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John B Sanfilippo & Son Inc  (NASDAQ:JBSS)
Q2 2019 Earnings Conference Call
Jan. 31, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the John B Sanfilippo & Son Second Quarter Fiscal 2019 Operating Results Conference Call. At this time, all participants are in a listen-only mode. (Operator Instructions) Later we will have a question-and-answer session.

And now it's my pleasure to turn the call to our Chief Financial Officer, Mike Valentine.

Michael J. Valentine -- Chief Financial Officer, Group President and Secretary

Thank you, Carmen. Good morning, everyone and welcome to our 2019 second quarter earnings conference call. Thank you for joining us today. On the call with me is; Jeffrey Sanfilippo, our CEO; and Jasper Sanfilippo, our COO.

Before we start, we want to alert participants that we may make some forward-looking statements today. These statements are based on our current expectations and they involve certain risks and uncertainties. The risk factors that could negatively impact results are explained in the various SEC filings that we have made, including Forms 10-K and 10-Q with updates. We encourage you to refer to these filings to learn more about the risks and uncertainties that are inherent in our business.

Starting with the income statement. At first, we wanted to alert participants that references to changes in sales volume which we define as pounds sold that we will make on this call do not include the decline in sales volume for peanut crushing stocks sold to peanut oil processors in both the quarterly and year-to-date comparisons. The sales volume declined for this product had no significant impact on net sales due to very low selling prices which is typical for this product. The declines in sales volume for this product in both comparisons resulted from the shutdown of our peanut shelling plant in Bainbridge, Georgia, as we completed phase 2 of 3 phases, replacing our shelling equipment in that facility. The shutdown commenced in July and ended in December, the current fiscal year.

Net sales for the second quarter of fiscal 2019 decreased by 2.1% to $253.3 million in comparison to net sales for last year's second quarter of $258.8 million. The decrease in net sales was primarily due to a shift in sales volume, from higher priced tree nuts to lower priced peanuts. Sales volume increased by 1.1%. The 12.8% sales volume increase in our consumer distribution channel was offset large part by sales volume decline in the contract packaging distribution channel.

The sales volume decline in the contract packaging channel was due to the loss of some bulk business with an existing customer and the discontinuance of a product line coupled with a unit ounce weight reduction for tree nut items implemented by another existing customer in that channel. The sales volume decline in the contract packaging distribution channel was also due to our acquisition of the Squirrel Brand business which occurred at the end of November 2017.

Sales volume for Squirrel Brand and Southern Style Nut brand was included in the contract packaging distribution channel for October and November in last year's second quarter. This sales volume was included in the commercial ingredients and consumer distribution channels during the current second quarter.

Sales volume decreased by 3.9% in the commercial ingredients channel due to the lack of excess walnut inventory available for sale into export markets. Conversely in last year's second quarter we had an excess walnut inventory position which we sold into export. The increase in sales volume in the consumer distribution channel primarily resulted from increased sales of snack nuts and trail mixes with new and existing private brand customers.

Now, taking a look at sales volume for our brands. Fisher recipe nut volume decreased by 10.8% primarily from lost distribution for some items at a major customer. This lost distribution was due to the introduction of private brand recipe nuts at this customer which commenced in the second quarter of fiscal 2018. This loss was partially offset by distribution gains at several new grocery customers.

The 16.5% increase in sales volume for Orchard Valley Harvest brand was primarily driven by distribution gains at new and existing customers. The 26.9% increase in sales volume for Fisher snack nuts resulted mainly from increased promotional and merchandising activity and distribution gains for Oven Roasted Never Fried product line which has been recently launched. Net sales for the first two quarters of the current fiscal year decreased to $457.6 million from $474.5 million for the first two quarters of last year, and sales volume was relatively unchanged in the year-to-date comparison.

As was the case in the quarterly comparison, the decline in net sales was primarily attributable to a shift in sales volume from higher priced tree nuts to lower priced peanuts. The 10.1% increase in sales volume in the consumer distribution channel was offset by sales volume decline in the contract packaging channel. The sales volume increased in the consumer distribution channel primarily resulted from an increased sales of private brand peanuts, trail mixes, Orchard Valley Harvest products and Fisher snack nuts.

