John B. Sanfilippo & Son, Inc. (JBSS) Q3 2016 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the John B. Sanfilippo & Son Inc. Third Quarter Fiscal 2016 Operating Results Conference Call. My name Whitley and I will be your operator for today. At this time, all participants are in listen only mode. Later we will conduct a question-and-answer session. [Operator Instructions] I would now turn the conference over to your host for today, Mr. Mike Valentine, Chief Financial Officer. Please proceed.

Thank you, Whitley. Good morning, everyone and welcome to our 2016 third quarter earnings conference call. Thank you for joining us today. On the call with me is Jeffrey Sanfilippo, our CEO and Jasper Sanfilippo, our COO. Before we get started, we want to remind you we may make some forward-looking statements today. These statements are based on our current expectations and they involve certain risks and uncertainties. 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. Starting with the income statement, net sales for the third quarter of fiscal 2016 increased by 3% to $215.7 million compared to net sales for the third quarter of last year of $209.4 million. The increase in net sales was attributable to a 6% increase in sales volume which is measured as pounds sold to customers. Sales volume increased for all of our major product types except almonds, snack and trail mixes and walnuts. The sales volume increased in all distribution channels except the export channel. Sales volume increased in the consumer channel came entirely from increased sales of our branded products. Sales volumes for Fisher recipe nuts was up 25.6% mainly from competitively lower prices at retail, new distribution gains and increased Easter holiday promotional activity Sales volume for Fisher snack nuts and peanut butter was up 55% due to increased promotional activity at retail and new distribution gains. Sales volume for our Orchard Valley Harvest and Sunshine Country produce products was up 23.4% mainly from new distribution gains. Sales volume also increased significantly for Fisher Nut Exactly snack bites due to distribution gains secured after the completion of the test market phase which occurred in the third quarter of last year. The increase in volume and the contract packaging channel was attributable to increased sales with existing customers which arose in large part from new product introductions and higher promotional activity executed by our customers in those channels. The volume increase in commercial ingredients channel resulted from increased sales of peanut to oil stock crushers and to other peanut shellers. The volume decline in the export channel was primarily due to lower sales of bulk inshell walnuts. Net sales for the first three quarters of the current fiscal year increased to $720.5 million from $665.8 million for the first three quarters of last year. The increase in net sales in the year-to-date comparison was attributable to a 5.3% increase in sales volume. Sales volume increased in all distribution channels, and sales volume increased for all major product types expect almonds and pecans. As it was the case in the quarterly comparison, the sales volume increase in the consumer channel was driven entirely by increased sales for all of our branded products. Sales volume increased in the contract packaging, in commercial ingredients channels primarily for the same reasons noted in the quarterly comparison. The sales volume increase in the export channel was attributable to increased sales of bulk inshell walnuts made earlier in fiscal 2016. The third quarter gross profit margin declined to 11.9% of net sales from 14.2% of net sales for last year's third quarter. Again gross profits declined by 14.1%. The declines in gross profit and gross profit margin were attributable primarily to a $3 million decline in gross profit on sales of walnuts during the third quarter. Approximately, $2.5 million of that $3 million occurred as we saw the remainder of our higher cost 2014 crop shell walnuts while our selling crisis were declining in reaction of falling market prices. As of the end of the current quarter, our walnut inventories were comprised completely of lower cost 2015 crop. Remainder of the $3 million decline was also walnut related as gross profit decline on-spot sales of 2015 crop inshell walnuts into the export channel, again, due to falling market prices. We have now completed sales of inshell walnuts for the remainder of the 2015 crop year. Finally the balance of the gross profit decline was also attributable to walnuts. We sell significantly fewer walnuts this third quarter compared to last year. And consequently, we did not generate the absorption benefit that we enjoyed in last year's third quarter. Gross profit margin for the first three quarters of the current year decreased to 14.4% of net sales from 14.7% for the first three quarters of fiscal 2015 while gross profit increased by 6.2%. The decline in gross profit margin in the year-to-date comparison was attributable to the factors that led to the decline in gross profit margin in the quarterly comparison. The increase in gross profit in the year-to-date comparison was mainly driven by increased sales volume that occurred in the second quarter of fiscal 2016. Total operating expenses for the current third quarter increased to 9.3% of net sales from 8.7% for last year's third quarter. Total operating expenses in the current year-to-date period increased slightly to 9% from 8.9% for the first three quarters of last year. The increases in total operating expenses for both comparisons were primarily attributable to increases in compensation, advertising, and product sample expenses. The product sampling and expenses were primarily for our fresh and nut exactly brand. Interest expense declined to $900,000 from $1 million in the quarterly comparison. And interest expense declined to $2.6 million from $2.9 million for last year's year-to-date. The interest expense declines in both comparisons primarily resulted from lower average debt levels. Turning to inventory. The value of total inventories at the end of the current third quarter decreased by $21.1 million or 9.2% compared to the total inventory value at the end of last year’s third quarter. The decrease in the value of total inventories was primarily due to lower acquisition across the walnuts and lower quantities of finished goods and work-in-process inventories. Mainly as a result of significantly lower acquisition across the walnuts, the weighted average cost per pound of brown nut and dried food input stocks on hand at the end of the current third quarter declined by 16.3% compared to the weighted average cost per pound of average input stocks on hand at the end of last year's third quarter. Consequently as a result of our issues with walnuts in the current third quarter, net income decreased by 52.8%. At this point, I do want to stress that our walnut issues are now behind us and we can move forward now with significantly lower walnut cost. At this time, I’d like to turn the call over to Jeffrey Sanfilippo who will provide additional comments on our performance in the current quarter. Jeffrey?

