John B. Sanfilippo & Son(JBSS) - 2021 Q3 - Quarterly Report

Part I: Financial Information Financial Statements The company's financial statements for the quarter and thirty-nine weeks ended March 25, 2021, show a decrease in net sales but an increase in net income compared to the prior year period Consolidated Statements of Comprehensive Income For the third quarter of fiscal 2021, net sales slightly decreased by 1.8% year-over-year to $207.9 million, while gross profit increased by 7.6% to $46.0 million, leading to a 9.2% rise in net income to $14.7 million and diluted EPS of $1.27 Quarterly Financial Performance (Q3 FY2021 vs Q3 FY2020) | Financial Metric | Q3 2021 (ended Mar 25) (in thousands) | Q3 2020 (ended Mar 26) (in thousands) | Change | | :--- | :--- | :--- | :--- | | Net Sales | $207,892 K | $211,624 K | -1.8% | | Gross Profit | $46,046 K | $42,805 K | +7.6% | | Income from Operations | $21,097 K | $19,397 K | +8.8% | | Net Income | $14,701 K | $13,466 K | +9.2% | | Diluted EPS | $1.27 | $1.17 | +8.5% | Year-to-Date Financial Performance (39 Weeks Ended) | Financial Metric | 39 Weeks 2021 (in thousands) | 39 Weeks 2020 (in thousands) | Change | | :--- | :--- | :--- | :--- | | Net Sales | $651,740 K | $675,893 K | -3.6% | | Gross Profit | $138,173 K | $135,033 K | +2.3% | | Income from Operations | $67,766 K | $62,925 K | +7.7% | | Net Income | $47,398 K | $43,853 K | +8.1% | | Diluted EPS | $4.10 | $3.80 | +7.9% | Consolidated Balance Sheets As of March 25, 2021, total assets decreased to $392.2 million from $430.7 million year-over-year, primarily due to a 19.5% reduction in inventories, while total liabilities also decreased to $161.3 million Balance Sheet Summary (in thousands) | Account | March 25, 2021 (in thousands) | March 26, 2020 (in thousands) | Change | | :--- | :--- | :--- | :--- | | Total Current Assets | $223,783 | $262,798 | -14.8% | | Inventories | $151,757 | $188,514 | -19.5% | | Total Assets | $392,228 | $430,694 | -8.9% | | Total Current Liabilities | $106,672 | $135,209 | -21.1% | | Total Liabilities | $161,325 | $187,426 | -14.0% | | Total Stockholders' Equity | $230,903 | $243,268 | -5.1% | Consolidated Statements of Cash Flows Net cash provided by operating activities significantly increased to $77.0 million for the thirty-nine weeks ended March 25, 2021, primarily driven by a $20.3 million positive change in inventories Cash Flow Summary (39 Weeks Ended, in thousands) | Cash Flow Activity | March 25, 2021 (in thousands) | March 26, 2020 (in thousands) | Change (in thousands) | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $77,026 | $34,962 | +$42,064 | | Net cash used in investing activities | ($13,620) | ($10,533) | -$3,087 | | Net cash used in financing activities | ($63,898) | ($25,027) | -$38,871 | | Net decrease in cash | ($492) | ($598) | +$106 | - The significant increase in operating cash flow was primarily driven by a positive change in inventories ($20.3 million inflow) compared to a large outflow in the prior year (-$31.5 million)[22] Notes to Consolidated Financial Statements Key notes detail revenue recognition, lease accounting, inventory, and credit facilities, with revenue recognized upon product control transfer and plans to cease Garysburg facility operations after fire insurance payments - The company is a leading processor and distributor of nuts, sold under brands like Fisher and Orchard Valley Harvest, as well as private labels, through consumer, commercial, and contract packaging channels[24] Revenue by Distribution Channel (39 Weeks Ended, in thousands) | Distribution Channel | 2021 (in thousands) | 2020 (in thousands) | Change | | :--- | :--- | :--- | :--- | | Consumer | $528,201 | $503,848 | +4.8% | | Commercial Ingredients | $64,399 | $101,447 | -36.5% | | Contract Packaging | $59,140 | $70,598 | -16.2% | | Total | $651,740 | $675,893 | -3.6% | - The company plans to permanently cease all operations at its Garysburg, North Carolina facility, which was damaged by a fire, with final insurance proceeds of $2.73 million received in the current third quarter[71][72] Management's Discussion and Analysis (MD&A) Management attributes the 1.8% Q3 net sales decrease to lower volume in commercial and contract packaging, offset by consumer channel growth, with gross profit margin improving due to lower commodity costs despite rising freight expenses Overview The company's strategy focuses on brand growth and private