Sanfilippo John B & Son Inc: Form 10-Q for the period ended Dec 26, 2024

OVERVIEW

The following discussion and analysis should be read in conjunction with the unaudited Consolidated Financial Statements and the Notes to Consolidated Financial Statements.

Our fiscal year ends on the final Thursday of June each year, and typically consists of fifty-two weeks (four thirteen-week quarters). Additional information on the comparability of the periods presented is as follows:

• References herein to fiscal 2025 and fiscal 2024 are to the fiscal year ending June 26, 2025 and the fiscal year ended June 27, 2024, respectively.
• References herein to the second quarter of fiscal 2025 and fiscal 2024 are to the quarters ended December 26, 2024 and December 28, 2023, respectively.
• References herein to the first three quarters or first twenty-six weeks of fiscal 2025 and fiscal 2024 are to the twenty-six weeks ended December 26, 2024 and December 28, 2023, respectively.

As used herein, unless the context otherwise indicates, the terms “we”, “us”, “our” or “Company” collectively refer to John B. Sanfilippo & Son, Inc. and our wholly-owned subsidiary, JBSS Ventures, LLC.

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. We also offer our private brand customers a complete portfolio of snack and nutrition 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, sesame sticks, other sesame snack products and baked cheese snack products under our brand names, including Just the Cheese, and under private brands. We distribute our products in the consumer, commercial ingredients and contract manufacturing distribution channels.

Our Long-Range Plan defines our future growth priorities and focuses on growing our private brand business across key customers, as well as transforming Fisher, Orchard Valley Harvest and Squirrel Brand into leading brands while increasing distribution and diversifying our portfolio into high growth snacking segments. We will execute on our Long-Range Plan by providing our private brand customers value-added solutions and innovative products based on our extensive industry and consumer expertise, such as our newly developed product line of private brand nutrition bars. We will focus on growing our branded business by reaching new consumers via product expansion and packaging innovation, expanding distribution across current and alternative channels, diversifying our product offerings and focusing on new ways for consumers to buy our products, including sales via e-commerce platforms. Our Long-Range Plan also contemplates increasing our sales through product innovation and targeted, opportunistic acquisitions, such as the acquisition of certain snack bar assets including inventory, product formulas, a manufacturing facility and related equipment located in Lakeville, Minnesota, (the “Lakeville Acquisition”) which we completed the first day of the second quarter of fiscal 2024. The Lakeville Acquisition expanded our ability to produce private brand snack bars, increased our overall production capabilities and allows us to provide our private brand customers with a complete snack bar portfolio. In addition, we also acquired additional snack bar production assets in the first quarter of fiscal 2025 that will expand our manufacturing capacity and support further growth in our bar business. Beginning in the current fiscal quarter and continuing into the next fiscal year, we plan to allocate significant additional capital to purchase new equipment (and incur related expenses) in order to further expand our production capabilities, increase our efficiency and enhance our product offerings for our customers.

We will continue to focus our promotional and advertising activity to invest in our brands to achieve sales volume growth. We intend to execute on an omnichannel approach to win in key categories including recipe nuts, snack nuts, trail mix and other snacking categories. We continue to see e-commerce sales volume growth across our branded portfolio and anticipate taking various actions with the goal of maintaining that growth across a variety of established e-commerce platforms. We continue to face the ongoing challenges and/or regulations specific to our business, such as food safety and regulatory matters, the maintenance and growth of our customer base and overall category growth for branded and private brand products and varying consumer demand for nut and nut-related products and snack bars in a challenging snack food environment.

We face a number of challenges in the future, which include the impacts of higher prices in food, in part due to underlying commodity acquisition costs, uncertainty over interest rates that may negatively impact economic growth, consumers reducing their snack purchases, including branded nut products or products with lower gross profit margin, potential for economic downturn in the markets in which we operate and supply chain challenges. To stay compliant with recent changes in employment laws across states where we operate and remain competitive in attracting qualified talent, we expect our labor costs to continue to increase in the 2025 fiscal year and beyond.

Inflation and Consumer Trends

We face changing industry trends as consumers' purchasing preferences evolve. We have continued to see higher selling prices at retail, with price increases starting to moderate for some products, including snack nuts and trail mix, and decrease for other products. While moderated, these higher prices across our categories and the broader food market, coupled with a potential economic downturn and tightening of consumer finances due to reduced government support through programs such as SNAP or a variety of other macroeconomic reasons, are causing consumers to purchase fewer snack products. We have seen sales volume stabilize for snack nuts, trail mix and snack bars while sales volume for recipe nuts has continued to decline given higher prices. Consumers continue to shift their preferences to private brands or lower priced nuts or snack bars or purchase snack products outside the snack nut, trail mix and snack bar categories. We are also seeing signs of consumers shifting to more value-focused retailers, such as mass merchandising retailers and club stores, not all of which we distribute or sell to. Additionally, the increased use and/or prevalence of certain weight loss drugs, which may suppress a person’s appetite and/or impact a person's preferences, may impact the demand or consumption patterns for certain of our products. We have responded by focusing on our strengths, including our knowledge of the snack and trail nut categories, product innovation and judicious use of trade spending and pricing actions.

