By:
Luca Cardamone, AIM Student at Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
Summary
• John B Sanfilippo & Son Inc. (NASDAQ: JBSS, $79.74) John B
Sanfilippo & Sons Inc. is one of the leading distributors of raw and
processed nuts, and dried fruit. The company also markets, other snack items
such as trail mixes, candy, nut butter, and yogurt/chocolate coated products.
The company sells under the brands of Orchard Valley Harvest, Squirrel Brand,
Fisher, Sunshine Country, and other private brands. The NASDAQ listed company
distributes its products to retailers, warehouses and distribution centers,
both domestically and internationally. Besides, JBSS reaches its customers
through the following channels: Consumer, Commercial Ingredients, and Contract
Packaging. The company was founded in 1922 and is headquartered in Elgin, IL.
• JBSS operates through
vertical integration which allows the company to have direct control over the
various stages of supply-chain. Furthermore, this structure helps the company
to have supervision over the quality of its products.
• JBSS has an on-site
R&D test kitchen, where the team can create, test and tweak products all on
the same day. Thanks to the company’s investments in equipment and technology JBSS
is one of the leading innovators in the nut business.
• JBSS has to deal with
cost volatility for raw nuts which can impact the sales as raw and processed
nuts account for nearly 80% of the company’s sales.
• JBSS is reducing
natural gas, and electricity usage while also being involved in a robust
recycling program that reuses approximately 80% of the company’s waste stream.
Key
points:
John B Sanfilippo & Sons Inc. is one of the
leading distributors of nuts and other snack products. Snacking is a growing
industry that has a revenue of about $42.6B. Nuts and seeds, represent 32.2% of
that revenue. Demand for nuts and seeds has been growing during the past years
as consumers have shifted their interest over healthier snacking options. JBSS
is doing a good job with enhancing its products offering with plant protein
snacks, and other snacks that support healthier consumption trends which can
represent profitable introductions.
The company disposes of a
strong financial position that has allowed JBSS to reward the shareholder with special
dividends. Regular dividends have also been constantly increasing since 2017
when they were first paid to both Common Stock and Class A Stock. For this year
the company declared a special dividend of $2.40 per share and a regular
dividend of $0.60 which represents a 9.09% increase since last year. In the
past several years the company has always been able to award its shareholders
with a special dividend varied bases on the amount of free cash flow available.
JBSS has five facilities
that are strategically located in nut growing regions. The facilities are
equipped with the latest technologies and have enough capacity to handle the
aforementioned operations. On October 7, 2019, the company experienced a fire
in the North Carolina facility, located in Garysburg. No person was injured but
the fire caused the destruction of equipment and caused JBSS to contract with a
third party to meet the production requirements. The company currently plans to
permanently cease all operations at this facility after the current shelling is
over which is estimated to take approximately sixteen months. This event did
not have repercussions on the stock price as after the accident the stock
reached all times highs.
The company is working on
expanding its reach. JBSS is doing so by promoting its products in airports,
fitness centers, hotels and by building a strong social media presence through
influencers. JBSS has also expanded its branded portfolio on Amazon which
allows them to have an eCommerce presence. In my opinion, this is something
that in the future will be very important for the company as people’s shopping
habits are slowly changing and moving towards digital channels.
What
has the stock done lately?
JBSS was incorporated
into the AIM small-cap equity fund on April 20th, 2018. The stock was purchased
at a price of $58.33 and since then it increased to $77.18 surpassing the
estimated price target of $70.49. Since its addition, JBSS contributed to the
small-cap portfolio with a 32.3% upside. After reaching an all-time high of $107.86
in November 2019 the stock sank 27%. This is mainly due to insiders selling.
The COO, Jasper Sanfilippo, sold in a single transaction $923k worth of shares
at a price of US$98.15 each. The stock is currently trading at $79.74.
Past
Year Performance:
Since last year, JBSS has increased ~10%
in value. Net sales have decreased by 12.7 million, or 1.4%. This was mainly
driven by customer shift in buying lower-priced nuts instead of higher-priced
ones. This was offset by an increase in sales volume that allowed gross profit
and diluted earnings to grow by respectively 18.1% and 21.8 %. During the past
year, the company’s strong financial position allowed to pay $29.1 million
worth of cash dividends.
Source:
FactSet
My
Takeaway
With the stock relying on
the variable price of the nuts, I believe that the stock can be threatened by a
future increase in the rise of the crops.
Besides, the stock heavily depends on a few customers: Walmart accounts
for one-third of the sales while Target accounts for about 10%. A possible
rupture in one of these connections might affect the company ability to keep
increasing margins. I believe that the recent drop in stock price reflects
these risks and the insider selling might be the sign of a lack of confidence
in the company. However, I think that the stock has shown what is capable of,
and I believe that the company’s strong brand portfolio and good recognition
are going to help JBSS to reach its previous 52-weeks high. In addition, the
strong financial position, allowing to pay special dividends and increasing
regular dividends are reasons why I rate this stock a hold.
Source:
FactSet
