John B. Sanfilippo & Son, Inc. (JBSS) Q4 2015 Earnings Report, Transcript and Summary

Good day ladies and gentlemen and welcome to the John B. Sanfilippo & Son Incorporated Fourth Quarter and Fiscal 2015 Year End Operating Results Conference Call. My name is Dave, I'll be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. [Operator Instructions]. I'd now turn the call over to Mr. Mike Valentine, Chief Financial Officer. Please proceed sir.

Thank you, Dave. Good morning everyone and welcome to our 2015 fourth quarter and fiscal year earnings conference call. Thank you for joining us today. On the call with me today are Jasper Sanfilippo, our Chief Operating Officer, who will be subbing for Jeffrey, who is traveling, and Howard Brandeisky, our Senior VP of Global Marketing. Before we start, 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 results are explained in the various SEC filings that we have made, including Forms 10-K and 10-Q. We encourage you to refer to these filings to learn more about these risks and uncertainties that are inherent in our business. I will start the call today by covering financial highlights for the 2015 fourth quarter and fiscal year. The current quarter net sales increased by 9.3% to a record $221.4 million compared to net sales of $202.5 million for the fourth quarter of fiscal 2014. The increase in net sales in the quarterly comparison came mainly from higher selling prices, driven by increased commodity acquisition costs. Sales volume was relatively unchanged in the quarterly comparison. Volume increase in all distribution channels, except the consumer channel, which decreased by approximately 5%. Volume increase for all major nut types, except for mixed nuts, peanuts and trail mixes. The decrease in volume in the consumer channel, resulted primarily from lower sales of private brand snack nuts and trail mixes, due to lost business with the customer that elected to self-manufacture these products, and decrease promotional activity in existing private brand customer. The decrease in volume of these private brand products was offset by significant increases in volume for Fisher recipe nuts, Orchard Valley Harvest produce products and new sales for the launch of the Fisher Nut Exactly snack bite product line. Volume increased by 12.2% in the contract packaging channel, primarily due to increased sales with existing customers. Volume in the commercial ingredients channel increased by 4.2%, mainly due to increased sales of almond and cashew products to an existing customer. Volume increased by 21.5% in export channel, primarily due to increased sales of bulk pecan and peanut products. Fiscal 2015 net sales increased by 14% to a record $887.2 million, compared to fiscal 2014 net sales of $778.6 million. The increase in net sales and the yearly comparison primarily resulted from higher selling prices due to increased commodity acquisition costs and also a 5.4% increase in sales volume. Volume increased in the consumer channel by 7.9% and in the contract packaging channel by 8%. Volume was relatively unchanged in the commercial ingredients channel, and volume declined by 4.6% in the export channel. Volume increased for all major product types, except for walnuts and pecans in the yearly comparison. The increase in volume in the consumer channel resulted primarily from increased sales of private brand snack nuts and trail mixes to existing customers. Increases in sales of Fisher recipe, Fisher snack nuts and Orchard Valley Harvest produce products also contributed to the increase in the consumer channel. As was the case in the quarterly comparison, the volume increase in contract packaging channel was primarily due to increased sales to existing customers. In the commercial Ingredients channel, increases in volume for almond and peanut products to an existing customers were offset completely by a decline in sales of bulk pecans, due to a smaller pecan crop and a decline in sales for walnuts and macadamia nuts, due to lost business. The decline in sales volume for both the export channel and for walnuts in particular, resulted from a significantly