Supply Chain and Transportation

Global supply chain pressures have eased compared to fiscal 2024, but pockets of challenges, delays and extended lead-times still exist. While we do not have direct exposure to suppliers in Russia, Ukraine or Israel, the conflicts and prospects for conflict in these regions could continue to result in volatile commodity markets, supply chain disruptions and increased costs. Overall packaging and ingredient inflation appears to be moderating or leveling off in the 2025 fiscal year. With the change in the presidential administration, there is a risk of new tariffs being levied on products we purchase from foreign countries such as China, Canada and Mexico. These tariffs could lead to an increase in the cost of certain raw materials we use in our business and our financial performance may be adversely impacted if we cannot pass on the cost increases in the form of price increases to our customers.

Trucking capacity continues to decline, potentially leading to further instability in the transportation industry in the 2025 fiscal year. While indicators suggest transportation prices are stabilizing, the overall transportation environment remains unpredictable.

Our most significant ingredient requirements include cocoa products, dried fruits, sweeteners, vegetable oils, oats, flour and dairy. Many of these materials and their associated costs are subject to price fluctuations from several factors, including changing commodity markets, other market conditions, demand for raw materials, weather, growing and harvesting conditions, climate change, energy costs, currency fluctuations, supplier capacities, governmental actions, import and export requirements (including tariffs), and on-going political instability and other factors beyond our control.

We have remained agile by proactively identifying risks, modifying inventory plans and diversifying our supplier base to mitigate risk of customer order shortages and maintain our supply chain. We continue to proactively manage our business in response to the evolving global economic environment and related uncertainty and intend to take steps to further mitigate impacts to our supply chain as they develop. If these supply chain pressures continue or worsen, or we cannot obtain the transportation and labor services needed to obtain raw materials or fulfill customer orders, such shortages and supply chain issues could have an unfavorable impact on net sales and our operations in the remainder of fiscal 2025. Furthermore, record cocoa prices have been fueled by a third-consecutive short crop in calendar 2024. Cocoa market prices have continued to be volatile and have reached new highs. Cocoa production was down significantly in Ivory Coast and Ghana due to a combination of inclement weather, crop disease and lack of farm investment. Despite higher cocoa prices, consumption remained strong, leading to predictions of a large production deficit. Additionally, as costs increase due to these circumstances or due to overall inflationary pressures, there is a further risk of our not being able to pass (in part or in full) such potential cost increases on to our customers or in a timely manner. If we cannot align costs with prices for our products, our financial performance could be adversely impacted.

QUARTERLY HIGHLIGHTS

Our net sales of $301.1 million for the second quarter of fiscal 2025 increased $9.8 million, or 3.4%, from our net sales of $291.2 million for the second quarter of fiscal 2024. Net sales for the first twenty-six weeks of fiscal 2025 increased by $51.9 million, or 9.9%, to $577.3 million compared to the first twenty-six weeks of fiscal 2024.

Sales volume, measured as pounds sold to customers, increased 7.1% compared to the second quarter of fiscal 2024. Sales volume for the first twenty-six weeks of fiscal 2025 increased 14.9% compared to the first twenty-six weeks of fiscal 2024.

Gross profit decreased $5.7 million, and our gross profit margin, as a percentage of net sales, decreased to 17.4% for the second quarter of fiscal 2025 compared to 19.9% for the second quarter of fiscal 2024. Gross profit decreased $16.2 million, and our gross profit margin decreased to 17.1% from 21.9% for the first twenty-six weeks of fiscal 2025 compared to the first twenty-six weeks of fiscal 2024.

Total operating expenses for the second quarter of fiscal 2025 increased by $2.5 million, or 8.4%, compared to the second quarter of fiscal 2024. As a percentage of net sales, total operating expenses in the second quarter of fiscal 2025 increased to 10.9% from 10.4% for the second quarter of fiscal 2024. Total operating expenses for the first twenty-six weeks of fiscal 2025 decreased by $0.4 million, or 0.6%, compared to the first twenty-six weeks of fiscal 2024. As a percentage of net sales, total operating expenses for the first twenty-six weeks of fiscal 2025 decreased to 10.8% from 12.0% for the first twenty-six weeks of fiscal 2024.

