John B. Sanfilippo & Son, Inc. (NASDAQ:JBSS) is one of the leading processors and distributors of peanuts, pecans, cashews, walnuts, almonds and other nuts in the United States. The company has a diverse product portfolio that includes nut-based snacks, nut butters, trail mixes, and more recently, a growing snack bar business.

Financials

In the fiscal year ended June 29, 2023, JBSS reported annual net income of $62,857,000 on revenue of $999,686,000. The company generated annual operating cash flow of $124,655,000 and free cash flow of $103,923,000. These strong financial results demonstrate JBSS's ability to generate consistent profitability and cash flow, even in a challenging operating environment.

For the third quarter of fiscal 2024, JBSS reported net sales of $271,884,000, up 14.0% from the prior year period. This increase was primarily driven by the company's recent acquisition of certain assets from TreeHouse Foods related to its snack bars business. The Lakeville Acquisition, which closed in the second quarter of fiscal 2024, contributed $46.9 million in net sales during the quarter.

Excluding the impact of the Lakeville Acquisition, JBSS's net sales decreased 5.7% year-over-year, due to a 4.3% decline in the weighted average sales price per pound and a 1.4% decrease in sales volume. The company attributed the lower sales volume to softness in consumer demand across its key product categories.

Gross profit for the third quarter was $49,177,000, down slightly from $49,768,000 in the prior year period. Gross profit margin decreased to 18.1% of net sales, compared to 20.9% in the third quarter of fiscal 2023. The decline in gross margin was primarily due to higher commodity acquisition costs for peanuts and walnuts, reduced production volume, and increased expenditures related to facility repairs, noncompliant inventory, and incentive compensation.

Total operating expenses increased 10.3% year-over-year to $30,825,000, driven by higher selling and administrative expenses. Selling expenses rose 3.0% due to increased incentive compensation, outside distribution costs related to the Lakeville Acquisition, partially offset by lower advertising and consumer research spending. Administrative expenses increased 23.7%, mainly due to higher compensation-related costs.

Despite the headwinds, JBSS reported third quarter net income of $13,477,000, or $1.15 per diluted share, compared to $15,732,000, or $1.35 per diluted share, in the prior year period. For the first nine months of fiscal 2024, net income was $50,236,000, or $4.30 per diluted share, up from $48,184,000, or $4.14 per diluted share, in the same period last year.

Business Overview

JBSS operates in three primary distribution channels: consumer, commercial ingredients, and contract packaging. The consumer channel, which accounted for 81.7% of total net sales in the first nine months of fiscal 2024, includes the company's branded products such as Fisher, Orchard Valley Harvest, and Southern Style Nuts, as well as private label offerings. The commercial ingredients channel (10.4% of net sales) supplies nut-based ingredients to commercial customers, while the contract packaging channel (7.9% of net sales) produces nut and snack products for other brands.

The company's recent acquisition of the snack bars business from TreeHouse Foods has significantly expanded its product portfolio and capabilities. The Lakeville Acquisition, which closed in September 2023, added a manufacturing facility, inventory, and product formulas related to TreeHouse's snack bars business. This transaction allows JBSS to offer its private brand customers a complete portfolio of snack bars, including fruit and grain, crunchy, protein, sweet and salty, and chewy bars.

JBSS's long-term growth strategy focuses on growing its private brand business, transforming its branded portfolio, and diversifying into high-growth snacking segments like bars. The company is also investing in product innovation, brand building, and expanding distribution to drive sales. Recent initiatives include the relaunch of the Orchard Valley Harvest brand and the introduction of new private label snack bars.

Risks and Challenges

JBSS faces several risks and challenges, including the ongoing impact of inflation on input costs, potential economic downturn, and changing consumer preferences. The company has seen higher selling prices at retail, which, coupled with economic uncertainty, has led to some demand destruction in the snack and nut categories.

Supply chain disruptions and labor shortages have also impacted JBSS, though the company has taken steps to mitigate these issues. The integration and optimization of the Lakeville Acquisition will be crucial in the coming quarters, as the company works to make the transaction accretive to its operating income.

Outlook

For the full fiscal year 2024, JBSS expects the Lakeville Acquisition to be dilutive to earnings per share by $0.25 to $0.50, an improvement from the initial estimate of $0.80 to $1.00 per share. The company cited the excellent work of its team in optimizing the Lakeville operations during the third quarter as the reason for the reduced dilution.

Looking ahead, JBSS is cautiously optimistic that consumer demand will stabilize and slowly begin to recover in its core nut and trail mix categories. The company remains focused on cost management, product portfolio diversification, and supporting increased demand from its private brand retail partners.

Valuation and Financial Position

JBSS currently trades at a price-to-earnings ratio of 18.54 and a price-to-book ratio of 3.74, based on its closing price of $103.31 per share as of May 5, 2024. The company's strong financial position, with a current ratio of 2.46 and a debt-to-equity ratio of 0.13, provides flexibility to invest in growth initiatives and return capital to shareholders.

In the third quarter, JBSS's Board of Directors approved a $1.00 per share special cash dividend, demonstrating the company's commitment to creating long-term shareholder value. The dividend will be paid on June 20, 2024, to shareholders of record as of May 31, 2024.

Conclusion

John B. Sanfilippo & Son, Inc. is navigating a challenging operating environment, but its diversification into the growing snack bar category, through the Lakeville Acquisition, has helped drive top-line growth. While inflationary pressures and economic uncertainty remain headwinds, JBSS's strong financial position, innovative product pipeline, and focus on cost management position the company well for the future. With a balanced approach of organic growth and strategic acquisitions, JBSS is poised to continue delivering value for its shareholders.