Good day ladies and gentleman, and welcome to the John B Sanfilippo & Son Incorporated First Quarter 2017 Operating Results Conference Call. My name is Derrick, and I’ll be your operator for today. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Mike Valentine, Chief Financial Officer. Please proceed.

Thank you, Derrick. Good morning everyone, and welcome to our 2017 1ts quarter earnings conference call. Thank you for joining us today. On the call with me today are Jeffrey Sanfilippo our CEO and Jasper Sanfilippo our COO. Before we start, we want to remind you 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 forms 10-K and 10-Q. We encourage you to refer to these filings to learn more about the risks and uncertainties that are inherent in our business. Starting with operating results, net sales for the first quarter of fiscal 2017 decreased by 1.5% to $222.3 million in comparison to net sales last year of $225.8 million. The decrease in that sales came from lower selling prices for products containing walnuts and almonds. The decline in selling prices for these products was due to lower commodity acquisition costs. Sales volume, which we define as pound sold to customers, rose by 9.7% in the quarterly comparison. Sales volume increase was driven primarily by increases in sales of peanuts, walnuts, pecans, and almonds in the consumer channel. Sales volume increased in all distribution channels. The majority of the total sales volume increase as I mentioned occurred in the consumer distribution channel which was primarily driven by increased sales of our branded products. Fisher Recipe Nut sales volume increased by 44.6% mainly due to distribution gains with new customers, increased promotional activity, and the introduction of a larger package size for walnuts. Fisher snack, nut, and peanut butter volume increased by 13.2% primarily due to distribution gains with new customers and increased product display activity. Orchard Valley…

Thank you, Mike. Good morning everyone. As you can see from our earnings release the company started fiscal 2017 with strong momentum. This is the fourth consecutive year the company has reported record first quarter operating results for net income and diluted earnings per share. This year the strong results are due to a significant increase in sales volume and improved gross profit margin. Approximately 50% of the total sales volume increase came from increased sales of our branded products which has been a strategic focus for the management team. As was the case in fiscal 2016, sales volume growth for our brands continues to outpace sales volume growth for our private brand products. Sales volume measured as pounds sold to customers increased 5.9 million pounds or 9.7% compared to the first quarter of fiscal 2016. As I mentioned on the last quarter call, our management team is keenly aware of the importance of margin expansion. So we continue to build our brands and transform our business and that of our customers with product, packaging, and processing innovation. We are also focused on operational efficiencies to reduce cost throughout our manufacturing and supply chain. And lastly, we are assessing our SG&A expenses and corporate structure to optimize our investments and talent across our company. I want to thank our management team and all of our dedicated employees for their leadership and congratulate them for a great start to our fiscal 2017 year. We ended fiscal 2016 with strong momentum and now we continue to execute our plans to grow JBSS brands, expand consumer reach, and provide best in class integrated net solutions to keep partners. In our first quarter, our board of directors after considering the financial position of our company and other factors declared a special cash dividend of…

Thank you, Jeff. At this time, we will open the call to questions. Derrick, can you please queue up the first question?

[Operator Instructions] And our first question will come from a line of Francesco Pellegrino, Fidelity.

Good morning guys.

Good morning.

Hey, Francesco.

So, just quickly, I know this quarter was a first quarter record. Are we lapping a record in first quarter of last year as well?

Yes, correct. We are. Actually this is the fourth consecutive first quarter where we have record earnings.

Okay. So, this might be a good lead in because I think it's an interesting time for the company. I take a lot of calls about just the cycle turning over. And when I speak with you guys about one of the slides in your presentation that shows all of the stock market pricing for various nuts, in the past you guys haven't been able to manage a cycle turn as well as you are doing it now. And we look, when we go back to like 2002 and we go back to 2007, you're just never able to maintain that. gross profit per pound that we're seeing now. Can you just give us a little bit of color or maybe what you guys are doing differently now than what you were doing then? Is it the product mix? Is it better inventory management? Is it better price initiatives? Is it brand growth? There's a lot of things you guys are doing well, and I would just be interested to hear what's the one thing that you attribute it to.

