Business context and reporting period
John B. Sanfilippo & Son processes and distributes nuts and related snack products through consumer, commercial ingredients, contract packaging and export channels. This unaudited Form 10-Q covers the quarter ended September 27, 2012, the first quarter of fiscal 2013, and compares it with the quarter ended September 29, 2011. The request metadata says “2011 Q1,” which does not match the period stated in the filing.
Financial performance
Unless noted otherwise, dollar amounts are in millions; the filing presents financial statements in thousands.
| Metric | Quarter ended Sep. 27, 2012 | Quarter ended Sep. 29, 2011 |
|---|---|---|
| Net sales | $177.5 | $156.8 |
| Gross profit / margin | $30.6 / 17.2% | $21.8 / 13.9% |
| Operating income / margin | $13.9 / 7.8% | $5.5 / 3.5% |
| Net income | $7.5 | $2.4 |
| Diluted EPS | $0.69 | $0.23 |
| Cash provided by operations | $10.3 | $12.3 |
Sales rose 13.2% while pounds sold were virtually unchanged. Higher selling prices and a shift toward higher-priced consumer products drove the increase. Gross profit rose 40.5%; management attributed the margin improvement mainly to better alignment of selling prices with commodity costs and a mix shift toward branded consumer products. Operating expenses rose $0.4 million but fell as a share of sales to 9.4% from 10.4%.
Liquidity, debt and cash flow
At September 27, 2012, cash was $2.5 million, current assets were $208.7 million and current liabilities were $111.6 million (current ratio approximately 1.87). Revolver borrowings were $38.1 million, with $71.9 million of available credit after outstanding letters of credit. Current and long-term debt were $12.5 million and $35.7 million, respectively; including revolver borrowings, these reported balances total approximately $86.3 million. The company reported compliance with its credit and mortgage facility covenants.
Operating cash flow declined year over year despite higher earnings, primarily because $9.2 million of prior-year incentive compensation was paid in the quarter. Investing activities used $0.8 million, including $1.6 million of capital expenditures; financing activities used $9.5 million. Cash increased by $0.01 million to $2.5 million. Management expected operating cash flow and credit availability to fund operations for the next 12 months. Fiscal 2013 capital expenditures were expected to be approximately $9.0 million.
Changes, outlook and risks
- Consumer-channel sales increased 20.4% in dollars; Fisher brand volume rose 29.6%. Commercial ingredients sales declined 3.9% in dollars and 12.3% in volume. Contract packaging sales rose 20.3% in dollars; export sales rose 16.2% in dollars but fell 18.5% in volume.
- Inventories were $134.6 million, up 18.7% year over year but down 8.0% from June 28, 2012. Receivables rose 30.4% year over year, primarily reflecting higher dollar sales and selling prices.
- Management expected most commodity costs other than almonds to decrease in fiscal 2013, while remaining above historical levels. It anticipated lower peanut prices and a modest overall market-price decrease. Final walnut grower payments were estimates and would be determined in the third quarter; differences from estimates would affect that quarter’s results.
- The quarter included a $0.7 million gain on the sale of a Barrington, Illinois retail property. The filing also reports a $0.7 million net gain on asset sales within administrative expense.
- Risks include volatile nut costs and inventory values, the ability to pass through price increases, competitive and consumer-demand shifts, food safety and regulatory matters, customer concentration, and execution of the strategic plan. About 75% of the Elgin office building remained vacant; a prospective buyer for the Old Elgin Site did not assure a sale.
- The $3.3 million industrial development bonds were classified as current because they could be payable at the June 1, 2013 interest reset date. Management reported no material change in market-risk assessment and no significant change to disclosed risk factors during the quarter.
Important facts for investors to verify
- Confirm the intended reporting period: the filing is for fiscal 2013 Q1, ended September 27, 2012, not 2011 Q1.
- Track whether improved gross margins and Fisher sales growth persist, particularly as commodity prices and product mix change.
- Review the third-quarter walnut payment true-up and its potential effect on inventory costs and earnings.
- Monitor receivables, inventory levels and operating cash conversion, including the seasonal working-capital needs described by management.
- Assess near-term refinancing or redemption exposure from the industrial development bonds and the company’s broader debt and credit-facility capacity.