John B Sanfilippo & Son Inc (JBSS) 2005 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the 2005 first-quarter John B. Sanfilippo & Son earnings conference call. My name is Anthony and I will be your coordinator for today. At this time, all participants are in a listen-only mode. (Operator Instructions). I would now like to turn the presentation over to your host for today's call, Mr. Mike Valentine, Chief Financial Officer. Please proceed, sir.

Thank you. First, we'd like to thank all for participating in our quarterly conference call for the first quarter of our fiscal 2005. Before we start, we want to remind everyone that we may make some forward-looking statements today. These statements are based on our current expectation and involve risks and uncertainties. The factors that could negatively impact results are explained in our S3, which was filed in March of this year, and in other SEC filings that we have made. We encourage you to refer to these filings to learn more about these risk factors.

Starting with the income statement, quarterly and net sales grew 8 percent to $134.6 million from $124.8 million. The primary drivers of growth were, first, consumption continues to increase. For example, the snack nut category in grocery was up 12 percent during our current first quarter versus the same period a year ago, on both dollars and units, according to A.C. Nielsen data.

Sales increase also came from higher average selling prices, which amounted to approximately 10 percent. Quarterly sales increases also came from substantial gains in our foodservice, industrial and contract packaging distribution channels, that ranged anywhere between 20 and 50 percent.

Sales in the consumer channel were down about 3.7 percent, as increases in private-label sales were offset by declines in the sales of Fisher peanut products, because last season's promotional activity on these products at a major customer exceeded the promotional activity on these products at the same customer in the current quarter. Sales were up on pecans, almonds, and mixed nuts, all of which delivered lower gross profit dollars than they did in the first quarter of fiscal 2004.

First-quarter gross profit margin declined to 12.6 percent from 20.4 percent a year ago as a percentage of sales. The decline in gross margin came about as follows. Gross margins fell significantly on almonds in September, as we bought all of our almonds in the spot market that month at prices that were 10 to 15 percent higher than prices in the fourth quarter. Additionally, due to the poor quality of the ending stocks of the 2003 crop of almonds that we bought in the spot market, we incurred a sizable amount of unfavorable processing experiences and shrinkages. As a subsequent event, we booked our final settlement with almond growers, which is tied to what the larger processors pay, and this settlement was higher than expected.

The lower than expected yield on walnuts that was shelled during the quarter contributed further to the gross margin decrease. Gross profit on mixed nuts, in dollar terms, which typically have the highest gross margins of all of our major product types that we sell, declined by about 30 percent, due to the high cost of Brazil nuts, hazel nuts, and almonds. We have reduced the percentages of Brazil nuts and hazel nuts in our mixes in anticipation of additional increases and shortages in supply of these particular nuts.

The previous year's first quarter also benefited from gains in pecan shelling that exceeded last year's almond settlement. There were no such gains on pecans in the current quarter. As a percentage of net sales, all of the above factors combined to account for approximately 7.4 percent of the 7.8 percent decline in the overall gross margin as measured as a percentage of net sales.

As in preceding quarters, nut markets continue to rise. For example, during the current quarter, almonds, cashews, hazel nuts and pecans increased by approximately 10 to 15 percent while Brazil nuts increased by approximately 20 percent. Conversely, macadamias decreased by approximately 10 percent. Peanuts and walnuts were relatively stable during the quarter. These increases are on top of sizable double-digit increases in the price of these commodities that occurred over the last 12 months. Going forward, we expect to see additional increases in the prices of all of these commodities except peanuts and walnuts. Supplies of hazel nuts and pecans will be very tight over the next 12 months, and supplies of Brazil nuts will be scarce to nonexistent.

Our quarterly selling and administrative expenses as a percentage of net sales fell from 10.3 percent in Q1 of '04 to 9.3 percent in Q1 of the current year. Quarterly selling expenses increased slightly from 7.2 percent to 7.3 percent as a percentage of net sales, as increases in distribution and advertising costs were largely absorbed by increased sales. Quarterly administrative expenses fell from 3.1 percent to 2.0 percent due to lower incentive compensation costs, which are tied to earnings performance. Lower legal costs furthered the decline.

