Welcome to the John B. Sanfilippo & Son Incorporated Third Quarter Fiscal 2022 Operating Results Conference Call. My name is James and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. And now I'd like to turn the call over to CFO, Frank Pellegrino. Mr. Pellegrino you may begin.

Thank you James. Good morning, everyone, and welcome to our 2022 third quarter earnings conference call. Thank you for joining us today. On the call with me today is Jeffrey Sanfilippo, our CEO; Jasper Sanfilippo, our COO; and Mike Valentine, our Group President. 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 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 income statement. Net sales for the third quarter of fiscal 2022 increased 5.1% to $218.6 million, compared to net sales of $207.9 million for the third quarter of fiscal 2021. The increase in net sales was attributable to an 8.1% increase in the weighted average sales price per pound and was offset in part by a 2.8% decrease in sales volume, which is defined as pounds sold to customers. The increase in the weighted average selling price was attributable to price increases implemented during the third quarter in response to higher commodity acquisition costs for all major tree nuts and peanuts and increases in freight, labor and other input costs. Sales volume decreased 5.8% in the consumer distribution channel, primarily driven by a 57.1% decrease in peanut butter sales volume due to the planned downtime associated with the upgrading -- with upgrade of our peanut butter line that occurred and was completed in the third quarter and the discontinuance of our inshell peanut product line, which occurred in the fourth quarter of fiscal 2021. These two factors accounted for substantially all the…

Thank you, Frank. Good morning, everyone. Despite all the headwinds, this was our third best Q3 in the company's history. As anticipated the third quarter of fiscal 2022 was challenging as we continue to navigate through this unprecedented operating environment. However, there were many successes, and we believe the actions taken during the quarter should improve future operating performance. Our pricing actions to help offset the inflationary input costs were fully implemented by the end of the third quarter, but we will not see a full quarter impact of these actions, until the fourth quarter. The good news is our margins in period 10 have started to normalize again. The challenging news is we continue to observe a difficult cost environment, and the procurement and operations teams are monitoring additional inflationary cost pressures, on pecans, fuel, aluminum-based lidding stock, and certain ingredients, including roasting oil. The company is working on mitigation steps to manage supply chain volatility. Lead times for several ingredients and packaging materials have doubled and even tripled for some products. Nevertheless, our teams across the organization have done an extraordinary job taking care of our customers and maintaining best-in-class quality and service levels. I'm so thankful and proud of our team's hard work and dedication. Frank mentioned the main reasons for the decline in volume in the quarter. Discontinuation of our inshell peanut business, which occurred in the fourth quarter of fiscal 2021, Easter holiday falling two weeks later this year on the calendar, which pushed some volume into Q4, and the volume declines in peanut butter due to the plant downtime of our production line in Georgia. It's important to note that, on the operations side the upgrade of our peanut butter line in our Georgia manufacturing facility is expected to improve our peanut butter quality…

Thanks Jeffrey. We will now open the call to questions. James, please queue up our first question.

Thank you. Our first question comes from Chris McGinnis of Sidoti & Company.

Good morning. Thanks for taking my questions and all the commentary. I guess if we could just start on the inflationary environment and maybe even supply chain just given the commentary around the Russia-Ukraine conflict. Can you just talk about the issues that may bring about in terms of the inflationary environment and just supply? Is there anything specifically in that region that you work -- that you need and could pose a challenge?

Chris I'll answer that. This is Jasper. I think the most pressing thing that we're seeing from Ukraine is regarding sunflower oil, I think Ukraine grow something like 60% of the world's sunflower oil. So, as you can imagine that's put pressure on a lot of other oils, including ourselves, because we do have some product lines that use sunflower oil. So, we're currently reviewing that and trying to find substitute oils to replace that with sunflower. So, that work is ongoing. The other inflationary items that we see -- certainly all supplies, CapEx, equipment, I mean everything has gone at least twice to 3x on lead-time and costs have gone up significantly on a lot of that to try to balance our inventory levels of that and making sure that we have what we need to continue to service our customers. It's been an ongoing challenge for quite honestly for two years. And I think certain things like Mike or Jeff limited -- talked about with respect to aluminum, we do use aluminum in our packaging, as well as in other areas. So that is a challenge and our procurement team is working pretty hard to find alternates for that. Then of course you have the inflationary aspects of wages and finding employees to come in. Jeff talked about a lot of automation that we've added into the manufacturing to help offset that. And then quite honestly in a lot of cases needed to invest in automation because we could not find people to fill those jobs. And so, we'll continue to look at that throughout '23. We made quite a bit of progress in '22 automating where we could and getting equipment in. But again, equipment lead times in some cases have gone out to about a year.…