The reclassification of sales of Southern Style Nuts from the contract packaging distribution channel also contributed to increase in sales volume in the consumer distribution channel in the year-to-date comparison. The sales volume decline in the contract packaging channel was driven primarily by the same factors I cited in the quarterly comparison. Sales volume in the commercial ingredients channel was relatively unchanged in the year-to-date comparison.

Second quarter gross profit increased by $5.2 million and gross profit margin as percentage of net sales increased to 16.9% for the second quarter fiscal '19 from 14.6% in last year's second quarter. The increases in both gross profit and gross profit margin were mainly due to lower commodity acquisition costs for pecans, walnuts and peanuts. Gross profit for the first two quarters of the current fiscal year increased by $3 million and gross profit margin increased to 16.6% from 15.4% for the same period last year. The increases in gross profit and gross profit margin in the year-to-date comparison were primarily due to lower acquisition costs for pecans and peanuts.

Total operating expenses for the current second quarter increased by $2.6 million, and increased to 10.4% of net sales from 9.1% of net sales for last year's second quarter. The increase was mainly due to increases in incentive compensation, base compensation, advertising and shipping expenses. Total operating expenses also included a $500,000 increase in the amortization expense that was associated with the acquisition of the Squirrel Brand business.

Total operating expenses for the current year-to-date period increased to 10.7% of net sales from 8.7% for the first two quarters of last year and total operating expenses increased by $8 million in the year-to-date comparison. The increase in total operating expenses was primarily attributable to increases in incentive compensation, base compensation and shipping expenses. Total operating expenses in the year-to-date comparison also included a $1.4 million increase in amortization expense that was again associated with the acquisition of the Squirrel Brand business.

Interest expense was $800,000 for both the second quarter of fiscal '19 and second quarter of fiscal '18 and interest expense for the first two quarters of the current year increased to $1.7 million from $1.6 million for the first two quarters of last year. The increase in interest expense in the year-to-date comparison was attributable to higher average debt levels and interest rates both of which were mainly driven by the acquisition of the Squirrel Brand business.

Net income was $11.3 million or $0.98 per share diluted for the second quarter of '19 compared to $7.6 million or $0.67 per share diluted for the second quarter of last year. And net income for the first two quarters of fiscal 2019 was $17.9 million or $1.56 per share diluted compared to net income of $18.3 million or $1.60 per share diluted for the first two quarters of fiscal 2018.

Now, taking a look at inventory. Total value of our inventories on hand at the end of the current second quarter increased by $3.3 million or 1.9% compared to the total inventory value at the end of last year's second quarter. The increase in total value of inventories on hand was primarily driven by increased quantities of inshell pecans and inshell peanuts.

The weighted average cost per pound of raw nut and dried fruit input stocks at the end of the second quarter decreased by 29.6% compared to the weighted average cost per pound of those input stocks at the end of last year's second quarter. The decrease in the weighted average cost per pound of the input stocks was mainly due to lower acquisition costs for pecans, walnuts, cashews and peanuts.

In addition, the shutdown of the federal government, we accelerated the purchase of inshell peanuts in the current second quarter in order to meet our third quarter inventory requirements. This increase in quantities on hand of inshell peanuts also drove the decrease in the weighted average cost per pound, as our quantities shifted toward lower costs peanuts from higher cost tree nuts.

And now, I'll turn the call over to Jeffrey Sanfilippo, our CEO, who will provide additional comments on our operating results for the second quarter of fiscal 2019. Jeffrey?

Jeffrey T. Sanfilippo -- Chairman and Chief Executive Officer

Thank you, Mike. Good morning, everyone. We continued to have another quarter of strong volume and sales growth in our consumer distribution channel. The company is investing in our brands and I'm proud of the results that our consumer sales and marketing teams have achieved in gaining new distribution and expanding consumption. Sales volume in the consumer distribution channel accounted for 73% of our total sales volume in the current second quarter compared to 64.2% of total sales volume for last year's second quarter. Decrease in sales volume in the consumer distribution channel was driven by increased sales of private brand, Orchard Valley Harvest and Fisher snack nut and trail mix products.

