Good day, ladies and gentlemen, and welcome to the John B. Sanfilippo & Son, Inc. Second Quarter Fiscal 2012 Operating Results Conference Call. My name is Jennifer, and I'll be your coordinator for today. [Operator Instructions] I would now like to turn the conference over to your host for today, Mr. Mike Valentine, Chief Financial Officer. Please proceed.

Thank you, Jennifer. First, we'd like to thank everyone for participating in our quarterly conference call for the second quarter of our fiscal 2012. Before we start, we may make some forward-looking statements today. These statements are based on our current expectations and involve risks and uncertainties that are inherent in our business. The factors that could negatively impact results are explained in our various SEC filings that we have made, including Forms 10-K and Form 10-Q. We encourage everyone to refer to these filings to learn more about these risk factors. Net sales for the current second quarter was $223.3 million compared to $223.6 million for the second quarter of fiscal 2011. Sales volume, which is measured in pounds sold to customers, declined by 13% in the quarterly comparison. Net sales remained relatively unchanged due to price increases that were implemented over the last 12 months for virtually all of the products that we sell. Volume decline occurred mainly in the consumer channel, though we experienced declines in all other channels. Volume declined on sales of all major products, except fruit and nut mixes. The volume decline in all channels is primarily attributable to the impact of high prices on consumption. Also contributing to the volume decline was lost insignificant margin business with 3 private label customers, who would not accept price increases and put their business up for bid. To a lesser extent, limited supplies of walnuts and pecans also contributed to the overall volume decline in the quarterly comparison. Net sales for the first 2 quarters of the current fiscal year increased to $380.1 million from $370.4 million for the first 2 quarters of fiscal 2011. Price increases, again, were the primary driver of the increase in net sales as sales volume decreased by 10.4% in the…

Thank you, Mike. Good morning, everyone. From Mike's comments and the information provided in our press release and 10-Q, there are 2 highlights in this quarter that are important. First, the significant improvement in gross profit and gross profit margin due to the alignment of selling prices and commodity acquisition costs. Our financial results show a return to targeted operating margins. Our gross profit margin as a percent of net sales, as Mike mentioned, increased to 15.9% for the second quarter of fiscal 2012 compared to 12.2% for the second quarter of fiscal 2011. Gross profit increased by $9.4 million or 19.7% to $57.2 million for the second quarter of fiscal 2012. Over the last 4 years, the management team made changes to our business that allow us to better manage the complexity of volatile commodity cost shifts in our industry. Due to our vertical integration, nut procurement expertise, visibility of crop conditions and quality and what I believe to be a core competency in managing supply chain, JBSS was able to react quickly and effectively. The alignment of our raw material costs and selling prices in Q2 in such a volatile and competitive market demonstrates the discipline of our sales, marketing and customer teams to execute price changes. Price increases with customers are never easy, but we worked closely with our key partners to implement them. We also worked with those key customers to ensure they had adequate supplies on hand during the holidays, and we improved service levels. We also worked on our product portfolio, formulas, pack sizes and merchandising displays to assist customers with reducing their supply chain costs, such as warehouse inventory levels and store labor for stocking shelves, while driving incremental volume. We expect that acquisition costs for most tree nuts will be relatively stable…

Okay, Jeff. Thank you. At this time, we'll open the call to questions. Jennifer, can you please queue up the first question?

[Operator Instructions] Your first question comes from the line of Bruce Winter [ph].

Could you please update the status of peanuts with respect to overall demand, overall industry supply until the next harvest and your situation relevant to that and how it might affect profits going forward?

Okay. This is Mike. I'll take the supply one, and I'll let Jeff take the demand one. On the supply side, we do have a significantly smaller crop than what we typically see. Average crop typically runs about 2 million farmer stock tons, and only about 1.8 million were harvested this year. That follows a very challenging crop in the prior year, which was negatively impacted by aflatoxin. So peanut supply is very tight. We are covered. Because we're a peanut sheller, most of our coverage is at levels that are much more favorable than today's market prices. We do believe that we'll have enough peanuts to get us through the rest of this crop year. And that pretty much wraps up the supply end of it. Jeff, do you want to take the demand?

Yeah. We're continuing to see softness in peanut consumption. We're starting to see that accelerate as peanut price increases are starting to reach their way into the market, and so we have seen a trend towards decreased consumption in peanuts at retail.

Okay. Net-net, what does that mean towards profits?

Well, as we've mentioned in our release, we have aligned our prices and acquisition costs, and that also goes for peanuts, too.

