Good day, ladies and gentlemen, and welcome to the John B. Sanfilippo & Son, Inc. First Quarter Fiscal 2014 Operating Results Conference Call. My name is Denise, and I'll be your operator 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, Denise. Good morning, everyone, and welcome to our 2014 first quarter earnings conference call. We certainly appreciate you participating today. On the call with me is Jeffrey Sanfilippo, our Chief Executive Officer; and Jasper Sanfilippo, Jr., our Chief Operating Officer. 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 they involve certain risks and uncertainties. The factors that could negatively impact results are explained in the various SEC filings that we've 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 that are inherent in our business. Starting with the financial recap. Net sales for the first quarter of fiscal 2014 decreased slightly to $176.7 million in comparison to net sales for the first quarter of fiscal 2013 of $177.5 million. The decrease in net sales was less than 1%. Sales volume, which is defined as pounds sold to customers, increased by 14%. The favorable impact on net sales from sales volume increase was offset by lower selling prices overall. Selling prices decreased mainly in pecan and peanut products in response to lower acquisition costs. Competitive pricing pressure at 2 of our major private brands snack nut customers also contributed to the overall decrease in selling prices. Sales volume increased in the contract packaging, commercial ingredients and consumer distribution channels. Sales volume increased for all major product types, except cashews and walnuts, both of which were relatively unchanged. The sales volume increase in contract packaging distribution channel came primarily from new product launches and increased promotional activity implemented by a major existing customer. The sales volume increase in the commercial ingredients distribution channel was due primarily to increases in…

Thank you, Mike. Good morning, everyone. Last fiscal year at this time, we reported record first quarter net sales and net income. It was a strong way to start fiscal 2013 and a proud moment for the company. And now a year later, we nearly matched those record levels again, especially after factoring out the unfavorable impact on net income from sales of assets in the quarterly comparison. As Mike just mentioned, we also faced significantly lower peanut selling prices compared to prices in last year's first quarter and competitive pricing pressure with some of our major customers. These factors impacted our net sales and gross profit in the first quarter. Our management team recognized these challenges early on and responded with action plans. Our operations teams achieved meaningful efficiency improvements through their focus on lean manufacturing efforts, and our sales leaders gained new volume in our commercial ingredient and contract manufacturing distribution channels, as well as our consumer channel with existing customers. Although our net sales of $176.7 million for Q1 are down 0.5% from the prior year due to these lower selling prices, it is important to note that significant increase in volume, measured as pounds sold, as Mike mentioned, to customers, of 7 million pounds or a 14% increase in Q1 of 2014 compared to last year. During the fourth quarter of fiscal 2013, we updated our strategic plan, the goal of which is to drive profitable growth, and we continue to execute our strategies during the first quarter of fiscal 2014. Our long-term goals include growing Fisher and Orchard Valley Harvest into leading nut brands by focusing on consumers demanding quality nuts in the snacking, recipe and produce categories; expanding globally and building our company into a leading premium international snack nut company; and create value…

Thanks, Jeff. At this time, we will open the call to questions. Denise, would you be kind enough to queue up the first question.

[Operator Instructions] Our first question comes from Jeff Geygan with Milwaukee Private Wealth Management.

Couple questions. You allude manufacturing efficiencies achieved during the quarter, and I'm curious, is that a transitory or a permanent situation. And if it's permanent, can you quantify how that impacts margin?

Sure, Jeff. This is Jasper. The manufacturing savings that we've been able to accomplish were really related to efficiency improvements and headcount reduction. We believe that they are permanent as we made recurring changes to the lines as well as put some systems in place to make sure that those were sustainable. As it relates to the savings, we really can't disclose what those savings are nor how they would impact our gross margins.

Yes. And Jeff, this is Mike. I would also add that we had a significant increase in production volume in the first quarter compared to the prior year, so that also is driving some of our efficiency gains. So it's a little bit difficult to quantify how much volume had an impact versus our lean manufacturing efforts.

I got it. But so some of that may be spreading of overhead. But other -- are there other savings that are real and will accrue favorably in the future?

That's right, yes. We -- you may recall, we started our lean manufacturing efforts back in -- early in our fourth quarter of last year. That's still a work in process, but we're committed to it. We engaged consultants to help us back then, and we're trying to impose a lean culture throughout our whole organization. So we expect not only will we have savings in manufacturing but also in the back office, too, as that continues.

Appreciate it, Mike. And one more question for you, as it relates to your inventory, can you provide a little more color in terms of how you end up with this excess inventory? And please, if you can, Walmart and Target are looking, to me, like they're trying to reduce their own inventories. Is this -- how does that impact you?

The -- first of all, the finished goods increase was scheduled more along the lines of what occurred last year in terms of when shipping started to most of our customers as we entered busy season. Those goods will ship this quarter as opposed to in the first quarter, so it will flush out anyway. And if your concern is that we might get stuck with excess inventories, that won't be the case.

And I would add, Jeff, that if you look at some of our positions, pecans as an example, knowing that we're coming into what we anticipate a higher cost for pecans, the new crop, we strategically made a decision to have some carryover going into this coming year.

Appreciate it. And last question, Jeff, this might be for you. Strategically speaking, you're developing your OVH and Fisher brand. At what point do we see either an improvement in margin as a result of that and/or a situation where we don't seem to get caught in this lower purchase price equals lower selling price equals lesser margin, either absolute or relative?

Well, a lot of that -- as far as the selling price at retail, a lot of that will depend on what our competitors do, both private brand and the national competitors. We continue to invest in the brand. We believe we've got the right pricing positioning in the categories that we participate in, so it's really a matter of getting -- gaining market share, investing in the brand. You're always going to see competitive pressures from both private brand and national competitors. At the same time, we don't manage what the retailers, in some cases, sell our products for so that puts some pressure as well on us. But I mean, overall, some of the pricing pressure we saw really impacted more distribution than it did actual prices on the shelf.

At this time, we have no further questions. Please proceed.

Okay. Denise, thank you. Again, thank you, everyone, for your interest in JBSS, and this concludes the call for our first quarter of fiscal 2014.