The total value of inventories on hand at the end of the second quarter of fiscal 2025 increased $8.5 million, or 4.3%, in comparison to the total value of inventories on hand at the end of the second quarter of fiscal 2024.

We have seen acquisition costs for walnuts increase significantly and cashew and pecan costs increase modestly, and we have seen acquisition costs for peanuts slightly decrease in the 2024 crop year (which falls into our current 2025 fiscal year). We completed procurement of inshell walnuts during the first half of fiscal 2025. During the third quarter, we will determine the final prices to be paid to the walnut growers based upon current market prices and other factors such as crop size and export demand. We have estimated the liability to our walnut growers and our walnut inventory costs using currently available information. Any difference between our estimated liability and the actual final liability will be determined during the third quarter of fiscal 2025 and will be recognized in our financial results at that time.

RESULTS OF OPERATIONS

Net Sales

In the second quarter of fiscal 2025, our net sales increased 3.4% to $301.1 million compared to net sales of $291.2 million for the second quarter of fiscal 2024. Sales volume, which is defined as pounds sold to customers, increased 7.1%. The weighted average sales price per pound decreased 3.4% primarily due to higher sales volume of lower priced snack bars, granola and private brand recipe nuts (pecans and walnuts). Additionally, strategic pricing decisions and competitive pricing pressures contributed to the overall decrease in weighted average selling price.

For the first twenty-six weeks of fiscal 2025 our net sales were $577.3 million, an increase of $51.9 million, or 9.9%, compared to the same period of fiscal 2024 primarily due to the Lakeville Acquisition. Excluding the fiscal 2025 first quarter's impact of the Lakeville Acquisition, net sales increased 2.2% to $536.8 million, which was primarily attributable to a 4.1% increase in sales volume which was offset by a 1.9% decrease in weighted average selling price per pound.

The following table summarizes sales by product type as a percentage of total gross sales. The information is based upon gross sales, rather than net sales, because certain adjustments, such as promotional discounts, are not allocable to product type.

The following table shows a comparison of net sales by distribution channel (dollars in thousands):

(1) Sales of branded products were approximately 21% and 22% of total consumer sales during the second quarter of fiscal 2025 and fiscal 2024, respectively. Fisher branded products were approximately 72% and 73% of branded sales during the second quarter of fiscal 2025 and fiscal 2024, respectively, with Orchard Valley Harvest branded products accounting for the majority of the remaining branded product sales.

The following table shows a comparison of net sales by distribution channel (dollars in thousands):

(1) Sales of branded products were approximately 19% and 21% of total consumer sales during the first twenty-six weeks of fiscal 2025 and fiscal 2024, respectively. Fisher branded products were approximately 66% and 69% of branded sales during the first twenty-six weeks of fiscal 2025 and fiscal 2024, respectively, with Orchard Valley Harvest branded products accounting for the majority of the remaining branded product sales.

Net sales in the consumer distribution channel increased $10.0 million, or 4.1%, and sales volume increased 2.9% in the second quarter of fiscal 2025 compared to the second quarter of fiscal 2024. The sales volume increase was driven by a 27.6% increase in bars volume due to a mass merchandising retailer returning to normalized inventory levels. In addition, the sales volume increase was due to higher sales volume of pecans, walnuts and snack and trail mix, mainly due to new distribution, which was partially offset by a sales volume decrease due to soft consumer demand, as well as downsized pack sizes and the discontinuation of peanut butter, all at the same mass merchandising retailer. Furthermore, this sales volume increase was also partially offset by soft consumer demand and decreased seasonal nut and trail mix volume at another mass merchandising retailer. Sales volume of Fisher recipe nuts increased 3.8% due to increased merchandising activity at several customers. Sales volume of Southern Style Nuts increased 11.8% due to the return normalized inventory levels and increased sales velocity at a club store customer.

In the first twenty-six weeks of fiscal 2025, net sales in the consumer distribution channel increased $55.0 million, or 12.9%, and sales volume increased 15.0% compared to the same period of fiscal 2024 due to the Lakeville Acquisition. Excluding the fiscal 2025 first quarter's impact of the Lakeville Acquisition, net sales in the consumer distribution channel increased $17.3 million, or 4.1%, and sales volume increased 3.1%. Private brand sales volume increased 18.0% largely due to the Lakeville Acquisition. Excluding the fiscal 2025 first quarter's impact of the Lakeville Acquisition, private brand sales volume increased 3.9% due to growth in bars from a mass merchandising retailer returning to normalized inventory levels. These increases were partially offset by soft consumer demand at another mass merchandising retailer, in addition to decreased seasonal nut and trail mix volume.