Quarterly operating income fell by approximately $8.3 million, due to the gross margin decline. Interest expense declined by $684,000 due to lower debt levels in comparison to a year ago, primarily as the result of our early extinguishment of debt from the proceeds we received in the offering that we completed earlier this year.

Because of the lower gross margin, quarterly net income decreased by approximately 64 percent. Because of our public offering that we completed earlier this year, we ended the current quarter with $13.5 million of debt, including capital leases, versus $43.6 million at the end of Q1 of '03. Additionally, we had $15.1 million in cash at the end of the first quarter of fiscal 2005. Our balance sheet is very strong now, and this will put us in a very advantageous position when we secure financing for a facility consolidation project, which we expect to do in our second quarter of this fiscal year.

Inventories versus a year ago were up $29 million and 16 million pounds, as our stocks of all nuts have increased except peanuts due to the late harvest.

Now I will turn the discussion over to Jeff Sanfilippo to discuss some of the changes that we have made in our approach to selling almonds.

Thank you, Mike. It's important to note, as Mike mentioned, that the escalation of commodity prices really in the end of the first quarter, specifically September, how we especially saw that with the almond market, as we went to procure almonds to cover contracts that we had made earlier in the year and just to supply our increased consumer consumption growth, how we found it very difficult to find not only almonds in general, but quality almonds, which really put a lot of margin pressure on us. Same thing we saw with the other commodities, as Mike had mentioned.

One thing we are doing as a result of this and have worked on in the last quarter is to, going forward, make sure that we monitor the contracts and make sure that we don't over-commit on contracts where we don't have supply in place. We've done a much better job at controlling our inventories, and going forward in the coming year, we will make sure that we have a better consistency of quality products. And we know what contracts we've got in place going forward to protect our margins in the future.

Strength, in the sales side for a second -- we really saw substantial growth in all of our divisions, except for consumer at this point. Food services meeting expectations, with double-digit growth. Our industrial division, substantial growth, double-digit there. Export, double-digit growth, and contact manufacturing. So positive results out of all of those divisions. And we saw a lot of positive results in our consumer division. And I'll pass it onto Jim, and he'll cover that a little bit more (technical difficulty).

Okay. As Mike and Jeff have both alluded to, the total consumer channel was down slightly, as Mike had stated, I believe in the release, as well as verbally here. This was driven by a change in Fisher peanut promotional activity of one customer. That resulted in about a $1.9 million loss in revenue. And we expect this to bleed into the second quarter, but not to the same extent.

When you look at our overall business, controlling for the one promotion decline, there's a lot of positive trends. 31 of the 40 top customers had substantial growth in the consumer channel. Private-label grew; our produce business grew. We actually picked up some new Fisher distribution of the grocery channel. We picked up eight new customers for Fisher. We also had sizable distribution gains on Fisher at four other major customers across the country.

As we reported, our sports marketing revenue grew in the first quarter through our sponsorships and partnerships with baseball teams. We also launched and continued a test market on our Fisher Salad Buddies product line, which we expect to roll national during Q3.

When you look at category growth, the category is still there, but the category growth is slowing in the grocery channel. Snack nuts, we're still looking at double-digit growth of 14.9 percent in dollars for the most recent 52-week period. But when you look at the trailing six and three months, it is down slightly at 14.3 percent and 12.2 percent. Still good growth, but not the growth that we experienced last year.

Baking nuts, while a much smaller category, is doing the opposite. For the 12 months, it's growing at 8.1 percent, but 10.6 percent and 9.7 percent during the trailing six and three months.

