John B. Sanfilippo & Son, Inc.: Net Loss for the Fourth Quarter Was $.69 Per Share; Net Loss for Fiscal 2006 Was $1.36 Per Share
John B. Sanfilippo & Son, Inc. (Nasdaq:JBSS) today announced operating results for its fiscal 2006 fourth quarter and year ended June 29, 2006. Net loss for the current quarter was approximately $7.3 million, or $.69 per share diluted, compared to net income of approximately $3.5 million, or $.32 per share diluted, for the fourth quarter of fiscal 2005. Fiscal 2006 net loss was approximately $14.4 million, or $1.36 per share diluted, compared to net income of approximately $14.5 million, or $1.35 per share diluted, for fiscal 2005.
The fourth quarter of fiscal 2005 and fiscal year 2005 each contained an additional week in comparison to the number of weeks contained in each of the fourth quarter of fiscal 2006 and fiscal year 2006.
Fourth quarter net sales declined by approximately $13.3 million, or 9.2%, to approximately $130.8 million in the current quarter from net sales of approximately $144.1 million for the fourth quarter of fiscal 2005. Compared to the last year’s fourth quarter, total pounds shipped to customers in the current quarter declined by approximately 9%. The decline in net sales and the decline in pounds shipped were attributable to one less week in the current fourth quarter. The total weighted average selling price for all products sold in the current quarter was unchanged when compared to weighted average selling price in the fourth quarter of fiscal 2005.
For fiscal 2006, net sales decreased slightly to $579.6 million from $581.7 million for fiscal 2005. An 11% increase in the weighted average selling price for all products shipped in fiscal 2006 over the weighted average selling price for fiscal 2005 was offset by a 10% decline in total pounds shipped to customers. Approximately 20% of the 10% decline in total pounds shipped for the full fiscal year was attributable to the extra week in fiscal 2005. The remainder of the decline in pounds shipped primarily is attributable to a decrease in promotional activity for the Company’s products in the consumer channel and decreased usage of nuts as an ingredient in the industrial channel.
Sales, the changes in net sales and unit volume sold by distribution channel as a percent of fiscal 2005 amounts in the quarterly and fiscal year comparisons are as follows:
Fourth Quarter: Net Sales Pounds Sold % Change % Change Distribution Channel 2006 Net Sales From 2005 From 2005 ——————— ————– ——— ——— Consumer $ 63,671 -6.6% -10.3% Industrial 27,291 -24.9% -23.8% Food Service 17,231 -3.9% -0.6% Contract Packaging 12,410 -1.9% -5.9% Export 10,222 13.5% 37.1% —— Total $130,825 -9.2% -9.3% Fiscal Year: Net Sales Pounds Sold % Change % Change Distribution Channel 2006 Net Sales From 2005 From 2005 ——————— ————– ——— ——— Consumer $292,890 -1.8% -13.2% Industrial 131,635 -1.0% -13.4% Food Service 64,356 5.0% -3.8% Contract Packaging 44,874 -0.7% -1.6% Export 45,809 4.0% 0.2% —— Total $579,564 -0.4% -10.2%
The gross profit margin, as a percentage of net sales, fell from 14.3% for the fourth quarter of fiscal 2005 to 2.9% for the current quarter as gross profit declined by $16.8 million. The major components of the decline in gross profit in the quarterly comparison were:
Impact of 17% production volume decline $4.1 million Change in adjustments made to bulk stored inventories on hand at the end of each quarter $3.9 million Additional costs primarily related to the re-processing of walnuts and almonds $1.5 million Changes in sales mix and gross margin percentage by product type $4.7 million Write-down of walnut and almond by-products and packaging materials $1.9 million
Fiscal 2006 gross profit margin, as a percentage of net sales, fell from 13.5% in fiscal 2005 to 6.5% primarily because of high tree nuts costs, decline in unit volume sold and change in sales mix.
Selling and administrative expenses for the current quarter increased to 10.7% of net sales versus 9.4% for the fourth quarter of fiscal 2005. In addition to the decline in sales, increases in expenses for the retirement plan and stock options, which were partially offset by a decrease in brokerage commissions, also contributed to the increase in operating expenses as a percentage of net sales over those expenses as a percentage of net sales in the fourth quarter of fiscal 2005. For primarily the same reasons, fiscal 2006 selling and administrative expenses, as a percentage of net sales, increased from 8.9% for fiscal 2005 to 9.3%.