Thank you Mike, good morning everyone. It was a record third quarter in topline sales as we experienced significant growth across our Fisher, Orchard Valley Harvest and Sunshine Country branded products. In respect to pound sales at retail, these brands showed strong performance in the quarterly comparison according to markup data from IRI. Our sales, marketing and customer solutions teams have done a great job expanding distribution, optimizing increased promotion on advertising spending and servicing our key retail partners. As I mentioned in the previous quarter's earnings release, we are facing significant decreases in commodity cost for walnuts and almonds. Consequently continuing to drive meaningful sales volume growth as we did in the current third quarter will be a critical factor in generating increased net sales and gross profit in future quarters. We have strong success stories with our brands to take to retailers and I believe we are well positioned to continue to gain new distribution and market share. Mike already commented on the declining gross profits mainly attributed to walnuts. As was the case for the entire walnut industry, we began our third quarter with a larger than normal walnut carryover at high prices. Now that we have sold that inventory, the significant decline in the acquisition cost of the 2015 walnut crop to put us in a strong position to fund promotional spending to drive sales volume increases for Fisher recipe nuts and to improve gross profit margin and gross profit for walnuts in future quarters. Turning to sales reviews by channel year-to-date, in the first 39 weeks of fiscal 2016, net sales in the consumer distribution channel increased by 5.8% in dollars and 1.9% in sales volume. The sales volume increase was driven entirely by increased sales by brand and products. In the first 39 weeks of fiscal 2016, net sales in the commercial ingredients distribution channel increased by 11.1% in dollars and sales volume increased 9%. The sales volume increase for both the quarterly - first 39 week was primarily due to increase in sales of peanuts as Mike already mentioned. In the first 39 weeks of fiscal 2016, net sales on the contract packaging distribution channel increased by 22.1% in dollars and 13% in sales volume. The sales volume increase was due in large parts in new item introductions and increased promotional activity implemented by current customers. Net sales in the export distribution channel in the first 39 weeks of fiscal 2016 decreased by 12.8% in dollars and increased 1.6% in sales volume. Over the previous three fiscal years, we have made various investments to grow the sales of consumer products in our export channel. The results of these investments have not met our expectations due to the highly competitive environment in the markets we targeted. During the current third quarter our executive team reviewed this growth strategy and concluded that we should discontinue our efforts to sell branded consumer products into certain international markets. We’re reallocating resources to focus on other priorities and simplifying our business activities. Now I will turn to category updates in the snack, recipe and produce segment and review our branded performance during our third quarter. All the market information I referred to is IRI reported data and for today it is the 13 week period ending March 20, 2016. References to changes in volume or price are versus the corresponding period one year ago unless otherwise stated. We look at the category in IRI's total U.S. definition which includes food, drug, mass, Wal-Mart, military and other outlets. And when we discuss pricing we are referring to average price per pound. The term velocity refers to the sales per point of distribution. First let me review some category dynamics. For the quarter we saw an increase in dollar sales and a decrease in pound volume. This is the result of generally higher retail nut prices when compared to last year which is impacting consumer purchase behavior. The total nut category increased in sales dollars 3% and declined in pound volume 1% in Q3. Overall prices in Q3 increased 4% versus the prior year. Almonds and cashews experienced the largest price increases. Almonds increased 15% and cashews increased 6% versus Q3 last year and that resulted in a 14% pound sales decline for almonds while cashews actually increased 6% in pound sales. Interestingly at retail, cashews are now 12% less expensive than almonds and it is possible that some consumers are switching to cashews from almonds at this time. We anticipate that this will reverse later in the calendar year as almond prices decline at retail to align with almond market prices. Looking forward to the remainder of our fiscal year and the first two quarters of fiscal 2017, our acquisition costs for almonds and