John B Sanfilippo & Son Inc (JBSS) 2015 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the John B Sanfilippo & Son Inc. fourth quarter and fiscal 2015 year-end operating results conference call. My name is Dave, I will be your operator for today. At this time all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions). I would now like to turn the call over to Mr. Mike Valentine, Chief Financial Officer. Please proceed, Sir.

Thank you, Dave. Good morning, everyone, and welcome to our 2015 fourth-quarter and fiscal year earnings conference call. Thank you for joining us today. On the call with me today are Jasper Sanfilippo, our COO, who will be subbing for Jeffrey, who is traveling. And Howard Brandeisky, our Senior VP of global marketing.

Before we start, we may make some forward-looking statements today. These statements are based on our current expectations that involve certain risks and uncertainties that are inherent in our business. 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.

I will start the call today by covering financial highlights for the 2015 fourth quarter and fiscal year. The current quarter net sales increased by 9.3% to a record $221.4 million compared to net sales of $202.5 million, for the fourth quarter of fiscal 2014. The increase in net sales in the quarterly comparison came mainly from higher selling prices, driven by increased commodity acquisition costs. Sales volume was relatively unchanged in the quarterly comparison.

Volume increased in all distribution channels except the consumer channel which decreased by approximately 5%. Volume increased for all major nut types except for mixed nuts, peanuts, and trail mixes. The decrease in volume in the consumer channel resulted primarily from lower sales of private brand snack nuts and trail mixes due to lost business with the customer that elected to self-manufacture these products, and decreased promotional activity and existing private brand customer.

The decrease in volume of these private brand products was offset by significant increases in volume for Fisher recipe nuts, Orchard Valley Harvest produce products, and new sales for the launch of the Fisher Nut Exactly snack by product line. Volume increased by 12.2% in the contract packaging channel primarily due to increased sales with existing customers, volume in the commercial ingredients channel increased by 4.2%, mainly due to increased sales of almond and cashew products to an existing customer.

Volume increased by 21.5% in the export channel, primarily due to increased sales of bulk pecan and peanut products. Fiscal 2015 net sales increased by 14% to a record $887.2 million compared to fiscal 2014 net sales of $778.6 million. The increase in net sales and the yearly comparison primarily resulted from higher selling prices due to increased commodity acquisition costs and also a 5.4% increase in sales volume.

Volume increased in the consumer channel by 7.9% and in the contract packaging channel by 8%. Volume was relatively unchanged in the commercial ingredients channel and volume declined by 4.6% in the export channel. Volume increased for all major product types except walnuts and pecans in the yearly comparison.

The increase in volume in the consumer channel resulted primarily from increased sales of private brand snack nuts and trail mixes to existing customers. Increases in sales of Fisher recipe, Fisher snack nuts and Orchard Valley Harvest produce products also contributed to the increase in the consumer channel.

As was the case in the quarterly comparison the volume increase in contract packaging channel was primarily due to increased sales to existing customers. In the commercial ingredients channel, increases in volume for almond and peanut products to an existing customer were offset completely by decline in sales of bulk pecans, due to a smaller pecan crop, and a decline in sales for walnuts and macadamia nuts, due to lost business.

The decline in sales volume for both the export channel and for walnuts in particular resulted from a significantly lower supply of a grade of in shell walnuts those typically sold into the export market. The current fourth-quarter gross profit margin decreased to 15.5% of net sales from 16.7% for last year's fourth quarter.

Gross profit increased by $600,000 or 1.8%. The increase in gross profit primarily resulted from improved alignment of selling prices and commodity acquisition costs. The decline in gross profit margin was primarily due to higher acquisition costs for pecans and almonds.

An increase in manufacturing and expenses mainly an employee-related cost and repair and maintenance costs also contributed to the decline in gross profit margin in the quarterly comparison. Fiscal 2015 gross profit margins [decreased] to 14.9% of net sales from 15.8% from fiscal 2014. Gross profit increased by $9.2 million or 7.5%, chiefly as a result of increased sales volume. Gross profit margin in the fiscal year comparison declined for the same reason cited in the quarterly comparison.

