Item 1. Business
Item 1 — Business
a. General Development of Business
John B. Sanfilippo & Son, Inc. was formed as a corporation under the laws of the State of Delaware in 1979 as the successor by merger to an Illinois corporation that was incorporated in 1959. As used throughout this annual report on Form 10-K, unless the context otherwise indicates, the terms “we”, “us”, “our” or “Company” collectively refer to John B. Sanfilippo & Son, Inc. and its wholly-owned subsidiary, JBSS Ventures, LLC. Our fiscal year ends on the final Thursday of June each year, and typically consists of fifty-two weeks (four thirteen-week quarters). However, the fiscal year ended June 30, 2022 consisted of fifty-three weeks with our fourth quarter containing fourteen weeks. Additional information on the comparability of the periods presented is as follows:
• References herein to fiscal 2025 are to the fiscal year ending June 26, 2025.
• References herein to fiscal 2024, fiscal 2023 and fiscal 2022 are to the fiscal years ended June 27, 2024, June 29, 2023 and June 30, 2022, respectively.
We are one of the leading processors and distributors of peanuts, pecans, cashews, walnuts, almonds and other nuts in the United States. These nuts are sold under our Fisher , Orchard Valley Harvest , Squirrel Brand and Southern Style Nuts brand names and under a variety of private brands. Additionally, with our acquisition of certain snack bar assets in the second quarter of fiscal 2024, and our internally developed nutrition bar products, we offer our private brand customers a complete portfolio of snack bars. We market and distribute, and in most cases, manufacture or process, a diverse product line of food and snack products, including nutrition bars, snack bars, peanut butter, almond butter, cashew butter, candy and confections, snack and trail mixes, sunflower kernels, dried fruit, corn snacks, chickpea snacks, sesame sticks, other sesame snack products and baked cheese snack products under our brand names, including Just the Cheese , and under private brands. Our products are sold through three primary distribution channels, including food retailers in the consumer channel, commercial ingredient users and contract manufacturing customers.
Our website is accessible to the public at http://www.jbssinc.com. Information about us, including our code of ethics, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports are made available free of charge through our website as soon as reasonably practicable after such reports have been filed with the United States Securities and Exchange Commission (the “SEC”). Our materials filed with the SEC are also available on the SEC’s website at http://www.sec.gov . References to our website addressed in this Form 10-K are provided as a convenience and do not constitute, and should not be viewed as, an incorporation by reference of the information contained on, or available through, the website. Therefore, such information should not be considered part of this Form 10-K.
Our headquarters and executive offices are located at 1703 North Randall Road, Elgin, Illinois 60123, and our telephone number for investor relations is (847) 289-1800, extension 4612.
b. Segment Reporting
We operate in a single reporting unit and operating segment that consists of selling various nut and nut related products through three distribution channels. See Part II, Item 8 — “Financial Statements and Supplementary Data” for our net sales, net income and total assets.
c. Narrative Description of Business
(i) General
We are one of the leading processors and distributors of tree nuts and peanuts in the United States. We manufacture and market the Fisher, Orchard Valley Harvest, Squirrel Brand and Southern Style Nuts brand names and manufacture and distribute numerous private brands as well, including private brand snack bars. Through a deliberate strategy of focused capital expenditures and complementary acquisitions, we have built a generally vertically integrated nut processing operation that enables us to control almost every step of the process for pecans, peanuts and walnuts, including procurement from growers, shelling, processing, packaging and marketing. Vertical integration allows us to enhance product quality and, in most crop years, purchase inshell pecans, peanuts and walnuts from growers at lower costs as opposed to purchasing these nut meats from other shellers. We believe that our business model typically works to our advantage in terms of cost savings and provides us with better insight into crop development.
