Q1 2020 Earnings Call
Participants. Please continue to stand by your call will begin momentarily once again, please standby and thank you for your patience.
Welcome to the JNJ snack foods first quarter earnings Conference call. My name is called <unk> novelty your operator for today's call. At this time all participants are in listen only mode. Later, well conduct that question answer session. During the question answer session. If he has a question.
Please press Star then one on your Touchtone phone. Please note that this conference is being caught that I will now turn the call over to Gerry Shreiber, you maybe Ken.
Thank you Paul.
Good morning, everybody and welcome to our conference call for our first quarter.
Let me begin by introducing who was in the wrong with me.
Dennis Moore, Chief Financial Officer, Bob Radano, our Chief operations Officer.
Hey.
Vice president of sales.
Oh senior Vice President.
Operations.
Right.
Try for Ross.
Our legal.
Representative.
Oh Wow sales manager for food service.
Get everybody.
Let me begin.
Forward looking statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ from those projected in the forward looking statements you are cautioned not place undue reliance on these.
Forward looking statements will reflect management's analysis only as of the thing you're wrong when it takes no obligation to publicly.
Or update these forward looking statements, reflecting events or circumstances that arise. After this date hereof.
Results of operations.
Sales increased 4% for the quarter.
Which includes sales from the acquisition, Hey, I see distributor in October 29 HM.
Without that sales increased 3%.
Food service sales to food service customers increased 2% for the quarter.
Our sales increase was due to increased sales of soft pretzel up 2% Churros up 8%.
Funnel cake products up 25% and bakery sales up 2% frozen juice bars and license sales were down 6% and handheld sales were down.
18%.
Sales to a restaurant chains were up this quarter, while sales to schools.
Work down.
Operating income and I phone service segment increased to $18.034 million from $17.697 million last year.
Only because of higher volume and improved operations at our Helen Valley plant in the Midwest.
[noise] retail supermarket sales of products to retail supermarkets were down 6% for before.
Soft pretzel sales were down 4% for the quarter sales of frozen juice bars.
Hi, this is more down 8%.
Handheld sales were down 15% and bakery sales, including best gets worked down 11%.
Operating income in our retail supermarket segment was essentially the same as last year.
As the benefit a price increase implemented a year ago offsets the impact on slightly lower volume.
We expect to see volumes at least stabilizing and improving in the second quarter.
Frozen beverages, which include I see slush puppie.
Arctic blast.
Brands.
Frozen beverage and related products sales were up 16% in a quarter and that would related sales were up 13%.
Without the sale IC distributors and acquisition first quarter from the that's the van group overall sales were up 12% fabric related sales were up 4%.
Service revenue for others was up 13%.
Machine revenue was $12 million up from $8.9 million last year.
Operating income in our frozen beverages.
Increased to 1 million 408, Greece.
Decrease I'm sorry.
To 1.452 million from 2.174 million.
In the quarter, primarily because of relocation costs as and cost and expenses related to the I see headquarters move to Tennessee.
Approximately 1 million this this quarter.
Estimate to be about 800000 in our second quarter in connection with the relocation Oh I see headquarters.
In October we purchased the asset I see distributors best Van Gogh, which does business in Arkansas, Louisiana, and Texas with annual sales of approximately $13 million.
Consolidated.
Gross profit as a percentage of sales was 27.52% in a three month period.
This year down from 28.3 open.
28.3% last years.
Gross profit percentage decrease because of lower unit volume and the snack side of our business.
The higher cost on cost favourable product mix change.
Total operating expense as a percentage of sales was 19.9% in a quarter down from last years, 20.2%.
The decrease was due primarily to lower distribution cautious in connection with free.
Capital spending and cash flow.
Cash and investment securities balance of $306 million was down $37 million from our September year end.
Primarily because of the purchase.
Of the ice update I see distributor.
We continue to look for acquisitions as a use of our cash.
Hundred $16 million a bar, that's been sorry, corporate bonds when they purchase price yield to maturity of 2.8 per se.
Our capital spending was $18 million in the corner as we continue to invest and plant efficiencies.
Following our businesses.
We estimate our spending for the year to be about $60 million as we continue to invest in our manufacturing plants and the IC business.
