John B. Sanfilippo & Son, Inc. announced operating results for its fiscal 2011 second quarter. Net income for the current quarter was $5.2 million, or $0.48 per share diluted, compared to net income of $8.8 million, or $0.82 per share diluted, for the second quarter of fiscal 2010.
Net income for the first two quarters of fiscal 2011 was $6.3 million, or $0.58 per share diluted, compared to net income of $13.6 million, or $1.27 per share diluted, for the first two quarters of fiscal 2010.
Net sales increased to $223.6 million for the second quarter of fiscal 2011 from $180.1 million for the second quarter of fiscal 2010.
Approximately 39 percent of the net sales increase in the quarterly comparison was attributed to products associated with the acquisition of Orchard Valley Harvest, Inc. (OVH), which was completed in the fourth quarter of fiscal 2010.
Sales volume, which is measured in pounds shipped to customers, increased by 7.4 percent. Approximately 84 percent of the sales volume increase was attributed to OVH products. The increase in sales volume in the second quarter occurred in the consumer, contract packaging and food service distribution channels for almonds, chocolate-coated products, fruit and nut mixes and cashews.
Price increases implemented in the first and second quarters of the current fiscal year also led to the increase in net sales.
For the first two quarters of fiscal 2011, net sales increased to $370.4 million from $306.9 million for the first two quarters of fiscal 2010. Approximately 44 percent of the net sales increase in the year-to-date comparison was attributed to OVH products. Sales volume increased by 6.3 percent.
Approximately 98 percent of the sales volume increase in the year to date comparison was attributable to OVH products. The increase in sales volume in the first two quarters occurred in the consumer, contract packaging and food service distribution channels for all of the company's major products except peanut and pecan products. As was the case in the quarterly comparison, price increases implemented in the first and second quarters of the current fiscal year also contributed to the increase in net sales.
The gross profit margin, as a percentage of net sales, decreased from 18.2 percent for the second quarter of fiscal 2010 to 12.2 percent for the second quarter of fiscal 2011. The gross profit margin for the first two quarters of fiscal 2011, as a percentage of net sales, decreased to 12.9 percent from 18.4 percent for the first two quarters of fiscal 2010. The decrease in the gross profit margins in the quarterly and year-to-date comparisons was almost entirely attributable to significantly higher acquisition costs for tree nuts, to the extent that they were not offset by price increases implemented during those periods. Increased global demand for tree nuts was the primary driver for the increase in acquisition costs.
Total operating expenses for the second quarter of fiscal 2011 decreased to 7.8 percent of net sales from 9.6 percent of net sales for the second quarter of fiscal 2010. Total operating expenses for the current year to date period decreased to 9.3 percent of net sales from 10.3 percent of net sales for the same year to date period in fiscal 2010. The decrease in total operating expenses, as a percentage of net sales, in the quarterly and year to date comparisons was mainly attributable to a higher sales base.
Additionally, total operating expenses for the current quarter were favorably impacted by an insurance settlement of $1.1 million related to the fiscal 2009 pistachio recall and $1.5 million for the estimated forfeiture of amounts previously accrued for incentive compensation due to current year performance. These favorable items were offset in part by an increase in the OVH earn-out liability of $0.8 million and an increase in the accrual for a pending legal matter of $0.9 million. For the current year-to-date period, total operating expenses were increased by $1.5 million for the OVH earn-out liability and $1.1 million for the accrual for a pending legal matter.
Interest expense for the second quarter of fiscal 2011 increased to $1.6 million from $1.3 million for the second quarter of fiscal 2010. Interest expense for the first two quarters of fiscal 2011 was $3.1 million compared to $2.8 million for the first two quarters of fiscal 2010. The increase in interest expense in both the quarterly and year to date comparisons resulted from an increase in short term borrowing to finance higher priced raw material purchases.
The total value of inventories on hand at the end of the second quarter of fiscal 2011 increased by $39.1 million or 32.1 percent when compared to the total value of inventories on hand at the end of the second quarter of fiscal 2010. The quantity of raw nut input stocks on hand at the end of the second quarter of fiscal 2011 decreased by 9.0 percent when compared to the quantity of raw nut input stocks on hand at the end of the second quarter of fiscal 2010, despite the inclusion of OVH in fiscal 2011.
The weighted average cost per pound of raw nut input stocks increased by 35.1 percent in the second quarter of fiscal 2011 when compared to the weighted average cost per pound of raw nut input stocks in the second quarter of fiscal 2010, mainly because of significantly higher acquisition costs for all major tree nuts. Primarily because of higher acquisition costs for these commodities, the value of finished goods inventory on hand at the end of the current quarter increased by 46.4 percent compared to the value of finished goods on hand at the end of the second quarter of fiscal 2010.
"We saw a strong increase in net sales in the second quarter of fiscal 2011 fueled mainly by price increases implemented during the first and second quarters of fiscal 2011 in all channels except the consumer distribution channel. Our weighted average selling price per pound in the current quarter was 15.6 percent higher than the weighted average selling price per pound for the second quarter of fiscal 2010," noted Jeffrey T. Sanfilippo, chairman and chief executive officer in a prepared statement. "A 7.4 percent increase in sales volume, in comparison to sales volume for the second quarter of fiscal 2010, also contributed to the increase in net sales in the quarterly comparison.
"The quarterly sales volume increase was led by an 11.8 percent increase in sales volume in the consumer channel and a 9.6 percent increase in sales volume in the foodservice channel as we executed key strategies in our strategic plan to generate growth in what historically have been our most profitable distribution channels," Sanfilippo added. "The quarterly increase in sales volume in the consumer channel was mainly attributable to sales of OVH products into the produce category. Sales of cashews, mixed nuts and pecans to private brand customers also contributed to the increase in sales volume in the consumer channel. Notwithstanding the sales volume increase, gross profit dollars declined significantly on the sales of these products to private brand customers, because price increases could not be implemented with retailers prior to the holiday season in an amount necessary to offset higher pecan and cashew acquisition costs.
"Price increases in the consumer channel have been agreed upon and will be effective in the third quarter of the current fiscal year, which we anticipate will help mitigate the negative impact to our gross profit margin resulting from increased commodity costs. To help our customers manage such significant increases in raw material costs, we initiated several cost containment projects and are working with key partners on reconfiguring package sizes and product components," Sanfilippo concluded.
