Q2 2020 Earnings Call
Ladies and gentlemen, thank you for holding your conference will begin shortly thank you for your patience.
[music].
Welcome to the JJ snack foods second quarter earnings Conference call. My name is Richard and I'll be your operator for today's call. At this time all participants are in listen only mode. Later, we will conduct a question and answer session. During the question and answer session. If you had a question. Please press Star then one.
On your Touchtone phone. Please note that this conference is being recorded I'll now turn the call over to Gerry Shreiber, President and CEO Mr. <unk> you may begin.
Thank you.
[music].
The forward looking statements contained herein are subject to certain risks and uncertainties that could cause actual results could differ materially from those projected.
And the forward looking statements.
You are cautioned not to place undue reliance on these.
Forward looking statements, which we like Mad men analysis only as of the date Bureau.
We undertake no obligation to publicly revise or update these forward looking statements to reflect events or circumstances that are right. After the date hero.
Results of operation.
Net sales decreased 2% for the quarter.
Without sales will be acquisition I see distributors in October 2019.
And Bob I see in February 2020 sales also decreased 2% for the quarter.
Food service sales to foodservice customers decreased 2% for the quarter and decreased 1% for the six months.
Our sales decreased for the quarter was due to decreased sales of soft pretzel down 8%.
Sure Rose down, 6% funnel cake down, 44% and handheld down 7%.
Bakery sales were up 6% and frozen juice and ice sales were up 6%.
Sales to restaurant chains, which were heavily during this period were down 15%.
<unk> wealth sales to school well.
Operating income in our foodservice segment decreased 56% to $11 million from $24.8 million last year.
Hi, merrily because of higher cost product mix changes and lower volumes throughout the quarter due to decreased production at quarter's end.
Due to the effects of Qubic 19 on demand.
Retail supermarkets and grocery.
Sales of products to retail supermarkets were up 10% for the quarter.
Soft pretzel sales were up 14% for the quarter.
Sales of frozen juice in Italian ice is were up 8%.
Handheld sales were up 26% and bakery and.
That's good sales were up 4%.
Operating income in our retail supermarket segment increased in the quarter to $4.3 million from $3.8 million a year ago.
I see in frozen beverages.
Rose in beverage and related product sales were down 6% in the quarter babich related sales were down 5%.
Without the sales of IC distributors about IC.
Two acquisition of about a year ago overall sales were down 10% and beverage related sales were down 14%.
Service revenue for others was up 9%.
Machine revenue was $8.9 million down from $13.2 million last year as last year had a large installation.
Project to one quick service restaurant chain.
We had an operating loss in our frozen beverage segment of $1.3 million compared to $2.6 million operating income in last years quarter.
Primarily due to relocation costs and expenses related to IC headquarters move to Tennessee.
Of approximately $1.5 million this quarter and lower volume due to cope with 19.
And February we purchased the assets, so badly I see which does business in Alabama, and Georgia with annual sales all levels of approximately $3.5 million.
This purchase more significantly we now have distribution rights and the higher United States.
Consolidated gross.
Gross profit as a percentage of sales was 25.53% and a three month period this year.
What's down from 28.68% last year.
Gross profit percentage decrease because of lower you hit a ball lower unit volumes throughout our business generally higher costs on on favorable product mix changes.
Total operating expense as a percentage of sales was 21.5% and the quarter up from last years 919.7 per se.
The percentage was increase was due to increased marketing spending and our retail supermarket and frozen beverage segment.
Largely IC relocation expense.
And higher distribution.
Expenses, primarily due to higher freight and storage costs and I see relocation expenses and because of lower sales in the second quarter.
[noise], our EBITDA earnings before interest taxes, depreciation and amortization for the past 12 month was a healthy hundred $63 million.
Capital spending in cash flow.
Our cash and investment securities balance of 267 million was down $29 million from our December balance.
Primarily because of the purchase of BAML, IC and buyback of common stock of $9 million.