lower supply of grade of in-shell walnuts that is typically sold into the export market. The current fourth quarter gross profit margin decreased to 15.5% of net sales from 16.7% to last year's fourth quarter. Gross profit increased by $600,000 or 1.8%. The increase in gross profit primarily resulted from improved alignment of selling prices and commodity acquisition costs. The decline in gross profit margin was primarily due to higher acquisition costs for pecans and almonds. An increase in manufacturing expenses, mainly in employee related costs and repair and maintenance costs, also contributed to the decline in gross profit margin in the quarterly comparison. Fiscal 2015 gross margin decreased to 14.9% of net sales from 15.8% for fiscal 2014. Gross profit increased by $9.2 million or 7.5%, chiefly as a result of increased sales volume. Gross profit margin in the fiscal year comparison decline, for the same reason cited in the quarterly comparison. Total operating expense for the fourth quarter of fiscal 2015 declined by 9.3% of net sales from 10.7% for the fourth quarter of fiscal 2014. The decline in total operating expenses as a percentage of net sales, was mainly attributable to a higher level of net sales. The decline in total operating expenses in the quarterly comparison in dollar terms, was mainly due to lower shipping and advertising expenses. Total operating expenses for fiscal 2015 fell to 9% of net sales from 9.7% for fiscal 2014. The decline in total operating expenses as a percentage of net sales, was again mainly attributable to a higher level of net sales. The increase in total operating expenses in dollar terms, was primarily due to increases in employee related costs and advertising expenses. It should also be noted that total operating expenses in fiscal 2014 were reduced by $1.6 million gain on the sale of an Elgin, Illinois site that was formerly owned by the company. Interest expense of $1.1 million for the fourth quarter of fiscal 2015 was relatively unchanged from interest expense for the last year's fourth quarter. Interest expense for the current fiscal year fell $4 million from $4.4 million for fiscal 2014. The decline in interest expense in the fiscal year comparison, was primarily attributable to lower interest rates on our short-term borrowing facility. Net rental and miscellaneous expense declined by $800,000 in the quarterly comparison, because last year’s fourth quarter included expenses associated with the repairs to the exterior of our office building located on our Elgin, Illinois headquarters' campus. That repair was completed in the first half of fiscal 2015. As a result of all the above, net income increased by 28.2% to a record $8.5 million in the quarterly comparison, and net income for 2015 increased by 11% to a record $29.3 million. Taking a quick look at the inventory, the total value of inventories on hand at the end of the current fiscal year increased by $15.2 million or 8.3% compared to the total value of inventories on-hand last year. The increase in the value of total inventory was primarily attributable to increased cost and quantities of finished goods and work in process inventories. The increase in the cost of these particular inventory items, were primarily attributable to increased acquisition costs for pecans, almonds and cashes. The increases in quantities of these inventory categories, was mainly due to the need to build up pecan inventories and for a preparation for production line upgrades that were implemented near the end of the fiscal year. The weighted average cost per pound of raw nut and dried fruit input stocks on hand at the end of fiscal 2015 increased by 36.5% compared to the weighted average cost of input stocks at the end of fiscal 2014. The increase in the weighted average cost of input stocks was driven mainly by a large decline in the quantity of lower cost peanut input stocks on hand and a higher acquisition cost for pecans, almonds and cashews. And I will turn the call over to Jasper Sanfilippo, our COO, who will provide additional comments on our performance for the current quarter and fiscal year.

