Good day, ladies and gentlemen, and welcome to the John B. Sanfilippo & Son, Inc. Fourth Quarter and Fiscal 2012 Year-End Operating Results Conference Call. My name is Jasmine, and I'll be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's conference, Mr. Michael Valentine, Chief Financial Officer. You may begin.

Thank you, Jasmine. First, we'd like to thank everyone for participating in our quarterly conference call for the fourth quarter and fiscal year ended June 28, 2012. Before we start, we want to remind everyone that 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 on Forms 10-K and 10-Q. We encourage you to refer to these filings to learn more about these risks and uncertainties. In considering year-over-year comparisons that we will make in today's call, participants should note that the fourth quarter of fiscal 2011 and fiscal year 2011 were 13-week and 53-week periods, respectively, while the fourth quarter of fiscal 2012 and fiscal year 2012 were 12-week and 52-week periods, respectively. The current quarter net sales increased by $324,000, or 0.2%, to $106.7 million compared to net sales for the fourth quarter of fiscal 2011. The increase in net sales in the quarterly comparison came mainly from increased sales prices for all major product types, which were implemented because of higher commodity acquisition costs during the year. Sales volume decreased by 12% in the quarterly comparison. However, approximately 62% of that volume decrease was attributable to the additional week in the fourth quarter of last year. Sales volume declined in the consumer, Commercial Ingredients and export distribution channels primarily because of the impact of high peanut prices on consumer demand for peanut products. Unit volume also declined as a result of limited supplies of peanuts due to the drought that occurred in the main peanut growing areas last summer. Fiscal 2012 net sales increased by $26.4 million, or 3.9%, to…

Thank you, Mike. Good morning, everyone. In spite of a volatile economic marketplace and extraordinarily high commodity prices, the company's results in the fourth quarter and year-end fiscal 2012 validate the success of our disciplined approach to managing raw material and operational costs and aligning those costs with our pricing and product portfolio strategies. I am proud of our management team and each and every employee for achieving record net sales of just over $700 million in fiscal 2012 and for achieving targeted operating margins and efficiency goals this past year. At the same time, I am proud that the company continued to invest in product innovation, marketing programs and consumer insights to support our Fisher, Orchard Valley Harvest and ARMA brands and the private brands of our key retail partners. As we celebrate our 90th year in business, I believe our founding fathers would also be proud of the company today and encouraged by the opportunities yet to come. Fiscal 2012 could be described as a quiet year, a challenging year and a remarkable year for JBSS. In some respects, it was a quiet year. We were not involved in major projects such as acquiring a business or relocating operations. And we had no unusual events impacting our financial results, as Mike mentioned. In other respects, however, fiscal 2012 was a challenging year. As a Mike highlighted, the cost for tree nuts remained at historically high levels and cost for peanuts more than doubled due to a small crop. Although our sales volume was certainly negatively affected by the high cost of nuts and limited quantities of certain nut type, we were able to align our selling prices with our costs and provide consistent quality supply to our customers and consumers. It is important to note the impact higher…

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

[Operator Instructions] And you have a question on the line from Mr. Austin Hopper with AWH Capital.

Just want to ask a couple questions about your walnut business. You spoke to a more, sort of, stabilized pricing environment generally in 2013. Can you comment about carry-in inventory in walnuts going from the 2011 to 2012 crop year? Any thoughts on kind of what the carry-in inventory is expected to be versus maybe what was last year for the industry?

Yes. This is Jeffrey. Thanks, Austin. Yes, we anticipate there's going to be some tight supplies going into new crop year for walnuts. Walnuts were competitively priced this past year, and we saw a pretty substantial growth in shipments. For walnuts, we anticipate a tight supply going into new crop. However, the new crop looks substantial. And we anticipate that prices will stabilize going in new crop. But we do see a good quality and a significant-sized crop coming up for 2013.

Okay, great. And then can you talk about just kind of contracting with walnut growers? Is it typical that you have sort of 100% contracts with your growers where they provide you 100% of their production, or is it more that they would provide to multiple processors?