Hello, and $9 million.
Our investments are in corporate bonds with a purchase price yield to maturity of 2.8%.
Hub, which 99 billion, but sure within two years.
Our bank preferred stock and mutual funds $13 million drop in value by about 15% at the end of March.
Our capital spending was $19 million in the quarter as we continue to invest in plant efficiencies and growing our business.
Likely are spending for the year.
We'll be cut that due to other priorities at the present time.
A cash dividend up 57, and a half centsper share that 0.575 was declared by our board of directors and paid on April seven.
2020.
This was a 15% increase.
As I mentioned earlier, we bought back $9 billion up our stock during the quarter.
We had an investment loss of $413000. This year compared to investment income last year up 2.8, $9, primarily because of $2.1 million.
Our realized losses, this year compared to $760000 of unrealized gains a year ago.
Regarding where we are now.
Net sales for the first four weeks of our third quarter, though at the June.
Our down approximately 45% from a year ago.
Although we cannot estimate what a net sales will continue to be down at the same rate for the balance to the quarter. We estimate that we may have an operating loss in the quarter, which would compare to operating income of $39 million and the year ago June quarter.
Approximately two thirds of our sales are too bad news that locations that have either shut down or slightly could carol curtailed their foodservice operations.
So we anticipate cobot 19 will continue to have a negative impact.
When I business.
As we have 206 $267 million cash and marketable securities on our balance sheet, we do not expect to have any liquidity issues.
We have good management in place strong brands on a broad base of high degrees, but customers.
We continue to monitor and adjust our costs and expenses as we evaluate business.
On a daily weekly and monthly basis.
We are monitoring consumer behavior customer shift and industry need to adopt our product marketing mix for the posts and dynamic landscape.
And what is that true Jay Jay as JJ snack food entrepreneurial spirit, we are ready to fight our way back the sales growth of business performance when customers begin to reopen this summer.
Keep in mind that all of our leisure being parts and sports venues.
Our either shut down or haven't began but 20 twentys seasons yet.
We are being careful not to reduce our costs. So much that we won't be able to service our customers when they return, making sure that we have the proper staffing and resources in place.
The one business opens up again.
And at the same we are working around the clock updating prevented me preventative measures to keep our employees state.
We have always been a company that has been cautious in the way, we spent and use our cash.
Today as I mentioned, we have to $67 million in cash and securities we're protecting it and usually get to prepare prepare for the future.
We monitor and shape.
What looks like what looks like in this changing landscape.
I will now introduce that campaign, our director at Foodservice safety and quality assurance that there's been would the company from for about three years and we recruited her for Campbell's.
Yep.
Thank you.
So JNJ snacks is corporation is fully committed to maintaining operations amid the Colgate 19 pandemic.
We started implementing a number precautionary measures as Gary mentioned and mitigation strategies in all of our facilities as early as late January.
We distribute through all our facilities are wrote that robust Colgate 19 plan, which aligns with the latest recommendations that the CDC and local health departments.
Our plant teams were very supportive of all our precautionary measures and because of their early adoption. We are able to continue to operate and meet our customer orders.
Our crisis management teams and maybe be anywhere from daily pretty Trey.
We enhanced our hygiene protocols and all facilities and increased frequency just cleaning and disinfection for all production lines and frequently touch surfaces.
We practice, social distancing and when that practice is not feasible in certain production area for example packing room.
Weve erected physical barriers between personnel.
All non essential manufacturing employees are working remotely.
All visitors and travel is limited to business critical.
Procedures, such as illness screening and temperature monitoring is being conducted at all doors prior to entering our facilities.
Employees are wearing social covering so those would be face masks and they shield to further reduce risk for exposure to cope with 19.
In addition, Paul the measures I, just spoke about where we have active communications with our suppliers to monitor our inventory level and we proactively identified alternate suppliers where needed to ensure supply chain continuity.
