Berko: Sanfilippo, not San Pellegrino
Friday, February 08, 2013 7:00 AM
Dear Mr. Berko:
My dad purchased 25 shares of John B. Sanfilippo & Son Inc. in January 2004 at $48 a share. Dad doesn’t trust my broker’s advice, so he asked me to write to you for your opinion on this stock. Should he sell it or continue to hold it, hoping it will eventually return to $48 and he’ll break even? I know you may think I’m joking with you, but Dad, who is very hard of hearing, bought this stock because he thought the company produced San Pellegrino bottled water, which is imported from the province of Bergamo, Italy, where he was born. And so did I until I asked my broker about this stock last year. Dad doesn’t need the money, but he wants your advice.
G.L., Portland, Ore.
About 15 years ago, while traveling through northern Italy, I stayed at the Hotel Piazza Vecchia in Bergamo and paid $70 for a very nice room, which included a breakfast and bottles of San Pellegrino. That same year, I spent an evening at the Holiday Inn in Elgin, Ill. (home of John B. Sanfilippo & Son), paid $105 for my room, had breakfast at McDonald’s and was given a bottle of San Pellegrino at the meeting I attended. I preferred the Piazza Vecchia. The San Pellegrino water tastes better in northern Italy than it does in the U.S. and is a lot less expensive, too.
John B. Sanfilippo & Son Inc. (JBSS-$19.71) sells nuts, literally selling billions of those salted, gustable delights each year. Since 1922, when Grandpa John first opened his nut house, he, his sons and his grandsons have probably scooped and packaged enough nuts to fill the Grand Canyon, from ridge to ridge, with peanut butter. Last year, JBSS’ sales of raw and processed peanuts, pecans, pistachios, filberts, cashews, walnuts, almonds, pine nuts and peripheral products topped the $720 million mark. Today, devotees predict $1 billion in revenues by 2019. That’s a lotta nuts and lots of salt, too. JBSS also sells peanut butter, sunflower seeds, almond butter, sesame sticks, trail mixes, dried fruits, chocolate- and yogurt-coated products, and other savorous snacks. JBSS peddles all these delectables under the Fisher, Sunshine County and Orchard Valley names while packaging hosts of other nut products for large retailers, which are sold under the retailers’ private brand names. And the JBSS office water cooler is purified tap.
Revenue growth during the past decade has averaged about 5 percent annually, which is acceptable, but earnings tend to seesaw depending on the whims of the Sanfilippo and Valentine families, who run JBSS, and that’s not acceptable. I’m not convinced that the Sanfilippo and Valentine brothers are not running this 1,300-employee company as well as it could be run by a team of professional managers.
JBSS has 10.7 million shares outstanding, has a capitalization of $210 million, trades at roughly 10 times this year’s expected earnings of $2.03 per share and has a $19.49 per share book value. The Sanfilippo family trust owns 1.4 percent of the stock, which has nearly tripled its value in the past 12 months. However, JBSS doesn’t pay a dividend, and I doubt there’s enough juice in the JBSS income statement or balance sheet to double the stock price, which still wouldn’t be enough to make your dad whole. I don’t see a compelling reason to sell JBSS, nor do I see a compelling reason to buy the stock, though the shares have appreciated nicely in the past year. The share price is likely to be stagnant this year. I can’t imagine who would want to own a nut company that has operating margins of 5.7 percent and net profit margins of just 3 percent. So I doubt that the boards of Boeing, Verizon and Taco Bell are interested in owning JBSS.
Certainly, an enlightened management coup could better run JBSS and improve operating and net profit margins significantly enough to return the shares to your dad’s basis. Nestle, by the way, owns San Pellegrino.