Good day, ladies and gentlemen, and welcome to the Second Quarter 2013 John B Sanfilippo & Son Earnings Conference Call. My name is Chantallay and I will be your facilitator today for today's call. [Operator Instructions] I would now like to turn the call over to your host for today, Mr. Mike Valentine, Chief Financial Officer. Please proceed, sir.

Thank you, Chantallay. First, we'd like to thank everyone for participating in our quarterly conference call for the second quarter of fiscal 2013. Before we start, we want to alert 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 our various SEC filings that we have made, including forms 10-K and 10-Q. We encourage everyone to refer to these filings to learn more about these risk factors. Starting with net sales. Net sales for the current second quarter was $215.6 million, compared to $223.3 million for the second quarter of fiscal 2012. Sales volume, which we measured in pounds sold to customer declined by 9.2% in the quarterly comparison. The decline in sales volumes for peanut products and the consumer, commercial ingredient and export distribution channels primarily led to the sales volume decline in the comparison. High selling price for peanut products was the primary factor leading to the sales volume decline in these distribution channels. Sales volume also declined for fruit and nut mixes in the consumer channel, primarily as a result of unit weight downsizing and lower sales through a significant private label customer. Partially offsetting the sales volume decline was an increase in sales volume to a major customer in our contract packaging distribution channel, which was gained through additional distribution and new product offerings. The sales volume decline was also offset partially by a 14.5% increase in sales volume for Fisher baking nuts in the consumer distribution channel. Net sales for the first 2 quarters of the current fiscal year increased to $393.1 million from $380.1 million for the first 2 quarters of fiscal 2012. The…

Thank you, Mike. Good morning, everyone. We are pleased with our results for the first 2 quarters of fiscal 2013, especially in the continued growth of our Fisher brand baking nut business. Our significant increase in promotional spending and advertising, while negatively impacting our current net income, is intended to achieve growth for our higher-margin branded business, both now and in the future. In addition, the company continues to invest in product innovation, marketing programs, and consumer insights to support our Orchard Valley Harvest brand and the private brands of several key retail partners. I'm proud that for the first time since 1995, our Board of Directors, after considering the financial position of our company, declared a dividend. The special cash dividend of $1 per share on all issued and outstanding shares of common stock and Class A common stock of the company was declared on December 10, 2012 and paid the first day of our third fiscal quarter, December 28, 2012. We paid a total of $10.9 million to our stockholders. For those of you that received dividend distribution 17 years ago and then last month, I thank you for your long-term support of JBSS and for your long-term view of our business. We entered the back half of fiscal 2013 with both headwinds and tailwinds, a bit volatile like the weather here in Chicago at the moment. While we are building strong successes in portions of our business such as our Fisher baking and contract manufacturing, the decline in net sales and in sales volume in our second quarter of fiscal 2013, demonstrate that the company faces challenges and we must continue to execute our core strategies with a sense of urgency. And they are to grow our brands, to expand globally and to provide value-added integrated nut…

Thanks, Jeff. Chantallay, we will now open the call to questions. Can you please queue up the first question?

[Operator Instructions] Your first question comes from the line of Patrick Mcnulty of Milwaukee Private Management.

First question I have is, can you talk a little bit about the dynamics of the accounts payable on the revolver relationship in terms of how and why they evolve over the course of the purchasing cycle?

Okay, as you know, we're seller of walnuts, peanuts and pecans. In many cases, we pay growers and farmers at the time of delivery. So typically, we see our revolver balance and our payables rise during our second quarter and continue to rise throughout most of our third quarter and then fall the remainder of the year. A lot of those -- well, the revolver balance is driven primarily by pecan purchase quantities and prices and the accounts payable balance is typically driven by walnut quantity purchases and prices.

Okay and then why has the inventory volume on hand increased so significantly? Is that indicative of expectations of stronger second half fiscal 2013 year-over-year sales?

No, it's primarily driven by walnut harvest that was earlier than it was last year.

Okay that makes sense. And then final question guys, is in relation to the decision to pay the dividend. I recognize that you're making progress with the long-term deposition, but since you're talked in the past about Sanfilippo struggling and a volatile nut price environment that's gross margin level, because of your cost structure vis-à-vis, your purchasing methodology. Why did you decide it was more sensible to pay the dividend rather than to allocate the capital to pay -- reducing net debt and with it the riskiness of the equity?