Logistics and transportation schedules are being managed by our team to ensure the ability to transport through the G. Throughout the JNJ snack food network.
We monitor our positive coded 19 employees or even though it's coming coast close contact with a positive and we have strict protocols for 14 day quarantined to protect our other employees and keep our workplace safe.
We follow our cobot 19 plan for when employees can safely return to work after every now and that's.
And of our positive employees there it's been no direct link with linkage to workplace exposure. So that means the positives are likely due to external community spread I'm carpools or committee interaction outside that the workplace.
We've met with Sta, and several local health departments as well its osha and all the agencies are satisfied with our actions and responses to keeping our workplace safe.
Thank you Deb.
For a very detailed.
And safe analysis.
I also wanted to combat that on the announcement you might have seen recently regarding Dennis Moore.
Dennis is retiring this July thirtyth.
We are so grateful for all the years of dedication efforts guide so that he has provided us over the years.
We are truly sad to see him retire and we'll miss them.
However, we wish him all the best next chapter of life. Thank you Dennis.
Yes. Thank you just want to thank you.
Welcome.
I just want to add vis vis a co bid so as another wrinkle.
And our life in our history, which we.
Our confidence that we will.
Deal with it well.
And it will just be a distant memory in years to come.
I'll now turn it back to be listeners that entertain any questions or comments.
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Thank you we will now begin the question answer session. If you have a question on the line. Please press Star then one on your Touchtone phone if you wish to be removed from the Q. Please press the pound sign hash key there will be a delay before the first question is announced and if you're using a speaker phone.
You may need to pick up the handset burst the poor pressing the numbers once again for any questions on the line that Star then one on your Touchtone phone and we're standing by for questions.
And our first question a line comes from Rob Dickerson. Please go ahead.
Great. Thanks, so much.
Thank you Dennis.
Well everything Jerry said products reiterate going into China.
It's enjoy some of your life for a more.
So.
Gary I, just so you know kind of couple.
A couple of.
Larger kind of.
Got it questions here just color around because it's far more you obviously.
Viruses has changed a number of different games and.
We I understand Theres, a fair amount of air traffic decline obviously.
In the away from home space, you play in away from home space, we heard likes and some larger CPG companies like Coke and Pepsi and you know under a lot of questions out there right.
A lot of answers left.
<unk>.
Within the and so I guess the question I have for you.
Vince business, so maybe the frozen pretzel piece of the business might not change as much you actually could be better than it has been the past couple of years, but in terms of that frozen beverage business.
It's largely away from home do you already have to sit down and say you know okay, well, maybe you know the dynamics of that business. The drivers that's business have changed and maybe we should start to think about putting them in bottles or selling them in a different manner through different channel or.
I would be selling powder.
There you got this ways to try to almost very quickly change you know with market demand and then I just have asked the question.
However, if you look at our IC business, which includes IC Arctic blast and slush Puppie. It has been growing nicely year after year.
Hi, I think fan fast is on the line if he wants to come Danielle what about that on that.
Sure Hi, Rob how are Ya.
I think that's a great question and we are looking at other alternative ways to sell our product or the product lives. You mentioned this being sold and some great locations today, a that many people would love to be in like abuse from park theaters.
Wherever there is high foot traffic unfortunately because of that.
During the that pandemic many of those are shut down.
We believe that many of them more open back up and it will still be a strong business at its core.
But in addition to that we are looking at other alternative ways to sell the product maybe around the take home a section of how to do that properly. It's still a treat it could be sold in locations that then delivered to the house, we do a lot of different licensing types of things with it.
As you mentioned in a powder or how to how would a habit at home and enjoyed at home more often and so we're looking at several different factors, but we do still feel bullish about the way that the business will come back and still be strong in those locations that were in as well.
Okay.
[laughter].
Go ahead, Jerry I'm, So I guess, what the magic, it's not like we've lost any customers or business. You know business is down that's true, but a lot, but down because of peoples beat but traffic.