Net sales in the commercial ingredients distribution channel decreased $1.1 million, or 4.1%, and sales volume increased 1.4% in the second quarter of fiscal 2025 compared to the second quarter of fiscal 2024. The sales volume increase was primarily driven by higher sales of peanut crushing stock to peanut oil processors and higher sales from new distribution to a foodservice customer, partially offset by lost business to another customer.

In the first twenty-six weeks of fiscal 2025, net sales in the commercial ingredients distribution channel decreased $2.4 million, or 4.2%, and sales volume increased 1.3% compared to the same period of fiscal 2024. Excluding the fiscal 2025 first quarter's impact of the Lakeville Acquisition, net sales in the commercial ingredients channel decreased $2.6 million, or 4.7%, and sales volume increased 0.4%. The net sales decrease was due to lost business at a customer and the sales volume increase was attributable to the same reasons cited in the quarterly comparison.

Net sales in the contract manufacturing distribution channel increased $1.0 million, or 4.4%, and sales volume increased 55.6% in the second quarter of fiscal 2025 compared to the second quarter of fiscal 2024. The increase in sales volume was due to increased granola volume processed in our Lakeville facility. This increase was partially offset by reduced peanut and cashews sales volume to a major customer due to soft consumer demand.

In the first twenty-six weeks of fiscal 2025, net sales in the contract manufacturing distribution channel decreased $0.8 million, or 1.7%, and sales volume increased 34.4% compared to the same period of fiscal 2024. The sales volume increase was due to increased granola volume. Excluding the fiscal 2025 first quarter's impact of the Lakeville Acquisition, net sales in the contract manufacturing channel decreased $3.1 million, or 7.3%, and sales volume increased 17.8% for the reason cited in the quarterly comparison.

Gross Profit

Gross profit decreased by $5.7 million, or 9.8%, to $52.3 million for the second quarter of fiscal 2025 compared to $57.9 million for the second quarter of fiscal 2024. The decrease in gross profit was due to lower selling prices caused by competitive pricing pressures and strategic pricing decisions along with higher commodity acquisition costs for most tree nuts. This decrease was partially offset by improved profitability of bars due to operational efficiencies we implemented since the Lakeville Acquisition last year. Our gross profit margin, as a percentage of net sales, decreased to 17.4% for the second quarter of fiscal 2025 compared to 19.9% for the second quarter of fiscal 2024.

Gross profit was $98.8 million for the first twenty-six weeks of fiscal 2025 compared to $115.0 million for the first twenty-six weeks of fiscal 2024 for the same reason cited in the quarterly comparison. Our gross profit margin, as a percentage of net sales, decreased to 17.1% for the first twenty-six weeks of fiscal 2025 compared to 21.9% for the first twenty-six weeks of fiscal 2024.

Operating Expenses

Total operating expenses for the second quarter of fiscal 2025 increased by $2.5 million, or 8.4%, to $32.9 million. Operating expenses increased to 10.9% of net sales for the second quarter of fiscal 2025 compared to 10.4% of net sales for the second quarter of fiscal 2024. The increase in total operating expenses is net of the $2.2 million net gain on bargain purchase that occurred in the second quarter of fiscal 2024 due to the Lakeville Acquisition.

Selling expenses for the second quarter of fiscal 2025 were $22.6 million, an increase of $1.6 million, or 7.7%, from the second quarter of fiscal 2024. The increase was driven by a $1.0 million increase in rent expense related to our new Huntley facility lease, a $0.9 million increase in freight expense and a $0.6 million increase in compensation-related expenses. These increases were partially offset by a $0.6 million decrease in incentive compensation expense.

Administrative expenses for the second quarter of fiscal 2025 decreased $1.3 million, or 11.3%, to $10.3 million compared to $11.6 million for the second quarter of fiscal 2024. The decrease was due to a $1.0 million decrease in incentive compensation expense and a $0.4 million decrease in consulting expense, primarily related to the prior year Lakeville Acquisition.

Total operating expenses for the first twenty-six weeks of fiscal 2025 decreased by $0.4 million, or 0.6%, to $62.4 million. Operating expenses decreased to 10.8% of net sales for the first twenty-six weeks of fiscal 2025 compared to 12.0% of net sales for the first twenty-six weeks of fiscal 2024. The decrease in total operating expenses is net of the $2.2 million net gain on bargain purchase that occurred in the second quarter of fiscal 2024 due to the Lakeville Acquisition.

Selling expenses for the first twenty-six weeks of fiscal 2025 were $42.5 million, a decrease of $0.5 million, or 1.2%, from the first twenty-six weeks of fiscal 2024. The decrease was driven primarily by a $4.0 million decrease in advertising and consumer insight research expense, and a $1.5 million decrease in incentive compensation expense. These decreases were largely offset by a $2.0 million increase in rent expense related to our new Huntley facility lease, a $1.8 million increase in freight expense due to an increase in delivered sales pounds, and a $1.1 million increase in compensation-related expenses.