And then finally, we did institute and announce price increases during the first quarter. As previously reported, we did execute a Fisher snack nut price increase that was effective in August. And then in September, we debt announce a broad-scale, across-the-board price increase on private-label snack nuts and baking nuts, which take effect anywhere between now and the first of the year. And we are working on a Fisher price increase of snack nuts and baking nuts.

Planters has not increased prices yet. But our largest private-label competitor is increasing prices currently. So overall, we look to make up the volume loss from the -- the Q1 promotional loss at our largest customer, and continue to grow the Fisher brand with the growth we're seeing in private-label as well as produce. I'll turn it back over to Mike.

Okay, thanks Jim. At this time, I'd like for Jasper Sanfilippo to make some comments on how -- what changes we've made in our approach to buying almonds.

Good Morning. Thank you. About three years ago, 90 percent of the almond crop was bought on what we call a pool contract or a best-efforts marketing, where we would take delivery of the crop from our growers and then make progress payments based on what we saw in the marketplace. And then about March or April, all the processors finalize their payments based on what they have sold the crop for. With the increase in demand and the tightness of supply, the growers in California have realized that there are better ways of selling their crop than the pool program. And what happened is the industry evolved into paying fixed prices again, much like it was seven or eight years ago. Currently, we're estimating that about 35 to 40 percent of the crop was bought on a pool contract basis.

Going forward, we feel that that number is going to be closer to 10 or 15 percent, where the industry will actually pay fixed prices, and those are costs going forward. What we've seen this year is the growers that have held onto the crop have always done better than the growers that have sold into the pool contracts. And what's changed is the dynamics on how the industry has sold its crop before. About 70 -- or about 30 percent of the almond crop was sold before July, even for the crop was harvested.

This year, that dynamic has changed, where most of the processors, without realizing they have a fixed cost for their product, have waited to buy the crop from the growers and then turned around and sold that to the customers. We have experienced the same thing ourselves. The industry, where it would try the contract in August and September, has pushed its contracts with our customers to October, November once we realize what our cost is. Going forward, we anticipate that our pool contracts will go from about 50 percent of our total purchases to about 15 percent of our total purchases, which will obviously eliminate some of the risks that we've had in terms of settling out with our growers, compared to what the rest of the industry has.

We anticipate this to be a more stable environment for us because we will know our costs going forward. However, of course, there is a risk that we will have our raw materials bought on a fixed price with some market risk depending on where the crop goes. Okay.

Okay. Thank you, Jasper. Again, we thank everyone for their interest in our Company. We continue to be optimistic about our prospects for growth. And at this time, we will gladly take your questions now. Operator, could you please queue up the first question?

(Operator Instructions). Your first question comes from Scott Van Winkle from Adams Harkness. Please proceed, sir.

Hi, guys. First, can you give us -- Mike, can you give us the numbers for each of your channels -- what your revenue was in the first quarter?

I can't do that right now. But we'll be filing the Q here pretty shortly. And you'll see them there, Scott.

Okay. So the only significant variant from the recent trend was the consumer channel? Is that correct?

That's correct. And really a lot of that has to do with the loss of promotional base sales that we had last year on the Fisher peanuts line. And I want to stress that we did -- that promotion did occur, but not to the extent it did last year.

Okay. Now, two-thirds of your mix is private-label. And I would have to assume that that customer can't account for more than a third of the Fisher brand. I would think, you know, a lot of Fisher's done in the Chicago area and your direct store business. So I mean, was the business down 90 percent on Fisher, as that one customer? Is tat the type of magnitude we're talking about?

No, it wasn't, Scott. First off, most of our Fisher business is not done direct store delivery here in Chicago. Most of our Fisher business or probably 95 percent of it is done through traditional distribution methods, not on DSP. It was significant. The Fisher channel -- Fisher was down about 3.7 percent. And this promotion was probably, and I don't have the exact number, but probably about 40, 50 percent of it.

Also, Scott, there was another major private-label customer that we elected not to pursue additional almond business with this year, as a result of the commodity prices and just the situation with the almond market. That made up the other piece that you're missing.