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Our brands are some of the most well-recognized in the packaged food industry. In recent years, we have developed Fisher recipe nuts as the leading brand in the category through strong marketing campaigns, merchandising, and promotional support. We have increased distribution and launched innovation with our Orchard Valley Harvest and Fisher snack nut brands in many retailers. We have also expanded into new channels with Southern Style Nuts and Squirrel Brand . Our branded and private brand products are sold through the major distribution channels to significant buyers of nuts, including food and other retailers (both brick and mortar and e-commerce), commercial ingredient users and contract manufacturing customers. Selling through multiple distribution channels allows us to generate multiple revenue opportunities for the nuts we process. For example, pecan halves could be sold to food retailers under our Fisher brand, and pecan pieces could be sold to commercial ingredient users. We process and sell all major nut types consumed in the United States, including peanuts, pecans, cashews, walnuts and almonds (our major nut types). These are sold in a wide variety of innovative packaging, which provides our customers a complete nut product offering.
(ii) Principal Products
Our principal products are raw and processed nuts and snack bars. Including trail and snack mixes, these products accounted for approximately 92% of our gross sales for both fiscal 2024 and fiscal 2023 and 94% fiscal 2022. The nut product line includes almonds, pecans, peanuts, black walnuts, English walnuts, cashews, macadamia nuts, pistachios, pine nuts, Brazil nuts and filberts. Our nut products are sold in numerous package styles and sizes, and we offer our nut products in a variety of different styles and seasonings. The snack bar product line includes chewy, fruit and grain, sweet and salty, dipped, crunchy, energy, fiber and nut bars. We sell our products domestically to retailers and wholesalers as well as to commercial ingredient and contract manufacturing customers. For more information about our revenues in our various distribution channels, see Part II, Item 8 — “Financial Statements and Supplementary Data”.
We acquire all of our peanuts and walnuts directly from domestic growers. The majority of our pecans are acquired from domestic growers with the remainder acquired from growers in Mexico. We purchase the balance of our raw nuts from importers, trading companies and domestic processors.
Furthermore, we manufacture and market peanut butter in several sizes and varieties. We also market and distribute, and in many cases process and manufacture, a wide assortment of other food and snack products. These other products include salad toppings, dried fruit and chocolate and yogurt coated products sold to retailers and wholesalers. Recipe ingredients are sold to retailers, wholesalers and commercial ingredient customers. Additionally, bulk food products are sold to commercial ingredient users. Moreover, an assortment of sunflower kernels, pepitas, snack mixes, almond butter, cashew butter, candy and confections, corn snacks, chickpea snacks, sesame sticks and other sesame snack products are sold to retail supermarkets, mass merchandisers and commercial ingredient users with a wide variety of toppings for ice cream and yogurt sold to commercial ingredient users.
(iii) Customers and Channels
We sell our products to approximately 240 customers through the consumer, commercial ingredient and contract manufacturing distribution channels. The consumer channel supplies nut-based and snack bar products, including consumer-packaged products, to retailers in the United States including supermarket chains, wholesalers, supercenters, internet retailers and other retail outlets. We sell products through the consumer channel under our brand names, including the Fisher , Orchard Valley Harvest, Squirrel Brand, Southern Style Nuts and Just the Cheese brands, as well as under our customers’ private brands. The commercial ingredient channel supplies nut-based products to other manufacturers to use as ingredients in their final food products such as bakery, confection, cereal and ice cream. This produces nut-based products that are customized to the specifications of chefs, national restaurant chains, foodservice distributors, fast food chains, institutions and hotel kitchens. We sell products through the commercial ingredient channel under our Fisher brand and our customers’ private brands. Our contract manufacturing channel primarily processes and packages nut and fruit-based snacks for other food manufacturers under their brand names and in accordance with their specifications.
We are dependent on a few significant customers for a majority of our total net sales, particularly in the consumer channel. Net sales to Wal-Mart Stores, Inc. accounted for approximately 39% of our net sales for fiscal 2024, 36% of our net sales for fiscal 2023 and 35% of our net sales for fiscal 2022. Net sales to Target Corporation accounted for approximately 13% of our net sales for fiscal 2024, 15% of our net sales for fiscal 2023 and 14% of our net sales for fiscal 2022. No other customer accounted for more than 10% of net sales for any period presented.
(iv) Sales and Distribution
We market our products through our own sales department and through a network of approximately 60 independent brokers, independent distributors and suppliers, including group purchasing organizations.
We distribute products from each of our principal facilities. The majority of our products are shipped from our facilities by contract and common carriers.
