $29.4, versus $23.1; diluted EPS $2.58 versus $2.04 |
| Operating cash flow | Not separately reported | $15.4, versus $41.0 |
| Capital expenditures | Not separately reported | $8.2, versus $12.6 |
At March 30, 2017, cash was $1.8 million, current assets $267.3 million, and current liabilities $130.2 million, for working capital of approximately $137.1 million. Revolver borrowings were $61.3 million, with $52.5 million of availability; long-term debt, including current maturities, was approximately $29.5 million. Total reported debt including revolver borrowings was approximately $90.8 million. The company reported compliance with credit and mortgage covenants.
Changes versus prior comparable periods
- Quarterly net sales fell $42.4 million as sales volume declined 10.8% and weighted average selling price per pound declined 9.9%, mainly due to lower almond prices. Sales volume declined across all channels.
- For the thirty-nine weeks, sales fell $75.5 million, primarily from an 8.8% lower weighted average selling price, as well as a 1.9% volume decline. Commercial ingredients sales were down 30.4%; contract packaging sales rose 4.3%.
- Gross profit and margins improved in both comparisons, mainly reflecting lower almond acquisition costs and better alignment of selling prices and acquisition costs for pecans and walnuts.
- Operating cash flow declined by $25.6 million year over year, principally because inventory absorbed $44.8 million of cash, compared with a $9.3 million inventory increase in the prior period.
- Thirty-nine-week dividends paid increased to $56.5 million from $22.5 million. Two special dividends of $2.50 per share each were paid in fiscal 2017; dividends declared per share for the period totaled $5.00.
Outlook, management commentary, and risks
- Management expected operating cash flows and available credit to fund operations for the next twelve months. Fiscal 2017 capital expenditures were projected at approximately $10 million to $12.5 million.
- The company adopted an annual cash dividend policy in Q3; any dividend and its amount depend in part on liquidity and borrowing availability. No specific earnings or sales guidance was provided.
- Management cited volatile commodity costs, particularly for cashews and pecans, lower almond selling prices, competition, food safety, customer retention, and the need to use available production capacity. It anticipated lower almond selling prices would continue to pressure sales comparisons until lower retail prices support volume growth.
- A lost bulk almond butter customer affected commercial ingredients sales. A $2.5 million increase in the walnut grower liability in the quarter was described as immaterial to results.
- Ordinary-course legal proceedings could have an adverse effect if outcomes are unfavorable, although management did not expect them to materially affect the company. The filing reported no significant changes to previously disclosed risk factors.
- Excess stock-compensation tax benefits reduced the effective tax rate by approximately 2.2 percentage points for the thirty-nine weeks; management expected greater tax-expense volatility under the adopted accounting guidance.
Important facts for investors to verify
- Confirm the intended period: the filing supplied is fiscal 2017 Q3, not 2015 Q3.
- Track whether almond pricing and sales volumes stabilize, and whether the lost commercial ingredients customer is offset by other business.
- Monitor inventory levels, commodity acquisition costs, operating cash conversion, and revolver availability.
- Review dividend sustainability against liquidity needs, capital expenditures, and debt covenants.
- Assess exposure to crop, food-safety, customer-concentration, and legal-contingency risks.