Right Robin and I thought in addition to that Rob Barb, our service side of our business as Weve continued to grow that is has been healthy during this time as well.
Okay No. That's a that's a career positive and then and then I guess just in terms of.
You know that the go forward.
Such and what kind of sales trends bit upfront and then third quarter and we're operating profit could actually said.
Potentially me that through the quarter it sounds like you're you're you're doing the best UK unit to alleviate some cost potentially in European now for the same time. It also sounds like you're trying to hold on to pretty much.
Yes, you are very loyal employee base.
Yeah, and after such a topic I would.
Feel like you know you know a lot of kind of the moving parts of your personnel are obviously contingent upon.
Those venue is opening up in that people are actually going back to the venues and pretty much sounds like Q trying to hold back cash to be able to hold on to your cost structure ads is as long as you can is that does that make general sense.
Hi, Dan This is Dennis.
This is Dan it can I comment on that.
Go ahead.
All right first of all I would say, we have had significant reduction in costs during the quarter.
But you are correct and that there are some cost that we don't necessarily want.
Right now and you have a couple of reasons one no. It yes, we have some valuable people that we will need one the business trust her and again and now and we also had a sense of glass loyalty to them as well and on top of that you know who now say the out perhaps another.
Yes couple of million dollars or whatever of cost in this particular quarter.
We'll have no impact on you know outperforming and while we do a year from that considering that we have the has to do so so we've taken into into a kind of a lot of it.
Factors, but yeah I don't want.
We shouldn't.
The giving the impression that we have not I caught a significantly.
Hi, good equally we had and then you analysts they're going to have a drop off and down about $150 million.
In the quarter.
We have to take that otherwise I am the lapping earnings would be a lot more the Mike will anticipating estimate.
Okay, That's fair answer.
Thank you so watch please stay safe.
Thank you.
Thank you. Our next question on line comes from Ryan Bell. Please go ahead.
He said that the first four weeks.
Hey.
You said the first four weeks of your June quarter, we're down about 45% can you speak about the differential ways, you're seeing a disruption impacting different parts of your business for retail supermarkets frozen beverages and food service.
Are there any additional utility could survive the composition of your on premise exposure and then any differences that we'd see and that pockets of the channels and how they're performing.
Wow.
[laughter].
[music].
Before I turn it over to Bob Pape and that is.
In mind that we started our third quarter, which is traditionally a good upswing with all of our sports teams.
It out there where the season being on hold.
Additionally, many many schools were closed.
And so we started off along with a sizeable met.
We do expect as the quarter heats up both by weather at opening that.
We will.
Get passed that quickly Bob you want to suck.
Yeah, I mean, you know from the from the food service aspect of the business as Jerry mentioned with many of our.
Partners shutdown at this time.
Right now were formulating a plan to be able to get back in business with those.
Customers as they start to recover.
And then the other thing is on the retail side of the business are.
At home consumption.
Has been very strong.
We anticipate continuing to.
Move forward in a positive direction.
Primarily obviously driven by.
The.
The stay at home orders and so we're also figuring out how we can continue to grow that aspect of our business and I'll, let Dan comment on how you see as far as the moving forward.
Yeah, Hey, Brian So the IC company continues to feel good about.
About what will happen in the future right and and then they are in the third quarter World, We're still measuring.
Those accounts that are not opened at this point.
I mentioned earlier on the call with Rob that our service side of our business continues to grow in is that its operating almost at the same pace than it had been and we see that are growing in the third quarter as we start to open up these locations.
And more people need service for that and even our outside service outside of the IC Division that portion of it is growing as well and see that continuing continuing to grow into third quarter. Although the the core product will be hit during the third quarter.
Great. Thank you and given your strong balance sheet.
It seems like you'll get sold to ride out the storm.
Are there any changes that you might think about in terms of your capital allocation over time and are there any ideas, maybe about what could happen or any opportunities that arise from the disruption in terms or.
