John B Sanfilippo & Son Inc (JBSS) 2005 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q3 2005 John P. -- B. Sanfilippo and Son earnings conference call. My name is Kenneth and I'll be your coordinator for today. At this time all participants are in a listen only mode. We will be facilitating a question-and-answer session towards the end of the conference. It at any time during the call you require assistance, please press star followed by 0 and a coordinator will be happy to assist you. I would now like to turn the presentation over to your host for today's call, Mr. Mike Valentine, CFO. Please proceed sir.

Thank you. First I'd like to thank everyone for participating in our quarterly conference call for the third quarter of our fiscal 2005. In addition to hearing from me, we will also hear reports today from Jeffrey Sanfilippo, Executive Vice President of Sales and Marketing; Jim Barker, Senior Vice President of Sales and Marketing. Also joining us today are Bill Pokerjack (ph), Vice President of Finance and Herb Morose (ph) our comptroller.

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 involve risks and uncertainties. The factors that could negatively impact results are explained in our various 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 net sales grew by approximately 20% from $120 million to -- I'm sorry, to $120 million from $100.1 million. The primary drivers of growth in net sales were: there were sizeable increases in all distribution channels, sales increases came mainly from higher average selling prices. In dollar terms sales of peanuts, mixed nuts and all major tree nuts increased substantially during the quarter when compared to the third quarter of fiscal 2004. Pounds sold in the current quarter Increased by about 1.5% over the pounds sold in last year's third quarter. Year-to-date net sales grew 10.4% to $437.6 million from $396.3 million. The year-to-date in -- increase can be attributed to significant growth in the industrial food service, export and contract packaging distribution channels. Year-to-date consumer channel sales were up slightly. Again, as was the case with the quarter, average selling prices in the year-to-date period were substantially higher than the comparable period in the prior year.

For the first quarters of fiscal 2005 sales in dollar terms of almonds, cashews, mixed nuts and pecans were up significantly while sales of macadamias declined. Total pounds sold were down slightly for the first three quarters of fiscal '05 when compared to pounds sold for the first three quarters of fiscal 2004.

As a percentage of net sales, third quarter gross profit margin declined to 13.3% from 14.5% in the third quarter of fiscal 2004. The decline in gross margin can be attributed to the fulfillment of remaining industrial pecan contracts that were priced in the early part of fiscal 2004 and you may recall that we wrote down some of the our open industrial pecan contracts in the second quarter. Sales made pursuant to these written-down contracts in the third quarter delivered 0 gross margins. As a percentage of net sales gross margin declined in almost all of the major nut types except almonds.

As a percentage of net sales year-to-date gross margin declined from 13.2% -- or declined to 13.2% from 18.4%. The decline in gross margin came about as follows. There was a substantially lower gross margin for almonds in the first half of the fiscal year which resulted from an unfavorable almond processing variance that occurred near the end of the crop year, the high cost of almonds that we had to purchase in the spot market in the first quarter, and the higher than expected grower settlement that was paid out at the end of the 2003 crop year. There was a write-down of open industrial pecan contracts at the end of the second quarter, and then finally walnut shelling yields for the 2003 crop were lower than those expected for walnuts shelled during the first quarter of fiscal 2005.

Quarterly selling and administrative expenses as a percentage of net sales fell from 11.1% in Q3 of '04 to 9.6% in the current quarter. This happened because some expenses remained relatively fixed while revenue grew significantly. Incentive compensation costs were lower in the current quarter due to the decline in year-to-date EPS which our incentive compensation plan is based on. Shipping and handling costs did not increase at the rate net sales did due to the fact that net sales inc -- increase came mainly from higher average selling prices. Year-to-date selling and administrative expenses as a percentage of net sales fell from 9.9% in fiscal 2004 to 8.8% in the current year primarily for the same reasons that explained the selling and admin decline in the quarterly comparison.

Quarterly operating income increased slightly as a percentage of net sales due to the larger increase in gross profit dollars compared to the relatively small increase in operating expenses in dollar terms. Year-to-date operating income fell to 4.4% of net sales from 8 -- 8.5% of net sales primarily because of the lower gross margin for the first three quarters. Interest expense for the quarter increased $300,000 while interest expense for the three quarters declined by $815,000. Higher debt levels and higher interest rates at the current quarter drove the quarterly increase, while the opposite was the case in the first two quarters of the current fiscal year. At the end of the second quarter of the current fiscal year we completed a $65 million unsecured long-term debt facility. Though gross margin as a percentage of net sales was about 120 basis points lower than the gross margin for the third quarter of fiscal 2004, gross profit dollars increased by approximately 10% due to the revenue increase. This increase coupled, with a relatively low increase in operating expenses, led to a 32% increase in net income. The net income of $2.1 million for the quarter exceeded the previous record net income for a third quarter, which was established in the third quarter of fiscal 2003 and that was an increase of roughly 30%.

