Ladies and gentlemen, thank you for standing by and welcome to the John B. Sanfilippo & Son Inc. First Quarter Fiscal 2020 Operating Results Conference call. At this time, all participants' lines are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]I would now like to hand the conference over to your speaker today, Mr. Mike Valentine, Chief Financial Officer. Thank you. Please go ahead sir.

Thank you, Margaline. Good morning everyone, and welcome to our fiscal 2020 first quarter earnings conference call. Thank you for joining us today. On the call with me today is Jeffrey Sanfilippo, our CEO; and Jasper Sanfilippo, our COO.But before we start, we want to alert you to the fact 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 Form 10-K and on occasion Form 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 the income statement. Net sales for the first quarter of fiscal 2020 increased by 6.6% to $217.8 million in comparison to $204.3 million from last year's first quarter. The increase in net sales resulted from a 9.1% increase in sales volume, which we define as pound sold to customers. The increase in net sales from volume was offset in part by lower selling prices, primarily for cashews, pecans and walnuts, which in turn resulted from lower commodity acquisition costs.The increase in sales volume came from a 17.4% increase in sales volume in the consumer distribution channel. This was offset in part by a 13% decline in sales volume in the contract packaging distribution channel and that was due to a reduction in unit ounce weights, implemented by a customer for its entire product line in this channel and reduced promotional activity by another customer in this channel.Sales volume was relatively unchanged in the commercial ingredients channel. The sales volume increase in consumer distribution channel was mainly due to increased sales of private brands snack nuts and trail mixes…

Thank you, Mike. Good morning, everyone. The first quarter of fiscal 2020 marks the third consecutive quarter in which we reported record net income and record earnings per share. First quarter diluted EPS nearly doubled to a record $1.12 per share.We also continued our goal of returning profits to our stockholders by increasing our regular annual dividend by 9% to $0.60 per share and supplemented that with a special dividend of $2.40 per share both of which were paid in the fiscal 2020 first quarter. I'm very proud of the entire JBSS team for delivering such strong results to kick-off the year.The 9.1% sales volume growth was driven by success in our consumer distribution channel, which accounted for approximately 70% of total sales volume in the current first quarter. A significant portion of this increase was attributed primarily from distribution gains for private brand products as Mike mentioned.The company has been successful in not only expanding items with existing customers, but also gaining additional retail accounts. We continue to enhance our innovation pipeline across our big business segments and brands to support this growth.Sales volume growth for our Southern Style Nuts and Orchard Valley Harvest brands also contributed to the sales volume growth in the consumer distribution channel. Sales volume growth for our Orchard Valley Harvest brand has been especially impressive with a compounded annual growth rate of approximately 27% since we started reporting on sales volume performance for the brand in fiscal 2015.We continue to face headwinds with our Fisher recipe brand at a major customer due to a competitive private brand program as I've discussed in past earnings calls. However, the sales and marketing teams have done an incredible job gaining expanded distribution at other retailers to offset potential volume declines going forward.We believe our holiday promotional and…

All right thank you, Jeff. At this time, we will open the call to questions. Margaline, would you please queue up the first question?

[Operator Instructions] Your first question comes from the line of Chris McGinnis. Your line is open.

Good morning. Thanks for taking my question. Nice quarter. Sort of ask you – we're starting to see some price increases starting to come back into raw materials how does that change the competitive landscape? And then I guess also as you head into the holiday season how rough can you be in both take market share maybe in this kind of an environment? Thank you.

Chris, can you repeat the question? I missed the first couple of sentences sorry.

No, no. Yes. So just on you're starting to see some raw material price on the nuts starting to increase how does that change the competitive landscape that's out there? And then especially as you start to enter the holiday season how much is there that give you sort of touch on that?

Yes. So a lot of the prices already are committed not just from us from most people in our space. Holiday programs usually get committed in the middle of the year. So not a lot of activity can take place beyond what's already been committed from a pricing standpoint. The big challenge is that these markets increase like almonds we're seeing in walnuts is what kind of pricing commitments people had prior to new crop.We feel our inventory positions are very well balanced and so we're not going – be able to – we won't be in a position where that will negatively impact us, but rather it's difficult to take big opportunities when prices are going up. On the other hand, when prices come down like we're seeing with cashews just gives us some opportunities to do a little bit more promotions or deeper promotions where we have some flexibility from a pricing standpoint or offer different merchandising. So -- yeah.

And I know you mentioned that it's early but the new product offerings that you've developed with the butter and the chips just – can you maybe just talk a little bit about where you're starting that out and maybe how big versus maybe some of our your other brands just where your distribution points are just to kind of give us a scope of how big that could possibly be? Thank you.