Cash dividend of 57, and a half century.
0.575, a share once declared by our board of directors and Kate on January to seven.
This was a 15% increase.
From the previous dividend.
We did not buy back any shares of our stock during the quarter.
And our investment income this year was $746000 more than last year, because we recognize a million and $27000 unrealized investment losses and last years quarter.
Last year, we had a tax benefit of $900000 related to the tax cuts a job.
Which benefited last years D. P S by five cents a share.
Thank you for your continued interest and we look forward to continually hours with and success.
Well, let that concludes my.
I'll frame.
Thank you we will now begin the question and answer session. If you'd have a question. Please press Star then one on your Touchtone phone if he wished to be even more in the queue. Please press <unk>. The hash key there will be to labor for the first question isn't out if you are using a speaker phone you may need to pick up the handset first piece.
Pressing the numbers once again, if you have a question. Please press Star then one on your Touchtone phone.
First question comes from Rob Dickerson. Please go ahead.
Oh, great Super Thanks, so much sporting Rob.
Good morning, how are you I'm. Good I think you just did a recent report on offshore.
I did we Jefferies's affirmative my team just recently initiated on a number of food companies and you happened to be in that group. So look forward to working with your going forward we.
Research ever going to make you a hero.
[laughter] I always love here that I'm not everyone thinks I have so I guess look.
Couple of questions I have off I think fairly basic hopefully I guess you know the first one is just on the supermarket division.
You you stated there was a little lost distribution, there driven maybe by some of the higher prices and Dan your stating hopefully things stabilize in Q2, Yeah. If you could just provide a little color as to kind of how that happens and you know I guess you know one do you.
Do you always they lose distribution when you take prices up right because that doesn't always happen felt like that with happened a little bit here will stabilize.
We haven't lost any.
Any oh, we certainly haven't lost any share we still dominate that.
With that product in that category.
Okay, so, but but when you think you know Q2 going forward it sounds like <unk>.
Dave you there was a little bit of distribution loss, but things seem to be okay. As long, what's the kind of velocities are okay that you. Though you you don't expect you know more distribution loss sales things should get better I mean, we don't expect any more distribution loss than we expected recoveries history.
You know as we have or new products going in for the summer selling season. This is generally the time when we see the quarter resets or weve been selling in our pretzel blades and and hands. We've seen good placements for so we expect the that we've bottomed out.
Okay. All right. That's that's that's great and then in terms of you know the frozen beverage segment, just having a couple a couple of questions. One I guess just to the topline.
You know.
The great in the quarter decent growth.
EBIT on organic basis, which is always I see yeah, as we think forward, though for the rest of the year you know.
Well no the compares get a little bit more difficult a machine sales seem.
To be advantage, let's call. It in the back half of last year. You know is there you know when you look forward there for the rest of the year you could there be some deceleration in that business not you know because it out the overall basis is doing terribly, but just more so because you know you had.
A great back half a 19, that's the well had another good quarter and our frozen beverage group, which is led by our IC brand.
But that was complemented to some degree by the acquisition.
One of the last remaining.
Independent IC distributors or we don't expect.
That the had a major impact on the year, but it's a significant to note that added some 35 or $7 billion for the quarter, Oh, I see group, which includes slush puppie an Arctic blast.
10 used to performer outperform Oh I did Sachin is wonderful I'm gonna, let him comment.
On the rest of year, Dan rest assured I will tell you. If we don't have a great year [laughter]. Thank you Gerry yeah, Rob It wasn't really a good quarter for us for sure a top line was great I don't know that I would anticipate the topline being at that rate through the rest of the year, we are up against some good equipment.
Sales as we get deeper into the year and I think those will taper down some and our increases will be a more normalized in that probably 4% range or so and then we will as I said will be fighting some really good equipment sales how do we get later into the year.
Okay Fair good answer if Dan as president of our actually grow, but I I didnt, introducing they began to meeting but he's in California.
I haven't seen now.
Participating in the call.
Okay. That's great. It's a very a unique business, which is a continues to perform well so good job and more yeah Phil.
Yes, it's a uniquely positive.
In terms of the I'm, just kind of you'd have the margin progression. Yeah. We're delta we saw our Q1, both gross and operating the gross margin was down a little bit more than operating margin, but then you call out some of these incremental expenses for the you know for the the frozen beverage check.