walnuts will be significantly lower than last year's costs. The decline in acquisition costs will be to significantly lower retail selling prices for products that contain these commodities. Since sales of almonds and walnuts comprise such a high percentage of our total net sales, we anticipate that lower selling prices could result in a reduction total net sales and gross profit in future comparison until the impact of lower retail prices ultimately drives increased sales volumes for these products. These lower selling prices have not been reflected at retail in a significant way. In fact we have actually seen slight increases in average retail prices on walnuts and almond prices have remained unchanged versus the preceding quarter. Now I will talk about each category more in-depth starting with recipe nuts. In Q3 the recipe nut category decreased 2% in dollar sales and 5% in pound sales driven by an average price increase of 3%.Our Fisher brand had a very strong quarter and continues to build on our pervious momentum. Our brand equity efforts on Fisher helped the brand gain share leadership of the recipe category in Q3 across IRI's multi-outlet geography. Furthermore, Fisher recipe nuts increased 12% in dollar sales and 13% in pound sales versus last year despite the challenging category landscape. As a result, Fisher pound share in the category increased 3.7 points versus last year. Distribution gains were a key driver of brand growth as total points of distribution increased 9% versus a year ago. Now let me turn to the snack category. In Q3, the snack category increased 3% in dollar sales and decreased 3% in pound sales versus last year. Average prices were up 6% led by almonds at 15%. Fisher snack decreased 5% in both sales dollars and pound sales in Q3. However, strong performance and a key retailer not measured by IRI as well as increased sales of Fisher peanut butter helped drive 55% growth overall. Fisher Nut Exactly was up significantly versus a year ago, largely driven by the fact that we are lapping the introductory test market period. Club remains an important channel for Fisher Nut Exactly where we continue to execute regional in and out programs. Outside of the club channel, Fisher Nut Exactly has performed well at retailers that have supported the brand with merchandising. We are finding that Fisher Nut Exactly like most snack products, needs periodic merchandising support to sustain acceptable velocity. We saw a 13% increase in IRI measured volume versus the preceding quarter driven by retailers that supported the brand with merchandising. Our Orchard Valley Harvest and Sunshine Country produce brands had solid results for the quarter. As described in prior earnings calls, we are transitioning our Orchard Valley Harvest business to Sunshine Country at a major retailer. As such, we look at our produced nut business as a combination of both these brands. Our total produced business of Orchid Valley Harvest and Sunshine Country increased 15% in pound sales versus last year. A significant increase in our total points of distribution, up 34%, is driving the sales increase. On earnings calls, whenever we don’t cover much as management's commitment to a strong infrastructure, so I highlight the investments, our company is making in quality, food safety and regulatory compliance. In 2011, President Obama signed the Food Safety and Modernization Act known as FSMA. The final rules were released in September of 2015 and regulations going to effect this September. It is important legislation impacting the food industry and we've expanded our quality and regulatory departments and enhanced our food safety monitoring verification and validation programs to comply with the new regulations. In this current fiscal year and next, capital expenditures are being prioritized to ensure we are prepared to meet the new requirements of FSMA. In closing, in today’s competitive marketplace, it’s important that our company continually review our strategies, resource allocation and performance to goals in order to assess our success and adapt to external factors impacting our business. While we face many challenges that impact our company, we’ve proven our ability to manage through difficult markets and regulatory changes to mitigate the impact in our financial performance. We face some of those challenges head on this quarter and we adapt it quickly. I had mentioned the changes we are making in our strategic growth plans. In the upcoming fourth quarter, we intend to review and consider alternatives to replace our export growth strategy. The management team remains focused on consistent execution of our corporate goals to create customer and shareholder value. We appreciate your participation in the call and thank you for your interest in our company. I’ll now turn the call back over to Mike.