Let's see. So you should have built-in profits in your inventory for peanuts. Or -- isn't that a good way of looking at it?

Well, not necessarily, because the market, at least as far as what our competitors sell peanut products to retailers, those prices don't reflect the current market prices for raw peanuts. So I wouldn't say that's necessarily true.

We'll just have to wait and find out, I guess.

You should consider them aligned.

[Operator Instructions] Your next question comes from the line of Greg Venit from Morgan Stanley.

I was wondering, with your walnut operation, is there any potential benefit with the problems that Diamond Foods is having with their walnut growers that you may be able to pick up additional business and run through your walnut processing?

Greg, we're -- at this point in the crop year, we're not really familiar with what the relationships are with growers. And also, at this point in the crop year, growers typically don't make a decision as to whom they're going to do business with, so it's just too soon to say.

When is there a time that the growers make a decision? Is it near harvest time? Or are they locked in for a long period of time? How does that work, Mike?

It's somewhat mixed in that respect, and that pretty much goes for all shellers. But typically, in the walnut industry, growers make their decision usually in the early part of the summer.

So are these people locked in to Diamond? Or is there a potential that some of them may be knocking on your doors and would rather do business with you?

We don't really know if their growers are locked in for -- in multi-year contracts or individual-year contracts.

All right. So we may know by this summer then?

Yes. I think the industry will have a much better idea as to what growers, in general, are going to do, including our growers, in terms of contracting for the 2012 crop.

Do you have the ability in your shelling plants to take additional -- if additional capacity came your way, do you have the ability of taking that on with no cap --

Yes, we do. Yes.

So you could take on quite a bit, I guess.

Yes, we have the excess capacity to do that. And if there are actual walnuts available, we'll buy what is appropriate based on our strategic plan and forecast that we'll have in place by the end of the spring.

And Greg, this is Jeffrey. If you look at our current capacity availability in our Gustine, California, facility, there's a minimum of additional 10 million pounds of in-shell capacity available.

What's the total capacity there?

It's around 60 million on the in-shell.

60?

Yes.

Okay. So that could increase your profit margin if you got -- if you were able to obtain more volume?

Well, volume always helps, but we always have to keep in mind, too, that the price of in-shell walnuts in the field also determines that, probably to a larger extent. So that will be the ultimate determining factor on how much we buy.

Okay. Is there any update on the real estate -- excess real estate that you've been working on trying to dispose of over the last year or 2?

Yes. Well, we're still working with a potential buyer. We're hoping to conclude something at the end of this fiscal year, but it's still a challenging environment for real estate in the Chicago area. But we're optimistic that we could complete something over the next 5 or 6 months.

Excellent. The next quarter, by the way, that's -- the next quarter coming out is usually a slower quarter. Is that correct?

The third quarter is, yes, normally our slowest quarter.

Your next question comes from the line of Mike Lyons from Lyons Asset Management.

Yes. I just wanted to follow up a little bit on capacity. It would seem to me, with the plant -- the facility consolidation finished and pounds decreasing in the last year or so, that you would have a fair bit of spare capacity. And I wondered if you thought you could fill that up, if that assumption is correct, through organic growth over the next few years or whether you really need something on the acquisition front?

Well, obviously, the acquisition front would get us an immediate increase in volume. We still believe there are a lot of organic opportunities as we look to focus on building our brands, both Fisher and Orchard Valley Harvest. We're continuing to work with key private brand partners to help grow their snack and baking nut categories. We've got additional capacity. The volume declines, obviously, are moving in the wrong direction, but we're confident that there's enough opportunities that we can pursue a lot of organic growth. While we've had volume declines, we have made a conscious effort to reduce operating costs through increased efficiencies and really focused on reducing our operating costs across each of the facilities. But definitely, an acquisition would increase volume much quicker than organic growth at this time.

And is the export market potentially significant to you going forward? Or will it be fairly immaterial?

No, it's a key focus. It's one of our strategic pillars. We are in the process of working on opening up an office in China. We've got a distributor in China right now that is selling our Fisher brand in the market, but we definitely have a key focus on expanding our global distribution of Fisher overseas, as well as aligning with our key partners in the U.S. that are also expanding their retail stores overseas. So it's -- it is part of our key strategic plan.

And there are no further questions at this time. I will now turn the call back over to Michael Valentine.

Okay, Jennifer, thank you. That concludes our call for our fiscal 2012 second quarter. Again, we'd like to thank everyone for their interest in JBSS, and we wish you all a good day. Thank you.

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