Total operating expenses for the fourth quarter of fiscal 2015 declined by 9.3% of net sales from 10.7% for the fourth quarter of fiscal 2014. The decline in total operating expenses as a percentage of net sales was mainly attributable to a higher level of net sales. The decline in total operating expenses in the quarterly comparison in dollar terms was mainly due to lower shipping and advertising expenses. Total operating expenses for fiscal 2015, fell to 9% of net sales from 9.7% for fiscal 2014.

The decline in total operating expenses as a percentage of net sales was again mainly attributable to a higher level of net sales. The increase in total operating expenses in dollar terms was primarily due to increases in employee related costs and the advertising expenses.

It should also be noted that total operating expenses in fiscal 2014 were reduced by a $1.6 million gain on the sale of an Elgin, Illinois site that was formerly owned by the Company.

Interest expense of $1.1 million for the fourth quarter of fiscal 2015 was relatively unchanged from interest expense for last year's fourth quarter. Interest expense for the current fiscal year fell to $4 million from $4.4 million for fiscal 2014. The decline in interest expense in the fiscal year comparison was primarily attributable to lower interest rates on our short-term borrowing facility.

Net rental and miscellaneous expense declined by $800,000 in the quarterly comparison because last year's fourth quarter included expenses associated with the repairs to the exterior of our office building located on our Elgin, Illinois headquarters campus. That repair was completed in the first half of fiscal 2015.

As a result of all the above, net income increased by 28.2% to a record $8.5 million in the quarterly comparison. And net income for 2015 increased by 11% to a record $29.3 million.

Taking a quick look at inventory, the total value of inventories on hand at the end of the current fiscal year increased by $15.2 million or 8.3% compared to the total value of inventories on hand last year. The increase in the value of total inventory was primarily attributable to increased costs and quantities of finished goods and work-in-process inventories.

The increase in the cost of these particular inventory items were primarily attributable to increased acquisition costs for pecans, almonds and cashews. The increasing quantities of these inventory categories was mainly due to the need to build up pecan inventories in preparation for production line upgrades that were implemented near the end of the fiscal year.

The weighted average cost per pound of raw nut and dried fruit input stocks on hand at the end of fiscal 2015 increased by 36.5% compared to the weighted average cost of input stocks at the end of fiscal 2014. The increase in weighted average cost of input stocks was driven primarily by a large decline in the quantity of lower cost peanut input stocks on hand and a higher acquisition cost for pecans, almonds and cashews.

And now I'll turn the call over to Jasper Sanfilippo, our COO, who will provide additional comments on our performance for the current quarter and fiscal year.

Thank you, Mike, and good morning, everyone. I want to congratulate our management team and all our dedicated employees on achieving another consecutive year of record performance. The Company has set records in the following financial measures in fiscal year 2015.

Net sales reached $187.2 million, gross profit reached $132.1 million, net income reached $29.3 million, earnings per share reached $2.61, and we achieved record sales volume. We are very proud of these results and I thank our team for the leadership in executing our strategic growth plans to create value for our customers and our shareholders.

We ended this year with strong momentum. As was the case in the third quarter, our net income for the current fourth quarter exceeded last year's record fourth quarter at net income by a wide margin, due in part to increased sales of our branded product. Fisher recipe nuts and Orchard Valley Harvest produce products contributed to the record results as both brands had a strong quarter with sales volume increases of 15.8% and 18.6%, respectively.

The increase in sales volume for Fisher recipe nuts resulted from adding larger package sizes to our product offering and an increase in sales volumes for Orchard Valley Harvest products was primarily attributable distribution gains with new customers.

We also had very successful launch of Fisher Nut Exactly snack by product line during the current fourth quarter. And these Fisher products now can be found in nearly 5,000 stores.

Given the success of this initial launch we believe that there will be many opportunities to increase distribution for Fisher Nut Exactly.

During the fourth quarter earnings call last year, my brother Jeffrey mentioned how JBS was evolving into a true consumer products company. The strong results of our Fisher and Orchard Valley Harvest brands in fiscal 2015 demonstrate how the Company continues to execute its strategy to grow JBS brands. Later in the call, Howard will comment further about our exciting branded programs.

One of many highlights this past fiscal year is our strong financial performance which allowed us to pay a special cash dividend of $1.50 per share or approximately 4% yield to shareholders in December 2014 which is consistent with the $1.50 per share dividend the Company paid the prior year.