Administrative expenses for the first twenty-six weeks of fiscal 2025 decreased $2.1 million, or 9.3%, to $20.0 million compared the first twenty-six weeks of fiscal 2024. The decrease was primarily due to a $2.5 million decrease in incentive compensation expense and a $0.7 million decrease in legal expenses, primarily related to the Lakeville Acquisition. These were partially offset by a $0.4 million increase in equity compensation expense due to more retirement-eligible award recipients and a $0.5 million increase in loss on asset disposals.

Income from Operations

Due to the factors discussed above, income from operations was $19.4 million, or 6.4% of net sales, for the second quarter of fiscal 2025 compared to $27.6 million, or 9.5% of net sales, for the second quarter of fiscal 2024.

Due to the factors discussed above, income from operations was $36.4 million, or 6.3% of net sales, for the first twenty-six weeks of fiscal 2025 compared to $52.2 million, or 9.9% of net sales, for the first twenty-six weeks of fiscal 2024.

Interest Expense

Interest expense was $0.8 million for the second quarter of fiscal 2025 compared to $1.1 million for the second quarter of fiscal 2024.

Interest expense was $1.3 million for both the first twenty-six weeks of fiscal 2025 and fiscal 2024.

Rental and Miscellaneous Expense, Net

Net rental and miscellaneous expense was $0.3 million for both the second quarter of fiscal 2025 and fiscal 2024.

Net rental and miscellaneous expense was $0.8 million for the first twenty-six weeks of fiscal 2025 and $0.6 million for the first twenty-six weeks of fiscal 2024.

Pension Expense (Excluding Service Costs)

Pension expense (excluding service costs) was $0.4 million for both the second quarter of fiscal 2025 and fiscal 2024 and $0.7 million for both the first twenty-six weeks of fiscal 2025 and fiscal 2024.

Income Tax Expense

Income tax expense was $4.3 million, or 24.0% of income before income taxes (“effective tax rate”), for the second quarter of fiscal 2025 compared to $6.8 million, or 26.1% of income before income taxes, for the second quarter of fiscal 2024. The decrease in the effective tax rate is primarily due to a larger than anticipated research and development credit for the current fiscal year. Additionally, there is a reduction in the disallowed deduction related to officer compensation. These factors, along with the impact of lower pretax income, contributed to the decrease in effective tax rate.

Income tax expense was $8.4 million, or 24.9% of income before income taxes, for the first twenty-six weeks of fiscal 2025 compared to $12.8 million, or 25.9% of income before income taxes, for the first twenty-six weeks of fiscal 2024.

Net Income

Net income was $13.6 million, or $1.17 per common share basic and $1.16 per common share diluted, for the second quarter of fiscal 2025, compared to $19.2 million, or $1.65 per common share basic and $1.64 per common share diluted, for the second quarter of fiscal 2024.

Net income was $25.3 million, or $2.17 per common share basic and $2.16 per common share diluted, for the first twenty-six weeks of fiscal 2025, compared to $36.8 million, or $3.17 per common share basic and $3.15 per common share diluted, for the first twenty-six weeks of fiscal 2024.

LIQUIDITY AND CAPITAL RESOURCES

General

The primary uses of cash are to fund our current operations, fulfill contractual obligations, pursue our Long-Range Plan through growing our branded and private brand programs, modernize and expand our equipment, consummate and integrate business acquisitions, return cash to our stockholders through dividends, repay indebtedness and pay amounts owed under the Retirement Plan. Also, various uncertainties, including cost uncertainties, could result in additional uses of cash. The primary sources of cash are results of operations and availability under our Credit Facility. Beginning in the current fiscal quarter and continuing into the next fiscal year, we plan to invest approximately $90.0 million in capital expenditures (and related expenses) to acquire and install equipment, and make related infrastructure improvements to expand our production capabilities, increase our efficiency, and further enhance our product offerings to our customers. We intend to obtain one or more equipment loans to finance a portion of this capital investment, and for the remainder we may fund with borrowings under our Credit Facility and/or use available cash generated from our operations. We anticipate that expected net cash flow generated from operations and amounts available pursuant to the Credit Facility and the aforementioned equipment loan or loans will be sufficient to fund our operations and capital expenditures for the next twelve months. Our available credit under our Credit Facility has allowed us to devote more funds to promote our products, increase consumer insight capabilities and promotional efforts, reinvest in the Company through capital expenditures, develop new products, pay cash dividends, consummate strategic investments and business acquisitions, such as the Lakeville Acquisition, and explore and pursue other growth strategies outlined in our Long-Range Plan.