Sure. So the both programs are in our Orchard Valley Harvest brand portfolio. Our current ACV or distribution is about 45% for our Orchard Valley Harvest brand. We believe this is – it's a new product line both the nut butters, it's going to be focused in the produce section. We literally just launched it within the last four weeks so we haven't seen velocity numbers per se that give us any basis on how well it's doing, but we're confident that the consumer feedback we've received is very positive and retailer feedback we've received is positive.So a lot of opportunities to expand, not only our current ACV, but get into a lot of new retailers. And then the Chickpea Chip, it's our first product launch outside of the nut category, we just see a lot of opportunities with other plant proteins and so brand new as well just launched within the last couple of weeks, it's in a few test markets at this point. So a little bit early to tell probably next quarter call we'll be able to give a little more color on how it's doing.

Okay. And just on the requirement of Fisher recipe nuts, can you maybe just talk a little bit about how you're going to better maybe approach the kind of the volume decline that you saw just kind of given kind of the competitive nature?

Sure. So our official recipe from -- even there we're still at a 63% ACV, so there's still a lot of opportunities to expand that product line at other retailers. Obviously, we've had some headwinds with a major retailer expanding their private brand program taking space away from our Fisher recipe nuts.But at the same time there's a lot of opportunities to make up, a lot of their volume at other retailers and also we've got very strong promotional programs going into the holiday season with other retailers, where we feel, we potentially could expand and grow those retailers much faster. So I'm very optimistic on what we can still do with Fisher recipe going forward.

Okay. And then just two kind of last questions. Just we've seen some solid growth on the top line, as you start to get to the back half of the year, it progress throughout the year, how do you think that holds up with kind of what you see today? And then same question except just on the margin term, if anything's changed there since last time we talked? Thank you.

From a volume standpoint Tim [ph] I think we've got a lot of new programs that we're focused on, especially in the commercial ingredient channel, we believe there should be upside in the back half of the year with some of the things our teams are doing in that area.The consumer team continues to obviously expand our distribution with the nut butter launch and then the Chickpea Chip and then some of the other innovation products that we'll be looking at in the coming year. We also still feel there's private brand opportunities ahead of us that we're pursuing and so just we believe there's opportunities in the back half of the year as well to keep up some strong volume. And as from margin standpoint Mike do you want to touch on that?

Sure, I'll take that Chris. And then in respect to margins going forward after December, as we've said in the past, as we switch from old crop to new crop, of course our crops and selling prices need to be realigned. And as always we -- it's our objective to try and maintain gross profit per pounds as we do that realignment.Now of course, we've got a lot of work to do there with -- as Jeff mentioned, cashews and walnuts increasing -- I'm sorry, walnuts and almonds increasing and cashews decreasing, but we do expect to have that aligned, pretty quickly early in the third quarter.

Great. Thank you for taking time and appreciate your efforts. Good luck in Q2. Thank you.

Thanks, Tim [ph].

Your next question comes from the line of Tim Call from Capital Management Corporation. Your line is open.

Congratulations on another great quarter.

Thanks, Tim.

I was wondering, when do the comparisons get easier on a year-over-year basis with the Fisher recipe nut brand in that large retailer that changed its format?

Can you repeat the question? Sorry I keep missing….

I'm wondering when the year-over-year comparison for sales get easier with that large customer that's changing their recipe nut.

Sure. Sorry about that. Yes. So I would expect -- we've made up a lot of volume in other retailers going into the holiday season but it was still a big piece of our business. I would say it would probably -- it will level off by January. You might see a little bit of softness in the next two months, but like I said, the consumer team has done a great job replacing a lot of that volume but definitely leveled off by January going forward.

But that headwind started over a year ago, so it's -- the majority of the impact has been seen, is that right?

Yes. Correct.

Chris, that's basically been almost a two-year process. And that increasing private label distribution is essentially ramped up over that period. And then, of course, this quarter was impacted by the fact that we did not -- we lost some space on the holiday display areas, but I think we've pretty much lost just about as much space as we're going to lose. So, as Jeff said, going forward in January should be a pretty fair comparison.

And then when we -- when you look at that customer, are your sales to that customer below average margins for your consumer business?

We don't give specific customer margin information, but I would say, it's in line with other retailers.

Well, congratulations again on a great quarter. Thank you.

Thank you, appreciate it.

Thank you.

[Operator Instructions] I'm showing no further questions at this time. I would now like to turn the conference over to Mr. Valentine. Sir?

Thank you, Margaline. Before we end the call, please note that we will be presenting at the Southwest IDEAS Conference in Dallas on November 21, 2019. Our presentation is scheduled to begin at 1:40 Central. The presentation will be webcast live and may be accessed at the conference website, www.ideasconferences.com. Again, thank you everyone for your interest in JBSS. And this concludes the call for our first quarter of fiscal 2020 operating results.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.