Interest expense of $2.0 million for the fourth quarter of fiscal 2006 was unchanged in comparison to interest expense for the fourth quarter of fiscal 2005. Interest expense for fiscal 2006 was approximately $6.5 million versus $4.0 million for fiscal 2005. Interest expense in the amount of $0.7 million and $1.8 million on debt associated with the facility consolidation project was capitalized in the current fourth quarter and fiscal year, respectively. Total debt declined by approximately $7.7 million, or 5.4%, from debt levels at the end of the fourth quarter of fiscal 2005. Total debt declined by approximately $18.4 million, or 11.9%, from debt levels at the end of the third quarter of the current fiscal year.
Inventories on hand at the end of fiscal 2006 decreased by $53.2 million, or 24.5%, in comparison to inventories on hand at the end of fiscal 2005. Pounds of raw nut input stocks also declined by 20.1% or 19.5 million pounds during the current fiscal year. The decline in the quantity of raw nut input stocks was led by declines in the inventories of almonds, cashews and peanuts. The average cost per pound of raw nut input stocks decreased by approximately 6.6% as a result of a change in product mix and lower acquisition costs for pecans, macadamias, cashews and peanuts. The value of finished goods inventory declined by approximately 35.9% in fiscal 2006.
On July 27, 2006, the Company amended its Bank Credit Facility and Note Agreement. In exchange for securing the debt with working capital and fixed assets, the amendments eliminated the financial covenants that the Company was not in compliance with in fiscal 2006. The amendment to the Note Agreement requires that the Company meet or exceed a minimum level of earnings before interest, taxes, depreciation and amortization (EBITDA) for each quarter in fiscal 2007. At this time, the Company is evaluating whether it will comply with this covenant during fiscal 2007. Though the Company believes that its relationships with its lenders are good and that the lenders are comfortable with the adequacy of the collateral securing the debt, there is no assurance that if the Company does not comply with this covenant during fiscal 2007, it will be able to obtain waivers. In the event that the Company cannot obtain a waiver of a non-compliance with this covenant, the Company believes that it has enough unencumbered real estate assets to secure replacement financing in the form of conventional mortgages at an interest rate that could be higher than the interest rate in the amended Note Agreement. The inability of the Company to demonstrate future covenant compliance and meet obligations in the ordinary course of business could cause the Company to receive an opinion from its independent auditors which includes an explanatory going concern paragraph. In addition, the current classification of amounts outstanding under the Note Agreement, which are presented in long-term debt in the accompanying balance sheet, may be required.
Additionally, the Company has not completed its assessment of the effectiveness of its internal controls. The time needed for the Company to complete its evaluation of covenant compliance and effectiveness of its internal controls may cause it to seek an extension in filing its annual report on Form 10-K for the year ended June 29, 2006.
“As was the case in the third quarter of this fiscal year, a decline in unit volume sold coupled with losses associated with almond sales, low gross margins on walnut sales and disposals of almonds and walnut by-products at a loss led to an unusually low gross margin in the fourth quarter,” stated Jasper B. Sanfilippo, Chairman of the Board and Chief Executive Officer. “The decline in unit volume sold in fiscal 2006 was primarily attributable to high selling prices caused by high commodity costs. These high selling prices have resulted in a reduction in promotional activity for our products,” Mr. Sanfilippo explained. “With the exception of pecans, we expect to see lower prices for virtually all of the nuts that we will buy in this upcoming harvest period. As was the case in the current quarter when lower cashew prices generated an increase in units sold of cashew products, we believe that lower costs for the other nuts should lead to increases in consumption and promotional activity for these products in the second half of fiscal 2007,” Mr. Sanfilippo stated. “Continued re-processing of almond and walnut input stocks generated a considerable amount of by-products that had to be disposed of at a loss during the quarter or written down to market at the end of the quarter. We have completed the re-processing of almond and walnuts inventories so that these commodities can be more readily sold, and this should put us in a better position to take advantage of lower cost commodities that will be harvested in the second quarter. Additionally, we made significant progress in decreasing overall inventory levels in the fourth quarter in order to meet this objective,” Mr. Sanfilippo explained. “In addition to lower procurement prices, we expect to buy higher quality new crop almonds and walnuts, which should reduce reprocessing requirements in fiscal 2007 and the losses associated with this activity that we incurred in fiscal 2006,” Mr. Sanfilippo concluded.
