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Chuck Royce's Firm Cracks Position in Nut Distribution Company

Royce & Associates, the New York-based firm founded by renowned investor Chuck Royce (Trades, Portfolio) in 1972, disclosed on Wednesday it curbed its John B. Sanfilippo & Son Inc. (NASDAQ:JBSS) holding by 36.41%.

The firm, which specializes in small-cap companies, picks stocks based on an active, bottom-up, risk-conscious and fundamental approach. It also looks for value opportunities among companies trading at a discount to enterprise value.

According to GuruFocus Real-Time Picks, a Premium feature, the firm sold 474,751 shares of the Elgin, Illinois-based company on July 31. It now holds 829,075 shares total, representing 0.61% of the equity portfolio.

GuruFocus estimates the firm has gained 43% on the investment since the fourth quarter of 2012.

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The consumer packaged goods company, which processes and distributes nut products and other snacks, has a $906.56 million market cap and an enterprise value of $971.48 million; its shares were trading around $79.56 on Thursday with a price-earnings ratio of 27.06, a price-book ratio of 3.68 and a price-sales ratio of 1.06.

The Peter Lynch chart shows the stock is trading above its fair value, suggesting it is overpriced.

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On May 1, John B. Sanfilippo & Son released its third-quarter 2019 results. It posted earnings of 90 cents per share on $201.8 million in revenue. While net sales decreased 0.5% from the prior-year quarter on the back of lower prices for its products, sales volumes grew 3%.

In July, the company's board of directors declared a special dividend of $2.40 per share as well as a regular annual dividend of 60 cents per share. The special dividend payment will be made on Aug. 20 to shareholders of record as of Aug. 6.

John B. Sanfilippo's financial strength and profitability and growth were both rated 7 out of 10 by GuruFocus. In addition to having comfortable interest coverage, the company's robust Altman Z-Score of 6.92 indicates it is in good financial standing.

The company is also supported by an expanding operating margin, strong returns that outperform over half of its competitors and a moderate Piotroski F-Score of 6, which implies business conditions are stable. As a result of recording a slowdown in revenue per share growth over the past 12 months, the business predictability rank of 2.5 out of five stars is on watch. GuruFocus says companies with this rank typically see their stocks gain an average of 7.3% per year.

Despite trimming its position, Royce's firm is still the company's largest guru shareholder. Pioneer Investments (Trades, Portfolio), Mario Gabelli (Trades, Portfolio), Jim Simons (Trades, Portfolio)' Renaissance Technologies, Joel Greenblatt (Trades, Portfolio) and Paul Tudor Jones (Trades, Portfolio) also own the stock.

Portfolio composition and performance

The firm's $11.84 billion equity portfolio, which was composed of 1,136 stocks as of the end of the first quarter, is largely invested in the industrials and technology sectors.

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Other consumer packaged goods companies Royce's firm was invested in as of the end of the first quarter included Lancaster Colony Corp. (NASDAQ:LANC), Central Garden & Pet Co. (NASDAQ:CENT), SunOpta Inc. (NASDAQ:STKL), Coffee Holding Co. Inc. (NASDAQ:JVA) and Sanderson Farms Inc. (NASDAQ:SAFM).

According to the firm's website, the Royce Premier Fund slightly outperformed its benchmark in 2018 with a return of -10.4%. The Russell 2000 posted a -11% return.

Disclosure: No positions.

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This article first appeared on GuruFocus.