The Company accomplished a great deal in fiscal 2015 in spite of rising nut markets and significant investments in our operations.

Turning a moment to raw materials it is important to note that our nut commodity prices were 80.8 -- $80.8 million higher for the same pound volume during fiscal 2015 compared to fiscal 2014, due mainly to higher nut acquisition costs. Drivers for this increase included the continued high demand for pecans and walnuts in China, and strong global demand for almonds.

Fiscal 2015 approximately 27% of the dollar value of our total nut purchases was from foreign sources. Our procurements demand planning and sales and marketing teams continue to improve the Company's alignment of selling prices with commodity costs, especially in respect to timing.

Total upgrades were made to production lines in many of our manufacturing facilities to improve supply chain efficiencies and drive down costs. In addition, JBS is making additional investments in food safety. We are taking a proactive position in preparation for the Food Safety Modernization Act requirements. The preventative controls for human foods final rules and guidance document will be published August 31, 2015 and go into effect August 2016.

The US FDA is currently assessing the risk of packaging contamination associated with tree nuts. We anticipate their research mainly to increased industry-specific regulation and/or additional risk-based preventative controls.

Turning to a review of sales by channel. Consumer channel. Net sales in the consumer distribution channel increased by 16.7% in dollars and 7.9% in sales volume in fiscal 2015 compared to fiscal 2014. Total Fisher-branded sales volumes increased 9.7% in fiscal 2015 compared to 2014, due primarily to higher sales to existing customers.

IRI market data from June 2015 indicates Fisher recipe continued to gain market share in overall recipe net category. Fisher recipe nuts sales volume increased 4.7% from fiscal 2014, primarily as a result of increased sales to a significant customer. Fisher brand snack nut sales volume increased 14%, due largely to the distribution of in-shell peanuts we regained at a major snack customer.

Private brand consumer sales volume increased by 6.6% in fiscal 2015 compared to fiscal 2014, due to an increase in the sales of snack nut and trail mix products to two significant customers.

Commercial ingredients channel. Net sales in the commercial ingredients distribution channel increased by 7.3% in dollars for fiscal 2013. The sales volume was relatively unchanged, compared to 2014. An increase in almond and peanut sales volumes to existing customers was nearly offset by lower bulk pecan sales volume as a result of a smaller pecan crop, and lower sales volume of macadamia nuts and walnuts due to lost business with the customer using these nuts in their products.

International channel. Net sales in the export distribution channel increased 6% in dollars for fiscal 2015 though sales volume decreased 4.6% compared to fiscal 2014. The sales volume decrease was primarily due to a significant lower supply of bulk in-shell walnuts for the export market. The decrease in volume was offset by an 11% increase in the weighted average selling price per pound.

Contract packaging channel. Net sales in the contract packaging channel increased by 17% in dollars and 8% in sales volume in fiscal 2015 compared to fiscal 2014. The increase in sales volume primarily resulted from increased sale of peanuts, cashew and mix nut products to existing customers.

Now I will turn the call over to Howard to cover consumption trends in the snack recipe and produce categories, and he will highlight the recent success of our Fisher and Orchard Valley Harvest brands.

Thank you, Jasper, and good morning, everyone. I'm happy to be able to share some strong brand results with you this morning both for the quarter and also for the year.

As always all the market information I will be referring to this morning is IRI reported data, and for today it is for the period ending June 28, 2015. When I refer to the fourth quarter, I am referring to the 13 weeks of the quarter ending June 28. References to changes in volume or price refers to the corresponding period one year ago. Percentage changes have been rounded to the nearest full percent. We look at the category on IRI's total US definition which includes food, drug, mass, military and other outlets unless otherwise specified. And when we discuss pricing, we are referring to the average price per pound. The term velocity refers to the sales per point of distribution.

First, let me review some category dynamics. For both the quarter and the full fiscal year, the category saw an increase in dollar sales but a slight decrease in pound volume. This is a result of generally higher retail nut prices, which is impacting consumer purchase behavior. The total nut category increased in sales dollars 3% and declined in pound volume by 1% in the fourth quarter. Overall prices in the fourth quarter increased 4% versus the prior year.