Thank you, Mike, and good morning everyone. I want to congratulate our management team and all our dedicated employees on achieving another consecutive year of record performance. The company has -- records in the following financial measures in fiscal year 2015. Net sales reached $187.2 million, gross profit reached $132.1 million, net income reached $29.3 million, earnings per share reached $2.61, and we achieved record sales volume. We are very proud of these results and I think our team for the leadership and executing our strategic growth plans to create value for our customers and our shareholders. We ended this year with strong momentum. As was the case in the third quarter, our net income for the current fourth quarter exceeded last year's record fourth quarter of net income by a wide margin, due in part to increase sales of our branded products. Fisher recipe nuts and Orchard Valley Harvest produce products contributed to the record results, as both brands had a strong quarter, with sales volume increases of 15.8% and 18.6% respectively. The increase in sales volume for Fisher recipe nuts resulted from adding larger package sizes to our product offerings and increase in sales volume for Orchard Valley Harvest products, was primarily attributable to distribution gains with new customers. We also had a very successful launch of Fisher Nut Exactly snack bite product line during the current fourth quarter. And these Fisher products now can be found in nearly 5,000 stores. Given the success of this initial launch, we believe that there will be many opportunities to increase distribution for Fisher Nut Exactly. During the fourth quarter earnings call last year, my brother Jeffrey mentioned how JBS was evolving into a true consumer products company. The stronger growth of our Fisher and Orchard Valley Harvest brands in fiscal 2015, demonstrate how the company continues to execute its strategy to grow JBS brand. Later in the call, Howard will comment further about our exciting branded programs. One of the many highlights of this past fiscal year, is our strong financial performance, which allowed us to pay a special cash dividend of $1.50 per share or approximately 4% yield to shareholders in December 2014, which is consistent with the $1.50 per share dividend the company paid the prior year. The company accomplished a great deal in fiscal 2015, in spite of rising markets and significant investments in our operations. Turning a moment to raw materials, it is important to note that our nut commodity purchases were $80.8 million higher for the same pound volume during fiscal 2015 compared to fiscal 2014, due mainly to higher nut acquisition costs. Drivers for this increase include the continued high demand for pecan and walnuts in China, and strong global demand for almond. For fiscal 2015, approximately 27% of the dollar value of our total nut purchases was from foreign sources. Our procurement, demand planning, and sales and marketing teams, continue to improve the company's alignment, while selling prices with the commodity costs, especially in respect to timing. Total upgrades were made to production lines in many of our manufacturing facilities, to improve supply chain efficiencies and drive down costs. In addition, JBS is making additional investments in food safety. We are taking a proactive position in preparation for the food safety modernization act requirements. The preventative controls for human foods, final rules and guidance document will be published August 31, 2015, and go into effect August 2016. The U.S. Food and Drug Administration is currently assessing the risk of pathogen contamination associated with peanuts. We anticipate the research mainly to increase the industry-specific regulation and/or additional risk-based preventative controls. Turning to a review of sales by channel; consumer channel, net sales in the consumer distribution channel increased by 16.7% in dollars and 7.9% in sales volume in fiscal 2015, compared to fiscal 2014. Total Fisher branded sales volumes increased 9.7% in fiscal 2016 compared to 2014, due primarily to higher sales to existing customers. IRI market data for June 2015 indicates Fisher recipe continued to gain market share in overall recipe nut category. Fisher recipe nuts sales volume increased to 4.7% from fiscal 2014, primarily as a result of increased sales to a significant customer. Fisher brand snack nut sales volume increased to 14%, due largely to the distribution of inshell peanuts we regained at a major snack customer. Private brand consumer sales volume increased by 6.6% in fiscal 2015, compared to fiscal 2014, due to an increase in sales of snack nut and trail mix products to two significant customers. Commercial ingredients channel; net sales in the commercial ingredients distribution channel increased by 7.3% in dollars for fiscal 2015, though, sales volume was relatively unchanged compared to 2014, an increase in almond and peanut sales volume to existing customers, was nearly offset by lower bulk pecan sales volume, as a result of a smaller pecan crop and lower sales volume of macadamia nuts and walnuts due to lost business, with the customer using these nuts in their products. International channel; net sales in the export distribution channel increased 6% in dollars for fiscal 2015, though sales volume decreased 4.6% compared to fiscal 2014. The sales volume decrease was primarily due to a significant lower supply of both inshell walnuts for the export market. The decrease in volume was offset by an 11% increase in the weighted average selling price per pound. Contract packaging channel, net sales in the contract packaging channel increased by 17% in dollars and 8% in sales volume in fiscal 2015 compared to fiscal 2014. The increase in sales volume, primarily resulted from increased sale of peanut, cashew, and mixed nut products to existing customers. Now I will turn the call over to Howard, to cover consumption trends in the snack recipe and produce categories, and he will highlight the recent success of our Fisher and Orchard Valley Harvest brands.