Central acquisitions as we as we exited.
Well. This is Jerry we have managed our finances well over the years. When we did have a lot of cash reserves, we will continue to manage our finances, including.
Yes, as we have in the past so that will be a good song.
Okay, great. Thank you.
And.
Add to that and I think you comment regarding.
Maybe they will be some acquisition now that you know we're not.
Available.
Six months ago because.
Other companies are hurting you guys evolent hurting on perhaps it will.
Additional opportunities to us and we will be looking and evaluating and hopefully be making an acquisition of there.
Monthly year.
Dennis is right.
We have the cash we have the balance sheet.
We have all of the things going forward to continue to build a healthy company.
And we've made acquisitions in the past we've turned some down I'll have more recent vintage but.
We'll be looking to make acquisitions in the future.
Great. Thank you that's it for me.
And thank you once again for any questions or follow ups that Star then one on your Touchtone phone. Our next question on line comes from John Anderson. Please go ahead.
Hi, John.
Hi, Jerry.
I hope, you're well and say.
Well the other day.
Very good very good very good you sound good and Ah I did want to say thanks to a to Dennis so for all the help over the years, though.
Best of luck in.
Your next phase when I look forward to stay in touch.
Thank God.
You bet.
I guess I wanted to start with the retail business, which was strong in the quarter and retail supermarket business.
Yes, what could you comment a little bit out what's your.
Seeing there in terms of overall consumption growth.
For your supermarket brands and when you think the growth is is kind of sustainable going forward or was there a large kind of onetime stock up but component to that.
Well, John as far as the business itself, obviously, there's been increased consumption.
Again in the at home segment.
We saw that in.
Over the past couple of months.
Our customers, which were trying to support our focus gone in stock positions and supply chain, which we are working very diligently to to fill as well we have very strong brands and I think that as a result of that.
We're going to continue to be looked at by our customers is a good partner.
And that.
There will be opportunities moving for us forward.
With that said.
We also have an unknown as far as.
What the consumer behavior will be and as mentioned in the conference call notes the Jerry mentioned.
We are monitoring monitoring consumer behavior.
And we will go.
So what the new consumer need is once the new normals established so that requires some product development. It requires some modification of our marketing and all those things are being in process now to be able to answer that once.
Once the changes that are that the industry are undergoing happens. So that's really how will be handling and were very positive about the product portfolio and what we can do with that product portfolio.
That's helpful. Thank you.
Do you.
Could you talk a little bit about your ability to.
So to me the demand how is the supply chain working on the retail side of the business or have you been able to keep retailers in stock are you able to maybe reallocate some production capacity from your food service.
Business into retail to better serve us retail customers during this kind of demand.
Surge that they're experiencing.
I think again tied into the fact that we took the very proactive steps on the cobot 19.
Sanitary procedures and employee safety that we started back in January that's allowed us to have a stable supply chain and quite honestly I think some of the issues our customers.
In terms of their outbound freight to their stores and servicing their stores.
And obviously some panic buying on the part of the consumers that seems to have started to abate a bit so you know.
Those are the issues, we have not really.
You know experience any significant supply chain.
Issues in terms of our manufacture.
Where there were issues with some of the retailers, we filled that gap with our own trucks getting product to them. They appreciate that very much somebody like Jeff said the Bob.
Properties the product get it here to do basis stock itself you deserve an award.
Yeah, I'm sure I'm sure you can help your customers.
In ways like that during a difficult time, they they have appreciated.
Yes.
Yes, absolutely.
So maybe I could ask about the.
The the 40 with the trend that you commented on in April.
Am I right to say that.
That's the most difficult kind of.
Situation right now is within the food service segment, not the frozen beverage segment, but within foodservice because of the nature of the locations where that is sold this is that seem to the biggest downtrend to present.
I think it may be all of our if you look back a year ago April cost, yes. It spring the birds are CERP it but the baseball there's quite a hockey playoffs basketball as all of these little sports leagues in there.