Great, thank you Jeff. At this time, we will now open the call to questions. Whitley, can you please queue up the first question?

[Operator Instructions] Your first question comes from the line of Francesco Pellegrino with Sidoti and Company. Please proceed.

Don't want to harp too much on what happened with walnuts, I thought you explained it pretty well in the press release. What I do want to touch on was - you say walnut profitability was down $3 million, but walnuts represented just 8% of net sales. And I know 8% of net sales is obviously a dollar figure, it's not insight into your volume, it represented just 11% of net sales in the year ago period. You mentioned that walnut volume sales were down this quarter, lower walnut volume sales this quarter and lower shelling of walnuts reduced the walnut shelling absorption benefit. I'm just left here wondering, if maybe you might have lost money on walnuts given that they represent such a - one of the smaller product types in regards to sales where the business - even though you are vertically integrated for walnut.

No, Francesco. We did not lose money on walnuts. It simply was a decline in gross profit margin.

When you think about how you spend trade spending during the quarter, was more of it allocated to walnuts?

Jeff, you want to take that?

Yes. I would say Francesco that a lot of it was, I won't say the majority was, but there were some promotional activity focused on walnuts.

Okay.

There is a percentage - yes, go ahead.

No. If you have anything left on walnuts, I was going to move on.

Yes. I don't know what the specific percentage is or what that trade spend was, but I would say, it was pretty diverse across all the nut types.

With everything we just saw with walnuts, walnut prices down a lot. We're seeing a market for pecans that is still relatively elevated. Why is - is there a reason why with what we just saw with walnuts won't necessarily happen with pecans or could it happen with pecans going forward? And you are vertically integrated for walnuts. So the concern is if what it just happened for walnut happens with pecans? Watch out because it looks as if you might start to eat a lot of gross profit dollars in trying to push this - this three-nut product out to retail.

So the answer to question on vertical integration, Francesco, we're - it's very consistent and there are vertical integration with pecans versus walnuts. So there is no differentiation there. We are seeing the reverse on pecans where the market is actually going up and not coming down like it is so dramatically on walnuts. So a little bit different scenario there. To tell the opportunity with walnuts now is to gain market share and build that distribution back up again. We saw some consumption declines in wallets over the last couple of years because of the higher prices at retail. And so we anticipate once retailer start reflecting lower prices on the shelf, which they're just starting now. We haven't seen a lot of it, but we are just starting to see it. We'll see that consumption grown.

Okay.

Francesco, let me just add to that. The big difference is that the recent rise in pecan prices to near record levels is actually being driven by a very small pecan crop. And we actually have bought significantly lower amount of pecans this year than we have in prior years. So the risk of us having a carryover really beyond November and what could potentially be a falling market is pretty remote.

So you just said that you're not necessarily long pecans, but the overall crop for pecan is relatively small. So it seems like it's more of a supply issue. So then based upon everything that you're saying, I think you can make the reference that pecan prices could remain elevated or even trend higher. If they start trending higher and you're short in pecan inventory then you're going out on the open market, buying more expensive pecan.

Right.

If it's possible - yes, go ahead Mike.

I was going to say that of the quantity of pecans we bought based on our forecast should cover as well into next fall as the new crop comes in.

Okay.

And I would also add, Francesco, you're going to see such a big gap between walnuts and pecans this year, price wise and the shelf year. We almost can guarantee or anticipate you'll see some consumption stress from pecans to walnuts.

Okay. So walnut could actually start becoming a greater percentage of your next sales given just as the discrepancy in pricing? Okay, so I asked you about trade spending during the third quarter, help me understand – what's trade spending looking like during the fourth quarter right now? Is it in line with last year or are you more aggressively trade spending for certain nuts?

