1Q Income Drop at Sanfilippo
November 4/Elk Grove Village, Ill./Marketing Business Weekly -- John B. Sanfilippo & Son Inc. (JBSS) announced operating results for its first quarter of fiscal 2011. Net income for the current first quarter was $1.1 million, or $0.10 per share diluted, compared to $4.8 million, or $0.45 per share diluted, for the first quarter of fiscal 2010.
First quarter net sales increased by $20.0 million, or 15.8%, to $146.8 million in the first quarter of fiscal 2011 from net sales of $126.8 million for the first quarter of fiscal 2010. The increase in net sales came mainly from higher selling prices and increased sales volume. Primarily as a result of increased commodity costs, sales prices increased for all major product types except peanuts. Sales volume, which is defined as pounds shipped to customers, in the current first quarter increased by 4.8% in comparison to sales volume for the first quarter of fiscal 2010. Sales volume increased in the consumer, industrial, food service and contract packaging distribution channels and declined slightly in the export distribution channel. The net sales and sales volume increases in the consumer distribution channel, which accounted for approximately 50% of the increase in total net sales and sales volume, was mainly attributable to volume associated with the acquisition of Orchard Valley Harvest Inc. (OVH), which was completed in the fourth quarter of fiscal 2010. Sales volume increases in the industrial, food service and contract manufacturing distribution channels came primarily from increased business with existing customers.
The gross profit margin, as a percentage of net sales, decreased from 18.8% for the first quarter of fiscal 2010 to 14.0% for the first quarter of fiscal 2011. Gross profit margins declined significantly on sales of shelled walnuts and pecans because of the need to purchase high cost shelled walnuts and pecans in the spot market during the current quarter. The prices for shelled walnuts and pecans during the current quarter were unusually high due to low inventories in the industry. Gross profit margin also declined on sales of cashews because of significantly higher acquisition costs. Gross profit margin was also negatively impacted by $1.0 million due to a non-recurring inventory charge associated with the opening purchase accounting for the OVH acquisition.
Total operating expenses for the first quarter of fiscal 2011 increased by $2.9 million to 11.6% of net sales from 11.2% for the first quarter of fiscal 2010 primarily because of increased spending for advertising and other brand support activities and an increase in base compensation expense for our employees. A $0.6 million increase in the anticipated liability for additional consideration to be paid for the OVH acquisition and $0.5 million in expense for the amortization of intangible assets acquired in the OVH acquisition also contributed to the increase in total operating expenses. The increase in the anticipated liability for additional consideration to be paid for the OVH acquisition arose because of the strong sales performance of the OVH product line during the current quarter. The increase in total operating expenses from the preceding items was offset in part by a $1.4 million decrease in incentive compensation expense.
Interest expense remained unchanged at $1.4 million in the quarterly comparison.
The total value of inventories on hand at the end of the first quarter of fiscal 2011 increased by $16.3 million, or 16.4% in comparison to the total value of inventories on hand at the end of the first quarter of fiscal 2010. Pounds of raw nut input stocks decreased by 22.6% or 7.7 million pounds for the first quarter of fiscal 2011 versus the same period in the previous year. Due to higher acquisition costs for all tree nuts that were purchased during the current quarter, the weighted average cost per pound of raw nut input stocks on hand increased by 59.7% as of the end of the first quarter of fiscal 2011 when compared to the weighted average cost per pound of raw input stocks at the end of the same period in the prior year. The weighted average cost per pound of raw nut input stocks on hand at the end of the current quarter was 35.2% higher than the weighted average cost per pound of raw input stocks at the end of the fourth quarter of fiscal 2010.
"As we noted above, gross profit margin declined in the quarterly comparison mainly because of increased purchases of walnuts, pecans and cashews at higher prices to solidify existing customer relationships and to take advantage of growth opportunities," stated Jeffrey T. Sanfilippo, chairman and chief executive officer. "Shelled walnut and pecan purchases were made in the current quarter to supply Fisher and private brand baking nuts sales with existing customers that in many cases exceeded forecasted volume by a considerable amount. We also were awarded significant new cashew business with an existing customer," Sanfilippo explained. "We anticipate that the increase in sales volume for baking nuts will continue into the second quarter, when we will have new crop walnuts and pecans available from our shelling operations," he added. "In addition to baking nut volume growth, we expect to realize increased sales volume for produce items with existing non-OVH customers in the second quarter. These gains are a direct result of efforts to execute our strategy to expand the OVH product line with our existing customers," Sanfilippo stated. "These growth opportunities will require us to purchase more tree nuts in markets that are rising primarily because of increased global demand. This will put pressure on gross profit margins in the near term while we are seeking and implementing price increases, which was started in the first quarter and should be completed by the middle of the third quarter. In the long-term, we expect to benefit from increased tree nut consumption, and as we explained above, we are spending on advertising and other brand support activities to take advantage of these growth opportunities," Mr. Sanfilippo concluded.
From the November 9, 2010, Prepared Foods' Daily News
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