The statement of Jasper B. Sanfilippo in this release is forward-looking. This forward-looking statement is based on the Company’s current expectations and involves risks and uncertainties. Consequently, the Company’s actual results could differ materially. Among the factors that could cause results to differ materially from current expectations are: (i) sales activity for the Company’s products, including a decline in sales to one or more key customers; (ii) changes in the availability and costs of raw materials for the production of the Company’s products and the impact of fixed price commitments with customers; (iii) fluctuations in the value and quantity of the Company’s inventories of pecans, walnuts, almonds, peanuts or other nuts due to fluctuations in the market prices of these nuts and routine bulk inventory estimation adjustments, respectively; (iv) the Company’s ability to lessen the negative impact of competitive pressures by reducing its selling prices and increasing sales volume while at the same time maintaining profit margins by reducing costs; (v) the potential for lost sales or product liability if our customers lose confidence in the safety of our products or are harmed as a result of using our products, particularly due to product adulteration, misbranding or peanut and tree nut allergy issues; (vi) risks and uncertainties regarding the Company’s facility consolidation project; (vii) the ability to comply with a financial covenant in its amended credit agreements; and (viii) the timing and occurrence (or nonoccurrence) of other transactions and events which may be subject to circumstances beyond the Company’s control.
John B. Sanfilippo & Son, Inc. is a processor, packager, marketer and distributor of shelled and in-shell nuts and extruded snacks that are sold under a variety of private labels and under the Company’s Fisher(R), Evon’s(R), Snack ‘N Serve Nut Bowl(TM), Sunshine Country(R), Flavor Tree(R) and Texas Pride(TM) brand names. The Company also markets and distributes a diverse product line of other food and snack items.
JOHN B. SANFILIPPO & SON, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except earnings per share) For the Quarter Ended For the Year Ended ———————- ———————- (Unaudited) (Unaudited) June 29, June 30, June 29, June 30, 2006 2005 2006 2005 ———————- ———————- Net sales $130,825 $144,081 $579,564 $581,729 Cost of sales 127,087 123,504 541,909 503,300 ———————- ———————- Gross profit 3,738 20,577 37,655 78,429 ———————- ———————- Selling expenses 9,921 10,107 39,947 39,417 Administrative expenses 4,076 3,401 14,212 12,425 ———————- ———————- 13,997 13,508 54,159 51,842 ———————- ———————- (Loss) income from operations (10,259) 7,069 (16,504) 26,587 ———————- ———————- Other income (expense): Interest expense (2,003) (2,010) (6,516) (3,998) Rental and miscellaneous (expense) income, net (152) 631 (610) 1,179 ———————- ———————- (2,155) (1,379) (7,126) (2,819) ———————- ———————- (Loss) income before income taxes (12,414) 5,690 (23,630) 23,768 Income tax (benefit) expense (5,078) 2,219 (9,189) 9,269 ———————- ———————- Net (loss) income ($7,336) $3,471 ($14,441) $14,499 ====================== ====================== Basic (loss) earnings per share ($0.69) $0.33 ($1.36) $1.37 ====================== ====================== Diluted (loss) earnings per share ($0.69) $0.32 ($1.36) $1.35 ====================== ====================== Weighted average shares outstanding — basic 10,590,609 10,579,630 10,584,764 10,568,400 ====================== ====================== — diluted 10,590,609 10,719,648 10,584,764 10,720,641 ====================== ====================== JOHN B. SANFILIPPO & SON, INC. CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollars in thousands) June 29, June 30, 2006 2005 ———————- ASSETS CURRENT ASSETS: Cash and cash equivalents $2,232 $1,885 Accounts receivable, net 35,481 39,002 Inventories 164,390 217,624 Deferred income taxes 2,984 1,742 Income taxes receivable 6,427 – Prepaid expenses and other current assets 2,248 1,663 ———————- 213,762 261,916 PROPERTIES, NET 156,151 117,769 OTHER ASSETS 19,743 14,787 ———————- $389,656 $394,472 ====================== June 29, June 30, 2006 2005 ———————- LIABILITIES & STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Revolving credit facility borrowings $64,341 $66,561 Current maturities of long-term debt 12,304 10,611 Accounts payable 27,944 29,908 Book overdraft 14,301 3,047 Accrued expenses 16,842 13,230 Income taxes payable – 795 ———————- 135,732 124,152 ———————- LONG-TERM LIABILITIES: Long-term debt 59,785 67,002 Retirement plan 5,864 – Deferred income taxes 5,885 7,143 ———————- 71,534 74,145 ———————- STOCKHOLDERS’ EQUITY: Class A common stock 26 26 Common stock 81 81 Capital in excess of par value 99,820 99,164 Retained earnings 83,667 98,108 Treasury stock (1,204) (1,204) ———————- 182,390 196,175 ———————- $389,656 $394,472 ======================