label expansion, facing challenges from intense competition, shifting consumer habits, a wooden pallet shortage, and mixed COVID-19 impacts - The company's long-term strategy is to grow its Fisher, Orchard Valley Harvest, Squirrel Brand, and Southern Style Nuts brands and expand its non-branded business with key customers[80] - The company faces challenges from intense pricing competition, a shift in consumer shopping to smaller store formats and online, and a wooden pallet shortage that has led to cost increases and could impact Q4 net sales[81] - COVID-19 has had a mixed impact: demand from foodservice and convenience store customers remains suppressed, while at-home consumption trends have positively impacted the consumer business[84] Results of Operations Q3 FY2021 net sales decreased 1.8% to $207.9 million due to commercial and contract packaging declines, while consumer sales grew 6.8%, and gross profit margin expanded to 22.1% from 20.2% Quarterly Net Sales by Channel (Q3 FY2021 vs Q3 FY2020, in thousands) | Distribution Channel | Q3 2021 (in thousands) | Q3 2020 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Consumer | $169,415 | $158,616 | +6.8% | | Commercial Ingredients | $21,052 | $30,312 | -30.5% | | Contract Packaging | $17,425 | $22,696 | -23.2% | | Total | $207,892 | $211,624 | -1.8% | - The increase in gross profit and margin was mainly attributable to lower commodity acquisition costs for all major tree nuts[110] - Selling expenses increased by $1.2 million (8.7%) in Q3, driven by a $1.5 million rise in freight expense due to significantly higher freight rates[114] Quarterly Net Income and EPS | Metric | Q3 2021 | Q3 2020 | | :--- | :--- | :--- | | Net Income | $14.7 million | $13.5 million | | Diluted EPS | $1.27 | $1.17 | Liquidity and Capital Resources The company's liquidity remains strong, with operating cash flow increasing to $77.0 million for the first 39 weeks of FY2021, driven by improved inventory management and significant credit facility availability - Net cash from operating activities increased to $77.0 million for the first 39 weeks of FY2021, up from $35.0 million in the prior year, primarily due to a decreased use of working capital for inventory[129] - Total inventories decreased by $36.8 million (19.5%) from March 2020, mainly due to lower commodity acquisition costs for tree nuts and lower quantities of peanuts, almonds, and pecans[130] - The company has a $117.5 million senior secured revolving credit facility, with $88.3 million of available credit as of March 25, 2021[54][140] - The Squirrel Brand acquisition's seller-financed note of $11.5 million was repaid in full during the second quarter of fiscal 2021[145] Quantitative and Qualitative Disclosures About Market Risk The company reports no material change in its market risk sensitivity since the disclosure in its Annual Report on Form 10-K for the fiscal year ended June 25, 2020 - There has been no material change in the company's market risk sensitivity since the last annual report[152] Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of March 25, 2021, with no material changes to internal control over financial reporting identified - The CEO and CFO concluded that as of March 25, 2021, the company's disclosure controls and procedures were effective[154] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[155] Part II: Other Information Legal Proceedings The company is involved in various ordinary course legal proceedings, with management believing the outcomes will not materially affect financial position, results, or cash flows - The company is party to various legal proceedings in the ordinary course of business, which are not expected to have a material adverse effect[65][157] Risk Factors No significant changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended June 25, 2020, were reported during the third quarter of fiscal 2021 - No significant changes to the risk factors identified in the last Form 10-K were reported for the third quarter of fiscal 2021[159] Other Information On April 28, 2021, the Board of Directors expanded to ten members with the appointment of Lisa A. Sanfilippo as a new Class A Director - On April 28, 2021, the Board was expanded from nine to ten members[162] - Lisa A. Sanfilippo was elected as a new Class A Director, a former employee who served in various roles, including Director of Business Development & Innovation Trends[162][163]