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…

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…

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…

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.