Almonds, pistachios and walnuts experienced the largest price increases. Almonds increased 12%, pistachios and walnuts increased 8% versus Q4 of last year, and that resulted in an 11% pound decline of pistachios, a 9% pound sales decline for almonds and an 8% decline for walnuts.

The story is similar when looking at the entire 2015 fiscal year. The nut category increased 3% in sales dollars and decreased 1% in pound volume sales. Category pricing during the fiscal year increased 4% versus the prior year. Again, price increases were most visible on almonds, up 11%, and pistachios and walnuts, each up 9%. Peanuts were the only major nut type that decreased in price versus last year.

Now I'll talk about each category in a little bit more depth starting with recipe nuts.

In the fourth quarter, the recipe nut category was flat in dollar sales but decreased 9% in pound sales driven by an average price increase of 10%. The decline was led by a 20% increase in almond prices, along with increases on walnuts of 8% and pecans of 4%. Again, the story for the fiscal year is similar.

The recipe category for our 2015 fiscal year increased 3% in dollar sales and declined 6% in pound sales. All three key nut types within the category declined versus last year. Almonds down 11%, walnuts down 5% and pecans down 4%, and that was due to increased pricing. Almonds increased 16%, walnuts up 9% and pecans 7% in price versus the prior year.

Our Fisher brand had a very strong year and continues to gain momentum. The Fisher brand continued its sponsorship of The Food Network and celebrity chef Alex Guarnaschelli. The program includes branded vignettes on The Food Network, print advertising and Food Network magazine and other publications as well as a fully integrated social media effort.

Our brand equity efforts on Fisher helped the brand overcome category weakness and deliver growth in the fourth quarter and on the year.

Fisher recipe nuts increased 12% in dollar sales and 1% in pound sales in the quarter versus last year. As a result, Fisher share in the category increased 1.8 points versus last year. Our equity marketing and retail merchandising efforts helped drive an 8% increase in dollar velocity.

For the entire fiscal year, Fisher recipe nuts increased 15% in dollar sales and 5% in pound sales, resulting in the brand share increasing 2.2 points versus last year with dollar velocity up 16%.

The Fisher recipe nut brand has now grown from 44 consecutive four-week periods as reported by IRI. That's a period of almost 3.5 years since the last time Fisher recipe nuts had a negative volume IRI quad week period.

Now let me turn to the snack category. In Q4, the snack category increased 6% in dollar sales and 1% in pound sales versus last year. Average prices were up 5%, led by almonds at 10%. For the fiscal year, the snack category increased 6% in dollar sales and 3% in pound sales versus last year.

Looking at Fisher snack, Fisher snack increased 11% in sales dollars and 6% in pound sales in Q4. Fishers Oven Roasted Never Fried campaign on dry roast peanuts and the Fisher High franchise helped drive an increasing pound sales in our key geographies. Fisher sales dollars and pound volume as measured by IRI increased in fiscal 2015 versus last year 8% and 11%, respectively.

Fisher Nut Exactly new product launch continued to proceed well. Fisher Nut Exactly is a line of nut and popcorn snack bite clusters that have been dipped in a touch of indulgence. Varieties include almond popcorn dipped in dark chocolate, almond popcorn dipped in milk chocolate, pecan popcorn dipped in salted caramel, and peanut popcorn dipped in peanut butter.

We also offer unique Nut Exactly varieties in the club channel [a tray]. The Fisher Nut Exactly retail launch began in our third quarter. The distribution build continued in the fourth quarter and we also experienced gains in velocity. The product line is performing best at retailers that are provided strong merchandising support, helping to drive awareness and trial.

Finally, I'll turn to the produce category. The overall produce nut category was down 7% compounds and 1% in dollars, almost every nut type experienced declines were related to higher retail pricing. Our Orchard Valley Harvest brand had a strong fourth quarter, outperforming the category with a 13% increase in pound sales and an 8% increase in dollar sales.

For the fiscal year, the brand increased 50% in pound sales and 38% in dollar sales.

As you will recall, we repositioned Orchard Valley Harvest a few years ago to be more on trend and better meet the needs of today's consumers. The first key trend we tapped into is consumers' desire for less processed products and cleaner ingredient lines. We reformulated our products to have no artificial ingredients and also to be non-GMO project verified.

