John B. Sanfilippo & Son(US:JBSS)2024-08-21 20:09Raw Material and Cost Risks - The company faces significant risks related to the availability and cost of raw materials, which are influenced by factors such as adverse weather, political unrest, and trade agreements [35]. - Fluctuations in commodity prices for nuts can impact the company's inventory value, margins, and profitability, with fixed price commitments representing approximately 2% of annual net sales in fiscal 2024 [37]. - The company has observed rapid inflation in packaging and manufacturing costs, which may not be fully passed on to customers, affecting profitability [36]. - Direct purchases from growers expose the company to market risks, as prices may fluctuate after acquisition, potentially leading to losses [36]. - A hypothetical 1% increase in material costs, without a corresponding price increase, would have decreased gross profit by approximately $6.1 million for fiscal 2024 [151]. Competitive Environment - The competitive environment includes larger companies with greater resources, which may lead to pricing pressures and reduced market share for the company [38]. - Customer buying decisions are influenced by a bidding process, and losing bids could significantly decrease sales volume, while successful bids below desired price points could reduce margins [39]. - The company must continue to invest in marketing and product innovation to maintain or increase market share amidst competitive pressures [38]. - Retail consolidation trends are leading to increased pricing pressures from larger customers, which could adversely affect gross profit margins [41]. Consumer Preferences and Safety - The company is subject to changing consumer preferences, which can affect demand for its products if it fails to adapt quickly [40]. - Food safety concerns, particularly regarding nut allergies, could impact consumer confidence and demand for the company's products [42]. - Negative consumer perception could materially impact the company's financial condition and results of operations [52]. Operational Risks - Increased production, materials, transportation, and insurance costs could adversely impact financial condition and results of operations [44]. - Labor costs have increased due to a growing workforce, which may materially affect financial condition and results of operations [47]. - The company is dependent on a limited number of production facilities, and disruptions could significantly impact product availability [56]. - The company has outsourced IT support services, and ineffective performance by these providers could lead to additional costs and business disruptions [46]. - The company has faced significant disruptions due to the COVID-19 pandemic, which may affect future operations and demand [50]. Regulatory and Compliance Risks - The company is subject to extensive regulation by the FDA, USDA, and EPA, which could materially and adversely affect results of operations due to compliance costs [59]. - Compliance with California's Proposition 65 and other regulations may require substantial operational changes and incur additional costs [59]. - The company maintains food safety plans based on HACCP procedures, which may incur additional compliance costs due to the FSMA [60]. Financial and Market Risks - The Sanfilippo Group and the Valentine Group control approximately 74.4% of the voting power, allowing them to influence major decisions and potentially affect the interests of other shareholders [67]. - The company has not entered into any arrangements to hedge against changes in market interest rates, commodity prices, or foreign currency fluctuations, increasing financial risk exposure [151]. - A hypothetical 10% adverse change in weighted-average interest rates would have had approximately a $0.2 million impact on net income and cash flows from operating activities for fiscal 2024 [152]. - The company faces risks associated with product liability claims and recalls, which could materially affect operations and cash flows [43]. - Litigation risks related to contracts, intellectual property, and product liability could divert management attention and negatively impact financial performance [64]. - The company’s inventory measurement practices may lead to adjustments that could materially affect results of operations [68]. Acquisition and Growth Strategies - The company intends to pursue acquisitions to diversify its product line, but integration challenges could adversely affect financial performance [57]. - Sales to the five largest customers represented approximately 66%, 64%, and 63% of net sales in fiscal 2024, 2023, and 2022, respectively [54].