Thank you, Jasper, and good morning everyone. I am happy to be able to share some strong brand results for you this morning, both for the quarter and also for the year. As always, all the market information I will be referring to this morning is IRI reported data, and for today, it is for the period ending June 28, 2015. When I refer to the fourth quarter, I am referring to the 13 weeks of the quarter ending June 28. References to changes in volume or price are versus the corresponding period one year ago. Percentage changes have been rounded to the nearest full percent. We look at the category on IRI's total U.S. definition, which includes food, drug, mass, Walmart, Military and other outlets, unless otherwise specified; and when we discuss pricing, we are referring to the average price per pound. The term velocity refers to the sales per point of distribution. First, let me review some category dynamics; for both the quarter and the full fiscal year, the quarter and the full fiscal year, the category saw an increase in dollar sales, but a slight decrease in pound volume. This is a result of generally higher retail nut prices, which is impacting consumer purchase behavior. The total nut category increased in sales dollars 3% and declined in pound volume by 1% in the fourth quarter. Overall, prices in the fourth quarter increased 4% versus the prior year. Almonds, pistachios and walnuts experienced the largest price increases. Almonds increased 12%, pistachios and walnuts increased 8% versus Q4 of last year, and that resulted in 11% pound decline for pistachios, a 9% pound sales decline for almonds, and an 8% decline for walnuts. The story is similar, when looking at the entire 2015 fiscal year. The nut category increased 3% in sales dollars and decreased 1% in pound volume sales. Category pricing during the fiscal year increased 4% versus the prior year. Again, price increases were most visible on almonds, up 11%, and pistachios and walnuts, each up 9%. Peanuts were the only major nut type that decreased in price versus last year. Now we will talk about each category in a little bit more depth, starting with recipe nuts. In the fourth quarter, the recipe nut category was flat in dollar sales but decreased 9% in pound sales, driven by an average price increase of 10%. The decline was led by a 20% increase in almond prices, along with increases on walnuts of 8% and pecans of 4%. Again, the story for the fiscal year, similar; the recipe category for our 2015 fiscal year increased 3% in dollar sales and declined 6% in pound sales; all three key nut types within the category declined versus last year. Almond is down 11%, walnut is down 5%, and pecan is down 4%, and that was due to increased pricing. Almonds increased 16%, walnuts up 9% and pecan 7% in price versus the prior year. Our Fisher brand had a very strong year and continues to gain momentum. The Fisher brand continued its sponsorship of the food network and celebrity chef Alex Guarnaschelli. The program includes branded vignettes on the food network, print advertising and food network magazine and other publications, as well as a fully integrated social media effort. Our brand equity efforts on Fisher helped the brand overcome category weakness and deliver growth in the fourth quarter and on the year. Fisher recipe nuts increased 12% in dollar sales and 1% in pound sales in the quarter versus last year. As a result, Fisher share in the category increased 1.8 points versus last year. Our equity marketing and retail merchandising efforts, helped drive an 8% increase in dollar velocity. For the entire fiscal year, Fisher recipe nuts increased 15% in dollar sales and 5% in pound sales, resulting in the brand share increasing 2.2 points versus last year, with dollar velocity up 16%. The Fisher recipe nut brand has now grown for 44 consecutive four week periods as reported by IRI. That's the period of almost 3.5 years since the last time Fisher recipe nuts had a negative volume IRI quad-week period. Now let me turn to the snack category; in Q4, the snack category increased 6% in dollar sales and 1% in pound sales versus last year. Average prices were up 5%, led by almonds at 10%. For the fiscal year, the snack category increased 6% in dollar sales and 3% in pound sales versus last year. Within Fisher snack, Fisher snack increased 11% in sales dollars and 6% in pound sales in Q4. Fisher's "Oven Roasted, Never. Fried" campaign on dry roast peanuts in the Fisher franchise, helped drive an increase in pound sales in our key geography. Fisher sales dollars and pound volume as measured by IRI, increased in fiscal 2015 versus last year, 8% and 11% respectively. Our Fisher Nut Exactly new product launch continued to proceed well. Fisher Nut Exactly is aligned of nut and popcorn snack by clusters that have been dipped in a touch of indulgence. Varieties include almond popcorn dipped in dark chocolate, almond popcorn dipped in milk chocolate, the corn popcorn dipped in salted caramel and the peanut popcorn dipped in peanut butter. We also offer unique Nut Exactly varieties in the club channel [indiscernible]. The Fisher Nut Exactly retail launch began in our third quarter. The distribution build continued in the fourth quarter, and we also experienced gains in velocity. The product line is performing best at retailers that have provided strong merchandising support, helping to drive awareness and trial. Finally, I will turn to the produce category; the overall produce nut category was down 7% in pounds and 1% in dollars, almost every nut type experienced declines related to higher retail pricing. Our Orchard Valley Harvest brand had a strong fourth quarter, outperforming the category, with a 13% increase in pound sales and an 8% increase in dollar sales. For the fiscal year, the brand increased 50% in pound sales and 38% in dollar sales. As you will recall, we repositioned Orchard Valley Harvest a few years ago to be more on-trend and better meet the needs of today's consumer. The first key trend we tap into, is consumer's desire for less processed products and cleaner ingredient lines. We reformulated our products to have no artificial ingredients, and also to be non-GMO project verified. We also updated our packaging and in-store communication to better communicate these product benefits to consumers. The second key trend is for more convenient on-the-go packaging. We expanded our offerings to include convenient single-serve mini-bags and multipacks. These convenient offerings have been the key drivers of growth for the quarter and the fiscal year. Multipacks were the big driver in the fourth quarter, with pound sales more than double the year ago period. Both single serve minis and multipacks contributed to the strong full year results. And now, let me turn it back to Jasper Sanfilippo, our President and COO.