Well, I wouldn’t say there’s just one thing Francesco. Obviously one of the biggest factors is building our branded business. We have much more control over our pricing. We have much better control over what our volume expectations are with our brands. And there's a higher margin in our branded business. And so I would say, if there was one significant thing it would be shifting our focus on building our brands, but at the same time working with key private brand customers to help build their programs, but do it in a profitable way where we can mitigate these huge fluctuations in margin compression by creating value in equity in their own brands through product innovation and packaging. So, I would say topline that would be the two key things. But additional, we're really focused on our operational efficiencies across every facility and organization. We’ve improved the talents in organization. You know, it's little things that you can't pick at individually, but overall it’s just done a great job in helping shift our focus on managing these volatile markets. And so, the talent, the brand building, operational efficiencies, and then the volume increase as we've increased our volume over the last couple of years we've got excess capacity in our facilities which we've talked about. And we're starting to fill that capacity now with profitable business.

But you guys buy commodities. And just a little bit puzzling because when nut prices are high steal share with not prices are low you gain volume. And there just seems to be this smoothing effect that regardless of the operating environment, is this record EPS year, over year, over year. And maybe I'm not giving you enough credit for your brand performance, which I noted that 50% of the total volume growth during the quarter was attributable to your brand. So, I'm just hearing a lot of commentary with some of these other not nut manufacturers but some of these guy selling not clusters just giving cautionary commentary in regards to almond pricing. You guys aren't vertically integrated for almond pricing What are you doing so much better with as compared to your peers when it comes to something that you're not vertically integrated for almonds that a lot of your peers aren't vertically integrated for as well?

I think part of it is our expertise in procurement. I think people take for granted the importance of having great procurement people in your organization. And we've talked about how 80% of the cost of goods is in the raw material itself. And so we've got to be experts at procurement, understanding what's happening with commodities. Even though we're not primary shellers of almonds, we do have very good insights into what's happening with the almond crop both from a supply standpoint, but also from a demand and consumption standpoint. And so I think we've got good visibility and what we should be doing with our inventory management a little bit better than maybe some of our competitors in the industry.

Okay. One thing, and maybe this might be a question for Mike. When I look at your volume growth and then I looked at the change in your selling expenses, volume was up 10% selling expenses were relatively flat year over year. I would have thought there would have been some sort of correlation like some direct correlation between the two. Could you could you give us a little bit of insight into that?

Well, on the selling expense line, you know, we did have an offset in compensation. And a lot of that’s just due to the fact that we've eliminated our sales office in China, you know, which had quite a bit of selling expense related to it so that helped offset some of the freight expense increase.

Okay. Quickly moving to Fisher Nut Exactly. It's something you guys have identified as the problem, but I would think if you guys are maybe making it a bigger deal than it actually is. Aren’t the problems you're encountering off of a small base?

Correct. It is a very small base at this point. I remember we launched the brand two years ago, and it's - although we have distribution in the club channel, that's been the majority of the distribution. Now we're getting additional distribution in grocery. But it is off of a very small base. That is correct.

So, it seems as if you might have hit the ceiling sooner than later with the Fisher Nut Exactly. Like Orchard Valley Harvest, this just seems like it’s a brand with legs. Like what should we be thinking about with the ceiling, because the base isn’t small anymore it's growing to the fact that you just started to break it out in regards to your branded sales as a percentage of the consumer business. It's really running. Is it just new distribution growing at the produce category? What is going to start to this brand to maybe slow down a little bit?

Well there’s so many opportunities for Orchard Valley Harvest. It is the right brand, the right time -- health and wellness, the non-gmo, clean ingredient deck. The packaging the marketing team, and creative services have put together have done a great job. So, we've got the right brand at the right time. And there's going to be continued growth. You know, we've focused initially on the produce category. We felt because it was a produce brand originally it was the right place to start, which is what we've done. But there's still opportunities not only in produce because we don't have national distribution in some areas, but also in other alternative market channels where we see opportunities for OVH and, and we've gained some distribution now. So we see beyond actually the produce category more opportunities with OVH.

All right. I got a couple more questions but I'm going to jump into queue and let someone else take over.

Thanks, Francesco.

[Operator Instructions] And it looks like we’ll have a follow-up from a line of Francesco Pellegrino.

All right guys. Just talking about your balance sheet. Look, it’s significantly under-levered. You’ve already done a $2.50 special dividend in the first quarter. When does the board meet next to discuss maybe an additional special dividend throughout the year. Because I know you traditionally pay one over your staff in the second quarter.