Turning to the balance sheet, as I mentioned before, on December 16, 2004 the Company entered into a $65 million note agreement. These funds have been used primarily for working capital purposes during the quarter. Inventories versus a year ago have risen by approximately $93 million and inven -- and inventories have increased by approximately $35 million since the end of the second quarter. The increased mainly -- the increase mainly resulted from substantially higher acquisition costs for all tree nuts. Pounds of raw materials at the end of the third -- of the current third quarter are approximately 8% higher than the pounds of raw materials at the end of the third quarter of fiscal 2004. At this time I'll ask Jim Barker to comment on the concer -- the consumer channels and some other channels.

Hi. Thanks, Mike. As -- as reported in the recre -- in release, consumer bounced back during Q3 from the first two quarters, we grew 17%. The majority of that growth was driven by Fisher, about 60 -- which grew about 64.3% in dollars during the quarter. Our pounds on Fisher were up 75%. So we're really happy that we're able to reverse some of the trends that we saw in the first two quarters. That was driven by a continuing to push to get Wal-Mart to drive some Fisher promotions that they didn't buy the same volume on earlier in the year, and also as we went into the pecan price increase they did do a little bit buying ahead. Private label grew 1%, so the total consumer grew 17%.

We did fully execute the private label price increase during the quarter at all customers. The growth on Fisher, which was good, was mainly from snack nut promotions as well as continuing to increase our Fisher Salad Buddies rollout. And one noticeable thing that happened during the quarter on private label our super value store brands, or what is termed as PPI outsource agreement, did end after 10 years, and we retained the majority of that business even though most of it went out for bid.

As we turn to consumer for fiscal year '05 year-to-date, we've made up some but not all of the declines on Fisher snack nuts. Fisher still is about 4.4% behind last year's pace. Private label is up about 2.9%, and that's -- that's pretty good because we've got good growth across all customers and we did lose two notable customers previously reported because we were not able to sell or weren't willing to sell at their levels at a ger -- at a detriment to our margins. That brings us 1% up for the fiscal year.

When you look at Nielsen, we're still seeing good growth in the categories, but again, it continues to slow. On the 52-week period that ended here in March, the snack nut category continued to grow at a -- at a rate of 10.8% in dollars. When you look at the trailing 26 and 13 weeks, it is slowing a little bit to 7.4 and 6.1%. Units are growing at the -- the same type of percentages of 10.1, 7.1, and 5.2 for the 52, 26, and 13 weeks and baking nuts are showing good growth as well. Baking on a 52-week basis is up 9.2% at retail dollars and then the trailing 26 and 13 weeks we're seeing 7% dollar growth and 10.9% dollar growth. The 10.9 is probably driven more because of price increases reflected in the marketplace. One interesting thing as we look at the average retail price in the category as reported by A.C. Nielsen, the price increase started to take effect and -- and is in effect across the grocery channel specifically, but we are seeing not -- not a -- a huge lift because peanut promotions, you've seen a lot of cashew and mixed nut promotions changing to peanut promotions, so the average retail price on peanuts is actually down, which has kept the entire category pricing only increasing about 1% for the trailing three months, even though private label and our largest competitor, Planters, did announce wholesale price increases.

We have not seen a lot of movement on private label prices at retail. Retailers were a little fearful. I think they still are of how close they can get to the national brand equivalent. So they've -- they've taken some of the price increase hit out of their margin. So we're going to continue to work with them to make sure that the retail prices are reflected through as nut commodity costs are going to continue to increase. Looking forward, we are announcing a private label price increase for June 2005 forward. We're focused on Fisher growth. We've got some new business that should be coming online, or we anticipate coming on line with some alternative channel retailers and continued private label growth.