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We operate a retail store at our Elgin headquarters. This store sells Fisher snack and recipe products, Orchard Valley Harvest, Squirrel Brand, Southern Style Nut and Just the Cheese products, bulk foods and other products, produced by us and other vendors directly to consumers.
(v) Marketing
Marketing strategies are developed for each distribution channel and focus primarily on branded products. Branded consumer efforts concentrate on building brand awareness, developing, identifying and introducing new products, attracting new customers and increasing distribution and consumption in the snack nut, recipe nut and produce categories. Private brand and commercial ingredient channel efforts are focused on category management, new product identification and introduction, brand awareness and merchandising support.
A significant portion of our branded marketing efforts are focused on compelling consumer campaigns that include advertisements (e.g., online video, social and influencer activations and partnerships, search engine marketing and media partnerships), product sampling and coupon offers. Our integrated marketing efforts for the Fisher brand include partnerships with chefs, influencers and media partnerships. Additionally, shipper display units and other point of sale promotions are utilized in retail stores in an effort to gain additional temporary product placement and to drive sales volume. We work with third-party information agencies, such as Circana (formerly IRi), to monitor the effectiveness of our marketing and measure product growth in comparison to our competition and the product category.
Commercial ingredient trade promotion typically includes periodically attending regional and national trade shows, trade publication advertising and one-on-one marketing efforts. These promotional efforts highlight our processing capabilities, broad product portfolio, product customization and packaging innovation.
Through participation in several trade associations, funding of industry research and sponsorship of educational programs, we support efforts to increase awareness of the health benefits, convenience and versatility of nuts as both a snack and a recipe ingredient among existing and future consumers of nuts. We also manufacture trail mixes and snack bars that are designed to give our customers and their families options in their snacking choices that range from healthy to indulgent. We expect to contine increasing our participation and funding with trade associations and groups to focus on sustainability efforts while continuing to partner with farmers to further mitigate climate and other environmental risks.
(vi) Competition
Our nuts, snack bars, and other snack food products compete against products manufactured and sold by numerous other companies offering branded and private brand products in the snack food industry, some of whom are substantially larger and have greater resources than us. In the nut industry, we compete with, among others, Hormel Foods Corp. (Planters brand), Diamond brand and numerous regional snack food processors. In the snack bar industry, we compete with, among others, General Mills (Nature Valley brand), Frito Lay (Quaker brand), Mondelez (Clif brand), Kellonova (Nutragrain brand), Mars (Kind brand) as well as regional snack bar manufacturers. Competitive factors in our markets include price, product quality, customer service, breadth of product line, brand name awareness, method of distribution, sales promotion, category management, service level compliance and innovation. The combination of our generally vertically integrated operating model with respect to pecans, peanuts and walnuts, our product quality, product offering, brand strength, innovation, distribution model and our focus on nut, snack bar and nut related products generally enable us to compete in each of these categories; however there can be no guarantee that our products will continue to be competitive with many of our larger competitors. See Part I, Item 1A — “Risk Factors”.
(vii) Raw Materials and Supplies
We purchase nuts from domestic and foreign sources. In fiscal 2024, all of our walnuts, almonds and peanuts were purchased from domestic sources. We purchase our pecans from the southern United States and Mexico. Cashew nuts are imported from Vietnam and certain West African countries. For fiscal 2024, approximately 28% of the dollar value of our total nut purchases was from foreign sources.
Competition in the nut shelling industry is driven by shellers’ ability to access and purchase raw nuts, to shell the nuts efficiently and to sell the nuts to processors. We shell all major domestic nut types, with the exception of almonds, and are among a few select shellers who further process, package and sell nuts to the end-user. Raw material pricing pressure and the high cost of equipment automation have previously contributed to a consolidation among shellers across all nut types, especially peanuts and pecans.
As discussed, we are generally vertically integrated with respect to pecans, peanuts and walnuts. Unlike our major consumer distribution channel competitors who purchase nuts on the open market, we purchase a substantial portion of our pecans, peanuts and walnuts directly from growers.
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Due, in part, to the seasonal nature of the industry, we maintain significant inventories of peanuts, pecans and walnuts especially in the second and third quarters of our fiscal year. Fluctuations in the market price of pecans, peanuts and walnuts and other nuts may affect the value of our inventory and thus may also affect our gross profit and gross profit margin. See Part I, Item 1A — “Risk Factors”.