The long-term -- the prepayments on the 2 long-term debt mortgages were very high and it did not make sense to prepay that debt.

When you say very high, can you give me some color about how disadvantageous that would have been to do that?

It was millions of dollars and as a percentage of the outstanding balances, was pretty significant.

Your next question comes from the line of Gregg Hillman of First Wilshire Securities.

Could you talk about -- I don't know if it's too long for this call -- the inventory that's on your balance sheet right now, what -- in terms of let's say, the top 5 nuts, I guess, what does it represent in terms of the top 5 nuts and what would be the average price, the balance sheet of that inventory and then what is the price you're coming in that you've recently purchased or in the process of purchasing, if you get my drift.

Well, basically, the bulk of our inventories in terms of pounds, are made up of peanuts, pecans and walnuts at this time of the year. And I would guess in pound terms, that's probably at least half of the total pounds in the inventory. I don't have the average -- weighted average cost of -- I run and put stacks in front of me -- but because pecans make up such a large part of our inventory at this time of the year and those prices are down -- what percentage are pecan acquisition costs down? Like 25%, something like that? Meaningful number, that's why our weighted average cost run with stocks is down so significantly versus last year.

Okay and do you have any idea of like you mentioned, that it's going to help gross margins in the next quarter. Does that mean that the gross margin should trend up a percentage point or 2 over the next couple of quarters?

No, not necessarily, Greg. As you know, especially with peanuts and the supplies for the whole industry, high prices really took its toll on the snack peanut consumption in the United States. So it's our view that, and I'm sure many in the other industries share our view, that it's important to get prices back to normal levels and start driving consumption especially on that key nut.

So just getting back to my question, do you have any idea -- can you quantify the impact?

Impact on what? Just price...

Just gross margins. Of all that, what you were just talking about.

Well, just as when we increased prices over the last 2 years, our goal was to maintain gross profit dollars. Similarly, as we reduce prices, our goal is to maintain gross profit dollars.

Okay, and that's roughly inconsistent with the average over many years, not just last year, which was atypical. Is that correct?

That's correct, yes.

Your next question comes from the line of Chip [indiscernible] of AWH Capital.

It's Austin Hopper. I was hoping -- can you -- I think you mentioned it but can you talk about the share that you've got currently on the Fisher baking side versus your largest competitor, and maybe kind of what that was a year ago comparatively speaking?

This is Jeffrey. It's really new distribution gains at 2 major U.S. retailers, so it's taking our packaging innovation, our marketing support and just gaining new distribution at 2 key retailers was where the distribution came from. Plus, increasing the velocity at the current retailers that we had for Fisher in the prior year. So it was a combination of both new distribution and increased velocity due to the marketing support behind the brand.

Okay but the share you've got now versus a year ago and versus your largest competitor?

As a percent of the market?

Yes.

So, I think I mentioned that on the call. If you look at total Fisher, we're -- where is that number? I think that's excluding.

Yes. I thought it was in the high 20s.

Yes. I would say anywhere from 24% to 27% market share.

Low 20s last year I think it was.

Okay and then you talked about the bag innovation and the Karo promotion and some other things that have contributed to this, can you talk about access to sort of nut supply and maybe walnut supply in particular, kind of what has happened there and how that's impacted your share?

Sure, if you look at walnuts specifically, we've really focused on building our grower base of walnuts to support our growth in our Fisher brand. So it was a combination of going after additional growers for walnuts. But at the same time, we also shifted a lot of the volume that we already had in walnuts to -- from our commercial ingredient division and even our export division to support the growth in our consumer channel for Fisher. So it was a combination of both increasing our supply from growers as well as shifting some of the volume from other channels to support the brands. Same for pecans and even almonds, as well.

And this is Mike. I would also remind everyone too that in the third quarter of last fiscal year, we elected to discontinue doing private label business with a significant retailer in order to provide for enough supply of walnuts and pecans to fund our Fisher growth initiatives.

[Operator Instructions] At this time, there are no additional audio questions in queue. I would like to turn the call back over to Mike Valentine for closing remarks.

Okay, thank you, Chantallay. We again, want to thank everyone for their interest in JBSS and this concludes the call for our second quarter of fiscal 2013 and we wish everyone a good day. Thank you.

Thank you for your in participation today's conference. This concludes today's presentation. You may now disconnect. Have a wonderful day.