Good. All right, Jim. I'd like to follow up on on the industrial, export and food service channels. The industrial channel through period 9 total volume was up three -- $3.4 million or 14% increase as Mike had mentioned and total dollar revenue for Q3 was 28.2 million bringing our year-to-date revenue for the industrial channel to 96.5 million versus the growth from last year. The growth this year was a combination of increased commodity prices along with true growth with existing customers as well as new business. In spite of the higher commodity prices we're seeing in the industry, the industrial channel is still finding opportunities to work with R&D departments at the major food manufacturers around the country that are still looking for healthy, alternative product lines that would include nuts. So we've got over 15 different R&D projects in the pipeline that will conclude nuts that we're still pursuing.

In the food service channel this might get mentioned the sales were up 27%. And there again, we're seeing a lot more usage of nuts in recipes, chef's looking for healthier alternatives or including nuts as a healthy item for their menus. We're pursuing the chain account business, which continues to grow with companies like Outback Steakhouse, some of the bigger restaurant chains throughout the country. In our airline business in the food service channel grew substantially in the third quarter, it was up over 48%. We picked up some new distribution with airlines such as Alaska, Delta and American Eagle and we continue to pursue opportunities as companies like Delta are -- are bringing peanuts back on board. We expect to see other airlines follow as they look for an alternative to just pretzels.

In the export channel it was up over 19%. There we're seeing growth not only in our major customers overseas but also some new distribution. As we begin to process more almonds out in our California facility, we create by-products and the export market is a perfect home for a lot of those product lines. So we're seeing continued growth overseas as well as our retail distribution. We're picking up some new distribution as Planters has exited some of the markets with extruded products for example. We're gaining some new distribution there.

Aside from the business channels, I also wanted to get an update on our consolidation project. We -- on April 19th we closed on the 95-acre site in Elgin, Illinois, which has been in the pipeline for awhile. The property was purchased from the Matsushita Company, which is the owner of Panasonic, and it's a 1.1 million square feet facility. It consists of two buildings. One is a four-story office building, it's 400,000 square feet and then there's a 700,000 square foot warehouse and manufacturing facility as well as on the property. Our goal is to -- Panasonic will be leasing back two floors of the office building or approximately 160,000 square feet. And then we are going to market the balance of the -- the office space in that building. The warehouse space, which is about 700,000 square feet, we will begin an expansion plan starting in June/July of 300,000 square feet expansion on that facility, and we expect to complete that by Spring of 2006. And our relocation will start beginning in Spring of 2006.

In addition, we've put together a bid package for our current four facilities in Elk Grove, Des Plains, and Arlington Heights which as most of you know consists of over 565,000 square feet of buildings in this market and we are continuing to market those properties. And with the strong growth in the O' Hare area in Chicago, we expect a lot of interest in the facilities as we move forward. So the facility consolidation project is on schedule. Mike?

Thanks, Jeff. Again we thank everyone for their time and interest in JBSS. We now will gladly take your questions. Operator, please queue up the first question.

(OPERATOR INSTRUCTIONS). Our first question comes from Scott Van Winkle of Adams Harson. Please proceed.

Hi, a couple of questions. I guess, both for Jim. What's the magnitude of the private label price increase you plan for June?

The magnitude is -- is not yet determined, but I think a good range is going to be somewhere in the 6 to 12% range and it's going mainly be focused on the almond and mixed nut items. We're really trying to -- to peg what our costs are going to be going forward so we can get this in and done and get it done right. So, we're going to figure it out this week and get it announced.

And, obviously, you're -- you're raising price to offset commodity cost. Have you looked it up, you've obviously looked around, but, what's -- what are your competitors, where are your competitors on pricing now relative to you guys? In line? Are you ahead? Behind?

Well, Planters when they announced their price increase, they locked in for a year for the -- for -- our understanding is the calendar year 2005. We have always been higher-priced than all of our private label competitors and I think we're still in that area. What our understanding is is that Nutcracker, which is division of Ralcorp is instituting a price increase now. So for a short period of time we're going to be at parity I think or closer to parity with them. And then when we announce, or when we execute in a June time period going forward, we'll be higher. One of the things that's interesting in the third quarter we had four sizeable private label programs go up for bid, and even though we were not the lowest priced, we retained 100% of that business at these four large customers. So it's more than just price, even though price is -- their cost to the retailer is a huge consideration. We do so much for on the sales, marketing, logistics, development side that we're able to get, at least what we're told, a bit more than our competitors. And it's still mainly a two-horse race behi -- between us and Nutcracker for the majority of the private label business in the U.S.