Great. I appreciate all the insight there. Just thinking about the later Easter, does that -- will that positively impact Q4? And I know there's one more week. So can you just talk about the impact on that for -- I know you don't give guidance but just on what you expect for Q4?

Yes, that should have a positive impact on Q4. The year-over-year comparison should be impacted by Easter falling in Q4.

Okay. And I guess just thinking about consumer, there was a lot of kind of moving parts within that. The new distribution wins are you continuing to see new gains as you invest more around the marketing side and the insights?

Hi Chris, this is Jeffrey. So definitely the team, sales, marketing, operations, R&D are all of them are doing a great job building their current pipeline for customers. The dynamics in the industry today are from a consumption perspective, you're starting to see price increases take effect that were initiated in Q3. So, you're seeing higher retail prices. We're seeing a little bit of a shift from higher priced nuts the mixed nuts cashews to lower-priced trail mixes and peanuts, as we're monitoring that shift. But the opportunities are substantial. With the company's scale and our access to supply chain and just as Jasper mentioned, just managing it better than a lot of other companies. We just feel this actually will create new opportunities for us with some other supply chain challenges. And just with our scale, we've got opportunities to continue to grow. The marketing team has invested a lot in repositioning our Squirrel brand in our Orchard Valley Harvest brand. A lot of those efforts are taking place now, but won't have an impact until later Q4 and actually into fiscal '23. So, we won't see a lot of that impact, but the investments are being made now for those brands for future growth. We're also seeing a shift from a lot of branded business to private brands. And so of course with our big private brand presence, we are working with our key retail partners to make sure that we can meet that new demand in private brands as consumers look to them.

Great. I appreciate that. One of the things I think I remember was that the consumer changed to a larger package size during COVID. Are you seeing that shift back down to the smaller sizes? And how does that change? And then, I guess thinking about the inflationary price environment and the customer switching there, can you just talk about those two components if you're seeing that?

You're still seeing strong -- not so much growth, but sustaining demand in the larger sizes, because it's one of the best price points at retail. So, there's still a great value in some of those bigger pack styles. And I would imagine, if inflationary pressures continues and there's further price increases, you will see consumers that can hit a $10 price point, look for a smaller item in the category. That's just -- common sense will lead it that way. But this time, we haven't seen that yet.

Yes. And Chris, I'd like to add that as the convenience store business and the foodservice business opens up and people are going back to work, a lot of our On-the-Go program and a lot of the On-the-Go items do service those. So we have seen a shift from our average ounce per pound produced is going back down. So we're packing more units with similar pounds. The good thing was, we were really well set up prior to COVID hitting to be able to efficiently handle that. And so we're just kind of seeing a little bit more of a return to normal pre-pandemic with respect to that ratio of On-the-Go versus large format bags.

And then maybe just on the commercial business. Obviously, things are improving there, sustained growth from here. And how do you think about pre-COVID to where you're at now and then include market share gains in that. What's the run rate of that business you think longer term?

So I would just say, from a distribution standpoint, all throughout COVID, the teams have been really focused on building distribution. Even though places weren't open, we negotiated contracts, agreements to build that distribution. So once they did reopen and traffic increase, we had our products available in those outlets. So I will say, we have more distribution points today than we did pre-COVID or ever in the company's history. And now that places our reopening and restrictions are limited and summer is approaching, we've got more distribution. So we should expect to see a lot further growth in the foodservice channel. And it's not measured. It's not like a market share like you would see in consumer channel. They don't have that specific of metrics from a distribution standpoint.

Okay. Great. I appreciate that. That’s all I have for now. I’ll jump back in queue. Thank you.

Thanks, Chris.

And we have no more questions.

Again, thank you for your interest in JBSS. This concludes the call for our third quarter fiscal 2022 operating results.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.