We also updated our packaging and in-store communication to better communicate these product benefits to consumers.

The second key trend is for more convenient on the go packaging. We expanded our offerings to include convenient single serve mini bags and multipacks. These convenient offerings have been the key drivers of growth for the quarter and the fiscal year. Multipacks are the big driver in the fourth quarter with pound sales more than double the year ago period. Both single serve minis and multipacks contributed to the strong full-year results.

And now let me turn it back to Jasper Sanfilippo, our President and COO.

Thank you, Howard. In closing, the management team remains focused on consistent execution of our corporate goals to create customer and shareholder value. Our fiscal 2015 performance results demonstrate our ability to grow our brands and create value for key customers.

While we have faced supply and demand challenges that impact commodity pricing, we have proven our ability to manage through volatile markets to mitigate the impact on our financial performance. And we will continue to work closely with customers to provide value and help them continue to build the snack and nut programs.

Our strategic goals remain consistent in the coming year, growing Fisher and Orchard Valley Harvest into leading nut brands by focusing on consumers demanding quality nuts in the snacking, recipe and produce categories. Expanding globally and building our Company into a leading international brand and private brand snack nut company. Providing integrated nut solutions to grow nonbranded business at existing key customers in each distribution channel.

We appreciate your participation in the call and thank you for your interest in our Company.

I will now turn it back -- turn the call back over to Mike.

Thanks, Jasper.

Before we take questions we just want to alert investors that we will be presenting at the Midwest Ideas Conference in Chicago on August 27, and we will be posting an updated Investor Presentation on our site that day. Also we will be presenting at the Stifel Consumer Conference in New York on September 17.

Dave, can you please queue up the first question?

(Operator Instructions). Francesco Pellegrino, Sidoti & Company.

Good morning, guys. Thanks in advance for taking the questions. Just want to start off by -- looks like you got some nice price increases through during the fourth quarter. Is it fair to assume that these prices will persist -- these price increases will persist through the third quarter of fiscal 2016?

Yes. Typically we don't really change prices until our third quarter, occasionally maybe in the fourth quarter, just catch up with acquisition costs. And then assuming acquisition costs don't change, which they do, we don't, then selling prices and costs pretty much remain stable until probably about December.

I appreciate that answer. However, with the reported flat volume, something that I actually was looking for as well, even though I didn't see the lost customer coming through, is it fair to assume that that customer was of a lower margin business, it was, I think, a branded -- a private branded product?

No, both the customer that we lost and also the customer that had reduced merchandising activity on private brand products are normal margins. For those kind of product lines.

So I see price increases coming through in the fourth quarter, I know usually you guys do a very good job of buying inventory, but making sure a lot of that inventory has already been presold on various contract terms. It seems as if when you start to maybe replenish the inventory throughout the rest of the year -- I'm not really concerned about the first quarter. But is there anything that might be able to drive volume growth going forward? I know you had a really strong year in volume, you went over that 250 million pound volume sold mark and you are sort of on uncharted territory right now. What's really out there that could drive volume growth going forward?

I'll talk about it from the commodity end, and then I'll turn it over to Howard and he can talk about brands. But we are looking at a very large walnut crop and also a large peanut crop. And we typically -- the whole industry typically sells the entire crop. So, we believe we can pick up some significant additional pounds on both those commodities.

Howard, do you want to talk about brands?

The brands, we certainly still see opportunity to grow the brands. If you look at the recipe nut business, though the business has done very, very well, we think there's still distribution opportunities that we are always pushing on. Likewise, the snack business.

The Nut Exactly business, a little early to tell, but it's doing well so far and we hope to continue to build distribution there. So as we have success in the market place and we have had that, we certainly look to share that with our retail partners and use that story to help convince them to expand distribution of our products. So we hope to see some upside.

And then something you probably haven't been able to fully appreciate in the past just because with the overall industry sort of contracting a bit, has that got you guys are able to steal market share in such a competitive type of commodity space right now and I know you're doing it through some of your higher price point products. How much longer can this really continue? I know during the second quarter you guys had some elevated trade spending during the quarter, that slightly brought down margins a bit.

