Ladies and gentlemen, thank you for standing by and welcome to the John B. Sanfilippo & Son Second Quarter Fiscal 2020 Operating Results Conference call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]I would now like to hand the conference over to your speaker, Mr. Michael Valentine, Chief Financial Officer. Please go ahead sir.

Thank you, Shri. Good morning, everyone, and welcome to our 2020 second quarter earnings conference call. Thank you for joining us today. On the call with me are Jeffrey Sanfilippo, our CEO; and Jasper Sanfilippo, our COO.Before we start, we want to alert you to the fact that 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 Form 10-K. We encourage you to refer to these filings to learn more about the risks and uncertainties that are inherent in our business.Starting with the income statement. Net sales for the second quarter of fiscal 2020 decreased by 2.7% to $246.4 million in comparison to net sales for the second quarter of fiscal 2019 up $253.3. The decline in net sales was primarily due to lower selling prices, which resulted from a shift in sales volume, from higher prices pecans and walnuts, the lower-priced trail and snack mixes, peanuts and cashews.Lower selling prices for pecans and cashews, which resulted from lower commodity acquisition costs for these nut types also contributed to the overall reduction in selling prices. The decline in net sales from lower selling prices was largely offset by a 4.8% increase in sales volume, which we define as pounds sold to customers. Sales volume increased by 4.2% in our consumers distribution channel, mainly from increased sales of snack nuts and trail and snack mixes from distribution gains with new and existing private brand customers.Increased sales for our Orchard Valley Harvest and Southern Style Nuts brands also contributed to the sales volume increase in the consumer channel.Sales volume increased in the commercial ingredients channel by 14.5% and that was…

Thank you, Mike. Good morning everyone. I would like to start my comments by acknowledging the passing this week of our former Chairman and CEO, Jasper Sanfilippo Senior. He led the company from 1963 to 2006 and was a strong mentor to many of us at JBSS. And Jasper Senior was an amazing father to me and my brother, Jasper. Our dad loved this company and worked hard to build the foundation for successful business along with family members and a team of talented associates. After he retired like clockwork, he would call and ask me or Jasper almost every day, how is business? How is the company doing? Tuesday before he passed away, he asked that question again. The answer was dad, the second quarter of fiscal 2020 marks the fourth consecutive quarter in which we reported record net income and earnings per share. He had a big smile and was so proud of everyone in the company for achieving such strong, consistent results.I will miss those conversations, but we will always remember Jasper Sanfilippo Senior's contributions to JBSS. It's been a very strong first half of fiscal 2020. We paid a second special dividend during the second quarter of $2 per share providing value to our stock holders. As has been the case in recent quarters we saw strong sales volume growth in our consumer distribution channel from increased sales of private brands, snack nuts and trail mixes. We also had significant sales volume growth in the food service sector of our commercial ingredients channel as new relationships with group buying organizations enabled us to expand our product lines into alternative channels.The entire organization is working hard to drive continuous improvement projects, optimize supply chain efficiencies and enhance JBSS margins. I would like to thank our operations team…

Thank you, Jeffrey. We will now open the call to questions. Shri, please queue up the first question.

[Operator Instructions] Our first question comes from Chris McGinnis with Sidoti.

Good morning. Thanks for taking my questions and just want to say sorry for your loss, my condolences. Great quarter though. I did want to just start to dig in maybe a little bit about maybe just on the top of the revenue around consumer. Obviously, the snack and trail mix has been pretty successful. Just out of the growth from that, how much of that is maybe newer wins versus, I guess, more recent wins versus prior wins? And I'm just trying to figure out how long of a runway do you have for that product. And are you still gaining new distribution contracts at this point?

So Chris, we, some of it is business that is cycling against new business we picked up a little bit less than a year ago. So some of it has been wins that were earned last year. We're still expecting against them because we picked them up prior to Q2. But there is some new business that was built into Q2 that is just starting to ship now. So, I don't have percentage of what that looks like, but it's a combination of both business we picked up last year and business that we just were awarded in Q2.

Okay. And let me just in touch on Fisher. You, obviously, you ended your comments with a little bit of pressure in that segment. I guess if you look over the next 12 months, is there a way to gain back some of that distribution and how are you thinking that in that ability to gain your share back?

So our recipe, Fisher recipe program is still underdeveloped in some areas. There are some retailers that we have very little to no distribution. Our ACV, although it is strong, there are still opportunities for growth. It has become an extremely competitive category for both the branded side and for private brand recipe program. So it's, it will be a challenge I won't deny that but at the same time, there are still growth opportunities to try to sustain and build that brand in the future.

And then maybe just touch on Orchard Valley. I know volumes were up 7% for the quarter. But I think in your, in the prepared remarks, you talked about a 22% decline in volume from one customer, can you just maybe dig into that a little bit? And would your growth for the quarter been that much more significant, if not for that loss of the customer?