Nice little boot business, we were completely shut down it's not surprised by the restriction. This year now we know that might look like.
But we expect that it won't be a while it could we.
Get back.
I wanted a field so to speak and enjoy those benefits of us sales.
We have at.
That is dedicated to that we have a team that enjoyed working with the youth and be.
Major sports arenas ever go ahead.
And that business has been growing every year.
But but with regard to play you mentioned under frozen beverages segment, the frozen beverages potash sales are.
Severely impacted by day.
I mean, a portion of the probably the but beverage business as Dan mentioned service.
Component is continuing to perform well, but the beverage side of it is.
Down.
Well over 80%.
Yes.
Okay. Okay.
All right. So it's it's okay. So it's affecting beverages have significantly it sounds like outside of the foodservice segment as well.
A few years ago, let me make a few years apparel and spearheaded by faster.
We discovered movie.
Now, we started putting equipment and movie theaters all around all true we employed plus sales from that many years now I understand almost every movie theater as close or has restricted.
Hours for cartoons on a Saturday morning, and whatnot.
Yes.
That business will come back.
We're confident it will at will.
Slot enjoying the benefits of that business, hopefully not too distant future.
Okay.
Just a couple of couple of additional ones if I might.
Yes.
So.
You talked about.
This balance you're trying to strike of keeping.
The.
The people in the capabilities and and and the capacity.
Impact if you work through this temporary.
Kind of issue.
But how much have you would you say you, but you also said you've taken some actions already I mean, if you how much have you kind of done in terms of.
Cost.
Discipline.
To this point and do you have a kind of.
An additional slate of potential actions.
Heavy not.
Timing of some of the your customer Reopenings I'm, just trying to get a feel for how much you've maybe already done and how much is potentially yet to come.
Well, we have eight facilities across the country.
And we are really dedicated to our people at our plants are not business. We did help and lay off that affected 221 people a couple of weeks again, we don't anticipate growing.
ER or having another.
Roundabout.
And you know and there are significant caught that we've had in payroll do that average reduction as well and manufacturing plant.
Okay.
I'm just trying to ask John I'll I'll add to that too. This is Dan fashion or we've we've bought we've looked at it in several different fashions. We've had some layoffs. We've had some salary reductions we've had some furloughs we've had our reductions.
So we're monitoring it really close with some scenario planning based on where the business is today and where we expected to be a and where it might end up and we're watching that really closely.
Okay.
And the last one I guess for me I mean would it be fair to assume that are U box and stock back in the in the quarter.
Raise the dividend.
Sure what should we expect going forward.
And then upfront I'm, assuming you're going to go into more of maybe a defensive posture.
[music].
Regarding those uses of capital going forward and will you.
How much how much would you think of optimizing capital expenditure on a full year basis at this point.
Well I think we spent about $50 million to $60 million last year, and we probably we're on target for that this year. We may we may trend that a bit because of need but right now we have.
Adequate supply.
Prada, and we have adequate cash reserves and we meet regularly on that that we're going to pay careful attention to that because we don't want to go.
Neither side.
The tracks.
Okay. Thanks, Thanks, everybody I really appreciate all that the color and up.
They say and toxin.
Thank you.
Thank you good our next question.
Okay I'm sorry.
No not a problem we have Todd Brooks online with the question. Please go ahead.
Hey, good morning, everybody.
A quick question Jerry if you talk about the down 45% sales trend that you're seeing.
Quarter to date, you pointed out a couple of things one schools were.
Widespread closures in April, but I imagine the education business becomes less important thanks again to May and June.
And then additionally, you do have a big convenience store business part of the.
Outside of the venue closures in the bad cancellations that spend the shelter in place some people not being.
Free to move around it as you look out over the course of this quarter and you're starting to see states open up a bit and people getting some free freedom of movement back. If you could talk about maybe this down 45 that we've seen for the first four weeks.
