John B. Sanfilippo & Son(JBSS) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements, including comprehensive income, balance sheets, stockholders' equity, cash flows, and detailed notes on accounting policies and financial instruments Consolidated Statements of Comprehensive Income | Metric | Q1 FY2023 (Sept 29, 2022) ($ thousands) | Q1 FY2022 (Sept 23, 2021) ($ thousands) | Change (YoY) | | :--------------------------- | :------------------------ | :------------------------ | :------------ | | Net sales | $252,601 | $226,329 | +11.6% | | Cost of sales | $201,958 | $174,526 | +15.7% | | Gross profit | $50,643 | $51,803 | -2.2% | | Total operating expenses | $28,229 | $24,465 | +15.4% | | Income from operations | $22,414 | $27,338 | -18.0% | | Interest expense | $661 | $371 | +78.2% | | Income before income taxes | $21,002 | $26,001 | -19.2% | | Income tax expense | $5,457 | $6,752 | -19.2% | | Net income | $15,545 | $19,249 | -19.3% | | Comprehensive income | $15,551 | $19,518 | -20.3% | | Net income per common share-basic | $1.35 | $1.67 | -19.2% | | Net income per common share-diluted | $1.34 | $1.66 | -19.3% | Consolidated Balance Sheets | Metric | Sept 29, 2022 ($ thousands) | June 30, 2022 ($ thousands) | Sept 23, 2021 ($ thousands) | Change (QoQ) | Change (YoY) | | :-------------------------- | :------------ | :------------ | :------------ | :----------- | :----------- | | Cash | $298 | $415 | $539 | -28.2% | -44.8% | | Accounts receivable, net | $76,401 | $69,611 | $71,890 | +9.7% | +6.3% | | Inventories | $192,098 | $204,855 | $152,603 | -6.2% | +25.9% | | TOTAL CURRENT ASSETS | $275,543 | $283,164 | $235,439 | -2.7% | +17.0% | | TOTAL ASSETS | $440,771 | $447,262 | $407,161 | -1.5% | +8.3% | | Revolving credit facility borrowings | $42,624 | $40,439 | $45,264 | +5.4% | -5.8% | | TOTAL CURRENT LIABILITIES | $126,170 | $122,762 | $123,834 | +2.8% | +1.9% | | TOTAL LIABILITIES | $171,608 | $168,441 | $178,996 | +1.9% | -4.1% | | TOTAL STOCKHOLDERS' EQUITY | $269,163 | $278,821 | $228,165 | -3.5% | +18.0% | Consolidated Statements of Stockholders' Equity | Metric | June 30, 2022 ($ thousands) | Sept 29, 2022 ($ thousands) | Change ($ thousands) | | :-------------------------------- | :------------ | :------------ | :------- | | Balance, Total Stockholders' Equity | $278,821 | $269,163 | -$9,658 | | Net income | - | $15,545 | +$15,545 | | Cash dividends ($2.25 per share) | - | $(25,981) | -$25,981 | | Pension liability amortization, net of income tax expense | - | $6 | +$6 | | Stock-based compensation expense | - | $772 | +$772 | Consolidated Statements of Cash Flows | Metric | Q1 FY2023 (Sept 29, 2022) ($ thousands) | Q1 FY2022 (Sept 23, 2021) ($ thousands) | Change (YoY) ($ thousands) | | :-------------------------------- | :------------------------ | :------------------------ | :------------ | | Net cash provided by operating activities | $30,646 | $903 | +$29,743 | | Net cash used in investing activities | $(5,974) | $(1,237) | -$4,737 | | Net cash (used in) provided by financing activities | $(24,789) | $201 | -$24,990 | | Net decrease in cash | $(117) | $(133) | +$16 | | Cash, end of period | $298 | $539 | -44.8% | Notes to Consolidated Financial Statements Note 1 – Basis of Presentation and Description of Business - The company is a leading processor and distributor of peanuts, pecans, cashews, walnuts, almonds, and other nuts in the United States[25] - Products are sold under Fisher, Orchard Valley Harvest, Squirrel Brand, Southern Style Nuts, and a variety of private brands[25] - Distribution channels include food retailers (consumer), commercial ingredient users, and contract packaging customers[25] Note 2 – Revenue Recognition - Revenue is recognized at the point in time when product control is transferred to the customer, typically upon shipment or delivery[31] - Variable consideration, such as promotional allowances and rebates, is accounted for as a reduction in revenue and estimated quarterly[32][33] Revenue by Distribution Channel | Distribution Channel | Q1 FY2023 (Sept 29, 2022) ($ thousands) | Q1 FY2022 (Sept 23, 2021) ($ thousands) | | :------------------- | :------------------------ | :------------------------ | | Consumer | $196,547 | $179,761 | | Commercial Ingredients | $31,507 | $28,156 | | Contract Packaging | $24,547 | $18,412 | | Total | $252,601 | $226,329 | Note 3 - Leases - The company leases equipment and a small warehouse, with remaining lease terms up to 4.8 years[37][38] Lease Assets and Liabilities | Metric | Sept 29, 2022 ($ thousands) | June 30, 2022 ($ thousands) | Sept 23, 2021 ($ thousands) | | :-------------------------- | :------------ | :------------ | :------------ | | Operating lease right-of-use assets | $2,430 | $2,303 | $3,171 | | Total lease liabilities | $2,457 | $2,334 | $3,216 | Lease Costs | Metric | Q1 FY2023 (Sept 29, 2022) ($ thousands) | Q1 FY2022 (Sept 23, 2021) ($ thousands) | | :------------------ | :------------------------ | :------------------------ | | Operating lease costs | $474 | $444 | | Variable lease costs | $57 | $17 | | Total lease cost | $531 | $461 | - The company leases office space in its Elgin, Illinois building, with approximately 70% of the rentable area currently vacant[43][115] Note 4 – Inventories Inventory Breakdown | Inventory Type | Sept 29, 2022 ($ thousands) | June 30, 2022 ($ thousands) | Sept 23, 2021 ($ thousands) | | :----------------------- | :------------ | :------------ | :------------ | | Raw material and supplies | $60,657 | $77,558 | $55,159 | | Work-in-process and finished goods | $131,441 | $127,297 | $97,444 | | Total | $192,098 | $204,855 | $152,603 | - Total inventories increased by $39.5 million (25.9%) year-over-year, driven by higher commodity acquisition costs for pecans and increased quantities of finished goods and work-in-process[84][110] Note 5 – Goodwill and Intangible Assets Net Intangible Assets | Metric | Sept 29, 2022 ($ thousands) | June 30, 2022 ($ thousands) | Sept 23, 2021 ($ thousands) | | :------------------- | :------------ | :------------ | :------------ | | Net intangible assets | $7,621 | $8,065 | $9,457 | - Total amortization expense related to intangible assets was $444 thousand for the quarter ended September 29, 2022[49] - Goodwill of $9.65 million relates entirely to the Squirrel Brand acquisition in fiscal 2018, with no change in carrying amount during the quarter[49] Note 6 – Credit Facility - The company has a $117.5 million senior secured revolving credit facility[51] - As of September 29, 2022, $70.7 million of available credit remained under the facility, and the company was in compliance with all financial covenants[52][122] Note 7 – Earnings Per Common Share Weighted Average Shares Outstanding | Metric | Q1 FY2023 (Sept 29, 2022) | Q1 FY2022 (Sept 23, 2021) | | :-------------------------------- | :------------------------ | :------------------------ | | Weighted average number of shares outstanding – basic | 11,553,432 | 11,519,472 | | Weighted average number of shares outstanding – diluted | 11,617,113 | 11,588,484 | Note 8 – Stock-Based Compensation Plans Stock-Based Compensation Expense | Metric | Q1 FY2023 (Sept 29, 2022) ($ thousands) | Q1 FY2022 (Sept 23, 2021) ($ thousands) | | :-------------------------- | :------------------------ | :------------------------ | | Stock-based compensation expense | $772 | $703 | - As of September 29, 2022, total unrecognized compensation expense for non-vested RSUs was $3.359 million, expected to be recognized over a weighted average period of 1.2 years[54] Note 9 – Retirement Plan Net Periodic Benefit Cost | Metric | Q1 FY2023 (Sept 29, 2022) ($ thousands) | Q1 FY2022 (Sept 23, 2021) ($ thousands) | | :-------------------- | :------------------------ | :------------------------ | | Service cost | $200 | $248 | | Interest cost | $342 | $254 | | Amortization of loss | $7 | $364 | | Net periodic benefit cost | $549 | $866 | Note 10 – Accumulated Other Comprehensive Loss Accumulated Other Comprehensive Loss | Metric | Q1 FY2023 (Sept 29, 2022) ($ thousands) | Q1 FY2022 (Sept 23, 2021) ($ thousands) | | :-------------------------------- | :------------------------ | :------------------------ | | Balance at beginning of period | $(2,480) | $(9,025) | | Net current-period other comprehensive income | $6 | $269 | | Balance at end of period | $(2,474) | $(8,756) | Note 11 – Commitments and Contingent Liabilities - The company is a party to various legal proceedings in the ordinary course of business[60] - Management believes the ultimate outcomes will not materially affect financial position, results of operations, or cash flows, but acknowledges the