Quarter move I was just try to cut I understand you know if it seems like from my.
Distant perspective.
That maybe the gross margin was a little pressured more because of that kind of near term.
You know distribution pressure in retail.
You know along with maybe some product mix shift not necessarily expenses flowing through from a headquarter move which I would think would be coupled with its actually there.
I think it's actually you are correct I think the whereby you know manufacturing plants.
Thank you.
The business being down.
He is almost always having negative impact on your margin.
I'm flying.
And Uh huh.
Yeah, so far.
From year to year payroll costs go up insurance.
Higher costs.
And our buying so that was the biggest component.
Yeah, why the marketing gross margin drop.
Okay, but like so if but then it's you know if there's a little Q1 pressure given you have retail distribution, but then that picked up back in Q2 and.
Hopefully that gross margin you know decline it's not.
It does not continued to decline to increasing rate going forward. It would seem if volumes stabilize links back to improve.
Hi.
Okay Perfect and then lastly from me keep it quick just balance sheet capital structure, you don't have any debt when I started looking at your company. It's always fastening when you see a company with zero debt I'm, sorry, Yeah, right you have cashier free cash flow generation cash for the balance sheet.
Dividend growth is obviously helped is healthy which you stayed on the call a problem. It just in terms of kind of the go forward.
You know fake internally strategically is this a you know.
Continue to look for great.
You know companies that can comment our business to acquire or you know is it is it more hey, if their cash builds and yes, we might think about continuing to increase the dividend at a high rate of just basically trying to figure out where you're headed is right now in terms of a you know cash allocation if that cash continues to build.
I think we increased the dividend by 15%.
In the last quarter, which is a healthy healthy increase yep.
He will continue to operate our business and a strong dynamic Oh I'm matter.
And we expect to perhaps we're still looking for acquisitions they have to be right. They have to be a right up that notwithstanding our balance sheet of cash and liquidity, we're not going to let it burn a hole in my pocket.
We look okay fair okay.
That makes makes complete sense I will thank you. So much it really appreciate your time and I'm happy to pass it on very you located that are you in New York, Connecticut.
In a I'm in New York City, Big Apple, Okay, what you're close enough that someday you can come down the visitors, yes, that's the plants that as the definite plant I look forward to say you make your plants true Dennis and when you're here Ah I look forward to meeting here.
Sounds great I Likewise [laughter]. Thank you.
Once again, if you have a question. Please press Star then one on your Touchtone phone.
And then next question comes from John Anderson. Please go ahead. Good morning, John how are you.
Good morning, everybody I'm doing well hope you're all well they are.
Terrific.
Well, maybe I'll start with.
A question on on the topline on sales.
I'm thinking more as we look to to the second quarter.
You know I'm trying to understand if there are any anything we should.
Pay particular attention too.
I think last year due there were some new items that you may have shipped I think maybe in Q2 that might have there might have been some pipeline benefit.
And there may have been some.
Movement of some of your business with some co Packers that we havent lapped yet so if you could talk a little bit I don't know Dennis maybe you have some more of the detail around that just so that we can think.
Think through.
How the topline might progress as we move through the year. Thanks.
I think in the second quarter, you're right. We did last year, we had the Burger King.
The time offer program, we've generated roughly $3 million in sales in the quarter.
We don't have it here.
And then.
Last year as Dan mentioned that machine sales were.
Absolutely, yes, relatively high compared to what they normally are and we would probably exactly.
In those has about 70 year.
And.
As much as a $10 million so that is a.
The other way.
The other hands.
There are some.
Perhaps Gary.
After that.
Yeah, we have a group a new items rolling in the food service you know we have or are the fries rolling out we have funnel cake product going out we have seen crackers.
I feel good about schools rolling forward, which has been a headwind for us in the first quarter.
Retail the resets are going to be great Force, we think.
Refresher Luigi's packaging, which we feel like we're going to get a bump out Oh, we have a robust loan.
Yes, I guess more comprehensive marketing program going forward in the next couple of quarters. So we're doing a lot around the business to get to top line.
And on the on the retail side.
It did did you mention Jerry earlier something around to get the answer that you're doing that's been well received ahead of the resets.