Okay.

I think, if I understand your question, I think it's -- I think what you're getting at here is if we pull all that out, consumer probably would have been up about 10 percent.

Okay. Yes, I was trying to figure out if you trailed the category, which you haven't done in quite some time -- and even if I look at the private-label figures, I mean private-label was still up over 11 percent during the most recent quarter, if I have the right data from Nielsen. So you did in fact come in a little below the category on the private-label side?

That's correct.

Okay. And that customer, you mentioned you're not re-upping with on the private-label side. That affected this quarter as well?

Yes.

Okay. And switching over to almonds, were almond sales stronger than you had budgeted? Because from last call, I remember you guys saying you were bought through the end of the year on most of your nut types. Was almonds the one that wasn't done? Or I didn't expect such significant spot market purchases on almonds. Can you give me a little more detail?

Sure. Our almond sales were up for the quarter a little bit higher than we thought, which in quite a few cases, that was on the industrial side. So not (ph) all sales would have been made in the fourth quarter -- I'm sorry in the second quarter -- so they did move up a little bit, which helped us get further past this issue.

And the almonds you purchased, you mentioned September, were those sold in September? And how does that get thrown into your -- how does the accounting work on your inventory when you have much higher purchases on the spot market that probably weren't sold in the quarter?

Well, virtually all the almonds that we purchased in the quarter were also sold in the quarter.

Okay.

One other thing, Scott, just when you look at, per A.C. Neilsen just on grocery consumption, almonds remain on a torrid pace. 49 percent growth in snack nut almonds, per A.C. Nielsen, for the period that ended 9/25. And even in baking nuts, even though we're not in prime baking season, almond baking nuts grew 18.3 percent. So I don't think the industry realized that almond consumption would stay at this torrid pace for as long as it has.

One of the other big problems that we had is the Spanish crop received a huge amount of damage from frost last spring. And their crop went from about 140 million pounds to about 50 million pounds. So they are taking an increased demand from the California supply to supply the European market because of that failure in that crop.

Okay. So I hate to make you probably repeat a little of your stuff. Can you just give us an idea right now where you stand on your major nut types? And can you touch on forecast or what your feeling is for availability of good quality nuts and peanuts going forward?

This is Mike. I'll start with peanuts. Peanuts, we still have a very good crop, notwithstanding the hurricane that went through the Southeast. Very stable pricing, slightly up from last year. So that particular commodity should deliver the same kind of results as it has in the past.

On the cashew side, cashew market has gone up during the quarter. We were actually in pretty good -- we had good coverage on cashews. But this price increase that Jim mentioned, starting effective in January, is going to very critical for us to maintain our gross margins on that commodity. I already talked a little bit about Brazils and hazel nuts. Those are both up dramatically. In the case of Brazils, they're probably going to scarce. We've already taken steps to lower the percentage of those nuts that we put in our mixed nuts; that will help us maintain our costs.

Mike, can I interrupt you? Has there been any impact in the past when you changed the mix in these mixed nuts size (ph)? Has there been any consumer backlash?

Well, in this particular case, there won't be because we're taking out what in most cases is the least preferred nut, and we'll be trading those for cashews and almonds, which consumers prefer the most.

Okay. And so we've got peanuts, cashews, Brazils and hazel nuts --

As far as pecans, Scott, we're coming into the short crop here. Expectations are prices should be around, between 4 and 4.50 a pound, which is substantial as far as cost goes. As Michael mentioned, we're going to vary some of our mixes to accommodate for that. But as far as the quality should be good this year. And the amount that we're going to need for our purchases and commitments, we'll be able to meet those expectations. Margin pressure, really will depend on how -- what kind of prices we'll see out at the retail level and what will be reflected.

As far as walnuts and almonds go, the walnut crop -- we are pretty much 100 percent booked with our growers. We have covered all of our forecasted demand for fiscal '05.

