John B. Sanfilippo & Son(JBSS) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the unaudited consolidated financial statements, including comprehensive income, balance sheets, stockholders' equity, and cash flows, with accompanying notes Item 1. Financial Statements (Unaudited) This section provides the unaudited consolidated financial statements and detailed notes for the quarter and thirty-nine weeks ended March 24, 2022 Consolidated Statements of Comprehensive Income This statement details the company's revenues, costs, and net income for the quarter and thirty-nine weeks ended March 24, 2022, and comparative periods Consolidated Statements of Comprehensive Income (in thousands) | Metric | Q3 Fiscal 2022 (Ended Mar 24, 2022) | Q3 Fiscal 2021 (Ended Mar 25, 2021) | 39 Weeks Fiscal 2022 (Ended Mar 24, 2022) | 39 Weeks Fiscal 2021 (Ended Mar 25, 2021) | | :-------------------------------- | :---------------------------------- | :---------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net sales | $218,584 | $207,892 | $698,120 | $651,740 | | Cost of sales | $179,175 | $161,846 | $554,678 | $513,567 | | Gross profit | $39,409 | $46,046 | $143,442 | $138,173 | | Income from operations | $17,424 | $21,097 | $63,024 | $67,766 | | Net income | $11,877 | $14,701 | $44,373 | $47,398 | | Net income per common share-basic | $1.03 | $1.28 | $3.85 | $4.12 | | Net income per common share-diluted | $1.02 | $1.27 | $3.83 | $4.10 | - Net sales increased by 5.1% for the quarter and 7.1% for the thirty-nine weeks ended March 24, 2022, compared to the prior year periods[11] - Gross profit decreased by 14.4% for the quarter but increased by 3.8% for the thirty-nine weeks ended March 24, 2022[11] - Net income decreased by 19.3% for the quarter and 6.4% for the thirty-nine weeks ended March 24, 2022[11] Consolidated Balance Sheets This statement presents the company's financial position, including assets, liabilities, and stockholders' equity, as of March 24, 2022, and comparative dates Consolidated Balance Sheets (in thousands) | Asset/Liability | March 24, 2022 | June 24, 2021 | March 25, 2021 | | :------------------------------------------ | :------------- | :------------ | :------------- | | ASSETS: | | | | | Cash | $667 | $672 | $1,043 | | Accounts receivable, net | $68,704 | $66,334 | $64,502 | | Inventories | $211,127 | $147,998 | $151,757 | | Total Current Assets | $288,151 | $225,167 | $223,783 | | Total Property, Plant and Equipment, net | $133,123 | $133,374 | $129,875 | | Total Assets | $453,579 | $398,455 | $392,228 | | LIABILITIES & STOCKHOLDERS' EQUITY: | | | | | Revolving credit facility borrowings | $65,863 | $8,653 | $26,005 | | Total Current Liabilities | $145,815 | $100,204 | $106,672 | | Total Long-Term Liabilities | $52,985 | $55,757 | $54,653 | | Total Liabilities | $198,800 | $155,961 | $161,325 | | Total Stockholders' Equity | $254,779 | $242,494 | $230,903 | | Total Liabilities & Stockholders' Equity | $453,579 | $398,455 | $392,228 | - Total assets increased to $453.6 million as of March 24, 2022, from $398.5 million at June 24, 2021, primarily driven by a significant increase in inventories[14] - Current liabilities saw a substantial increase, mainly due to higher revolving credit facility borrowings, rising from $8.7 million at June 24, 2021, to $65.9 million at March 24, 2022[17] Consolidated Statements of Stockholders' Equity This statement outlines changes in stockholders' equity, reflecting net income, dividends, and stock-based compensation, for the period ended March 24, 2022 Consolidated Statements of Stockholders' Equity (in thousands) | Item | Balance, June 24, 2021 | Net Income | Cash Dividends | Stock-based Compensation Expense | Balance, March 24, 2022 | | :------------------------------------ | :--------------------- | :--------- | :------------- | :------------------------------- | :---------------------- | | Total Stockholders' Equity (in thousands) | $242,494 | $44,373 (cumulative for 39 weeks) | $(34,534) | $2,649 (cumulative for 39 weeks) | $254,779 | - Total stockholders' equity increased from $242.5 million at June 24, 2021, to $254.8 million at March 24, 2022, primarily due to net income partially offset by cash dividends[20] - Cash dividends of $3.00 per share were paid, totaling $34.5 million for the period from June 24, 2021, to March 24, 2022[20] Consolidated Statements of Cash Flows This statement reports cash inflows and outflows from operating, investing, and financing activities for the thirty-nine weeks ended March 24, 2022 Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | 39 Weeks Ended March 24, 2022 | 39 Weeks Ended March 25, 2021 | | :-------------------------------- | :---------------------------- | :---------------------------- | | Net cash (used in) provided by operating activities | $(12,555) | $77,026 | | Net cash used in investing activities | $(6,488) | $(13,620) | | Net cash provided by (used in) financing activities | $19,038 | $(63,898) | | Net decrease in cash | $(5) | $(492) | | Cash, end of period | $667 | $1,043 | - Operating activities shifted from providing $77.0 million in cash in fiscal 2021 to using $12.6 million in fiscal 2022, primarily due to increased working capital for inventory[22][122] - Cash used in investing activities decreased from $13.6 million in fiscal 2021 to $6.5 million in fiscal 2022, partly due to proceeds from the