Jim, coming into this last quarter, you sounded a little nervous about the Super Bowl promotions. Did -- did -- did you see, in fact, a drop-off in that aggressive even though you talked about the promotional level on peanuts thus far on the last quarter?

I think, overall, we executed much better against Super Bowl than we have in my nine years here. And I think because there was that nervousness, or trepidation, we put a bigger focus and I think with the price increases I think the retailers were able to do more with peanuts or were open to peanuts, so they had a -- a better price point on both the Fisher as well as private label brand. I think that carried us through. One of the things we're able to do at a -- at a number of super value corporate retail chains coming out of Super Bowl, was come back with a national peanut promo -- promotion in March that we've never gotten with them before that netted us an incremental 100 pallets of Fisher Golden Roast. So, I think that nervousness led us to execute a bit better.

Thanks. And on that contract manufacturing, if I remember correctly in the June quarter a year ago you guys had a huge contract manufacturing quarter and I -- I think it was a -- a low-carb customer. Am I right there? What should we expect when we anniversary that? I know it's not a big piece of the business, but, what's it going to look like in -- in the June quarter coming up you think?

Okay. As you know -- this is Mike, Scott. As you know we saw a 34% increase this quarter in contract packaging. That came mainly from some new item rollouts with -- with an existing major customer, but also we added about three or four new customers this quarter. In some cases their early stages of rollout occurred during the quarter. In other cases that will start in the fourth quarter, but we're getting a lot of interest from other food companies who you wouldn't associate with nuts that want to get out nut items or some item that contains nuts. So very optimistic in that channel.

Great. Thank you.

Okay Scott.

Our next question comes from Bob Simonson of William Blair. Please proceed.

Good morning, guys. Two questions. Did you say and I missed it or can you say on your quarter -- your third quarter sales gain as well as the year-to-date what -- what portion of that was price?

I think if you read -- you're going to have to do the math from the press release, Bob.

Okay.

But I think what we're saying is year-to-date is down slightly in terms of pounds and quarter's up slightly. So for all intents and purposes, it's almost all price increases.

Okay.

Bob, this is Jeff. We had about a -- almost a 2% volume increase in just pounds shipped out of the facilities.

In the third quarter?

The third quarter. A little -- a little bit fine, but Mike's right, the majority is a lot of prices or -- or higher priced items that we're -- we're selling value-added items in the industrial channel is a by part of that.

So of the 20% most of that is price in the third quarter?

I would say that's correct. that's correct Bob.

Now, Jim said that the trailing snack growth -- group growth has been slowing down. Is that -- do you think a pushback by the consumer on price?

I don't think it's a pushback with price. I think -- I think we've seen this slowing. I think price adds to it, but it's not the driving factor. If you go back over the last year we've seen some of the slowdown where the current 52 at one point was as high as 20%. We've seen this slowdown continue. So price is probably driving a little bit of it. But when you look at the trailing 26 and 13 weeks, dollar sales are up 7.4 and 6.1. Units are 7.1 and 5.2. So I think that's where you see a little bit of price in this these trailing 13, but not completely.

Okay. And Mike you -- you care to give any help on the gross margin trends in the fourth quarter and -- and what's a reasonable expectation for -- can you get back in 2006 to where you were in 2004 or -- ?

Well, I think as you can see we're starting to close the gap as we did in the third quarter between last year's gross margin and this year's gross margin.

Right.

And I -- and we expect that to improve, even in the fourth quarter. Keep in mind we did ship quite a few old crop industrial contracts in Q3, which brought the gross margin down a little bit.

And that's done?

And that's done. So with that behind us, you can expect the fourth quarter to -- to be better than we even did in this quarter.

And better than the fourth quarter of a year ago? Or is that -- ?

Well, I'm not making any guarantees there, but without those contracts That helps.

on our backs we certainly have a better shot at it than -- than we did in say Q2.

Also, you know, as you -- as you probably note, there is a pretty significant sales mix shift towards industrial and contract packaging. We -- we expect that to continue. Those do deliver lower gross margins than consumer does, so that -- that may have an impact too going forward. And then finally, when -- when you're selling pecans at say $5.25 or $5.50 and the same would go for some of the other nuts, you can't -- and I'm talking in -- industrial channel now, you can't expect to get a 15% gross margin with those kinds of prices.