Additionally, distribution gains for Fisher recipe nuts at several new grocery customers helped offset some of the lost distribution at a major customer as Mike mentioned. There's been a major strategic growth objective to build value added business across segments in our consumer channel and these results demonstrate the success of that goal.

The entire organization has been working hard to drive continuous improvement projects, optimize supply chain efficiencies and enhance JBSS' margins. As we noted in the year-to-date comparison, the increase in incentive compensation expense was a significant driver for the increase in total operating expenses, as this expense accounted for 32% of the increase. Our rising gross profit has allowed us to increase our incentive compensation over the prior year, while still delivering value to our shareholders.

At this time last year, I talked about JBSS investing in our expand consumer reach growth strategy, the goal is to get our branded products in the hands of more consumers and have our brands available where consumers are when they buy food products. We made a strategic acquisition of the Squirrel Brand business to expand our consumer distribution channel and gain meaningful distribution in alternative channels.

The Squirrel Brand business is one of the leading suppliers of indulgent and premium roasted nuts and snack mixes under its Squirrel Brand and Southern Style Nuts brands. Both had some successes to-date expanding our customer base and branded product portfolio, growth is taking a bit longer than we anticipated. However, our Southern Style Nuts still outperformed the snack mix and trail mix category with pound volume up by 1% while the total category declined by 7%. The company will continue to dedicate resources to support our Squirrel Brands and we do believe there are enormous opportunities to build these brands and make them a significant part of our snack growth in the future.

Turning to the sales results by channel, consumer sales, net sales increased by 7.8% in dollars and 12.8% in sales volume in the second quarter of fiscal '19 compared to 2018. Sales volume increase was driven by increased sales of snack nuts and trail mixes with new and existing private brand customers, accounting for a 11.1% of the sales volume increase with the additional sales volume related to Southern Style Nuts, snack mix products resulting in the acquisition as I mentioned of the Squirrel Brand business.

And as Mike mentioned, Fisher recipe volume declined 10.8% but the sales and marketing teams have done a great job building new distribution in grocery to offset the declines at a major customer. A 16.5% increase in sales volume of Orchard Valley Harvest produce products was driven by distribution gains at new and existing customers. And sales volume for Fisher snack nuts increased 26.9% mainly from increased promotional and merchandising activity and distribution gains for Oven Roasted Never Fried product line.

In the commercial ingredient channel, net sales decreased by 12.2% in dollars and 13.9% in sales volume in the second quarter of fiscal '19. In the first 26 weeks of fiscal '19, net sales in the commercial ingredient channel decreased by 5.2% in dollars and 10.7% in sales volume. The commercial ingredient sales and marketing teams are pursuing a number of exciting growth opportunities in the back half of the year and we are optimistic that there are volume tailwinds ahead in Q3 and Q4 for the commercial ingredient channel.

Net sales in the contract packaging distribution channel decreased by 36.7% in dollars and 33.6% in sales volume. In the first 26 weeks of fiscal '19 net sales in the contract packaging channel decreased by 36.4% in dollars and 30.7% in sales volume. Several factors have impacted the volume performance in this channel as Mike discussed, but the team in contract packaging is also working hard on several new business projects to offset these declines for the back half of the fiscal year.

Turning to category updates. As always the market information, I'll be referring to is IRi reported data and for today it is for the 13-week period ending December 23, 2018, which I'll refer to as Q2. References to changes in volume or price are versus the corresponding period one year ago. We look at the category and IRi's total US definition which includes food, drug, mass, Walmart, military and other outlets. Unless otherwise specified and when we discuss pricing we are referring to average price per pound.

Breakouts of the recipe, snack and produce nut categories are based on our custom definitions developed in conjunction with IRi. The term velocity refers to the sales per point of distribution. First, let me review some category dynamics. The total nut category was flat in sales dollars and declined 1% in pound volume in Q2. Overall, prices in Q2 are essentially flat versus the prior year. For the quarter, peanut volume increased 2% as pricing declined by 4%. Pistachio volume actually grew 9% despite a price increase of 6% and cashew volume declined 3% as pricing increased 2%.