sale of the Garysburg facility and life insurance policies[22][125] - Financing activities provided $19.0 million in cash in fiscal 2022, a significant change from using $63.9 million in fiscal 2021, driven by net short-term borrowings[22][127] Notes to Consolidated Financial Statements These notes provide detailed explanations and disclosures regarding the company's accounting policies and financial statement line items - The company is a leading processor and distributor of various nuts and snack products under multiple brand names and private labels, sold through consumer, commercial ingredients, and contract packaging channels[24] - Revenue recognition is generally at a point in time when product control transfers to the customer upon shipment or delivery, with variable consideration for promotional allowances and rebates accounted for as a reduction in revenue[31][32][33] Revenue Disaggregated by Sales Channel (in thousands) | Distribution Channel | Q3 Fiscal 2022 | Q3 Fiscal 2021 | 39 Weeks Fiscal 2022 | 39 Weeks Fiscal 2021 | | :------------------- | :------------- | :------------- | :------------------- | :------------------- | | Consumer | $173,648 | $169,415 | $556,888 | $528,201 | | Commercial Ingredients | $25,514 | $21,052 | $81,426 | $64,399 | | Contract Packaging | $19,422 | $17,425 | $59,806 | $59,140 | | Total | $218,584 | $207,892 | $698,120 | $651,740 | - Inventories increased significantly to $211.1 million at March 24, 2022, from $151.8 million at March 25, 2021, primarily due to higher commodity acquisition costs and increased quantities of certain nuts and finished goods[46][123] - Goodwill of $9.65 million relates entirely to the Squirrel Brand acquisition in fiscal 2018, with no change in its carrying amount during the thirty-nine weeks ended March 24, 2022[48] - The company sold its Garysburg, North Carolina facility in the first quarter of fiscal 2022 for $4.0 million, resulting in a $2.349 million gain[68][111] - Recent accounting pronouncements (ASU No. 2019-12 and ASU No. 2020-10) adopted in fiscal 2022 did not have a material impact on the consolidated financial statements[69][70][71] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition, operational results, liquidity, and capital resources, highlighting key challenges and strategic initiatives OVERVIEW This section provides a general introduction to the company's business, strategic focus, and the significant challenges it faces - John B. Sanfilippo & Son, Inc. is a leading processor and distributor of nuts and snack products under various brands and private labels, serving consumer, commercial ingredients, and contract packaging channels[73] - The company's strategic plan focuses on growing its branded business through innovation, expanded distribution, diversified offerings, and increased e-commerce sales[74] - Significant challenges include competitive pricing pressures, evolving consumer preferences (e.g., shift to value channels due to inflation), and supply chain issues causing shortages and increased costs for inputs, transportation, and labor[75] QUARTERLY HIGHLIGHTS This section summarizes key financial performance metrics and trends for the quarter and thirty-nine weeks ended March 24, 2022 Key Financial Highlights (in millions) | Metric | Q3 Fiscal 2022 | Q3 Fiscal 2021 | 39 Weeks Fiscal 2022 | 39 Weeks Fiscal 2021 | | :-------------------- | :------------- | :------------- | :------------------- | :------------------- | | Net sales | $218.6 | $207.9 | $698.1 | $651.7 | | Sales volume (pounds) | -2.8% YoY | N/A | +5.6% YoY | N/A | | Gross profit | $39.4 | $46.0 | $143.4 | $138.2 | | Gross profit margin | 18.0% | 22.1% | 20.5% | 21.2% | | Total operating expenses | $22.0 | $24.9 | $80.4 | $70.4 | | Inventories (period end) | $211.1 | $151.8 | N/A | N/A | - Net sales increased by 5.1% in Q3 fiscal 2022, but sales volume decreased by 2.8% for the quarter. For the first thirty-nine weeks, net sales increased by 7.1% and sales volume by 5.6%[83][84] - Gross profit margin declined to 18.0% in Q3 fiscal 2022 from 22.1% in Q3 fiscal 2021, primarily due to higher commodity acquisition costs and other inflationary pressures[85] - Inventories increased by 39.1% year-over-year at the end of Q3 fiscal 2022, driven by rising commodity acquisition costs[87][88] RESULTS OF OPERATIONS This section provides a detailed analysis of net sales, gross profit, operating expenses, and net income for the reporting periods - Net sales increased 5.1% in Q3 fiscal 2022 due to an 8.1% increase in weighted average sales price per pound, offsetting a 2.8% decrease in sales volume. For the first 39 weeks, net sales rose 7.1% from a 5.6% volume increase and 1.5% price increase[91][92] Net Sales by Distribution Channel (Q3 Fiscal 2022 vs Q3 Fiscal 2021, in thousands) | Distribution Channel | March 24, 2022 | March 25, 2021 | $ Change | % Change | | :------------------- | :------------- | :------------- | :------- | :------- | | Consumer | $173,648 | $169,415 | $4,233 | 2.5% | | Commercial Ingredients | $25,514 | $21,052 | $4,462 | 21.2% | | Contract Packaging | $19,422 | $17,425 | $1,997 | 11.5% | | Total | $218,584 | $207,892 | $10,692 | 5.1% | - Consumer channel sales volume decreased 5.8% in Q3 fiscal 2022, mainly due to a 57.1% drop in peanut butter sales (due to planned downtime for line upgrade) and discontinuance of inshell peanut