This is Mike. I think the majority of our growers contract solely with us.

Okay. Have you seen any change in the industry on that front?

No.

Okay, okay, just curious. Okay. And then finally, you talked a fair amount about your Fisher baking, and I'm just curious what you've seen on that front on the walnut side of your business in terms of your ability to grow share there, how you've been able to do it and kind of what has happened on the walnut baking side?

Sure. Well, we have a full program. It's not just walnuts, its pecans, almonds, walnuts, hazelnuts, so it's a full baking nut program. And we've invested in innovative packaging. It's a stand-up bag that retailers, I think, embraced. We did a lot of consumer research on the baking category and what, potentially, was missing in the category. And the focus group supported going to a stand-up bag, it's better presence in the markets, better presence on the shelf. Consumers like the fact that they can reclose all the packaging in the baking nut category in case they don't use a full amount for a recipe. So as a result of that, we were able to gain new distribution at some key retailers. So we're very optimistic about our opportunities to expand our Fisher baking program in the market. Plus we have a strong integrated promotional program. We're teaming up with Karo Syrup for the fall for a promotion with them on holiday baking nuts.

Your next question comes from the line of Avris Vexler [ph].

Divicom Partners [ph]. Just a question, I believe that in the year that just ended in June 30, the company depreciation and amortization was probably to the tune of about $16 million to $17 million, while the capital expenditure is in the range of $8 million, creating basically an additional, I guess, cash earnings of maybe $8 million to $9 million, $0.70 to $0.80 per share. That discrepancy was also last year. And last year, it created about $12 million, maybe over $1. Do you expect that to continue?

We've seen that the trend actually for more than 2 years. I think it's been more like 5 years and a lot of that has to do with the fact that most of our equipment, especially up here in the Elgin area, is new. And we're not planning on any major projects in fiscal 2013.

Okay. So capital expenditure, I guess, if you have any range of estimates, the next year will be in the tune of $8 million and depreciation maybe in the tune of $16 million to $17 million creating another $8 million?

Well, I think you're right on the depreciation. We will disclose what we're going to forecast for CapEx in our K, which is going to be filed next Thursday. So keep an eye out for that.

Your next question comes from the line of Nick Peters with Milwaukee Private Wealth Management.

Can you go over what are the major costs that go into the sell-in expense line?

I'll take it. Okay. This is Mike. The major costs, of course, compensation-related expenses. After that, I would say probably freight expenses, advertising expense and broker commissions were top of list.

Has that changed meaningfully over the past 3 years?

I think, in respect to freight, we've seen quite a bit more of our customers picking up their goods here instead of us delivering it to them. So and that started about 2 or 3 years ago, we noticed that. Brokerage commissions, as a business, has shifted away from industrial sales to more consumer sales. We've seen an increase in commissions as a result of that.

Okay. And then finally, can you go over the successes and where you've been finding, I guess, the most success in your marketing campaign over the past few years?

Well, definitely on the baking category, we think there's been a lot of opportunity for baking. Although it's not growing rapidly, we still think there's a lot of opportunity for ingredient nuts in grocery and so we've had great success there. I think a lot of the new innovative packaging brought some innovation to the category, which has hadn't seen in a long time. As I mentioned, the consumer-friendly packaging, I think, is attracting consumers to that category now. I think the Fisher snack, although we haven't had great success there, I think we've got some good plans in place to relaunch and invigorate the snack side of our brand. And then Orchard Valley Harvest, as I mentioned, it was really a rebuilding year for Orchard Valley Harvest brand, and we've invested a lot in consumer insights, brand positioning. We believe we've got a strong concept going forward that we will relaunch this year. And then private brands, we've got some key private brand partners that we work with, very innovative, building equity in their brands, close partnership. We are providing them with innovation and work very closely on growing their brands as well.

Your next question comes from the line of Ron Strauss with Perkins (sic) [Pekin].

Pekin Singer Strauss Asset Management. You characterized, Jeff, the walnut crop has been substantially larger this year than last. Could you talk a little bit about the other tree nut crops and peanuts as well?

