FORM 10-Q: JOHN B. SANFILIPPO & SON, INC. For the Quarter Ended March 27, 2025

Overview of Financial Performance

The company faced a number of challenges in the 2025 fiscal year, including higher prices for food ingredients due to rising commodity costs and tariffs, uncertainty around interest rates, intense competition in the snack food industry, and potential economic downturn. Despite these headwinds, the company was able to deliver solid financial results for the third quarter and first thirty-nine weeks of the fiscal year.

In the third quarter, the company’s net sales decreased 4.0% to $260.9 million compared to the prior year period. However, for the first thirty-nine weeks of fiscal 2025, net sales increased 5.1% to $838.2 million. This increase was primarily driven by the acquisition of Lakeville in the prior fiscal year. Excluding the impact of the Lakeville acquisition, net sales remained relatively flat.

Gross profit increased 13.7% to $55.9 million in the third quarter, with the gross profit margin rising to 21.4% of net sales. For the first thirty-nine weeks, gross profit decreased 5.8% to $154.7 million, with the gross margin declining to 18.5% of net sales. The quarterly improvement was due to inventory valuation adjustments and favorable manufacturing efficiencies, while the year-to-date decline was driven by higher commodity costs and competitive pricing pressures.

Operating expenses decreased 10.2% in the third quarter to $27.7 million, or 10.6% of net sales. For the first thirty-nine weeks, operating expenses declined 3.7% to $90.1 million, or 10.8% of net sales. The decreases were primarily due to lower incentive compensation expenses.

As a result of these factors, income from operations increased 53.3% to $28.2 million in the third quarter, while declining 8.4% to $64.6 million for the first thirty-nine weeks. Net income was $20.2 million, or $1.72 per diluted share, in the third quarter, compared to $13.5 million, or $1.15 per diluted share, in the prior year period. For the first thirty-nine weeks, net income was $45.4 million, or $3.87 per diluted share, compared to $50.2 million, or $4.30 per diluted share, in the prior year.

Revenue and Profit Trends

The company’s net sales performance was mixed, with a 4.0% decline in the third quarter offset by a 5.1% increase for the first thirty-nine weeks. The quarterly decrease was driven by a 7.9% drop in sales volume, partially offset by a 4.2% increase in average selling prices. The year-to-date increase was primarily due to the Lakeville acquisition, with underlying sales volumes remaining relatively flat.

The company saw varying trends across its distribution channels. In the consumer channel, net sales declined 5.0% in the third quarter due to volume decreases in bars, almonds, snack nuts, and trail mix. However, this was partially offset by increased sales of walnuts and pecans. For the first thirty-nine weeks, consumer channel net sales grew 6.7%, boosted by the Lakeville acquisition, though excluding this, the underlying sales were flat.

The commercial ingredients channel saw an 8.6% net sales decline in the third quarter and a 5.6% decrease for the first thirty-nine weeks, driven by competitive pricing pressures and lower foodservice peanut butter sales. In contrast, the contract manufacturing channel experienced a 13.6% net sales increase in the third quarter and a 2.9% increase for the first thirty-nine weeks, due to higher granola volumes.

Gross profit performance was mixed, with a 13.7% increase in the third quarter but a 5.8% decrease for the first thirty-nine weeks. The quarterly improvement was primarily due to inventory valuation adjustments and manufacturing efficiencies, while the year-to-date decline stemmed from higher commodity costs and competitive pricing. Operating expenses decreased in both periods, driven by lower incentive compensation.

Overall, the company’s profitability was stronger in the third quarter, with income from operations increasing 53.3% and net income rising 49.6%. However, for the first thirty-nine weeks, income from operations declined 8.4% and net income decreased 9.6%, reflecting the challenges faced earlier in the fiscal year.

Strengths and Weaknesses

The company’s key strengths include its strong market position and expertise in the snack nut, trail mix, and snack bar categories. It has been able to leverage its product innovation capabilities and judicious use of trade spending and pricing actions to respond to the evolving competitive landscape and changing consumer preferences.

However, the company faces several weaknesses and challenges. It is grappling with higher input costs, particularly for commodities like walnuts and pecans, which have squeezed margins. The company has also seen declining demand for its branded and private label snack products as consumers shift towards lower-priced options or purchase outside the snack nut and bar categories.

Supply chain disruptions, including transportation and labor shortages, as well as the impact of tariffs, have also weighed on the company’s performance. While it has remained agile in managing these issues, the ongoing uncertainty and volatility in the operating environment pose risks.

Outlook and Future Prospects

Looking ahead, the company expects the challenging operating environment to continue, with ongoing pressure from inflation, consumer demand shifts, and supply chain constraints. It plans to invest approximately $90 million in capital expenditures to expand production capabilities, increase efficiency, and enhance its product offerings.

To fund these investments, the company intends to utilize a combination of borrowings under its credit facility, equipment financing, and cash generated from operations. The company believes its available credit and expected cash flows will be sufficient to support its operations and capital needs over the next twelve months.

Overall, the company faces a mix of opportunities and risks in the 2025 fiscal year and beyond. Its strong market position, product innovation, and operational agility provide a solid foundation, but the persistent macroeconomic and industry headwinds will require the company to navigate carefully to maintain its financial performance and continue executing on its long-term strategic plan.