That would be correct. So we don't have control over what retailers, how they market, how they merchandise, where they put product, how much space they allot, the produce programs in the US, a lot of retailers are still trying to figure them out and how to make them successful. And so if we had the same distribution placement that we had the prior year, you would have seen much stronger results with Orchard Valley Harvest. At the same time, we built a lot of new distribution with a brand and so in spite of a major retailer not being successful with the produce program, we've got lot of other new volume that is going to be sitting to make up some of that decline.

And as they figure out, I guess, how to market it, is there possibility that, that volume comes back to you?

Yes it is, yeah. So we're working with retailers to help strengthen their produce departments. And so there are opportunities to regain some of that distribution in volume.

Great. Next is maybe just on the commercial side, that increase, can you just maybe talk a little bit about of the increase in the volume, how much that was from the new distribution points versus the peanut kind of byproduct?

Yes, Mike, you probably know that number better than I do, from a percent standpoint?

Yes, roughly about 75% of the pound growth came from new distribution gains with new food service customers.

And so that number is pretty sustainable going forward in terms of kind of the improved environment?

Correct? Yes, but we've been very focused strategically on building our noncommercial sales distribution in the commercial ingredient channel, and so we are really just starting to see the success of efforts in the past to build that business within non-commercial. So a lot of this is just beginning now.

And then just two more questions. Just one on the contract packaging business. I know small piece of business now, but I guess that's how big of an opportunity to turn things around. It sounds like it's obviously pretty near-term contract once?

I can take that. So the new volume that we picked up with an existing customer is probably going to result in something like, maybe a 10% pickup in sales volume for the channel. We also have some other existing customers who have over a year ago and introduced new products that were not successful and they're about ready to launch some new products. Hopefully they'll be successful. And we can get back in the black, in that channel three.

And then just last question around the margin profile, obviously in early this year, the strongest gross margin the last 12 months of your record earnings. Can you maybe just dig in, it sounds like there's some operating efficiency gains or manufacturing efficiency gains. Can you talk through a little bit of how sustainable it is versus the prior year, obviously a pretty big increase? Thanks.

So Chris, this is Jasper, I'll answer that. A lot of the operating efficiencies kind of came across broad areas that we focused on. Some more software implementations where we're measuring efficiencies throughout our warehouse, which made us obviously more efficient in that supply chain handling was ultimately lowered both overtime and headcount. Some of it was due to CapEx that we invested in previous quarters, particularly around automation, and removal of headcount. So we're pretty confident that we will continue to see those efficiencies going forward.

And I guess it's a sustainable, if you're thinking about a long-term operating margin targets, you feel comfortable maybe just give a little bit of kind of thought process around that?

Okay, I'll take that call. This is Mike. So, obviously, we've had a great calendar year with some of the highest margins, and we've experienced in quite some time. A lot of that really the majority of that improvement is coming from substantial sales volume increases. So, I think as long as we can continue this pace of growth in respect to pounds sold to customers, we can expect to have higher than historical average gross profit margins.

[Operator Instructions]. Our next question comes from Tim Call with Capital Management Corporation.

I'm sorry for your loss. He certainly built a great company. With the Fisher recipe nuts loss distribution or loss promotion. One year ago in the second quarter, you lost some distribution from a major customer in the same line. Is this the same major customer?

That would be correct. So they transition some of the branded business to private brand last year, and then there's this calendar year they transitioned additional skews to private brands. So it is just the same customer.

Are they still a major customer?

They are a major customer, but at the same time our sales and marketing teams have done a great job building other distribution with other retailers and building strong Fisher branded recipe programs. So at this point I believe that, I'm not sure if Howard's in the room, our Fisher recipe volume is actually greater with other customers and they were with this, this one specific customer.

Jeffrey, this is Howard. I'm in the room and that is a correct statement.

Okay. Compare it to original levels from three years ago, I guess for this customer, what their, their relative sales, have they fallen for that customer about two thirds or are they fallen by half or through this process?

So we don't anticipate many other changes in their program, although we don't have any control over what retailers do. We believe we have a great success story. If you go back to them with our results for this holiday season and we've got great success stories and other retailers that have supported the brand. And that we've now worked with us to work on promotional activity. So we believe we've got a great success story to go back and try to regain some of that market share market basket that we had with them and so, but again, it's difficult to know exactly what retailers will do. The nut category overall. Sorry, go ahead.

That was a great explanation. Thank you very much. And then scroll brand, you expect that to continue to grow at a high double digit percentage?

The scroll brand is another brand. We have strong brands as I mentioned in our portfolio. We're really just getting started with scroll brand. The opportunities there as our indulgent brand are significant. We've created a lot of new products around the brand. We've offered a lot to retailers and I believe we're really just getting started with building distribution there.

Well, thank you and congratulations on a great quarter.

Thank you. I'm showing no further questions at this time. I will turn the call back over to Mr. Michael Valentine for any further remarks.

Okay, thank you, Shri. Again, we'd like to thank everyone for your interest in JBSS and this concludes the call for a second quarter fiscal 2020 operating results. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.