Cash flows from operating activities have historically been driven by net income but are also significantly influenced by inventory requirements, which can change based upon fluctuations in both quantities and market prices of the various nuts and nut products we buy and sell. Current market trends in nut prices and crop estimates also impact nut procurement.

The following table sets forth certain cash flow information for the first half of fiscal 2025 and 2024, respectively (dollars in thousands):

Operating Activities Net cash provided by operating activities was $19.9 million for the first twenty-six weeks of fiscal 2025 compared to net cash provided by operating activities of $61.2 million for the comparative period of fiscal 2024. The decrease in operating cash flow was primarily due to changes in working capital and a lower net income.

Total inventories were $205.8 million at December 26, 2024, an increase of $9.3 million, or 4.7%, from the inventory balance at June 27, 2024, and an increase of $8.5 million, or 4.3%, from the inventory balance at December 28, 2023. The increase in inventories at December 26, 2024 compared to December 28, 2023 was primarily due to higher commodity acquisition cost for almost all major tree nuts and chocolate as well as higher on hand quantities of almonds and cashews. These increases were partially offset by decreased snack bar related inventory.

Raw nut and dried fruit input stocks, some of which are classified as work-in-process, decreased by 4.9 million pounds, or 7.6%, at December 26, 2024 compared to December 28, 2023 due to lower quantities of walnuts, pecans and peanuts on hand partially offset by higher quantities of almonds and cashews on hand. The weighted average cost per pound of raw nut input stocks on hand at the end of the second quarter of fiscal 2025 increased 33.7% compared to the end of the second quarter of fiscal 2024 primarily due to higher commodity acquisition costs for almost all major tree nuts.

Investing Activities Cash used in investing activities was $25.6 million during the first twenty-six weeks of fiscal 2025 compared to $69.9 million for the same period last year. The decrease in cash used in investing activities was primarily due to the $59.0 million net purchase price for the Lakeville Acquisition in second quarter of fiscal 2024. Capital asset purchases were $25.5 million during the first twenty-six weeks of fiscal 2025 compared to $10.9 million for the first twenty-six weeks of fiscal 2024. We expect total capital expenditures for new equipment, including progress payments, facility upgrades and food safety enhancements to be approximately $65.0 million for fiscal 2025. A significant amount of the fiscal 2025 capital expenditures will be for the planned purchase of equipment to expand our production capabilities and related infrastructure improvements as described above. We expect to fund these capital purchases through a combination of borrowings under our existing Credit Facility, use of available cash from our operations and equipment loans expected to be incurred in the second half of fiscal 2025. Absent any additional material acquisitions or other significant investments, we believe that cash on hand, combined with cash provided by operations, borrowings available under the Credit Facility and equipment financing, will be sufficient to meet the cash requirements for planned capital expenditures.

Financing Activities Cash provided by financing activities was $5.6 million during the first twenty-six weeks of fiscal 2025 compared to $8.8 million for the same period last year. Net borrowings under our Credit Facility were $29.3 million during the first twenty-six weeks of fiscal 2025 compared to $32.1 million for the first twenty-six weeks of fiscal 2024. Dividends paid in the first twenty-six weeks of fiscal 2025 were approximately $1.2 million more than dividends paid in the same period last year.

Real Estate Matters

In August 2008, we completed the consolidation of our Chicago-based facilities into our Elgin headquarters (“Elgin Site”). The Elgin Site includes both an office building and a warehouse. We are currently attempting to find additional tenants for the available space in the office building at the Elgin Site. Until additional tenant(s) are found, we will not receive the benefit of rental income associated with such space. Approximately 68% of the rentable area in the office building is currently vacant. Approximately 29% of the rentable area has not been built-out. There can be no assurance that we will be able to lease the unoccupied space and further capital expenditures will likely be necessary to lease the remaining space.

In April 2024, the Company executed a 7.5 year lease for approximately 445,000 square feet of warehouse space. The warehouse is located in Huntley, IL near the Elgin Site and is utilized to store finished goods inventory and as a distribution center.

Financing Arrangements

On February 7, 2008, we entered into the Former Credit Agreement (as defined below) with a bank group (the “Bank Lenders”) providing a $117.5 million revolving loan commitment and letter of credit subfacility.

On March 5, 2020, we entered into an Amended and Restated Credit Agreement (the “Amended and Restated Credit Agreement”) which amended and restated our Credit Agreement (the “Former Credit Agreement”) with bank lenders. The Amended and Restated Credit Agreement provided for a $117.5 million senior secured revolving credit facility with the same borrowing capacity, interest rates and applicable margin as the Former Credit Agreement and extended the term of the Former Credit Agreement from July 7, 2021 to March 5, 2025.