Now, I'll talk about each category in depth, starting with recipe nuts. In Q2, the recipe nut category struggled, declining 3% in dollar sales and 4% in pound volume sales. Prices across key nut types were stable versus last year, walnuts and almonds increased 1%, while pecan prices were flat versus last year. Pecans were flat in pound volume, walnuts declined 5% and almonds decreased 17% versus last year.

Our Fisher recipe nuts decreased 3% in dollar sales and 9% in pound sales for the quarter versus last year. As a result, Fisher's share in the category decreased 1.7 share points. The decline was driven by the introduction last year of private brand recipe nuts at a major retailer, resulting in lost distribution and volume for Fisher recipe. This was partially offset by continued strength in Fisher and traditional grocery stores which in IRi is called US food.

US food excludes club, drug, mass, merchandisers and supercenters. Fisher increased in Q2 by 27% in dollars and 15% in pound volume in US food. The strong quarter result in branded share leadership of the recipe nut category for the Fisher brand in US food for the calendar year 2018. This is the first time Fisher has achieved annual share leadership in this universe of retailers.

Now, let me turn to the snack category. In Q2, the snack category increased 1% in dollars and 2% in pounds sales. Fisher snack increased 31% in sales dollars and 20% in pound volume sales in Q2. The increase in sales volume for Fisher snack nuts resulted mainly from increased promotional and merchandising activity and distribution gains for Oven Roasted Never Fried product line. It is still early for our Fisher Oven Roast program but distribution is growing and velocity and retail pricing metrics are in line with our expectations. The launch continues to be supported by an integrated marketing plan of radio advertising, FSIs, customer programming and retail merchandising.

In Q2, the produce net category declined 1% in dollars and pound volume sales. Our Orchard Valley Harvest brand continues to grow significantly and it is currently our second largest brand in respect to net sales. Orchard Valley Harvest increased 19% in dollars and 7% in pounds at IRi reporting customers. In Orchard Valley Harvest share, the category increased 0.4% in dollars and 0.1% in pounds versus last year.

ACV distribution for OVH has increased by 8 points versus last year, as more retailers are accepting OVH into their sets. Orchard Valley Harvest continues to grow due to increased distribution as well as new product introductions like our honey roast mixed nuts, glazed walnut and berry salad toppers and our honey roast sliced almonds and berry salad toppers, all in our convenient portion controlled multipacks.

In closing, every year JBSS faces competitive challenges as all companies do, that possibly impact our performance. We had a tough first quarter, but we've made up some significant ground this second quarter with significant EPS and net income increases. Our management team is keenly aware of the importance of growth and the importance of maintaining margin and expanding it where possible. We will see price deflation in the coming quarters with procurement costs for walnuts, pecans and cashews coming down.

However, this market dynamic will create opportunities for us to pursue new business, enhance promotional activity and drive increased consumption. The management team and all our dedicated employees have a steadfast commitment to develop business opportunities that create shareholder value and provide relevant, profitable value added products and services to our customers and consumers. We appreciate your participation in the call and thank you for your interest and support of our company.

I will now turn the call back over to Mike.

Michael J. Valentine -- Chief Financial Officer, Group President and Secretary

Okay. Thank you, Jeffrey. At this time we will now open the call to questions. Carmen, can you please queue up the first question?

Questions and Answers:

Operator

Thank you. (Operator Instructions) And our first question comes from Craig Bibb with CJS Securities. Your line is now open.

Craig Bibb -- CJS Securities -- Analyst

Hi guys. Back on track this quarter, it's great.

Michael J. Valentine -- Chief Financial Officer, Group President and Secretary

Good morning, Craig.

Craig Bibb -- CJS Securities -- Analyst

Good morning. Including the plant that was offline, looks like volume fell by a little less than 1%. That plant is back up, you've lapped the Walmart lost recipe volume, you've lapped, I think the first of the two contract packaging losses. So will volume flip positive in the second half and can you ballpark that?

Jeffrey T. Sanfilippo -- Chairman and Chief Executive Officer

We've got a lot of new business, Craig that we picked up that just started shipping in January and will pick up new business, actually that will start shipping through the end of the -- back half of the year. And so we do anticipate strong volume growth in the consumer channel, commercial ingredients still has some work to do to regain some of the negative volume trends in that channel, same with contract packaging. But I'm confident that the volume growth we've anticipated in the consumer channel will be very positive and should offset some of the other declines.