As far as walnuts, we have covered our 2004 usage. We do have some relatively large customers that are still uncontracted. And what we're doing is, as we are able to acquire raw materials from our growers, we're sort of back to backing that price with our customers going forward. So we're taking out some of the risk there.

As far as macadamias, we really don't contract macadamias until February, March, when the Australian and the South African crops are known. We are in the process of booking our pistachios, which is a relatively small commodity for us. But we will see increase in demand -- or increase in price -- on all of those commodities, just because of the demand pressure. So margins, going forward, really is more of a matter of back to backing our purchases with our sales contracts.

Okay. Thank you. And one other question related. Is there anything different today, I mean other than the problem with almonds in this quarter -- is there anything different today than what you thought when you were talking to three months ago?

No. It really is just almonds.

And how do we factor this in? I mean, is this going to be an issue that continues immediately in the next couple of quarters? Is this a long-term structural issue if we see demand like this? I'm just kind of at a loss of what I should expect going forward.

Okay. As I mentioned in the press release, we had exhausted our supplies of almonds that we buy from growers and were at the mercy of the spot market. That really came as a result of being oversold in relation to our purchases that we made last fall. We had anticipated a lower almond market this summer, which obviously did not occur in the face of a larger crop coming in.

Going forward, I think as both Jeff and Jasper had mentioned, we're really going to be back to backing our almond purchases in sales, so we won't be in that oversold position. So hopefully the worst is behind us in that respect.

You know, Scott, I would say the one difference that we see is really in the growers' attitude and marketing style. These growers for the last three years have received very healthy returns on their almond crops. And it's important to them to be able to hold a crop longer. It wasn't that long ago, maybe four or five years ago, where these growers were absolutely deathly afraid of having to carry any inventory for the fact that they A, couldn't afford it; B, didn't have storage for it; and C, didn't really know what that market going forward was going to be for them.

Now, after having three years of very healthy returns, these growers can afford to carry the crop. They have storage facilities for themselves to warehouse this crop. And really, the danger, I guess, going forward with us is if in fact the growers decide to hold 50 and 60 percent of the crop and market themselves. Now what that will do then is change the way that we contract with our growers. And again, we'll back to back our purchases and we'll just push contracting off with our growers until we have a fixed price for our raw materials.

Okay. I have a few more questions, but I don't want to keep monopolizing the call. Thanks for all the detail.

Your next question comes from Patrick Winton from Stearn Agee. Please proceed, sir.

Thanks, guys. Mike, when you talked about a 7.4 percent decline in gross margin for those various factors, can you break it out in terms of what that contribution and decline of gross margin was from almonds, specifically?

Almonds probably accounted for roughly half of that.

Okay. And then with this pressure on the gross margin in the first quarter, I know there was some aggressive selling to our industrial contracts in this first quarter. Would we anticipate then to see an uptick in, potential uptick, in margins, in gross margins for next quarter, as we don't have some -- as we took some of those industrial contracts or brought some of those industrial contracts down?

Patrick, a lot of those contracts will still ship through the end of the year. So you'll see some of that in this quarter. But as far as going forward, January forward, and we're also changing the structure of how we contract and the terms that we will contract under, where your fixed contracts that we make with customers has to be taken by the end of December. And carrying charges will be applied to anything going forward for a specific period of time. So you'll see a little bit of pressure this quarter. But January forward, it should be clean.

Also, the most important thing, Patrick, is, though we probably took a few pounds out of Q2 and put them in Q1, we also want to stress that the almonds that we're using now to ship against those contracts are almonds that we've bought from growers that had a slightly lower-cost than what we paid in the spot market during the third quarter. But more importantly, have much better quality, so we should be able to process those more efficiently and keep our cost down.

Okay. And then in terms of the 30 percent decline in gross margins on mixed nuts, can you just review one more time where we're at with pricing on mixed nuts in terms of raising the price to offset the higher commodity prices?

Okay. I'll let Jim take that one.