Thank you, Howard. In closing, the management team remains focused on consistent execution of our corporate goals, to create customer and shareholder value. Our fiscal 2015 performance results demonstrate our ability to grow our brands and create value for key customers. While we have faced supply and demand challenges that impacts commodity pricing, we have proven our ability to manage through volatile markets to mitigate the impacts on our financial performance, and we will continue to work closely with customers to provide value and help them continue to build the snack and nut programs. Our strategic goals remains consistent in the coming year, growing Fisher and Orchard Valley Harvest into leading nut brands, by focusing on consumers demanding quality nuts in the snacking recipe and produce categories. Expanding globally and building our company into a leading international brand and private brand snack nut company. Providing integrated nut solutions to grow non-branded business at existing key customers in each distribution channel. We appreciate your participation in the call, and thank you for your interest in our company. And we will now turn the call back over to Mike.

All right. Thanks Jasper. Before we take questions, we just want to alert investors that we will be presenting at the Midwest Ideas Conference in Chicago, on August 27th, and we will be posting an updated investor presentation on our site that day. Also, we will be presenting at the Stifel Consumer Conference in New York on September 17th. Dave, can you please queue-up the first question?

[Operator Instructions]. It comes from Francesco Pellegrino at Sidoti and Company. Please go ahead.

Good morning guys. Thanks in advance for taking the questions. Just wanted to start off by -- you got some nice price increases through during the fourth quarter. Is it fair to assume that these prices will persist -- these price increases will persist through the third quarter of fiscal 2016?

Yes. Typically, we don't really change prices until our third quarter, occasionally maybe in the fourth quarter, just to catch up with the acquisition costs. Then assuming acquisition costs don't change, which they typically don't, and selling prices and costs pretty much remain stable, until probably about December.

I appreciate that answer. However, with the reported flat volume, something that I actually was looking for as well, even though, I didn't see the lost customer coming through. Is it fair to assume that that customer was of a lower margin business, since it was -- I think a private branded product?

No. Both the customers that we lost and also the customers that have reduced the merchandising activity on private branded products are normal margins, for those kind of product lines.

So I see price increases coming through in the fourth quarter. I know usually you guys do a very good job of buying inventory, but making sure a lot of that inventory has already been pre-sold on various contract terms. It seems as if when you start to maybe replenish the inventory throughout the rest of the year? Look, I am not really concerned about the first quarter, but is there anything that might be able to drive volume growth going forward? I know you had a really strong year in volume, you went over that 250 million pound volume sold mark, and you have sort of been on chartered territories right now. What's really out there that could drive volume growth going forward?

Well I will talk about it from the commodity end, and then I will turn it over to Howard and talk about brands. But we are looking at a very large walnut crop and also a large peanut crop. And we typically -- and the whole industry typically sells the entire crop. So we believe that we can pick up some significant additional pounds on both of those commodities. Howard, you want to talk about brands?

Well the brands, we certainly will see opportunity to grow the brands. If you look at the recipe nut business, though the business has done very-very well, we think there are still distribution opportunities that we are always pushing on. Likewise, the snack business -- the Nut Exactly business, a little early to tell, but doing well so far and we hope to continue to build distribution there. So as we have success in the marketplace, and we have had that. We certainly look to share that with our retail partners, and use that story to help convince them to expand distribution of our products. So we hope to see some upside.

Howard, and then something you probably haven't really been able to fully appreciate in the past, just because with the overall industry sort of contracting a bit. The fact that you guys are able to steal market share in such a competitive type of commodity space right now, and I know you are doing it through some of your higher price point product; how much longer can this really continue? I know during the second quarter, you guys had some elevated trade spending during the quarter, that slightly brought down margins a bit, but is this just something that's going to be through a lot more promotional activity going forward?