We purchase other inventory items and packaging materials such as roasting oils, seasonings, plastic jars, labels, wrappers, boxes, stand-up bags and composite and clear-plastic cans from other third parties. Material costs, including tree nuts, peanuts, other commodities, packaging and other edible ingredients represented approximately 72% of our total cost of sales for fiscal 2024.
(viii) Trademarks and Patents
We market our products primarily under name brands, including the Fisher, Orchard Valley Harvest, Squirrel Brand, Southern Style Nuts and Just the Cheese brand names. Fisher, Orchard Valley Harvest, Squirrel Brand, Southern Style Nuts and Just the Cheese are registered as trademarks with the U.S. Patent and Trademark Office as well as in various other foreign jurisdictions. We do not own any trademarks for any private brands. Those trademarks are owned by the respective private brand customer. Our trademarks are important as they provide our customers with information about the quality of our products. However, registration and use of our trademarks in foreign jurisdictions may be subject to certain risks in addition to other risks generally related to our intellectual property. See Part I, Item 1A — “Risk Factors”. We also own several patents of various durations. For the foreseeable future, we expect to continue to renew those trademarks that are important to our business as well as expand registration of our trademarks into new jurisdictions. We intend to protect our intellectual property rights vigorously.
(ix) Human Capital
As of June 27, 2024, we had approximately 1,800 full-time employees.
We recognize that, in order for our company to be successful, our employees must be healthy, well-trained and motivated to do their best every day. Therefore, we relentlessly focus on attracting, retaining and effectively engaging our employees. The key aspects of our human resources program and objectives are as follows:
Health and Safety : As a producer, manufacturer and processor of nuts, nut-related products and snack bars, we are subject to extensive food and employee safety laws and regulations. We place a high priority on employee health and safety as part of our continuous improvement culture. Our total occupational injury rate remains in line with the food manufacturing industry average. We continue to enhance our safety programs by investing in systems and controls focused on injury and accident prevention, as well as risk elimination. During fiscal 2024, we continued focusing on refining our programs, including lock-out tag-out, forklift training and emergency evacuation, which help us to reduce safety risks, along with enhancing machine guarding on our manufacturing lines to increase employee safety. We believe properly prioritizing risks and addressing the most critical safety matters helps us to be proactive in building a sustainable safety culture.
Diversity, Equity and Inclusion: We recognize that our business is stronger and more successful when supported by a diverse workforce. Our goal is to maintain and promote diversity among our employees, foster an inclusive and equitable environment where differences are celebrated and provide adequate support to achieve our goal. In fiscal 2024, our Diversity, Equity and Inclusion council organized various events facilitated through our Employee Resource Groups. Our leadership team also completed equity training to learn inclusive communication strategies to further advance equity and inclusion in the workplace.
Training, Development and Promotion: We believe that training, developing and promoting our employees is an important part of our vibrant employee culture. These measures enhance our performance and are an important component of maintaining employee satisfaction. We offer training to our employees on a variety of subjects related to professional development, workplace fundamentals, business, computer applications and industry specific subjects such as our Nutology-101 courses. In fiscal 2024, 34 employees participated in our Leadership Development program. As a result of the program many participants were able to move into roles of increasing responsibility with us. In fiscal 2024, approximately 15% of our employees received promotions and a promotion-related salary increases. We also conduct annual mandatory training for all employees covering topics such as food safety, workplace safety and various regulatory and compliance related subjects. Our mentorship program pairs emerging talent with executive leadership, which is designed to broaden talent networks, increase exposure to cross-functional initiatives and build leadership competencies. In fiscal 2024, we introduced our new leadership competency matrix, highlighting a variety of skills, capabilities and behaviors, that is designed to help us develop impactful leaders and better measure leadership effectiveness.
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Employee Engagement: In fiscal 2024, we continued to focus on employee engagement and retention. We believe that credible leadership drives engagement and promotes retention. Therefore, we purposefully continue to emphasize the importance of being an effective leader and offer various leadership training courses to our management team. In fiscal 2024, all people managers had an annual goal of being an inclusive and engaging leader, which was measured by the leadership engagement score obtained through the annual employee engagement survey. Additionally, we periodically conduct employee surveys to monitor employee satisfaction, engagement and concerns.