Craig Bibb -- CJS Securities -- Analyst

Okay. And then, how material is that the pick up from the new private label recipe and the new distribution for Fisher snacks?

Jeffrey T. Sanfilippo -- Chairman and Chief Executive Officer

It's significant. When we -- don't give guidance in quantified on the call, but I will tell you it's significant new value added private brand business that we either never had or haven't had in a long time.

Craig Bibb -- CJS Securities -- Analyst

Okay. And then, is there are any other nascent or blooming customer shifts on any of the three categories that we should be aware of?

Jeffrey T. Sanfilippo -- Chairman and Chief Executive Officer

Yeah. I wouldn't say I don't have a crystal ball, so it's hard to say what retailers will do. We don't anticipate anything. We've got very good relationships and good visibility on what the retailer direction is and expectations. So I do not anticipate any huge transitions in the coming couple of quarters.

Craig Bibb -- CJS Securities -- Analyst

Okay. And is that the 27% year-over-year gain in Fisher snack volume was -- it was outstanding, I know you guys were working toward that. How much of that was distribution versus sales per ACV or loss for that?

Jeffrey T. Sanfilippo -- Chairman and Chief Executive Officer

I don't have an exact number, I would say a majority of that is new distribution that Fisher Oven Roasted Never Fried product portfolio, the team has done a good job expanding that program into retailers where we've never had distribution before. And so if I had to guess, I would say majority is new distribution.

Craig Bibb -- CJS Securities -- Analyst

So you have like the percentage ACV this quarter versus last quarter or versus a year ago?

Jeffrey T. Sanfilippo -- Chairman and Chief Executive Officer

Well the Fisher snack right now we're about a 4% volume's share and about 5.2% dollar's share. I don't have an ACV number on that one in front of me. But, definitely a growth in that category for Fisher snacks.

Craig Bibb -- CJS Securities -- Analyst

And those -- the new customers for a snack they pull -- are they pulling planners on another brand to add you and then how did you perform versus the prior brand?

Jeffrey T. Sanfilippo -- Chairman and Chief Executive Officer

It's a combination of things, we're -- either adding product lines to the portfolio that our whole goal with the Fisher Oven Roasted Never Fried is to provide some more healthy snack alternatives for consumers in the channel. So what retailers will typically do is look at the most underperforming product lines whether it's a branded product or in some cases a private brand item and now they'll replace that with a Fisher Oven Roasted item.

Craig Bibb -- CJS Securities -- Analyst

I don't want to monopolize the calls. If there's somebody else on line, I'll go back, otherwise, I can keep going.

Michael J. Valentine -- Chief Financial Officer, Group President and Secretary

Keep going, Craig.

Craig Bibb -- CJS Securities -- Analyst

Okay. So Orchard Valley Harvest volume is 16% growth, that's solid but it's a little slower by OVH standard. Do you have its percentage ACV versus last quarter and a year ago?

Jeffrey T. Sanfilippo -- Chairman and Chief Executive Officer

Yeah. So we've actually increased the ACV for Orchard Valley Harvest, it's now at 45% versus this time last year it was 33%. So significant gains. Yeah.

Craig Bibb -- CJS Securities -- Analyst

It seems like the -- with that pickup in volume, with that pickup in ACV, your sales for ACV must have slipped a little. It's promotion that drives velocity for the most part, I would assume?

Jeffrey T. Sanfilippo -- Chairman and Chief Executive Officer

It's -- yeah the velocity is driven a lot by promotion, new product launches usually don't see higher velocity just as consumers start to sample the new product in the category. So it's a combination of things, but lot of it's driven by promotional activity for sure.

Craig Bibb -- CJS Securities -- Analyst

Okay. And you're looking at nut prices decline -- declining in the second half is not going to give you opportunities to get promotional with OVH?

Jeffrey T. Sanfilippo -- Chairman and Chief Executive Officer

It will. Yeah. So we -- we're going to see price deflation in walnuts, pecans and cashews...