Well, if you look at a longer time period -- I mean, you mentioned the second quarter, but you look at the longer time period, and we were looking at this recently. Our merchandising is not out of line with the category, for any part of our brand and business. So I think we have been really growing the business, I think through our equity efforts more than anything else, and that's why in my commentary, I pointed to the velocity, because I think that is partly indicative of the equity efforts that we have put in place. Clearly, we have been merchandising at retail, what our data shows is that we have been getting higher quality merchandising. Some more displays, as opposed to deep price promotions. So although the overall merchandising has been in line with the category and not gone up in any appreciable way over the years, the quality of our merchandising I think is improved, and so the combination of that kind of great execution at retail with our equity building efforts, I think has really driven the results to date, and we hope to drive future results the same way.

Do you feel as if -- in addition to distribution gains for Orchard Valley Harvest, it was the quality of the merchandising for Orchard Valley Harvest that had in produce, that really drove that really nice growth? Because this hasn't really been a category you guys have talked about in the past.

Well on Orchard Valley Harvest, I would say that -- I think there we -- as I mentioned in my commentary, we really -- when we repositioned a couple of years ago, we really did a good job of identifying the consumer trends and then reposition the product to address those trends, both from a product point of view with the no artificial ingredients and the non-GMO verified. But then also, identifying this, on the go, need consumers habit, its targeted to be sold in the produce section of the grocery store, that can be an impulse purchase area. And the -- on the go-minis, as well as the multipacks, where something that we brought that was new to the produce nut category, relatively new, and I think that has really helped drive the success. And there has also been some very good execution of retail there as well. So I think its all -- the numbers on Orchard Valley Harvest, obviously, very-very-very strong, and to get the results like that is a lot of things working in concert to deliver those results.

That made sense. I guess just talking more about the macro economy, the tree and peanut base, the strong peanut crop that's coming in this year -- it's going to be up 19% year-over-year to 6.2 billion harvested pounds, what was driving that great yield, I guess? Is it farmers sort of converting their fields from corn to peanuts?

It's mostly an increase in acreage, and that's coming as a result of very low corn and cotton prices.

So, help me think us through outside of this year. If I am a farmer that's sort of not producing corn anymore, I am producing peanuts, I have made a commitment for -- I don't know, how many years am I going to be growing peanuts, before maybe I convert to another crop. Could we be in a prolonged period of elevated peanut production going forward?

That's all going to be dependent on corn and cotton prices. If those prices go up, they could very well switch acreage back to those crops, and not making a normal size crop of roughly 2.5 million tonnes.

So is it necessarily that easy from year-to-year to just switch back and forth?

Oh yeah.

Okay. So there is no elevated costs, machinery or something? Your machinery is relatively cheap to go from taking peanuts to harvesting corn?

Right. They have made those investments already, and they have excess capacity on really all three crops. So they can make their change very easily.

All right. And just second to last question, so the walnut crop and the peanut crop are coming in rather attractively, something you guys are vertically integrated for. Could you just maybe go over the additional capacity, that, I guess your -- maybe the capacity you're currently operating at, and how much more capacity you guys could take with your shelling operations?

Yeah I think both shelling operations are running at roughly about 50% utilization rate. Maybe a little bit higher. So we -- if we want to, we can very easily shell significantly higher quantities of both those nuts.

And lastly, the food modernization regulation that you guys are looking to get a head up? I know you said you incurred some costs in the fourth quarter, fiscal 2015. Any idea what these costs will be in fiscal 2016?

It's hard to say, obviously once the FDA dictates and lest us know what their guidance is going to be, I think we will have a better opportunity to do that. But right now, its very hard to tell.

All right. I appreciate the time again guys. Thanks for answering my question.

Okay Francesco. Thank you.

Thanks. The next question is from the line of Tom Koch with Trancoso. Please go ahead.

Hi, good morning guys. I was wondering if you can articulate a little bit on your thoughts. There is a lot of, obviously, anticipated M&A or at least one large transaction out there in the space. There is talks about potential for private equity buyers, as well as several strategics that have been very vocal about wanting to buy these assets. How do you guys view, if a strategic transaction occurs, how do you guys view the market panning out over the next several years for you guys in the private label space? Is this something that helps the space, as far as consolidation and pricing? Is there something that hurts as far as a larger competitor?