With the lower decrease in walnut pricing and walnut acquisition costs, we do anticipate pretty strong promotions in the fourth quarter from a promotional spend for walnuts.

Why do you need to increase trade spending? I would think that lower pre-nut prices should always sell themselves when consumer see that they are able to buy twice as much walnuts at this point in the year as they were compared to a year earlier. I would think that almost that psychological barrier would sell itself instead of having to push this into customers faces?

Well, part of the goal of the promotional trade spend is to get more distribution and get more products on the floor, so increase our shipper displays, increase places in the retailer, that’s where it goes.

Okay. So the issue with the walnuts this year was obviously just due to how much inventory you had built up. I noticed in your press release that you stated that the average weighted cost per pound of input stock and I think that's raw input stock was down about 16.3% from a year earlier. In your 10-Q I see that the filing although your overall inventory is down about 9.2%, your raw material input stock is actually up 3%, so if I take this 3% that your raw materials are up, and I think that the fact that your average cost per pound is down 16.3%, is it fair to assume that you’re sitting on about 20% more volume in raw input stocks than a year earlier.

I don’t know if the math works exactly like that but we’re certainly sitting on more walnuts than we were a year ago. Now it’s just because we’re getting a bit of a late start on shelling the 2015 crop.

One of the things that - you just said that you were sitting on more walnuts, you didn’t get a walnut shelling benefit this quarter, walnut prices are down approximately 50%, is it fair to say that the walnut shelling absorption benefit that you receive in the fourth quarter and in fiscal 2017 should actually be greater than what it has been in prior years and especially in the fourth quarter because you didn’t do that much walnut shelling in the third quarter. So a lot of it is going to be occurring last quarter of the year?

It’s like probably more like Q1 of next year because we’re going to finish up later than we normally do.

Okay. I will jump back in the queue but I got a couple more questions, if someone else is in line so.

[Operator Instructions] Your next question comes from the line of Brett Hundley with BB&T Capital Markets. Please proceed.

Hi, thank you, good morning gentleman. Thank you for taking my questions. I wanted to follow on that line of questioning with promotional efforts in walnuts and I ask this question respectfully, I just - am curious if that’s the right strategy given the competitive dynamic in the walnut space here in the United States where it’s very mature, very consolidated. There is a fairly large private label component and so why choose the promotional route? I understand you're looking for more distribution but I would expect that your competitor is going to push back pretty hard on share and so my concern is that when you have all this margin upside potential just from your commodity declining, why not aim to hold price and manage for margin, why manage for the volume push?

So it would be one thing if there wasn’t a long inventory of walnuts in the industry that strategy would work but because there is still a long position with a lot of manufacturers in the industry, the DMC has got to move the inventory of 2015 crop now. So if we just held pricing in margined up which we plan to do in some respect you wouldn’t move that big inventory. And so there is kind of accommodation of supply demand that we need to continue to move more inventory up walnuts. You’ll see that reflected but as I mentioned before the comp price will be so much higher than walnut's, I think you're right, naturally we will see an increase in consumption but there is still a large inventory in the industry of walnuts that need to be moved.

Okay. That's fair. And as you think about margin targets, I apologize if you've given us previously but as you think about your strategy and the overall industry's strategy to move product, do you yourselves have gross margin targets for your business or even gross margin targets for your walnuts business. Are there any other certain level where you could say, you know what, we’re going to push on promotion, we need to move this crop, but we really don't want to drop below a 12% or 13% or 14% consolidated margin. We want to keep X margin on our walnut business, 7%, 8%, 9%, 10% margin on our walnut business. Can you talk to that at all?

Brett, this is Mike. Generally when we see significant changes in class and as we plan out our pricing strategy, the goal is to increase gross profit dollars not necessarily lowering or raising margins.

Okay. That's good to hear. And then just one other question for me, can you describe to me in the sense within the marketplace of desire for additional assets? If indeed shelling assets were to come up for sale do you or others view them attractively? Do you believe that there is a marketplace for those assets? I appreciate it.

You’re talking about actually vertically integration shelling operations, walnut, almond, pecan?

Yes sir.