If you make some progress in the fourth quarter on your gross margin on a year-over-year basis, your full year gross might be around 14, and that would be down 350-plus margin points from 2004. Is -- now that you've got your price increases pretty much in place, how much of that do you think you can get back next year? Obviously, there's a lot of other things that go in there, the crops, et cetera. But, what's -- is there a reason up?

Well, I think, obviously the first half of 2006 in percentage terms -- and I'm talking -- the first -- the first quarter and the second quarter probably won't be normal gross margins like the kind we saw in fiscal 2004. But,

More normal than this year?

Certainly more normal than this year. As things look today, but not -- not normal by fiscal 2004 standards. And then in the -- in the third and fourth quarters when we get into these new crops, we expect to see relief in pecans, we expect to see relief in and filberts. Cashews seem to be somewhat stable right now. And I've got my fingers crossed on that. We'll -- we'll get some pressure from almonds, but I think the ingredients are there right now based on what we know about these crops that are coming in where things can start to get back to 2003, 2004 type levels.

But perhaps not there yet?

Not quite yet. But the other thing I want to stress too is is that we can't continue to focus on percentage because of these high selling prices. And I think you're going to see, like we saw in this quarter, where we'll deliver the dollars, but you may not necessarily see the percentage go up to the levels you've -- you've seen in 2003 and 2004.

Very good. Thank you.

Thanks, Bob.

Our next question comes from Chuck Sarankowski of Key Capital Markets. Please proceed.

Good morning, everyone. Mike, can you first off take us first through sort of a flow of funds? You did the borrowing in the quarter, and that's like up 90 million year-over-year, $92 million. It looks like most of that showed up in the inventory on the asset side of the balance sheet. How might we see that turned back and the cash is certain -- cert -- as -- as the -- as the consolidation project starts to require funds and I guess it did on April 15, when you closed?

That's correct, it did. March, April -- and really March and April were big spending months for us as we closed on the Panasonic site, and we also made two rounds of grower payments that amounted to some 25 or $30 million, I believe. So, that's all behind us now. And when you consider that we're shipping out truckloads of pecans every day that are worth it's -- quarter of a million dollars or close to $300,000 and some of the other nuts aren't too far behind that, we -- we expect to have positive operating cash flow. In fact, significant positive operating cash flow between now and next fall.

So -- so the fourth fiscal quarter, first fiscal quarter be positive cash flow?

Significantly so.

Okay.

Same with the fourth.

Okay. Good. Good. And in looking at the 0-profit contracts that you mentioned in the press release, can you give us some sort of scale as to how -- how much of the sales mix went out at that basis?

It was about -- it was less than 10%. Now, keep in mind it wasn't -- it wasn't just those contracts. Only a portion of our open contract balances at the end of the second quarter were written down. There were -- there was another piece that also did not need to be written down but did deliver single digit gross margins and in many cases less than 5%. So you have to add that -- add that on there to get to the say less than 10% of our sales in Q3 were sold at those kinds of levels.

What -- what kind of -- Mike, looking at the fourth quarter, what kind of sequential quarter swing would you expect in those sales from, say, 0 to 5% gross margin? What might they be in the fourth quarter?

As far as industrial contracts go?

Yes.

I think -- I think what -- and I -- we talked a little bit about this before. Normally we see our industrial contracts deliver, say, 13 to 15% gross margin. They're going to come a little short of that, because you just simply can't get a 15% gross margin on a $5.25 pecan or a $4.50 almond. So, but, certainly it'll be better than less than 5%.

And it sounds like the point you're also making is focus on the dollars of gross profits here at these at these higher growth levels and prices.

That's right.

Okay. Thank you.

Okay.

Again, ladies and gentlemen that's star, 1 to ask a question. Our next question comes from Gregory Mak -- Makosko of Lord Abbott. Please proceed.

Yes. Thank you. Just finally to follow up on that last -- last question. Why -- I think I hear you're saying is order of magnitude something less than 5% of -- of all revenue or just industrial revenue will be at that sort of 0% gross margin?

Not -- not will be that was -- that -- those were the sales or the percentage of our total revenues during the third quarter that delivered low gross margins.

So they're totally gone now is what you're saying?

That's correct.

Okay. Very good. Then -- and there's no additional contracts like you said there was some you didn't have to write down that were pro -- but were already at 0. There's none of those left either?

Right. All the old conco -- all the old Krupp contracts are -- have now been fulfilled.