Okay, sure. Well, I'll cover pecans. So far, the crop looks good. It's a little bit early still because our harvest hasn't started. It is the off year for pecans. So normally, this would be a smaller crop than last year. However, with what we've seen in the market and what our field buyers are telling us, it's going to be a strong crop. Also there's a huge carryover for pecans, partly due to the price increases and just the demand destruction we've seen for pecans in the U.S. and for export shipments. So we believe there's enough crop to cover over until next year, and we see a pretty strong crop even though it's the off year. The almond industry continues to grow. Although the crop size is substantial, demand continues to increase. In the almond market pricing has been very stable over the last couple years. And as a result of higher prices of other nut commodities, the almond market continues to grow double-digit domestically and export shipments are very strong.

And, Ron, I'll take cashews and peanuts. Let's start with cashews. The northern hemisphere crop was recently harvested in May, and that looks like it's coming in as a normal-sized crop. The reason why cashews prices are expected to decline is we've seen a very significant decrease in demand for cashews. I think the last category numbers I saw, we're almost down 20% year-over-year. But anyway, good news on the supply side. In respect to peanuts, we expect a record crop, possibly as much as 2.8 million tons. A normal-sized crop is typically around 2.1 million tons, and that's why we're anticipating sizable declines in peanut prices this fall and forward.

With these large crop sizes in mind, do you see price pressures coming on the selling side? And if so, what does that portend for gross margins?

Well, Ron, we've done a great job. This is Jeffrey. I think I've done as good a job as anybody in our industry managing our inventory levels. And so as our standards come down as new crop gets harvested and we bring it into our buildings, we're in a strong position to start marketing and promoting. This past, really, 2 years has been a challenge trying to sustain volume because of price increases. If you talk to our Commercial Ingredient team, they've probably had 3 or 4 price increases just in the past year, which are never easy to execute. But it just takes the focus off of really driving growth and driving volume. I think with the stabilization of the markets and some commodities coming down, we can refocus our efforts now on rebuilding some of that growth. But we're in a good position to take advantage if and when these crops do come down and they're in our building.

[Operator Instructions] Your next question comes from the line of Christopher Robertson.

Cardinal Capital. Wanted to ask you if we could dig into the administrative expenses a little bit. I know that last year was unusually low. Could you remind us whether that was just a function of compensation? And also I know there was a previous question about the mix between freight and advertising, et cetera. But could you give a little bit more granularity for those of us of that aren't as familiar with the name as to the dollars tied to those different areas, please?

Sure. This is Mike. The bulk of our admin expenses are related to compensation expenses. Last year was low because we did not hit our targets. And consequently, there were no incentive compensation expenses. And that pretty much explains the increase this year. After that, the categories get pretty small, probably depreciation would come second. And by the way, I'm including all the benefits and that sort of type of expense when I talk about compensation. And then, once we get beyond that, it gets pretty small outside of audit and legal expenses.

Okay. And the second question that I had was can you comment at all about the Diamond Foods' fallout, and how that has helped or provided any opportunities that you see that weren't there before, or whether it's more status quo in the industry?

This is Jeffrey. From a sales standpoint, any kind of doubt with any supplier or manufacturer as to supply concerns, if you're a retailer or another food manufacturer, always will create opportunities from a selling standpoint for us. We've done a great job, I think, definitely last year making sure we had consistent supply for our customers and consumers. And so any kind of doubt that might be occurring in the buyers' mind as to Diamond, I think, creates opportunities for us. If we have the right value proposition and sell story from a selling standpoint. From a grower standpoint, again, if there's doubt on what's happening or concern from a grower standpoint, could create opportunities for us to pick up additional in-shell from our field buyers.

And at this time, we have no further questions. I would like to turn the call to Mr. Michael Valentine for closing remarks.

Thanks, again, Jasmine. Again, we'd like to thank everybody for their interest in JBSS. This concludes the call for our fourth quarter and fiscal year 2012 operating results.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a wonderful day.