So we would not be – I won’t be part of our strategic focus to expand our shelling operations. We've got great facilities in Texas, California, North Carolina, Georgia. Their corporate headquarters is Arlington. They are not at capacity, so that would not be a priority for us at this time.

Okay. Thank you for taking my questions.

Your next question comes from the line of Francesco Pellegrino with Sidoti & Company. Please proceed

All right, back again guys. One thing - maybe just a follow up on Brett's questioning in regards to the level of appeal for vertical integration to you guys. Brett and I both cover some producers in the poultry phase and what we are seeing right now with retailers like Cosco, as Cosco becoming vertically integrated for poultry production. When I think about just a long term plan for JBSS, it seems that it would be very attractive to a larger industry player that would like to get into maybe private label although the private label business didn't really – didn't do that well without [indiscernible]. Is there a level of appeal that maybe a retailer would look to maybe look at acquiring business like you to roll up into a lot more of these retailers look to become vertically integrated for fresh produce?

So Francesco, we haven't had that call yet from anybody. So it's hard to say. We have seen Cosco as a vertically integrated getting into more packaging and manufacturing themselves for different products for their current signature brand. We have not seen anything roll up or any questions come to manufacturers like ourselves in that respect.

Okay. Just want to touch back again on your inventory position. So when we last talked, raw material and supplies are up 3%. Total inventories are down 9% but your work in process in finished goods were I think a majority of the concern would be with investors if you’re having any more exposure to old walnut harvest which obviously you claim you have already cleared, or maybe high price almond from the last harvest. Work in process is down 20% year-over-year. Could you just give us a little bit more color in regards to what work in process and the finished good is looking like, maybe I know you won’t disclose the volume but maybe the composition blends are you more weighted towards walnuts which I wouldn’t think you would be because you have much of that already off of the balance sheet from the old harvest. Just what your working process is looking like?

Francesco, this is Mike. At this time of the year we tend to see our finished goods and work in process shipped away from recipe nuts and more towards snack nuts.

And when it moves more towards snack nuts what type of pre-nut composition are we looking at?

It’s going to be mixed nuts, cashews and peanuts and 12 mixes.

Okay. So the only nuts that you are vertically integrated for would be peanuts, so we’re not seeing that much peanut pricing volatility. So it's fair to assume that pricing - that your work in progress inventory isn’t that much of a concern like it was a couple of quarters ago with walnuts?

Right.

Okay. Almond, another market that’s been quickly free falling. Could you maybe just talk over the past couple of quarters where your purchasing patterns have been for almonds as you try to put more almond on - into inventory where you would press it when they were down 10% because I think now just based on some of the almond shellers that I have been talking to prices are down 45% to 50% year-over-year. If you were aggressively buying maybe when almonds were down 10%, maybe looking back now doesn't look as if it would have been that great of a decision, maybe you weren’t that aggressive. Just where were your almonds purchasing patterns over the past couple of quarters?

Actually over the past probably 2 or 3 years we basically have been covering one quarter at a time, just because of the volatility. And I believe we're going to continue to do that.

Is there a price point that you guys might get a little bit more aggressive at given how much almond prices have been coming in?

No, we’re getting pretty close to that. Some of the prices on some of the grades I’ve been told are starting to approach our growers cost of production which in our minds is probably the bottom. And as we knew that on certain grades, we will extend that coverage out. Keep in mind that the crop here is going to end at the end of September, so there really aren’t that many more months left in the crop year to cover.

Okay. When you just think about all the dynamics in the treenut and peanut space, average strong prices per pound should be coming in, average costs per pound should be coming in and looks as if you have some really strong volume growth in the quarter to maintain - I guess gross profit dollars, you’re going to need to sell more volume and I know you guys were the industry leaders at least in my opinion when it came to packaging initiative, moving the industry away from canisters and more towards standup packaging. So really get this volume growth onto retailer shelves and I think it might mean you have to talked about this little bit offline, you’re going to need some larger packaging, if walnut costs are going to be down about 50% year-over-year that means that the consumer can almost buy twice as much walnut poundage as they could in an earlier period. I would think that your packaging initiatives are going to be changing pretty drastically?

