We are in the middle of the best time of the year for nuts (and although Tom Gardner loves this time of year, I was not referring to him or his brother David). October, November, and of course December are the peak season for sales of pecans, almonds, walnuts, peanuts, and all of those wonderful high-protein nuts. Yum, yum!
However, poor margins for almonds crushed John B. Sanfilippo & Son (NASDAQ:JBSS) after earnings were announced in late October, and the stock price dropped to a low of $14 and change. Perhaps, heading into the holiday season, we should not be surprised by the rebound in the stock price -- up about 50% in the last 30 days.
A little before that October earnings announcement, it was reported that 40% of Georgia's pecan crop was destroyed by hurricane-produced storms. Prices for pecans are up considerably over last year. According to the Agriculture Department, the U.S. will produce about 189 million pounds of pecans, or about 33% less than last year. Will it help John B. Sanfilippo & Son? It is impossible to tell without knowing when it last stocked its pecan inventory and at what prices.
According to the latest 10-K, the period between August and February is when John B. Sanfilippo & Son buys most of the nuts that it will use for the year. And if it beefed up its pecan supplies earlier, or before the pecan announcement, this means it will enjoy some healthy pecan margins. But did it? Pecans make up about 20% of sales compared with about 12% for almonds; that's second only to peanuts.
I believe taking the time to really understand John B. Sanfilippo & Son's business could create some interesting trading opportunities. However, a warning to long-term investors: The company has a lot going against it. Higher retail prices don't always translate into higher profits. Powerful retail outlets continually pressure companies like John B. Sanfilippo & Son for lower prices, which, of course, shrink its margins.
I am guessing that the same forces that hurt the company last quarter will help it this quarter. This is the perfect time for it to maximize profits. John B. Sanfilippo & Son is a tough nut to crack, but it may hold interesting opportunities for those willing to research the business thoroughly. I find this an interesting study.
It is my opinion, however, that long-term investors should distance themselves from the company. Hurricanes (and all weather problems), high-pressure retailers, and limited knowledge of prices paid for inventory make John B. Sanfilippo & Son a risky choice for long-term Foolish investors.
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Fool contributor Tom Engle is TMF1000 on the Motley Fool discussion boards. He does not own any shares of the company mentioned here.