Michael J. Valentine -- Chief Financial Officer, Group President and Secretary

In peanuts.

Jeffrey T. Sanfilippo -- Chairman and Chief Executive Officer

And peanuts as well, which I didn't mention earlier. So that will give us a lot of opportunity for additional promotional activity, possibly hitting some price points that we haven't been able to hit in a while. It really supports consumption growth.

Craig Bibb -- CJS Securities -- Analyst

Okay. And then almond prices you're looking for more or less flat?

Michael J. Valentine -- Chief Financial Officer, Group President and Secretary

Not sure. Yeah. We really it's going to be subject to what occurs during the bloom period at the end of February. But right now it's pretty much flat compared to last year.

Craig Bibb -- CJS Securities -- Analyst

And that decline in the other key nuts, just ballpark?

Michael J. Valentine -- Chief Financial Officer, Group President and Secretary

Yeah. We're looking at pretty much like 10% declines in acquisition costs for pecans and walnuts. A similar number for cashews, it could be even as much as 15% for all those nuts. And then peanuts are roughly about an 8% decline.

Craig Bibb -- CJS Securities -- Analyst

Okay. And then peanuts, I think you guys were concerned that past Hurricane there could be a shift in acreage planted (ph) toward cotton, is that playing out or what's your current outlook?

Michael J. Valentine -- Chief Financial Officer, Group President and Secretary

Well, farmers are now just starting to make that decision. Of course they'll start planting in the latter part of April and early part of May. But we do keep an eye on the December cotton contract. And last time I checked it was still in the low 70s which makes peanuts at today's current market levels pretty competitive. So, so far no big concerns that a lot of acreage is going to shift to cotton.

Craig Bibb -- CJS Securities -- Analyst

Okay. Looks like freight in the quarter was about $6 million or $0.08 per pound, is that -- one, if that's right. But two, is that kind of your run rate and or you guys have offsets come in?

Jasper Sanfilippo -- Chief Operating Officer

Hey, Craig. This is Jasper. Yeah that is pretty close. And I think that will be our run rate going forward.

Craig Bibb -- CJS Securities -- Analyst

Okay. And then as far as that I can see or do you start to lap that and put down with some of the changes you've made?

Jasper Sanfilippo -- Chief Operating Officer

Well December was probably our first clean overlap and then obviously as we go through the back half of the year we'll be overlapping, I think some pretty consistent numbers in June of last year, we had to go on the open market completely as we were transitioning 3PL providers as well as getting our own TMF system up and running. And then July 4, we were on our new rates and under our new contracted rates with our own carriers. So I do expect the counts that you saw last year will be pretty accurate going forward.

Craig Bibb -- CJS Securities -- Analyst

Okay. Now I'm going to turn out to this question without being too convoluted. But the gross profit per pound improved from $0.51 in Q2 last year to $0.58 and that is very solid. But you guys were $0.59 in Q2 in 2015 and 2016, this is gross profit per pound. And in the interim, your percentage from consumer has climbed from 60% to 75%. So with the shift to consumer shouldn't the gross profit per pound be trending up a little further?

Michael J. Valentine -- Chief Financial Officer, Group President and Secretary

Right, Craig. That would be something that we would expect. However, you should also remember that a lot of our consumer growth came in peanuts, that tend to have a lower gross profit per pound. Simply because they have a lower selling price.

Craig Bibb -- CJS Securities -- Analyst

Okay. And then what caused the shift toward peanuts?

Michael J. Valentine -- Chief Financial Officer, Group President and Secretary

We're just -- we've picked up a lot of new consumer -- new business in the consumer channel for peanuts but also we're just growing at existing customers. More so on peanuts than any other nut.

Craig Bibb -- CJS Securities -- Analyst

It is just because of the price differential versus the tree nuts or?

Michael J. Valentine -- Chief Financial Officer, Group President and Secretary

That's a good question, because we're not necessarily -- while we've seen some pretty good snack peanut increases according to USDA reports what we have now not seen for two months. But, so it does reflect somewhat what's happening overall in the category.