But is this something that's going to be through a lot more promotional activity going forward?

If you look at a longer time period, you mentioned the second quarter, but you look at the longer time period and we were looking at this recently, our merchandising is not out of line with the category for any part of our branded business. So, I think we do -- we've been really growing the business, I think through our equity efforts more than anything else. And that's why in my commentary I pointed to the velocity, because I think that it's partly indicative of the equity efforts that were put in place.

Clearly, we have been merchandising at retail. What our data shows is that we have been getting a higher quality merchandising, so more displays as opposed to deep price promotions. And so, though the overall merchandising has been in line with the category and not gone up in any appreciable way over the years, the quality of our merchandising, I think, has improved.

And so the combination of that kind of great execution at retail with our equity building efforts, I think has been -- really driven the results to date. And we hope to drive future results the same way.

Do you feel as if in addition to a guest distribution gain for Orchard Valley Harvest, it was the quality of the merchandising for Orchard Valley Harvest that happened in produce that really drove that really nice growth, but this hasn't really been a category you guys have talked about in the past.

On Orchard Valley Harvest, I would say that I think there, as I mentioned in my commentary, I think we really -- when we repositioned the Company years ago, we really did a good job of identifying consumer trend, and then repositioning the product to address those trends, both from a product point with the no artificial ingredients and the non-GMO verified, but then also identifying this on-the-go need consumers have, it's targeted to be sold in the produce section of the grocery store. That can be an impulse purchase area. And on-the-go minis as well as the multipacks grew something that we brought that was new to the produce. Nut category, relatively new. And I think that's really helped drive the success.

And there's also been some very good execution at retail there as well. So I think it's all -- the numbers on Orchard Valley Harvest obviously very, very, very strong. To get results like that, it's a lot of things working in concert to deliver those results.

That made sense. I guess just talking more about the macroeconomy, the tree and peanut space. The strong peanut crop that's coming in this year. Looks as if it's going to be up 19% year-over-year to 6.2 billion harvested pounds. What was driving that great yield, I guess? Is it farmer sort of converting their fields from corn to peanuts?

It's mostly an increase in acreage. And that's coming as a result of very low corn and cotton prices.

So, help me think this through outside of this year. If I am a farmer that's sort of not producing corn anymore, I am producing peanuts. I've made a commitment for I don't know how many years am I going to be growing peanuts before maybe I convert to another product? Could we be in a prolonged period of elevated peanut production going forward?

That's all going to be dependent on corn and cotton prices. If those prices go up, they could very well switch acreage back to those crops, and end up making a normal size crop of roughly 2.5 million tons.

So is it necessarily that easy from year-to-year to just switch back and forth?

Yes.

So there's no elevated cost with machinery or something? Your machinery is relatively cheap to go from picking peanuts to harvesting corn.

Right, that made those investments already and they have excess capacity on really all three crops. So they can make that change very easily.

All right. And just the last question, second-to-last question. So if the walnut crop and the peanut crop are coming in rather attractively, something you guys are vertically integrated for, could you go over the additional capacity that -- I guess maybe the capacity you are currently operating at and how much more capacity you guys could take with your shelling operations?

I think both shelling operations are running at roughly about 50% utilization rate.

So you guys could (multiple speakers)

Maybe a little bit higher. So if we want to, we can very easily shell significantly higher quantities of both those nuts.

And lastly, the food modernization regulations that you guys are looking to get ahead of, I know you said you incurred some costs in the fourth-quarter fiscal 2015. Any idea what your thoughts will be in 2016?

It's hard to say obviously once the FDA dictates and let us know what their guidance is going to be, I think we'll have a better opportunity to do that. But right now it's very hard to tell.

I appreciate the time again, guys. Thank you very much for answering my questions.

Tom Koch, Trancoso.

Morning, guys. Was wondering if you could articulate a little bit on your thoughts, there's a lot of obviously anticipated M&A or at least one large transaction out there in the space. There's talk about potential for private equity buyers as well as several strategics that have been very vocal about wanting to buy these assets.

How do you guys view if a strategic transaction occurs, how do you guys view the market panning out over the next several years for you guys in the private label space? Is this something that helps the space as far as consolidation and pricing, is the something that hurts as far as a larger competitor?