Yes Francesco, this is Jeff, I was just going to still add that we already are starting that. We have implemented that actually a couple of months ago looking at different larger pack sizes for walnuts specifically and the potential is there for almonds too to upsize some of the almond packages with lower acquisition costs. So we already started that process.

Is there any pushback with besides like for example, if you are selling one pound tubs of walnuts and you moved to two pounds, I’m sorry not tubs - but one pound standup packages of walnut and you moved to two pounds standup packages of walnut. Obviously you can fit your packages on the shelves basically at possibly the same price point that you were selling those walnuts at a year earlier and that you might not get as much velocity on those shelves as you would like?

Well because of retail prices potentially could be very similar to where they were last year, but your - consumers are buying an extra pound in some cases. I think you'll also see that velocity is fairly strong. And then I mentioned earlier the merchandising is so important to get more pounds on the floor so even though you might not have two-pound bag on the shelf everyday and the retailers at special promotional prices would make room somewhere on the floor with those special promotions.

Just from - help me out a little bit with modeling. When I look to model your business, one of the things that I've noticed over the past couple of years is you keep very little cash on the balance sheet. And due to the fact that whatever excess cash that you have used to pay down your revolving credit facility, which is obviously very seasonal. When we move into this period of time in which you have these three nuts across the board pricing just collapsing, the historical trend of not keeping a lot of cash on the balance sheet it's sort of hard to keep that trend going forward because your revolving credit facility, the amount of money you got to put on that is a lot less because you're financing it with on the lower price commodity product. So - model elsewhere I think there are some significant cash bills. I know, Jeffrey, last quarter you discussed the opportunity to acquire some brand. Obviously, you guys have been increasing the size of your special dividend since you initiated it five or six years ago. What would you guys like to do with some of the excess cash that you could potentially be putting on your balance sheet?

We're always, Francesco, looking at acquisitions. There's has been a couple of companies that we have looked at. Nothing has made complete sense for us, either from a pricing standpoint or from a strategic synergies, but so acquisitions are always out there. And obviously dividends are important, we believe, for our shareholders, so it's something that we're going to look at again in the future. Those will be the two areas.

I know you guys have relatively low shares outstanding based - shares repurchases, something you visit, consider?

Francesco, we actually as a Board did review that about two years ago. And we came to the conclusion that, because our public float is so low, it's a little over 8 million shares. To reduce that any further, I would probably restrict volume and consequently have a negative impact on our share price.

That definitely makes sense. When you consider levering up the balance sheet to may be significantly increase the size of the special dividend in a specific year could we potentially see a quarterly dividend being initiated, something equal to like some of the commodity players issue special dividend equal like one third of their net income on any - in any quarter in which they're profitable. Can we almost interpret the annual special dividend that you guys have been issuing as may be indicative of where maybe a quarterly dividend could come into the thinking of the Board going forward?

I wouldn't rule out paying more than one dividend per year, but it is critical for us to make that decision near the end of the summer as a Board. When we have good visibility as to how many nuts we're going to buy, especially peanuts, pecans and walnuts and what they're going to cost. So that basically takes top priority and how we use our borrowing availability. And then lately in second place would be dividend. So the timing of what we've been doing in recent years is pretty critical in that respect.

All right. And my last question was, Jeffery, you had mentioned that you're always considering acquisitions. Your treenut and peanut business expanding with some of your branded products like Fisher Nut Exactly. I might have asked this in the past, but how comfortable are you of sort of going out of the core business? And look when you think a couple years ago, you had Hershey's acquired Krave Jerky. Would you consider a potato chip? Would you consider a beef jerky? Or is this just a free nut and a peanut story? And you would javelin some of maybe the other snacking category, new snacks for you at least.

Sure. A big question, I would say that we are mainly focused on nut-based snacking and ingredients. That would be our first priority. I wouldn't say we are not looking outside of our snacking outside of a category for nuts. If it's close enough in to the snacking consumer that we already know about wouldn't be completely unheard of. But first priority would be a nut-based either snack or some kind of component that has a nut or peanut in it.

All right, perfect. Thanks again guys.

There are no further questions in queue.

Okay. Since there are no further questions, at this time, we're going to end our call and we thank everyone for their interest in JBSS. And please have a nice day. Thank you.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.