possibility of unfavorable outcomes[60] Note 12 – Fair Value of Financial Instruments - Carrying values of cash, trade accounts receivable, accounts payable, and revolving credit facility borrowings approximate fair values due to short-term maturities and market rates[61][62] Debt Carrying and Fair Values | Metric | Sept 29, 2022 ($ thousands) | June 30, 2022 ($ thousands) | Sept 23, 2021 ($ thousands) | | :-------------------------------- | :------------ | :------------ | :------------ | | Carrying value of current and long-term debt | $9,660 | $10,927 | $13,812 | | Fair value of current and long-term debt | $9,583 | $11,179 | $15,360 | Note 13 – Garysburg, North Carolina Facility - In Q1 FY2022, the Garysburg, North Carolina facility was sold for $4.0 million, resulting in a $2.349 million gain[64] Note 14 – Recent Accounting Pronouncements - No recent accounting pronouncements were adopted in the current fiscal year, and none are expected to have a material impact on the consolidated financial statements[65] Note 15 – Subsequent Event - On November 3, 2022, the Board of Directors declared a special cash dividend of $1.00 per share, payable on December 21, 2022[66] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's Q1 FY2023 financial performance, condition, and strategic initiatives, addressing impacts of inflation and supply chain issues OVERVIEW - The company's Long-Range Plan focuses on growing non-branded business, transforming key brands (Fisher, Orchard Valley Harvest, Squirrel Brand), diversifying into high-growth snacking segments, and increasing sales through innovation and targeted acquisitions[70] - Key challenges include significant inflation, potential economic downturn, supply chain disruptions (pallets, packaging, imported ingredients, transportation), and increased labor costs due to a tightening labor market[72][73][75] - Consumers are shifting preferences due to inflation, potentially moving to private brands or lower-priced nuts, and favoring value-focused retail channels. E-commerce growth has decelerated[73] - The conflict in Ukraine has exacerbated supply chain disruptions, especially related to sunflower oil and aluminum packaging[75] - While transportation capacity issues began to ease in Q3 FY2022 and continued into FY2023, intermodal capacity remains tight, and fuel prices are volatile[76] - The company anticipates potential ongoing challenges from the COVID-19 pandemic in fiscal 2023, though fiscal 2022 saw significant sales volume improvement for foodservice and retail customers as restrictions eased[79] QUARTERLY HIGHLIGHTS Q1 FY2023 Financial Highlights | Metric | Q1 FY2023 (Sept 29, 2022) ($ millions) | Q1 FY2022 (Sept 23, 2021) ($ millions) | Change (YoY) | | :-------------------------- | :------------------------ | :------------------------ | :------------ | | Net sales | $252.6 | $226.3 | +11.6% | | Sales volume (pounds sold) | +1.8% | N/A | +1.8% | | Gross profit | $50.6 | $51.8 | -2.2% | | Gross profit margin | 20.0% | 22.9% | -2.9 pp | | Total operating expenses | $28.2 | $24.5 | +15.4% | | Total inventory value | $192.1 | $152.6 | +25.9% | - Acquisition costs for most major tree nuts are expected to be flat or decrease, while peanut acquisition costs are expected to increase modestly in the 2022 crop year[85] RESULTS OF OPERATIONS Key Financial Results | Metric | Q1 FY2023 (Sept 29, 2022) ($ millions) | Q1 FY2022 (Sept 23, 2021) ($ millions) | Change (YoY) | | :--------------------------- | :------------------------ | :------------------------ | :------------ | | Net Sales | $252.6 | $226.3 | +11.6% | | Gross Profit | $50.6 | $51.8 | -2.2% | | Income from Operations | $22.4 | $27.3 | -18.0% | | Net Income | $15.5 | $19.2 | -19.3% | - Net sales increased 11.6% due to a 9.6% increase in weighted average sales price per pound and a 1.8% increase in sales volume[88] Net Sales by Distribution Channel | Distribution Channel | Q1 FY2023 (Sept 29, 2022) ($ thousands) | Q1 FY2022 (Sept 23, 2021) ($ thousands) | $ Change ($ thousands) | % Change | | :------------------- | :------------------------ | :------------------------ | :------- | :------- | | Consumer | $196,547 | $179,761 | $16,786 | 9.3% | | Commercial Ingredients | $31,507 | $28,156 | $3,351 | 11.9% | | Contract Packaging | $24,547 | $18,412 | $6,135 | 33.3% | | Total | $252,601 | $226,329 | $26,272 | 11.6% | - Consumer channel sales volume decreased 0.6% due to lost private brand distribution, partially offset by increased distribution at a mass merchandising retailer. Fisher recipe nuts volume increased 20.0%[91] - Gross profit decreased by $1.2 million (2.2%) and gross profit margin declined to 20.0% from 22.9%, primarily due to higher acquisition costs for nuts and other inflationary cost increases[95] - Total operating expenses increased by $3.8 million (15.4%) to $28.2 million, mainly due to a non-recurring gain on sale of a facility in the prior year and increases in compensation expenses[83][96][99] LIQUIDITY AND CAPITAL RESOURCES - The company's liquidity is primarily supported by operating cash flows and its $117.5 million revolving credit facility, which are expected to be sufficient for the next twelve months[107] Cash Flow Summary | Metric | Q1 FY2023 (Sept 29, 2022) ($ thousands) | Q1 FY2022 (Sept 23, 2021) ($ thousands) | $ Change ($ thousands) | | :-------------------------------- | :------------------------ | :------------------------ | :------- | | Operating activities | $30,646 | $903 | +$29,743 | | Investing activities | $(5,974) | $(1,237) | -$4,737 | | Financing activities | $(24,789) | $201 | -$24,990 | | Net decrease in cash | $(117) | $(133) | +$16 | - Net cash provided by operating activities increased significantly due to a decreased use of working capital, particularly a $12.8 million decrease in inventories[109] - Cash used in investing activities increased due to the non-recurrence of $3.9 million in proceeds from the Garysburg facility sale in the prior year, coupled with $5.9 million in capital expenditures[113] - Cash used in financing activities was $24.8 million, a significant shift from the prior year, primarily due to lower net short-term borrowings ($2.2 million vs. $36.6 million) and reduced dividends paid[114] - The company has a $117.5 million senior secured revolving credit facility (weighted average interest rate 5.4% in Q1 FY2023) and a Mortgage Facility (fixed at 4.25% per annum) maturing in March 2025 and March 2023, respectively[117][119][123] - A $8.2 million debt obligation is outstanding as of September 29, 2022, related to the sale-leaseback of Selma Properties, with the lease term extended to September 2026[124] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material change in the company's assessment of market risk sensitivity has occurred since the most recent Annual Report on Form 10-K - No material change in the company's assessment of market risk sensitivity since the presentation in its Annual Report on Form 10-K for the fiscal year ended June 30, 2022[131] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - The company's disclosure controls and procedures were effective as of September 29, 2022[133] - No material changes in internal control over financial reporting occurred during the quarter ended September 29, 2022[134] PART II. OTHER INFORMATION Item 1. Legal Proceedings This section refers to Note 11 for details on legal proceedings, confirming the company's involvement in ordinary course legal matters - For a discussion of legal proceedings, refer to Note 11 – 'Commitments and Contingent Liabilities' in Part I, Item 1 of this Form 10-Q[136] Item 1A. Risk Factors No significant changes to the risk factors identified in the Annual Report on Form 10-K occurred during the first quarter of fiscal 2023 - No significant changes to the risk factors identified in the Annual Report on Form 10-K for the fiscal year ended June 30, 2022, occurred during the first quarter of fiscal 2023[138] Item 6. Exhibits This section provides an index of all exhibits filed with the Form 10-Q, including corporate governance, compensation, credit, and certification documents - The exhibit index lists various corporate documents (e.g., Restated Certificate of Incorporation, Amended and Restated Bylaws), incentive plans, credit agreements, and certifications (e.g., Sarbanes-Oxley Act certifications)[143][144][145] SIGNATURE This section formally concludes the report, signed by the Chief Financial Officer, Executive Vice President, Finance and Administration - The report was signed by Frank S. Pellegrino, Chief Financial Officer, Executive Vice President, Finance and Administration, on November 3, 2022[150]