Craig Bibb -- CJS Securities -- Analyst

Okay. All right. Well thanks a lot. That's it for the question (inaudible) got already.

Jeffrey T. Sanfilippo -- Chairman and Chief Executive Officer

Thanks, Craig.

Operator

Thank you. (Operator Instructions) And our next question comes from Timothy Call with Capital Management. Your line is now open.

Timothy Call -- Capital Management Corporation -- Analyst

Good morning. Congratulations on a good quarter. With your strong cash flow, you're paying down debt. What's the optimal level of debt after this Squirrel Brand acquisition?

Michael J. Valentine -- Chief Financial Officer, Group President and Secretary

Well, most of our debt, it really is used to buy pecans and walnuts and to a lesser extent peanuts from farmers. So it will fluctuate and can get -- we've had years where due to higher acquisition costs, it's gotten up to as much as $90 million on the revolver balance. So that really what drives at that level it's not really anything we've targeted.

Timothy Call -- Capital Management Corporation -- Analyst

I guess there's a thought that because you spent cash and incurred some debt for the Squirrel Brands that your special dividends won't be as stronger as numerous, not too special dividends in a year. Is there a time frame where you see that being reconsidered?

Michael J. Valentine -- Chief Financial Officer, Group President and Secretary

Well, actually the debt we incurred for the Squirrel Brand business, really in the whole scheme of things wasn't that large compared to what commodity acquisition costs can do. And so, yeah I would say that we're looking at a considerable decrease in the amount of dollars we're going to spend on commodities and kind of especially the ones we buy it from growers. So it does open up the opportunity to take a look at that special dividend that we've been paying in July, in recent years and it might put us in a good position. In terms of working capital and the cash and possibly revisit that $2 a share amount.

Timothy Call -- Capital Management Corporation -- Analyst

With the -- that acquisition, were there any one-time non-recurring costs that were expensed, that we're about to comp in the next or quarter or two?

Michael J. Valentine -- Chief Financial Officer, Group President and Secretary

No. That acquisition we did back in November of 2017 and just as a reminder, that was an existing contract packaging customer. So it's probably one of the easiest integrations in the history of acquisitions. So we really didn't have any material one-time costs associated with it.

Timothy Call -- Capital Management Corporation -- Analyst

And what about the recent disruption at the plant shelling facility, was there -- are there any one-time costs that you've incurred because of that?

Michael J. Valentine -- Chief Financial Officer, Group President and Secretary

No. It was all planned and we probably had some unfavorable absorption variance in our comps in the second quarter. However, it looks like the new equipment has the ability to produce about 40% more throughput than what we currently had. We had a great shelling week last week. We expect to shell the entire crop by the end of this fiscal year and basically recapture that unfavorable absorption variance in the next two quarters.

Timothy Call -- Capital Management Corporation -- Analyst

Transportation costs went up over the last year because of gas prices and drivers shortage. Do you see any relief there?

Michael J. Valentine -- Chief Financial Officer, Group President and Secretary

We may see a little in the fuel surcharge going forward, but general rates are about the same as what we saw last year back half of the year.

Timothy Call -- Capital Management Corporation -- Analyst

Well. Congratulations again, and that is a great success what you're doing with the branded products. Thank you.

Michael J. Valentine -- Chief Financial Officer, Group President and Secretary

Thanks, Tim.

Jeffrey T. Sanfilippo -- Chairman and Chief Executive Officer

Thanks, Timothy.

Operator

Thank you. And this concludes our Q&A session for today. I would like to turn the call back to Mike Valentine for his final remarks.

Michael J. Valentine -- Chief Financial Officer, Group President and Secretary

All right. Thank you, Carmen. Again, thanks everyone for your interest in JBSS. And this concludes the call for our second quarter fiscal 2019 operating results.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program and you may all disconnect. Have a wonderful day.

Duration: 36 minutes

Call participants:

Michael J. Valentine -- Chief Financial Officer, Group President and Secretary

Jeffrey T. Sanfilippo -- Chairman and Chief Executive Officer

Craig Bibb -- CJS Securities -- Analyst

Jasper Sanfilippo -- Chief Operating Officer

Timothy Call -- Capital Management Corporation -- Analyst

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