We have -- of course, we've been living that now for two years. And we believe that, as these deals occur, it does provide us with a bit of a competitive advantage because we are so much more experienced in the industry than the teams that are in place after the integration takes place on these deals.

So that is especially the case in procurement. So, so far I think we've -- that's helped us. I don't know if there's going to be any significant deals going forward other than the one that I think you're talking about. So we may have seen the end of that. But I would say overall it's a plus for us.

I mean, overall, there have been many players wanting to gain market share in the space. You know, from Treehouse to Post to ADMs has been buying, Olam's has been buying assets. And I'm just wondering what, again, if you look into the next year or two overall is that something that concerns you, or is that something that you are seeing is helping the business as far as larger, more kind of rational players?

On the ag end, specifically ADM and Olam, and I think that's a positive for us. We are much more sophistication on the handler part of the industry, I think, can only benefit us.

Okay, so you are not -- it doesn't sound like you are too concerned about continued consolidation.

No. In fact, we actually welcome consolidation on the ag side, because as a handler ourselves, it just enhances our competitive advantage of being vertically integrated.

Okay, thanks. I just have a few more.

Mike, on the working capital side, your inventory and AR have gone up for the last two years, pretty significantly. You're funding that obviously with working capital increases in your revolver. Payables have been flat, though.

So my question is, are you keeping those flat intentionally because you're getting better terms? Why don't you increase the payables kind of step-by-step with increase in inventory and AR and free up more revolver capability, capacity, whatever you want to call it?

The timing isn't always the same among those three line items. So for example, Q4 is typically a very low purchase period for us. But yes, we saw some very strong sales in June. So you're going to see a pretty sizable disconnect between a change in receivables and change in payables.

And then, on the inventory side, again that's being generated primarily by increased acquisition costs, but again with the lower purchase pounds that typically occur in Q4, you are not going to see AP move with that. And in fact our inventories came down from Q3 to Q4 pretty significantly.

Right. I'll talk to you more off-line about that, I'm just wondering the year-over-year basis. If I look back going back three years, again at the same time point, end of the year inventory and AR have gone up, payables are flat. So you're funding it with your revolver, you revolver has gone up.

We can talk more about that off-line.

Great. One other question was, can you talk a little bit about your Q4 private label volume decline? You've talked about this nice pick-up on the branded side. You know, what -- I guess what do you see there and is that all indicative of a tougher market or tougher kind of road going forward over the next year?

In respect to the retailer that elected to self-manufacture, we don't expect a bunch of retailers to follow suit. I think they face some pretty considerable challenges getting into the nut business. It's been tried before, so we don't really see that as a trend. And then I'll let Howard talk about the other retailer, where we saw some decrease merchandising activity and whether that's going to continue.

It's always hard to predict future decreased -- actions on some of the retailers. But we certainly hope that the merchandising returns. We always try to develop programs for our retail partners to aid them with their merchandising, give them the tools, in-store display capability, etc. -- and we're always pursuing -- we pursue new business that makes sense for us.

Okay. And one last one, Mike. In last year's first quarter, fiscal first quarter, you all had a margin hit due to kind of some cost versus price coverage issues. How is that playing out in the first quarter this year?

You're talking about first quarter of 2015 or 2014?

2015.

This year, I think I mentioned earlier in the call, we are seeing some stability and acquisition costs for the most part where we didn't quite see that a year ago, and then that probably was almonds driving that. So, I don't really anticipate that we are going to see the same sort of thing that we saw last year.

So the issue with the volume increasing, kind of that (multiple speakers)

You know what else, too, Jasper just reminded me. In Q1 of last year, we came up a little short on pecans. So we had to get into the market and do some unusual spot buying. We are in good shape on pecans this year, so that won't recur.

Okay. Thanks a lot.

There are no further questions at this time, ladies and gentlemen, so once again (Operator Instructions). If there are no further questions coming through I would now like to turn the call back over to Mr. Mike Valentine for closing remarks.

Thanks. Again, thank you everyone for your interest in JBS , this concludes the call for our fourth quarter and fiscal year 2015 operating results.

Thank you for your participation in today's conference, this concludes the presentation. You may now disconnect. Good day.