Early last week John B. Sanfilippo & Son, Inc. announced financial results for its fiscal 2023 second quarter ended December 29, 2022.

“During the second quarter, net sales increased over $21 million, or 8.3%, compared to last year’s second quarter, and we delivered strong bottom line growth as our diluted EPS increased 27.2% to $1.45 per share. Our strong quarterly performance resulted from numerous continuous improvement initiatives, a focus on reducing our operating costs, and selling price alignment efforts initiated last fiscal year as a response to inflationary cost increases. We continue to see strong demand for our products, especially from our private brand customers in our consumer channel. Our private brand sales volume grew over 3% in the consumer channel, excluding the one-time loss of a private brand grocery customer, compared to an overall decline in the snack nut category,” stated Jeffrey T. Sanfilippo, Chief Executive Officer.

“During the quarter we continued to execute against our Long-Range Plan. First, we paid a $1.00 per share special dividend, reinforcing our goal of creating long-term shareholder value by returning capital to our shareholders. We also completed the acquisition of the Just the Cheese brand, which is part of our strategic initiative to further diversify our product offerings. We are excited to add Just the Cheese to our branded portfolio and the acquired production capabilities will help accelerate growth with our private brand and foodservice customers. I am also proud to announce that during the third quarter, we began to ship our new product line of private brand nutrition bars, which our team members across the organization have worked tirelessly over the last several years to develop and bring to market. I will share additional details of our new product line in future earnings releases,” Mr. Sanfilippo stated.

“We start the second half of fiscal 2023 with excitement and optimism as we begin to see stabilization in the supply chain, modest downward pressure in the acquisition costs of tree nuts and the continuation of our journey to diversify our product offerings. As always, we will continue to respond to challenges, including the current economic and operating environment and the recent category contraction. I believe we have the right team, initiatives and strategies to continuously overcome these challenges and deliver long-term shareholder value,” Mr. Sanfilippo concluded.

Second Quarter Results

Net Sales

Net sales for the second quarter of fiscal 2023 increased 8.3% to $274.3 million due to a 12.7% increase in the weighted average sales price per pound. This increase was partially offset by a 3.8% decrease in sales volume, which is defined as pounds sold to customers. Sales volume for peanuts and all major tree nuts (except pecans) declined in the second quarter. The increase in the weighted average selling price primarily resulted from higher commodity acquisition costs for pecans, cashews, peanuts and dried fruit.

Consumer Distribution Channel (2.0)%

• Private Brand + 0.7%
  This sales volume increase was mostly driven by new private brand peanut butter business at a mass merchandising retailer and increased seasonal distribution at another mass merchandising retailer. This increase was substantially offset by lost distribution with a private brand grocery customer that occurred in the fourth quarter of fiscal 2022.

• Branded* (5.0)%
  This sales volume decrease was mainly attributable to a 24.1% decrease in the sales volume of Fisher snack nuts due to competitive pricing pressure at two grocery store retailers and lost distribution at another grocery store retailer. Additionally, sales volume for Orchard Valley Harvest decreased 14.5% due to the timing of sales to a major customer in the non-food sector who delayed their orders into the third quarter of fiscal 2023. The above decreases were partially offset by a 2.8% increase in sales volume of Fisher recipe nuts related to increased distribution at a mass merchandising retailer and at a grocery store customer.

Commercial Ingredients Distribution Channel (7.7)%

This sales volume decrease was primarily due to a 38.9% decrease in sales volume of bulk products to other food manufacturers as a result of reduced consumption from softened consumer spending. This was partially offset by a 2.9% increase in sales volume to foodservice customers due to new distribution at existing customers.

Contract Packaging Distribution Channel (11.4)%

This sales volume decrease was due to earlier timing for holiday shipments at a major customer in this channel.

Gross Profit

Gross profit margin of 20.6% of net sales was consistent with the prior comparable quarter primarily due to lower acquisition costs for almonds and walnuts, which were offset by inflationary cost increases, including for labor and manufacturing supplies, increased depreciation expense and a decrease in sales volume. Gross profit increased $4.3 million mainly due to a higher net sales base.

Operating Expenses

Total operating expenses decreased $1.9 million in the quarterly comparison mainly due to decreases in advertising spend, incentive compensation, loss on asset disposals and freight expense, which were partially offset by an increase in base and equity compensation expense. Total operating expenses, as a percentage of net sales, decreased to 11.7% from 13.4% in the prior comparable quarter due to the reasons noted above and a higher net sales base.

Inventory

The value of total inventories on hand at the end of the current second quarter decreased $5.7 million, or 3.2%, year over year. The decrease in the value of total inventories was primarily due to lower commodity acquisition costs for all major tree nuts and lower quantities of finished goods and pecans. This was offset by higher quantities of cashews, raw materials, work-in-process and farmer stock peanuts. The weighted average cost per pound of raw nut and dried fruit input stock on hand decreased 24.2% year over year mainly due to lower acquisition costs for all major tree nuts.

Six Month Results

• Net sales increased 9.9% to $526.9 million. The increase in net sales was primarily attributable to an 11.1% increase in weighted average selling price per pound, which was partially offset by a 1.1% decline in sales volume.
• Sales volume decreased 1.1%. The sales volume increase in the contract packaging channel was offset by sales volume declines in the consumer and commercial ingredients channels.
• Gross profit margin decreased 1.4% to 20.3% of net sales. The decrease was mainly attributable to higher commodity acquisition costs for all major tree nuts (except walnuts) and peanuts, other inflationary cost increases cited above and increased depreciation expense.
• Operating expenses increased $1.8 million to $60.3 million. The increase in total operating expenses was mainly due to a non-recurring gain of approximately $2.3 million from the sale of the Garysburg, North Carolina facility, which occurred in the first quarter of fiscal 2022. In addition, increases in base and equity compensation expense and sales broker commission expenses contributed to the overall increase but were partially offset by decreases in advertising spend and freight expense.
• Diluted EPS decreased 0.7%, or $0.02 per diluted share, to $2.79.