Good description. I was surprised to hear that the airlines are back into peanuts. I know there's been some allergy issues and the like. Has that turned around?

I don't know if it's turned around. I think the airlines are looking for a variety of products to sell, not only sell in the airlines but offer. And people are tired of just plain pretzels. So we've got a lot of interest. As I mentioned, Delta's the first one to go back on -- to include peanuts onboard. Southwest never got rid of peanuts, so they've always contained -- or shipped peanuts. And we're just seeing interest from other airlines to pursue that as well, or they're looking at mixes as well.

Mm hmm. And with regard to the -- the -- the Panasonic facility and the change over, et cetera, just run through that again for me, if you would. I assume that you'll start moving into the Pa -- Panasonic facility at the beginning of '06? Is that the idea?

Correct. We will start -- actually we'll move in prior to that once we -- we're -- we're going to start an expansion in June/July of this year to -- to add 300,000 square feet to the facility, but there's areas where we can move out of our -- one of our existing facilities as -- and just put warehouse -- use it for warehouse space. So actually start the move this year, but the main move where we're moving manufacturing equipment will start in Spring of 2006.

And if we look at the existing facility, when is a reasonable expectation to see that perhaps one or a portion of those facilities may be sold or -- or -- or leased or something? Is these -- and -- and -- and must it be the whole facility, or can -- will you do it pieces at a time?

The bid package we put together is a combination. It's a package for all four buildings, but we're also marketing them individually. For example, there's one facility we have that's close to O' Hare Airport where we've gotten the most interest from perspective direct users to buy that. So we are marketing them as a package but also individual. We really -- with the -- with the interest in the facilities and the growth in this marketplace around O' Hare, we expect sometime in August to potentially close on the facilities.

All of the facilities?

Yes; correct.

And would you expect to retain ownership or lease them and keep ownership?

No, no. We're going to sell them.

Okay.

All right.

Thank you.

Okay. Thank you.

Our next question comes from Brian Black of Delaware Capital. Please proceed.

Hey, guys. Actually Ed Joseph at Delaware Street Capital. Most of our questions have been answered. I guess just as a follow-up. On the sale of the four facilities in Elk Grove Village, do you have an estimated range for -- for kind of net proceeds to you guys?

We don't have that yet, Brian. But I think as Jeff mentioned sometime this summer we'll -- we'll have a much clearer picture of of that.

Okay. Great. And I think pretty much everything else has been answered. So thanks very much, guys.

Okay. Thanks.

Our next question comes from Scott Bruce of Sinvest. Please proceed.

Hey, guys, thanks for taking the question. Mike, I just wanted to follow up on the gross margin issue again. I guess, I just sort of wonder what assumptions you're making with respect to raw materials prices when you give the kind of general view that you expect margins to be incrementally higher going forward from here because it just seems last year that the issue was you had to get out in front of some different pricing action to get out in front of some raw material price increases and that didn't necessarily lead to an -- to a -- ad improved gross margin off the bat. So, what -- what assumptions are you making now? Do you -- you think this latest round gets you out in front of sort of all the material prices increases you've seen?

Well, I think, first of all, we need to put the timing into two different categories. When we talk about Q4 and Q1, most of our commodity positions are fixed, so we have a pretty good idea of -- of what our costs are going to be for that period of time, and we can base our -- our assumptions on that -- on that kind of information. Going forward what we know is is that the pecan -- we should have a much larger pecan crop than we did this year with substantially lower prices. And as you know, pecans make up a significant portion of our sales. We also expect to have a very good filbert crop, or hazelnut crop, which has kind of dogged us for the last 12 months, especially in mixed nuts. So we're -- we're basing our assumptions on that.

We expect to have a very favorable peanut market for the next peanut crop year. We know almonds will be up because we did not have very good bloom conditions, and that's something we'll have to wrestle with going forward. And then cashews look very stable right now. And again, I've got my fingers crossed on that one, but we're assuming that they will not go up dramatically. So that's -- that's some of the basis for our assumptions.

Good. And then did you say fiscal Q4 and Q1 are when you've got a reasonably good visibility on -- on costs?

That's correct.

Okay. So in the next two upcoming quarters?

That's right.

Again, ladies and gentlemen, that's star, 1 to ask a question . Sir, you have no questions at this time. Please proceed to your closing remarks.

Okay. Again, we thank everybody for their interest in JBSS. We'll end the call right now, and we hope everyone has a good day. Thank you.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.