I got it. So, for the last four years our board has met at our Q1 meeting to assess whether we're in a position to pay a special dividend. And as I mentioned before typically what we do as management is we update our board in respect to, you know, what quantities of nuts we're going to buy, and what price we're going to pay, and what that impact is on our borrowing capacity. And then typically if the board believes there's enough excess borrowing capacity, after we buy -- especially the nuts that we shell --then the board will consider a special dividend.

When is this meeting taking place?

We're actually meeting - we have board and committee meetings starting this afternoon, and then of course tomorrow is our annual meeting.

Okay. So we could be finding out about another special dividend if it were to occur relatively soon.

That's correct.

Okay. And a question that I’ve asked you you guys in the past, and I don't know if it makes sense anymore, is I've always asked you about the M&A space and if there's anything out there that you consider. And you guys have always said, you know, we're always looking for something but until we find the right thing we're not going to go out and do it. Given how well your brands have performed, does it even make sense to sort of maybe go outside of what you guys do so well. We've seen you guys do this a little bit with the Fisher Nut Exactly with the nut clusters. You guys do mixed nuts and just pure nuts well, but once you start sort of venturing off course it just seems as if, I don't want to say you guys don't have the level of expertise, but there's so much growth potential with what you currently have, I would just wonder if maybe shifting your focus to something else might actually not be the best way to allocate resources right now and just a little bit of commentary on that.

So, this is Jeffrey. So, we still continue to look at M&A opportunities. You know, our M&A strategy is always looking at diversifying our product portfolio. If there are companies that have strong brands that would be in nice alignment with our current brand portfolio, we look at them. If there’s talents, or expertise, or manufacturing capabilities that would be nice additions to our operations, we look at companies that might have those. So it's still on our radar. We've looked at a couple companies recently. I would say as you know the M&A activity, there's a lot of money in the marketplace with private equity and other strategics [ph]. Evaluations just have not made sense for us in some of the companies we did look at. But still definitely part of our strategy if the right opportunity comes along.

Okay. And last question for me is I noticed in the press release -- and I know we get a little bit more of this when you file your 10-Q -- you said peanuts, walnuts, pecans, and almonds all had volume increases. And when I just look at where walnut prices are coming in year-over-year and pecan prices are still being relatively high I would have thought going into baking season we would have seen consumers transitioning down from expensive pecans towards less expensive walnuts. But you were able to grow your pecan volume business as well and I would just think there's different dynamics to what it contributes on a gross profit basis. Could you maybe just give us a little bit of an overview between the differences between the two when we have one nut cost decreasing and one nut staying relatively high.

Good question. We fully expected walnut volume to increase significantly, and indeed it did. We were pretty surprised by pecans by the volume increase for pecans. It was it was still pretty significant. We rank in third in the release, and I think that speaks a lot about the display activity that we have for Fisher Recipe nuts, and also, you know, our promotional programs helped drive that.

Now, I would add Francesco, if we look at pound volume going forward, you are starting to see declines in volume on pecans at retail. So, it's just starting to get reflected now. So, for example I think the walnuts -- if I look at these numbers right. The Recipe Nuts, pecans were down 13% in volume and walnuts were up 8%. So, you're starting to see that that shift a little bit now reflected at retail consumption.

And that's a total category.

Correct.

But when walnut prices are low you're able to offset maybe a contraction in gross profit per pound for walnuts with greater volume, but then when I look at something like pecans you're able to maintain a really healthy gross profit per pound even with maybe volume that's maybe less attractive than what the volume is that you're doing in walnuts. And it just seems it’s a little bit of a microcosm from where you guys have been over the past couple years regardless of the operating environment. And it's just -- is the majority of the sales branded?

Well, they are for walnuts, pecans, and almonds. In the first quarter, the peanuts were primarily private brand.

Okay. Okay. All right. That's it for me. Thanks again guys. And congrats on a great quarter.

Great. Thanks Francesco.

Thank you.

And at this time I’m showing no further questions in queue. I would like to turn the call back over to Mr. Mike Valentine for any closing remarks.

Okay, Derrick. Thank you. Again, we want to thank everyone for your interest in JBSS, and this concludes the call for our first quarter of fiscal 2017. Thank you.

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