Hey, Patrick. On Fisher, we did that increase that's fully executed that took place in August. On private-label, we announced in September and we started taking increases in September all the way through 1/1, depending on the customer, the item mix, and things like that. And that is going well. Obviously, we don't have it all complete yet. That's why we announced as early as we did, because price increases do take 30 to 60 to sometimes 90 days to execute at retailers.

And then on Fisher, we are ready to announce another increase on snack nuts, with mixed nuts being part of that, rolling off, because at this point, Planters has not announced an increase. And we don't want to do anything that will jeopardize the brand standing versus the brand leader. But we're going to make a decision on that within the next 15 to 30 days and do what we need to do, and make sure that we execute it properly.

Okay. And then lastly, I think what everybody is looking for at this point is, do we have some sort of -- I mean can we have some sort of tangible confidence, in terms of your guys' ability right now to manage in this difficult commodity environment? I know we've touched on a number of things today. But can you just one more time raise our level of confidence in your ability to manage in this tough environment?

Well, we can point to our performance on all the other nuts that we handle. For the most part, notwithstanding 20, 30, to 60, 70 percent increases in commodities, we've been able to maintain gross margins on those other items. It's really, for the most part, it's almonds that we've struggled with. And hopefully, we've explained our new approach and the changes that we made. And hopefully, everyone will get some confidence from that.

Okay, great. Thanks, guys.

Your next question comes from Bob Simonson from William Blair. Please proceed, sir.

Good morning. There's a lot of moving parts in this quarter. I think Jim said that the change in the promotional activity of one of your retail customers was about a million 9. Is that the correct number?

Yes.

Now if I add a million 9 back to the reported sales that you had, if that was the only thing that was way out of whack, your sales for the quarter still would've been up less than 10 percent. You've got, as I said earlier, lots of different moving parts here. But can you give some counsel as to what a reasonable expectation for your sales going forward would be in the next two or three quarters? Overall?

This is Jeffrey. We saw double-digit growth. All of our other business divisions are -- expectations -- are right where our expectations are with those. And actually, it's a couple of the divisions, including foodservice, were above expectation. But we're confident that not only will we maintain those business divisions and the sales expectations, but consumer, as Jim mentioned, was really two major customers; one was private-label; one was a branded customer. And so we had gains in other areas in the consumer division. We're confident that we'll be able to raise the numbers again and get back to where our expectations are.

Bob, this is Mike. And when that private-label customer that Jeff talked about, that was business that we bid on every year. And the gross margins on the pricing that it would have taken to get that business were well below what we would want to get, and we literally passed on that one.

Second one is on kind of the same kind of question as to what your sales might be going forward. I think -- and correct me if I've just had an incorrect expectation -- but that the gross margins would begin to improve in the second -- not perhaps be up year-over-year, but would improve, possibly year-over-year in the second half of this year, as your price increases caught up with some of the cost increases. Is that still a reasonable expectation, or is it just too --?

Yes, it is.

That's okay?

Yes.

Thank you.

Your next question comes from Peter Park (ph) from Park West. Please proceed, sir.

Hi. Can you remind us what the total cost of the facilities rationalization project is? And if you can also touch on what the incremental annual D&A might be as well as the incremental cost saves you might be able to get from that, just on a big picture level. Thank you.

Peter, I only heard the first half of your question.

What's the incremental depreciation and amortization expense, annually? And what kind of cost savings do you expect to get out of that on a going-forward basis?

Okay, and you're talking about the facility consolidation project?

That's right.

We've only disclosed what the total cost is going to be. It's going to be approximately $85 million. And afraid I can't comment on the rest. We have not disclosed that yet.

It's such a huge project that I can't imagine why you would undertake it unless it's something that would be incremental to your operating profit after considering depreciation and amortization as well as the cost saves you might be able to get out of that. Is that a fair statement?