Hard to any answer about the along almost two years ago and it's been a good acquisition for us although it was a competitor to loss in the soft pretzel adequate and supermarkets now it's a complementary product to our super parental. So we expect to benefit from that this year and beyond.
Yeah continues to grow there's lot of white space for any gains and we continue to push that out there and we have a new minute maid novelty rolling out we're going to be sticks. This year, which we expect benefit from.
So those you don't net net a couple of headwinds, but you've got a good it sounds like a strong pipeline that's going to start working its way into the into the business over the course of the next quarter too.
And.
That is that sort of getting haven't gotten imagine.
In frozen beverages is that there will be.
And we've come from the acquisition.
Got it be.
Yeah.
Sales are so boundary here.
Is that from the IC ex the acquisition of the L. Wainscott acquired the one of the very very last independent IC distributors.
Past quarter their sales were in a $35 million to $40 million range.
It has a roughly therapy might you know.
Slide right 11.
But we expect that will continue and that will be a positive overall halo for the business not only in the areas that we acquired it but elsewhere.
Okay.
Are there you said, it's one of the last how many are left and do you plan to pursue that is there something important about having all of them fast and where wherein almost regular communication with them. They kind of look to us as the leader to set the profile and whatnot. So there's no doubt that one day they will be include.
And in our group, it's only a matter of west.
Okay.
And then the other question I had was on the related costs in the quarter. So so there were a million of relocation costs in the quarter. Another 800000 in the second quarter, where where did those show up in Q1 in the PNM and where would we expect them to show up in Q2.
But they will they split across cost to goods and operating expense or where they have a little more heavily weighted in one or the other.
More heavily weighted in operating expenses.
Okay.
Okay. Great. Thanks, Thanks, very much guys and look forward to see in the new products on the shelf going forward and incidentally, you're covered the relocation but.
We thought long and hard about the exodus from California at all.
Right reasons, and we think it's going to work out very well for us.
Well, maybe I should ask about that and then soap so presumably there's some kind of return on this.
The cost or investment that you're making right now what are the benefits for making that moved because you're not moving manufacturing right, you're just moving the kind of administrative headquarters.
Yeah. This is Dennis again.
Okay.
From a hard dollar benefit comes from.
Why our lease.
Having free in California, if we had stayed there.
So even though our costs are going to be.
Yeah, we maintain the money out of the year going forward.
Compared to where costs are you really don't see most of that.
I would have gone up in California.
I'll say that number maybe technologies as well so.
We see having higher lease cost.
The lease we're in now.
Higher.
Okay, I see cost avoidance.
And then okay.
Okay. Thanks, everybody.
Thanks for the help a in the color talk soon.
Our next question comes from Brian Bell. Please go ahead.
Brian This is Gerry shreiber.
Hey.
HM.
<unk>.
Well I know you there.
Yes, I'm here.
You hear me now.
Better, but not real clear yet.
Okay.
Could you walk.
Some of your recent innovations.
From your press release, it looks like the food service innovation is coming along well and can you talk about the recent progress you've been making into C stores.
Sure.
Couple of years ago.
Oh, we laid out a determine effort and plans to increase.
Our our sales and C stores I know roughly.
Oh, that's tens of thousands of C stores.
We had gotten.
Both our pretzel products and some of our IC products and our juice bar products.
Good distribution and now that we're in there.
Going to be methodically.
Okay.
Part of the consumer synergies.
How many years ago, if you walk doing new away convenient store you might get a hot dog you might get a direct now there are soft pretzels and there is I see grouping.
Okay.
Okay.
Great.
And if I'm looking at the I write tracked channel trends through your December quarter.
It looks like there were a little bit healthier than what you reported in the quarter is there anything that you could talk about that would help to explain that dislocation.
Thanks.
Hi, This is Bob Pape.
Mostly just.
Consumers to the new retail pricing.
But that is starting to recover.
As a result.
The takeaway numbers continue to improve.
Okay, great. Thank you that's it for me.
And we are showing no further questions.
I want to thank everybody for their participation in this call and we look forward to all of you.
And our next quarter's call, which will be approximately three months or so from now.
Good day.
Yes.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating and you may now disconnect.