Employee Rewards: Through our Sanfilippo Value Added (“SVA”) and Total Team Performance (“TTP”) incentive programs, we provide annual cash bonus opportunities to motivate and reward our employees, as well as align their interests with those of our stockholders. Employees participate in the SVA or TTP program, not both. Approximately 17% of our employees participate in the SVA program and approximately 67% participate in the TTP program. In addition, approximately 15% of our employees received special discretionary bonuses, primarily related to our acquisition, integration and optimization of the Lakeville snack bar business. In addition to the SVA and TTP incentive programs, we offer annual sales incentives to our sales and marketing employees and annual monetary leadership awards to our top performers across all functions. We are also proud to offer a comprehensive and competitive benefits package designed to meet the diverse needs of our employees at every stage of life, which includes a company-sponsored healthcare program, a student loan repayment program, a 401(k) program with a generous company matching contribution and a non-qualified deferred compensation plan to provide executives with the opportunity to accumulate assets for retirement on a tax-deferred basis. In fiscal 2024, we enhanced our 401(k) program by introducing a Roth 401(k) option. We continue to closely monitor the competitiveness of our compensation programs. In fiscal 2024, more than 92% of our employees received wage adjustments.
Codes of Conduct; Oversight of Concerns: We maintain codes of conduct and ethics policies designed to promote ethical conduct of our employees and agents. We have also implemented a robust program to address employee concerns and complaints, which includes an anonymous incident reporting system, periodic employee surveys and suggestion boxes that can result in monetary awards. Our employees are made aware of such reporting system through various communication methods, including assurances against retaliation. We regularly monitor best practices in this area to ensure our policies and practices are updated as appropriate.
(x) Seasonality
Our business is seasonal. Demand for peanut and tree nut products is highest during the last four months of the calendar year. Peanuts, pecans and walnuts, three of our principal raw materials, are primarily purchased between September and February and are processed throughout the year until the following harvest. Demand for snack bars is the highest during our first fiscal quarter. As a result of this seasonality, our personnel requirements rise during the first half of our fiscal year. Our working capital requirements generally peak during the third quarter of our fiscal year.
(xi) Government Regulations, Operating Hazards and Uninsured Risks
The sale of food products for human consumption involves the risk of injury to consumers as a result of product contamination or spoilage, including the presence of shell fragments, foreign objects, insects, foreign substances, pathogens, chemicals, mycotoxins and other hazards, or agents or residues introduced during the growing, storage, handling, processing or transportation phases. We (i) maintain what we believe to be rigid quality control standards and food safety systems that is evident in our annual Safe Quality Food (“SQF”) certification at each manufacturing facility; (ii) generally inspect our nut and other food products by visual examination, screening, metal detectors or electronic monitors at various stages of our shelling and processing operations; (iii) work with the United States Department of Agriculture (“USDA”) in its inspection of peanuts shipped to and from our peanut shelling facilities; (iv) maintain robust environmental pathogen programs; (v) seek to comply with the Nutrition Labeling and Education Act by labeling each product that we sell with labels that disclose the nutritional value and content of each of our products and (vi) assure compliance with the United States Food and Drug Administration (“FDA”) Food Safety Modernization Act (“FSMA”) through our comprehensive Food Safety Plans which include following Current Good Manufacturing Practices and control biological, chemical and physical hazards through our Process, Sanitation, Allergen and Supply Chain Preventive Controls. However, no assurance can be given that some nut or other food products sold by us may not contain or develop harmful substances. In order to mitigate this risk, we strive to select high-quality nut and ingredient suppliers as well as maintain product liability and contaminated product insurance at amounts we believe are adequate in light of our operations. A portion of our annual capital expenditure budget is allocated for compliance with government-mandated food safety standards. Compliance with food safety standards and other government regulations may have an impact on our operations and earnings, particularly if we fail to satisfy such standards or regulations and our products are recalled, harm our consumers or harm our Company’s reputation and standing as a leader of branded and private brand nut, snack bars, and other snack products. See Part I, Item 1A — “Risk Factors”.
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