products. Commercial ingredients sales volume increased 11.2% due to improved restaurant industry conditions[97][99] - Gross profit decreased 14.4% in Q3 fiscal 2022, with margin falling to 18.0%, primarily due to higher commodity acquisition costs for pecans, almonds, and walnuts, and other inflationary cost increases (labor, freight, manufacturing supplies)[103] - Total operating expenses decreased 11.9% in Q3 fiscal 2022, largely due to a $3.1 million decrease in compensation expense and a $0.7 million increase in miscellaneous income from the sale of life insurance policies[105][107] - Net income for Q3 fiscal 2022 was $11.9 million ($1.02 diluted EPS), down from $14.7 million ($1.27 diluted EPS) in Q3 fiscal 2021[117] LIQUIDITY AND CAPITAL RESOURCES This section discusses the company's cash flow, financing arrangements, and ability to meet its financial obligations and fund operations - Primary cash uses include funding operations, contractual obligations, strategic plan initiatives (branded/private label growth), and debt repayment. Sources are operations and the Credit Facility[120] - Net cash used in operating activities was $12.6 million for the first 39 weeks of fiscal 2022, a significant decrease from $77.0 million provided in the prior year, mainly due to increased working capital for inventory driven by rising commodity costs[122] - Cash provided by financing activities was $19.0 million for the first 39 weeks of fiscal 2022, compared to $63.9 million used in the prior year, primarily due to $57.2 million in net short-term borrowings under the Credit Facility to cover increased commodity acquisition costs[127] - The company's Credit Facility provides a $117.5 million senior secured revolving credit facility, with $47.4 million available credit as of March 24, 2022. The weighted average interest rate for the Credit Facility was 2.2%[130][133] - The Mortgage Facility matures on March 1, 2023, with a fixed interest rate of 4.25% per annum, and $3.4 million principal outstanding as of March 24, 2022[135][136] - The Selma Properties leaseback arrangement is recorded as a debt obligation, with $8.5 million outstanding as of March 24, 2022[137] - The company aims to drive profitable growth by expanding its Fisher, Orchard Valley Harvest, Squirrel Brand, and Southern Style Nuts brands, and growing non-branded business through product innovation, distribution expansion, and increased e-commerce sales[74] - Challenges include intensified competition, changing consumer preferences (e.g., shift to private brands or lower-priced nuts due to inflation), and supply chain disruptions leading to shortages and cost increases for pallets, packaging, ingredients, transportation, and labor[75] - The COVID-19 pandemic continued to impact operations, with improved sales volume in foodservice and non-essential retail, but offset by the Omicron variant surge and ongoing transportation capacity shortages[79][80] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section confirms no material changes in the company's market risk assessment since the prior fiscal year's annual report - No material change in market risk assessment since the prior fiscal year's 10-K filing[144] Item 4. Controls and Procedures Management evaluated the effectiveness of disclosure controls and procedures, concluding they were effective with no material changes to internal control over financial reporting - Disclosure controls and procedures were evaluated and deemed effective as of March 24, 2022[146] - No material changes to internal control over financial reporting occurred during the quarter ended March 24, 2022[147] PART II. OTHER INFORMATION This section contains additional information not covered in the financial statements, including legal proceedings, risk factors, and exhibits Item 1. Legal Proceedings This section refers to disclosures on legal proceedings, noting management's belief that outcomes will not materially affect financial results - The company is involved in various legal proceedings in the ordinary course of business[62][149] - Management believes current legal proceedings will not materially affect the company's financial position, results of operations, or cash flows, but acknowledges the possibility of unfavorable outcomes[62] Item 1A. Risk Factors This section states that no significant changes to previously disclosed risk factors occurred during the reporting period - No significant changes to the risk factors identified in the Form 10-K for the fiscal year ended June 24, 2021, occurred during the third quarter of fiscal 2022[151] Item 6. Exhibits This section provides an index of all exhibits filed with the Form 10-Q, including corporate documents and certifications - The exhibit index lists various corporate documents, such as the Restated Certificate of Incorporation and Amended and Restated Bylaws[156] - Key agreements like the Amended and Restated Credit Agreement and various Split-Dollar Insurance Agreements are included[156][158] - Certifications from the CEO and CFO pursuant to the Sarbanes-Oxley Act are also part of the exhibits[159] SIGNATURE This section contains the official signature and date of filing for the report - The report was signed on behalf of John B. Sanfilippo & Son, Inc. by Frank S. Pellegrino, Chief Financial Officer, Executive Vice President, Finance and Administration, on April 27, 2022[162][164]