Well, we have -- of course, we have been living that now for two years, and we believe that, as these deals occur, it does provide us with a bit of competitive advantage, because we are so much more experienced in the industry. Then, the teams that are in place, after the integration takes place on these deals, and especially the case in procurement. So far, I think we have -- that has helped us. I don't know if there is going to be any significant deals going forward, other than the one that I think you're talking about. So we may have seen the end of that, but I would say, overall, I think it’s a plus for us.

I mean overall, there have been many players wanting to gain market share in the space from treehouse to post to -- ADM has been buying, Olam has been buying assets, and I am just wondering, what -- again, if you look into the next year to, overall -- is that something that concerns you, or is that something that you're seeing is helping the business as far as larger more kind of rational players?

Well on the ag end specifically, ADM and Olam, I think that's a positive for us, with much more sophistication on handler part of the industry. I think it can only benefit us.

Okay. So you're not -- it doesn't sound like you're too concerned about continued consolidation…

No in fact, we actually welcome consolidation on the ag side, because as a handler ourselves, it just enhances our competitive advantage of being vertically integrated.

Okay, thanks. I just have a few more; Mike, on the working capital side, your inventory and AR have gone up for the last two years, pretty significantly. You are funding that obviously with working capital increases in your revolver. Payables have been flat though. So my question is, are you keeping those flat intentionally, because you are getting better terms. Why don't you increase the payables kind of step-by-step with the increase in inventory and AR and free up more revolver capability, capacity, whatever you want to call it?

The timing isn't always the same among those three line items. So for example, Q4 is typically a very low purchase period for us, but yeah, we saw some very strong sales in June. So you're going to see a pretty sizable disconnect between a change in the receivables and a change in payables. And then on the inventory side, again that's being generated primarily by increased acquisition costs. But again with the lower purchase pounds that typically occur in Q4, you're not going to see AP move with that. And in fact, our inventories came down from Q3 to Q4 pretty significantly.

Right. I will talk to you more offline about this. I was just wondering that on a year-over-year basis, if I look back, going back three years, again, at the same time quite end of the year, inventory and AR have gone up, payables are flat. But your funding it with your revolver, your revolver has gone up?

We can talk more about that offline.

Okay great. One other question was, can you talk a little bit about your Q4 private label volume decline? You have talked about this nice pickup on the branded side, what do you see there and is that at all indicative of a tougher market or a tougher kind of road going forward over the next year?

Well in respect to the retailer that elected to self manufacture, we don't expect a bunch of retailers to follow suit. I think they have faced some pretty considerable challenges getting into the nut business. It has been tried before, so we don't really see that as a trend. Then I will let Howard about the other retailer, where we saw some decreased merchandising activity, and whether that's going to continue?

Well it’s always hard to predict future decrease -- actions on some of the retailers. But we certainly hope that merchandising returned. We always try to develop programs for our retail partners to aid them with their merchandising, given the tools, in-store display capability etcetera. So -- and we are always pursuing -- we pursue new business that makes sense for us.

Okay. And one last one, Mike, in last year's first quarter, fiscal first quarter, you all had a margin hit due to kind of some costs versus price coverage issues, how is that playing out in the first quarter this year?

You're talking about the first quarter of 2015 or 2014?

2015.

This year, I think I mentioned earlier in the call, we are seeing some stability in acquisition costs for the most part, where we didn't quite see that a year ago, and then probably, it was almonds driving that. So I don't really anticipate that we are going to see the same sort of thing that we saw last year.

So the issue with the volume increase and kind of the --

You know what else too, Jasper just reminded me. In Q1 of last year, we came up a little short on pecans, so we had to get into the market and do some unusual spot buying. We are in good shape on pecans this year, so that won't recur.

Okay. Thanks a lot.

Thanks.

Thank you very much. There are no further questions at this time ladies and gentlemen. [Operator Instructions]. As there are no further questions coming through, I'd now like to turn the call back over to Mr. Mike Valentine for closing remarks.

Good Dave, thanks. Again, thank you everyone for your interest in JBSS. This concludes the call for our fourth quarter and fiscal year 2015 operating results.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect.