Michael J. Valentine - Chief Financial Officer, Group President, Secretary and Director Jeffrey T. Sanfilippo - Chairman and Chief Executive Officer

A very good day to you, ladies and gentlemen. Welcome to the Quarter 3 2013 John B. Sanfilippo & Son, Inc. Earnings Conference Call. My name is Nancy, and I will be your operator for today. [Operator Instructions] I would now like to turn the call over to Mike Valentine, Chief Financial Officer. Please go ahead. Michael J. Valentine: Thank you, Nancy. First, we'd like to thank everyone on the call for participating in our quarterly conference call for the third quarter of our fiscal 2013. Before we start, we'd like to advise participants that we may make some forward-looking statements today. These statements are based on our current expectations and involve certain risks and uncertainties that are inherent in our business. The factors that could negatively impact our results are explained in the various SEC filings that we have made, including Forms 10-K and 10-Q. We encourage investors to refer to these filings, including our third quarter 10-Q, which was filed last night, to learn more about these risks and uncertainties. Starting with the income statement. Net income in the quarterly comparison decreased by $1.1 million. When considering this decrease, investors should note that $800,000 of this decrease is attributable to an increase in income tax expense on the taxable gain that we recognized for the sale of our ARMA Energy snack brand to an investment in ARMA Energy Incorporated. We did not record a gain on this transaction for accounting purposes. The current quarter net sales increased by 6.5% to $163.8 million from $153.8 million for the third quarter of fiscal 2012. The increase in net sales was attributable to a 15.6% increase in sales volume, which is measured in pounds sold to customers. Sales volume increased by double digits in percentage terms in all distribution channels in the quarterly comparison. The consumer distribution channel provided approximately 50% of the overall sales volume increase. The volume increase in the consumer channel was driven by private brand snack volume up by 12%, due mainly to lower peanut and cashew prices, plus new distribution gains at an existing private label customer. Additionally, Fisher snack volume was up by 55%, and Fisher roast peanut volume was up by 33%. Both increases in volume were driven mainly by distribution gains with new customers and increased advertising and promotional activity that drove further volume increases. Sales volume increased in the Commercial Ingredients channel, primarily resulted from increased almond volume to an existing customer, and increased peanut volume generated primarily by lower selling prices. The sales volume increase in the contract packaging channel was generated by increased peanut volume, again, from lower selling prices; and increased snack mix volume from a new product line launched by a major contract packaging customer. Sales volume also increased in the export channel from increased sales of inshell walnuts. That occurred, primarily, because most of the inshell walnut exports in the current fiscal year were delayed into the third quarter due to a late harvest, whereas most export shipments of inshell walnuts last year occurred in the second quarter. Current year-to-date net sales increased by 14 -- I'm sorry, by 4.3% to $556.9 million from $533.9 million for the same period in fiscal 2012. The increase in net sales was primarily attributable to higher selling prices that existed in the first 2 quarters of fiscal 2013. Sales volume for the first 3 quarters of fiscal 2013 increased slightly, in comparison to sales volume in the prior fiscal year and for the same period, as a significant increase in sales volume in the current third quarter more than offset the decline of sales volume for the first 2 quarters of fiscal 2013. The current third quarter gross profit margin declined to 14.0% of net sales from 14.4% for the third quarter of fiscal 2012, while gross profit dollars increased by $800,000 in the quarterly comparison. The decline in gross profit margin occurred primarily because of higher commodity acquisition cost for almonds and certain components in Trail mixes, in addition to a shift in walnuts sales to lower margin sales of inshell walnuts for export. The declines in gross profit margins on the sales of these products were offset in large part primarily by a lower commodity acquisition cost for pecans and cashews. The current year-to-date gross profit margin increased to 16.2% from 14.9% in net sales for the same period in fiscal 2012. This increase in gross profit margin was primarily due to a shift in sales volume to our higher margin Fisher branded products and an improved alignment of selling prices and commodity acquisition costs during the first 2 quarters of fiscal 2013, compared to the first half of fiscal 2012. Total operating expenses in the current quarter, increased to 11.9% of net sales from 11.7% of net sales for the third quarter of fiscal 2012. The increase in total operating expenses as a percentage of net sales in the quarterly comparison was due mainly to increases in compensation expense, shipping cost from increased volume and increased advertising and marketing spending to support the Fisher brand. Total operating expenses for the current year-to-date period increased to 10.5% from 10.1% of net sales for the same period in fiscal 2012. The increase in total operating expenses as a percentage of net sales in the year-to-date comparison was primarily attributable to increased advertising and marketing spending, again, to support the Fisher brand. Interest expense in the current quarter declined to $1.2 million from $1.4 million for the third quarter of fiscal 2012. Similarly, interest expense in the current year-to-date period decreased to $3.5 million from $4.0 million for the same period in fiscal 2012. The declines in interest expense in both the quarterly and year-to-date comparisons resulted from lower average short-term borrowing levels in both periods. Taking a quick look at our inventory. Total inventories at the end of the current third quarter decreased by $10.1 million or 5.7%, compared to total inventories on-hand at the end of last year's third quarter. The weighted average cost per pound of raw nut input stocks on-hand at the end of the third quarter decreased by 20.9%, in comparison to weighted average cost of this inventory at the end of third quarter of last year. And then, the weighted average cost per pound of finished goods on-hand also decreased by 12.9%. The declines in these 3 key inventory measures in the quarterly comparison were driven primarily by lower acquisition cost for pecans, peanuts and cashews. And now I'll turn the call over to Jeffrey Sanfilippo, our CEO, who will provide additional comments on our performance during the current quarter. Jeff? Jeffrey T. Sanfilippo: Thank you, Mike. Good morning, everyone. The management team and all our dedicated employees continue to make strong progress in executing the company's core strategies of growing brands, expanding our international business and providing integrated nut solutions. We are pleased with our sales growth during the third quarter, particularly for our Fisher brand, and it is important to note that sales volume grew significantly in all of our distribution channels. Our sales and marketing teams have worked closely with key customers across our business channels to develop programs to drive volume. The 15.6% volume growth is a good indication that our direct customers and end-user consumers are reacting positively to the promotions and lower prices for many of the key products that we sell. The low prices for peanuts, cashews and pecans are anticipated to continue during our fourth quarter. A few highlights for the first 3 quarters of fiscal 2013 validate our successful efforts in executing our 3 core strategies. Number one, grow JBSS brands. Domestic volumes of our Fisher recipe nut, also known as and previously referred to as baking nut and snack nut products, increased significantly during the first 3 quarters of fiscal 2013, as Mike mentioned. This growth was achieved through a combination of new marketing and advertising programs, increased sales to existing customers and distribution to new recipe nut customers. Number two, expand globally. We continue to develop our Fisher brand business in China, with recent changes in our distributor network, and we are making progress in establishing a legal structure to support our business there for the long-term. I'm making a trip to China next week to meet with our new distributors to attend a major trade show in Shanghai and to meet with a marketing firm that the company recently engaged to assist us in developing our Fisher brand strategy in the country. Number three, provide integrated nut solutions. We were recently recognized as the supplier of the year by 2 significant customers, one of which is our largest account. These are prestigious awards and, I'm very proud of everyone in our organization for their efforts. This recognition demonstrates the value our company provides to collaborative partners, where quality, innovation, speed to market, sustainable growth and category and consumer development are important. The exciting news this quarter is that we are starting to see a return to volume increases across channels. Sales volume increased by double digits in percentage terms in all distribution channels in the quarterly comparison and approximately 50% of the total sales volume increase occurred in the consumer distribution channel. Turning to channel development. In the consumer channel, net sales increased by 4.2% in dollars and 14.9% in sales volume. Private brand consumer sales volume increased by 12.2% in the third quarter compared to the third quarter of fiscal 2012, due primarily to lower peanut and cashew prices and new distribution gain at existing private branded customers. And as Mike mentioned, the Fisher brand increased 55.4% in recipe nuts. The increase was driven by higher snack and recipe nut sales to existing customers, combined with $1.1 million in sales to new recipe nut customers. Sales volume for both private brand and branded nut products were favorably affected by an increase in consumer demand for nuts and nut products, due to decreased selling prices and promotions caused by decreased commodity acquisition costs. Provided that selling prices remain at these lower levels, we expect this trend to continue during our fourth quarter of fiscal 2013. Looking at the Commercial Ingredient channel. Net sales increased by 4.1% in dollars and increased 11.2% in sales volume in the third quarter of fiscal 2013 compared to the third quarter of fiscal 2012. Increase in sales volume in a quarterly comparison came from increased almond volume to an existing customer, and a 14.9% increase in peanut volume, generated by lower selling prices. In the international channel, net sales decreased by 1.4% in dollar, but increased 22.1% in sales volume. Sales volume for the quarter improved due to increased sales of inshell walnuts. Most of inshell walnut export shipments in the current fiscal year were delayed in the current -- until the third -- current third quarter due to a late harvest whereas fiscal year most export shipments of inshell walnuts occurred in the second fiscal quarter. In the contract packaging channel, net sales increased by 29.7% in dollars and increased 23.1% in sales volume. Sales volume for the quarter was driven by increased peanut volume, due to lower selling prices, again, and increased snack mix volume from a new product line launch by a major contract packaging customer. We anticipate, and to a lesser extent, that these volume gains will continue to positively impact sales volume in our fourth quarter of fiscal 2013. Turning to category updates, all the information is reported through ACNielsen data ending March 16, 2013, and when I refer to Q3, I'm referring to the first 11 weeks of the quarter ending March 16. We look at the category on Neilsen's U.S. definition, which includes food, drug, mass, Wal-Mart, military and other outlets. The total nut category was flat in pound volume in Q3, those sales dollars increased due to higher prices versus a year ago. The flat category performance is an important -- is an improvement over last quarter, when the category in pound volume declined 5%, with prices up 8% versus a year-ago. Prices have started to moderate in the category, but average per pound prices were still up 4% versus a year ago. However, overall prices, compared to last quarter declined 5%, and average peanut prices are down 6% and cashew prices are down 2%. Looking at the -- looking at by subcategories. The recipe nuts category increased 5% in pounds and 7% in dollars for the quarter. While average prices increased 3% versus last year, our Fisher brand had a very strong quarter, as we've mentioned. Behind our Freshness bag innovation, Fisher gained 2.1 points of pound share in the recipe nut subcategory, excluding club stores this past quarter, and is up 3.6 share points versus prior year for the last 6 months. In fact, Fisher recipe nuts have increased in share versus prior year for 14 straight Nielsen quad periods. This growth is being driven by strong base volume, as well as incremental volume on promotion. Base or unpromoted volume, as measured by Nielsen, was up 18%, driven by increased distribution and also strong equity support for the brand. The Fisher brand continued its sponsorship of the Food Network and celebrity Chef, Alex Guarnaschelli, which was launched last quarter. The program included cooking with nuts, vignettes featuring Chef Alex and airing in the Food Network and The Cooking Channel. The effort was supplemented with print ads in the Food Network Magazine, online digital ads and an entire section on the Fisher website, dedicated to Chef Alex, her recipes and simple twists using nuts. The Food Network effort was supplemented with additional targeted Fisher recipe nut print executions. Fisher recipe nuts also increased volume on promotion. Incremental volume was up 41%, driven by display activity. The subcategory of snack nuts declined 3% in pound sales for the quarter versus last year, while revenue increased 2%. Average prices in the snack nut category were up 6% for the quarter versus last year. Almonds and mixed nuts have experienced the greatest increase in prices and the biggest declines in pound volume. Trail mixes -- trail mix growth has continued, increasing 5% in revenue and 4% in pound sales. The Fisher brand in the snack nut category increased 0.2 of a share point versus last year. Fisher snack has some real momentum, showing share growth versus prior year for 11 quad week periods in a row. The share gain has been due to increased distribution and better merchandising around our integrated marketing campaign. The increased distribution drove a 53% increase in base or unpromoted volume and the improved merchandising resulted in an 18% increase in incremental volume from promotions. In the snack category, private brands increased by 2% versus last year. Now looking at the produce subcategory. It increased 3% in pounds and 7% in revenue. Almonds and pistachios are growing in this subsegment, but pistachio growth is slowing. Retail almond prices decreased 6% versus last year, while pistachio prices increased 4%. Our Orchard Valley Harvest brand was down in the second quarter due to distribution losses, but we are in the process of relaunching the brand behind an updated brand positioning and product bundle. In closing, we reviewed our strategy during the third fiscal quarter of 2013. And as a result of that process, we affirm that growth of our Fisher and Orchard Valley Harvest brands and expansion of Fisher internationally remain our primary areas of focus. We will continue our efforts to meet the private brand needs of large food retail and Commercial Ingredient customers, both domestically and internationally. We believe the nut category responds positively to brand building, innovation and health and nutrition news. The company increased its U.S. brand investments, and we realize the corresponding increase in our business. And we believe that our growth efforts will be aided by anticipated lower market prices for peanuts, pecans and cashews in the remainder of fiscal 2013 and the beginning of fiscal 2014. Through the first 3 quarters of 2013, we've made good progress in aligning our resources to continue to execute our strategic plans, and I'm very optimistic about our future and our ability to grow. We appreciate your participation in the call, and thank you for your interest in JBSS. I will now turn the call back over to Mike. Michael J. Valentine: Thank you, Jeff. At this time, we will open the call to questions from participants. Nancy, would you be kind enough to queue up the first question?

[Operator Instructions] Okay, Mike, we don't seem to have any questions at the moment. Ladies and gentlemen, I'd like to thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a good day.