John B. Sanfilippo & Son Inc. Reports Operating Results (10-Q)
John B. Sanfilippo & Son Inc. has a market cap of $157.7 million; its shares were traded at around $14.84 with a P/E ratio of 11.1 and P/S ratio of 0.3. JBSS is in the portfolios of Jim Simons of Renaissance Technologies LLC.
Highlight of Business Operations:Net sales in the consumer distribution channel increased by 15.7% in dollars and 4.4% in volume in the first quarter of fiscal 2011 compared to the first quarter of fiscal 2010. Private label consumer sales volume decreased by 1.4% in the first quarter of fiscal 2011 compared to the first quarter of fiscal 2010, despite contribution from OVH, primarily due to (i) losses of $3.4 million and $3.2 million in business at two former private label customers, and (ii) a $2.4 million reduction in business at a major customer. These decreases were partially offset by a $5.3 million increase in business at a major customer. Fisher brand sales volume was virtually unchanged for the first quarter of fiscal 2011 compared to the first quarter of fiscal 2010. Marginal increases in Fisher snack nut business were offset by decreases in Fisher baking nut business.
Selling and administrative expenses for the first quarter of fiscal 2011 increased to 11.6% of net sales from 11.2% of net sales for the first quarter of fiscal 2010. Selling expenses for the first quarter of fiscal 2011 were $10.2 million, an increase of $1.5 million, or 17.0%, from the first quarter of fiscal 2010. This increase is primarily due to (i) a $0.9 million increase in marketing and advertising expenditures, (ii) a $0.6 million increase in freight costs, and (iii) a $0.3 million increase in compensation expense. These increases in selling expenses were partially offset by a $0.5 million reduction in incentive compensation expense due to less favorable operating results. We accrue expense related to our non-equity incentive plan (an economic value added based program) in the annual period that the economic performance underlying such performance occurs. This method of expense recognition properly matches the expense associated with improved economic performance with the period the improved performance occurs on a systematic and rational basis. The amount accrued includes amounts that will be paid currently and if current results exceed target, amounts that are payable in future periods, in the manner such payments are permitted by the provisions of the plan agreement. In certain circumstances, forfeiture of the amounts that are payable can occur. Administrative expenses for the first quarter of fiscal 2011 were $6.9 million, an increase of $1.4 million, or 25.9%, from the first quarter of fiscal 2010. This increase is primarily due to (i) a $0.6 million increase in the projected earnout payments related to the OVH acquisition, (ii) a $0.5 million in amortization related to OVH intangibles, (iii) a $0.3 million increase in contingency reserves, and (iv) a $0.3 million increase in compensation expense. These increases in administrative expenses were partially offset by a $0.9 million reduction in incentive compensation expense due to less favorable operating results.
Net income was $1.1 million, or $0.10 per common share (basic and diluted), for the first quarter of fiscal 2011, compared to $4.8 million, or $0.45 per common share (basic and diluted), for the first quarter of fiscal 2010.
Net accounts receivable were $47.2 million at September 23, 2010, an increase of $7.3 million, or 18.3%, from the balance at June 24, 2010, and an increase of $13.0 million, or 38.1%, from the balance at September 24, 2009. The increase in net accounts receivable from June 24, 2010 to September 23, 2010 is due primarily to higher sales in the month of September 2010 compared to June 2010 due to the seasonality in our business and higher average selling prices. The increase in net accounts receivable from September 24, 2009 to September 23, 2010 is due to higher sales in September 2010 compared to September 2009 due largely to OVH sales and higher average selling prices. Accounts receivable allowances were $3.3 million, $2.1 million and $2.9 million at September 23, 2010, June 24, 2010 and September 24, 2009, respectively. The increase in accounts receivable allowances at September 23, 2010 compared to June 24, 2010 and September 23, 2009 basically corresponds to the higher monthly sales in September 2010 compared to June 2010 and September 2009.
On February 7, 2008, we entered into a Credit Agreement with a bank group (the Bank Lenders) providing a $117.5 million revolving loan commitment and letter of credit subfacility (the Credit Facility). Also on February 7, 2008, we entered into a Loan Agreement with an insurance company (the Mortgage Lender) providing us with two term loans, one in the amount of $36.0 million (Tranche A) and the other in the amount of $9.0 million (Tranche B), for an aggregate amount of $45.0 million (the Mortgage Facility). The Credit Facility and Mortgage Facility replaced our prior revolving credit facility (the Prior Credit Facility) and long-term financing facility (the Prior Note Agreement). We currently expect to be in compliance with all financial covenants under the Credit Facility and Mortgage Facility for the foreseeable future and we currently have full access to our new financing.
As of September 23, 2010, we had $4.3 million in aggregate principal amount of industrial development bonds (the bonds) outstanding, which was originally used to finance the acquisition, construction and equipping of our Bainbridge, Georgia facility. The bonds bear interest payable semiannually at 4.55% (which was reset on June 1, 2006) through May 2011. On June 1, 2011, and on each subsequent interest reset date for the bonds, we are required to redeem the bonds at face value plus any accrued and unpaid interest, unless a bondholder elects to retain his, her or its bonds. Any of the bonds redeemed by us at the demand of a bondholder on the reset date are required to be remarketed by the underwriter of the bonds on a best efforts basis. Funds for the redemption of the bonds on the demand of any bondholder are required to be obtained from the following sources in the following order of priority: (i) funds supplied by us for redemption; (ii) proceeds from the remarketing of the bonds; (iii) proceeds from a drawing under the bonds Letter of Credit held by the Bank Lenders (the IDB Letter of Credit); or (iv) in the event that funds from the foregoing sources are insufficient, a mandatory payment by us. Drawings under the IDB Letter of Credit to redeem the bonds on the demand of any bondholder are payable in full by us upon demand by the Bank Lenders. In addition, we are required to redeem the bonds in varying annual installments, ranging from $0.5 million in fiscal 2011 to $0.8 million in fiscal 2017. We are also required to redeem the bonds in certain other circumstances (for example, within 180 days after any determination that interest on the bonds is taxable). We have the option, subject to certain conditions, to redeem the bonds at face value plus accrued interest, if any. Since the bonds may be payable at the interest reset date of June 1, 2011, the entire aggregate balance of $4.3 million is classified as a current liability as of September 23, 2010.
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