On May 8, 2023, we entered into the First Amendment to our Amended and Restated Credit Facility (the “First Amendment”) which replaced the London interbank offered rate interest rate option with the Secured Overnight Financing Rate (“SOFR”). The First Amendment updated the accrued interest rate to a rate based on SOFR plus an applicable margin based upon the borrowing base calculation, ranging from 1.35% to 1.85%.

On September 29, 2023, we entered into the Second Amendment to our Amended and Restated Credit Facility (the “Second Amendment”) which, among other things, increased the amount available to borrow under the Credit Facility to $150.0 million, extended the maturity date to September 29, 2028 and allows the Company to pay up to $100 million in dividends per year, subject to meeting availability tests.

The Amended and Restated Credit Facility is secured by our accounts receivable and inventory.

Credit Facility

At our election, borrowings under the Credit Facility currently accrue interest at either (i) a rate determined pursuant to the administrative agent’s prime rate plus an applicable margin determined by reference to the amount of loans which may be advanced under the borrowing base calculation, ranging from 0.25% to 0.75% or (ii) a rate based on SOFR plus an applicable margin as noted above.

At December 26, 2024, the weighted average interest rate for the Credit Facility was 6.7%. The terms of the Credit Facility contain covenants that, among other things, require us to restrict investments, indebtedness, acquisitions and certain sales of assets and limit annual cash dividends or distributions, transactions with affiliates, redemptions of capital stock and prepayment of indebtedness (if such prepayment, among other things, is of a subordinate debt). If loan availability under the borrowing base calculation falls below $25.0 million, we will be required to maintain a specified fixed charge coverage ratio, tested on a monthly basis, until loan availability equals or exceeds $25.0 million for three consecutive months. All cash received from customers is required to be applied against the Credit Facility. The Bank Lenders have the option to accelerate and demand immediate repayment of our obligations under the Credit Facility in the event of default on the payments required under the Credit Facility, a change in control in the ownership of the Company, non-compliance with the financial covenant or upon the occurrence of other defaults by us under the Credit Facility. As of December 26, 2024, we were in compliance with all covenants under the Credit Facility and we currently expect to be in compliance with the financial covenant in the Credit Facility for the foreseeable future. At December 26, 2024, we had $95.6 million of available credit under the Credit Facility. If this entire amount were borrowed at December 26, 2024, we would still be in compliance with all restrictive covenants under the Credit Facility.

Selma Property

In September 2006, we sold our Selma, Texas properties (the “Selma Properties”) to two related party partnerships for $14.3 million and are leasing them back. The selling price was determined by an independent appraiser to be the fair market value which also approximated our carrying value. The lease for the Selma Properties has a ten-year term at a fair market value rent with three five-year renewal options. In September 2015, we exercised two of the five-year renewal options which extended the lease term to September 2026. The lease extension also reduced the monthly lease payment on the Selma Properties, beginning in September 2016, to reflect then current market conditions. At the end of each five-year renewal option, the base monthly lease amounts are reassessed, and the monthly payments increased to $114 beginning in September 2021. One five-year renewal option remains. Also, we have an option to purchase the Selma Properties from the owner at 95% (100% in certain circumstances) of the then fair market value, but not less than the original $14.3 million purchase price. The provisions of the arrangement are not eligible for sale-leaseback accounting and the $14.3 million was recorded as a debt obligation. No gain or loss was recorded on the Selma Properties transaction. As of December 26, 2024, $6.8 million of the debt obligation was outstanding.

Critical Accounting Policies and Estimates

For information regarding our Critical Accounting Policies and Estimates, see the “Critical Accounting Policies and Estimates” section of “Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Form 10-K for the fiscal year ended June 27, 2024.

Recent Accounting Pronouncements

Refer to Note 12 – “Recent Accounting Pronouncements” of the Notes to Consolidated Financial Statements, contained in Part I, Item 1 of this form 10-Q, for a discussion of recently issued and adopted accounting pronouncements.