Yes, that's a fair statement. And I can give you a little bit more information on that. I can't quantify it. But we're currently operating out of five facilities here. In each of the five facilities, we have overhead departments that are essentially redundant. In addition to that, we're also going to be -- we're moving product back and forth among these five or six facilities, Jasper reminds me now, that is generating substantial transportation costs. So that's some of the savings through cost elimination that we will be getting from the new facility.

And in fact, we'll actually have lower property taxes to go along with that as we move away from the Chicago area. Though I can't quantify it, those are some real good examples of some of the savings we're going to get.

Of the $85 million, is it safe to say that the bulk of that asset will be depreciated over something close to 40 years?

Roughly about -- I would say -- roughly about 60 to 70 percent of that is going to be classified as real estate, which also includes the cost of land. And then the balance of that is going to be essentially machinery and equipment, which, of course, would be depreciated over ten years.

Right. So annual would be -- might be -- 2, $3 million?

Well, you do your math a lot faster than I do. There's probably more like around 3 or 4, I think.

Okay, then. So if I'm understanding your initial statement correctly, then these cost saves that you might get each year would be greater than that.

Could you talk a little bit louder, Pete?

Sure. If the D&A is going to be 3 or 4 million bucks a year, if I'm understanding your previous statement properly, then that means that the cost saves that you might be able to get yearly would be greater than that.

Well, that's true. And also, keep in mind that we're also going to be eliminating depreciation related to our current facilities. So the net change isn't necessarily $4 million; should be the number that's less than that.

Do you have to take any write-offs to book in order to do that?

We haven't done that analysis yet. Virtually almost all of the equipment we currently have, we intend on moving into the new facility. Whatever we choose to scrap is probably going to be older than 10 years. But I do want to caution you that we have not completed that analysis yet.

Okay. Thanks. Good luck.

(Operator Instructions). The next question comes from Calvin Chung from Credit Suisse Asset Management. Please proceed.

Good morning, gentlemen. Can you remind us again, the duration of your almond contracts, when the next period of time would be that you would have a window to begin raising prices? And also, if you can give us -- just put the -- put some historical context of the swings in almond commodity prices. Have you seen price swings of this nature before? And kind of how long ago? And what the normal volatility is.

Okay. Well I'll start with say, contracts. We're in the process of contracting right now with new crop almond contracts, which will begin if customers have run out already; they'll start now through the end of next year. At the same time, we're still shipping contracts that we placed last year that will go through December. But the timing usually is as the crop -- as Jeffrey mentioned -- as the crop is harvested now, we're contracting exactly the amount of pounds that we've got allocated of almonds. But we're in the process of contracting now. We're probably about 40 percent contracted, 40 to 50 percent. And we're still working on purchasing almonds in the field. And so we won't be finished contracting almonds until the end of December.

As far as the price fluctuations, we haven't seen a market that is this high since 1997, when we had an influx of supply that growers had planted. It has never, as far as I can remember, ever moved up as fast as it has in one year unless we had a tremendous, tremendous crop failure, which we don't have. The almond industry puts two record crops together back to back. And for us to see a 60 or 50 cent rise in the market in the face of two back-to-back record crops is something that we have never experienced.

Okay. And going back to the earlier comments, so if you have on contracts that are -- that will begin rolling off in December, does that mean that that would be an opportunity to begin taking up -- can you take up prices retroactive for past cost?

Right. The contracts are for a year. For example, the balance of the contracts we have to ship through December are at fixed prices. Contracts that we're placing now for new crops are -- those are all -- they're tied to current pricing. So those would reflect the new price going forward with higher margins.

The almond contracting season for our customers is typically September through December -- about 85 percent of that. So as we get closer to December, we're rolling out of old contracts and replacing that with existing new crop contracts.

So the pricing that we're getting right now would be reflecting new pricing for new contracts.

Okay, great. Thank you.

Mr. Valentine, you have no further questions, sir.

Okay. Again, we thank you for your interest in our Company. And I guess that will end the call. Thank you.

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