FORWARD LOOKING STATEMENTS

Some of the statements in this release are forward-looking. These forward-looking statements may be generally identified by the use of forward-looking words and phrases such as “will”, “intends”, “may”, “believes”, “anticipates”, “should” and “expects” and are based on the Company’s current expectations or beliefs concerning future events and involve risks and uncertainties. Consequently, the Company’s actual results could differ materially. The Company undertakes no obligation to update publicly or otherwise revise any forward-looking statements, whether as a result of new information, future events or other factors that affect the subject of these statements, except where expressly required to do so by law. Among the factors that could cause results to differ materially from current expectations are: (i) sales activity for the Company’s products, such as a decline in sales to one or more key customers, or to customers or in the nut category generally, in some or all channels, a change in product mix to lower price products, a decline in sales of private brand products or changing consumer preferences, including a shift from higher margin products to lower margin products; (ii) changes in the availability and costs of raw materials and ingredients and the impact of fixed price commitments with customers; (iii) the ability to pass on price increases to customers if commodity costs rise and the potential for a negative impact on demand for, and sales of, our products from price increases; (iv) the ability to measure and estimate bulk inventory, fluctuations in the value and quantity of the Company’s nut inventories due to fluctuations in the market prices of nuts and bulk inventory estimation adjustments, respectively; (v) the Company’s ability to appropriately respond to, or lessen the negative impact of, competitive and pricing pressures; (vi) losses associated with product recalls, product contamination, food labeling or other food safety issues, or the potential for lost sales or product liability if customers lose confidence in the safety of the Company’s products or in nuts or nut products in general, or are harmed as a result of using the Company’s products; (vii) the ability of the Company to control costs (including inflationary costs) and manage shortages or other disruptions in areas such as inputs, transportation and labor; (viii) uncertainty in economic conditions, including the potential for inflation or economic downturn leading to decreased consumer demand; (ix) the timing and occurrence (or nonoccurrence) of other transactions and events which may be subject to circumstances beyond the Company’s control; (x) the adverse effect of labor unrest or disputes, litigation and/or legal settlements, including potential unfavorable outcomes exceeding any amounts accrued; (xi) losses due to significant disruptions at any of our production or processing facilities or employee unavailability due to labor shortages; (xii) the ability to implement our Long-Range Plan, including growing our branded and private brand product sales, diversifying our product offerings (including by the launch of new products) and expanding into alternative sales channels; (xiii) technology disruptions or failures or the occurrence of cybersecurity incidents or breaches; (xiv) the inability to protect the Company’s brand value, intellectual property or avoid intellectual property disputes; (xv) our ability to manage the impacts of changing weather patterns on raw material availability due to climate change; and (xvi) our ability to operate the acquired snack bar related assets of TreeHouse and realize efficiencies and synergies from such acquisition.

There has been no material change in our assessment of our sensitivity to market risk since our presentation set forth in Part I - Item 7A “Quantitative and Qualitative Disclosures About Market Risk,” in our Annual Report on Form 10-K for the fiscal year ended June 27, 2024.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of December 26, 2024. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of December 26, 2024, the Company’s disclosure controls and procedures were effective.

In connection with the evaluation by our management, including our Chief Executive Officer and Chief Financial Officer, there were no changes in our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the quarter ended December 26, 2024 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

In addition to the other information set forth in this report on Form 10-Q, you should also consider the factors, risks and uncertainties which could materially affect our Company’s business, financial condition or future results as discussed in Part I, Item 1A – “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended June 27, 2024. Other than noted below, there were no significant changes to the risk factors identified on the Form 10-K for the fiscal year ended June 27, 2024 during the first twenty-six weeks of fiscal 2025.

Increases in Labor Costs or Work Stoppages, Strikes or Other Labor Events Could Materially and Adversely Affect Our Financial Condition and Results of Operations

As the number of our employees has grown, personnel costs, including the costs of medical and other employee health and welfare benefits, have increased. These costs can vary substantially as a result of an increase in the number, mix and experience of our employees and changes in health care and other employment-related laws. There are no assurances that we will succeed in reducing future increases in such costs, particularly if government regulations require us to change our health and welfare benefits, government regulations impose additional benefits or monitoring and compliance expenses, or we need to attract and retain additional qualified personnel or provide extra compensation due to other reasons. Increases in personnel costs can also be amplified by low unemployment rates, increased inflation, our preferences among workers in the labor market and general tight labor market conditions in any of the areas where we operate. Increases in labor costs at any of our suppliers, transportation providers, third parties that we do business with or third parties within our supply chain may also adversely impact the cost of our raw materials and other inputs and thus increase the cost of our products. Our inability to control such costs could materially and adversely affect our financial condition and results of operations.

Although we consider our labor relations to be good, if a significant number of our employees engaged in a work slowdown or stoppage, strike, boycott, or other type of labor unrest, it could impair our ability to source, manufacture and supply our products to customers. In addition, if there is a work slowdown or stoppage, strike, boycott or similar labor unrest event at a customer, supplier, transportation provider, road, port or dock, third party within our supply chain or government agency, it could similarly impact our ability to obtain raw materials, manufacture, ship, supply, or to otherwise provide our products to our customers. Any of these events could result in reduced sales and may distract our management from focusing on our business and strategic priorities. Any of these activities could materially and adversely affect our financial condition and results of operations.

See Part I, Item 2 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” in this Form 10-Q, and see Part II, Item 7 — “Management’s Discussion and Analysis of Financial Condition and

Results of Operations — Liquidity and Capital Resources” in the Company’s Annual Report on Form 10-K for the fiscal year ended June 27, 2024.