If there is an element that that could moderate as people are out moving outside of their homes and driving hitting the convenience stores and the drag year over year should moderate from education over the next two month.
And then this is Dan yes, I'll answer that.
Yes, the I guess, if you look at who were selling to now in the through two which segment and the frozen beverages.
Nine service component of the business move basically selling like Nath restaurant.
Kane.
Limited extent and convenient store.
They really is not much how that is open and selling our products and.
Most of the.
Other venues are going to probably in all likelihood we made shot.
Who asked the balance of the quarter game is in Boston baseball stadiums in the.
Many of the snack bars that we felt that that had.
That have been down so far this quarter, how well you know there may be some opening up and there may be some improvement but.
I think well at this point at least to think that.
They'll Danny thing of significant.
We don't we don't see that.
Fair enough and then in that.
Environment kind of so if you could talk about.
Maybe what we're doing on the marketing spend side and.
How distribution costs I mean, it sounds like distribution costs, you're going the extra mile for for your customers now, but just what should we be seeing I know marketing and distribution were off.
Year over year about 10% an aggregate over.
Over the prior year.
But what does it what are the outlooks for marketing and distribution costs and the current environment. Thanks.
A good portion of that will obviously drop off considerably with the drop off and value.
Some component of it that is fair.
And like however, we do continue to work with our customers on.
I guess that we've been working on and are working on that and that they want to continue to work on for when they open up and perhaps had menu items and impacts the south so.
You know, where we're spending should be down significantly in terms of distribution.
Cost of higher for a lot of different read anything into first quarter.
Yes.
Weve guesswork.
Add contained within our pilots distribution, we changed the way we took latham distribution that.
Previously had been done and were having to distributors.
Part of the talked in the marketing and distribution cost but.
The increase taken many and a half dollars of IC relocation costs than we can do with their warehouse relocations and customer service relocation.
And what I'm also looking and actually the world.
Began looking at changing perhaps some of the.
Well, we were half our pipe to assets actually too.
We do have cost regarding that.
But yes. So all I can say is we're looking to drive those costs down as we move forward and we should be able to some extent.
OE needed, but little bit a nice weather together with the ball meeting that field. The fielding the ball that is one I have a significant.
Change in our business.
Yes, right the only but.
Hopefully it will be sooner rather than later.
Right.
We Havent next question.
Richard are you there.
Moderator.
Okay.
Yes, Jeff Osher on the question. Please go ahead.
Oh.
Hey, good morning, gentlemen.
Just two quick questions. Dennis can you share the composition of finished and raw as it relates to inventory.
Hang on a second.
Sure.
Roughly half of our inventory is.
Little less than half is finished goods.
Yes.
Yeah, well materials and packaging that we use manufacturing the product in our backyard business actually guidance.
It's a little is about a quarter of the.
In the Korea, and then another quarter equipment parts that are primarily in our IC.
Business related to service.
Got it it just refresh my memory market, yes.
Yes, that's very consistent with where you've been historically, so when we think about spoilage cost and cost allocation across far fewer.
Units looking into Q2, and potentially Q3, hopefully not but potentially Q3.
How do we think about the potential for spoilage costs in that finished goods inventory in the context.
Samples at least to date or less than 1%.
Okay.
As.
Most of our product.
I guess nine sorry, what's going to have our center.
Sure most of our fiber center stage growth.
Well most of that product one printer and.
Let's now I spoke about your thoughts on that most of our product.
Most of our finished good price growth.
So it has been extended health right.
So.
At this point at the we don't see that they would be a larger matter hoylake related to that.
Great. Thank you that's very helpful and any.
If you guys were talking about earlier are there extensions with customers with regard to existing receivable balance.
And maybe just walk through how we can expect as the year progresses.
Receivables and if we need any bad debt reserves against.
Against receivables.
Well this is Dennis again at this point.
Yeah, we were sure gelled base some amount of.
Customer if that will end up not being at the path, but at this point and again either be are much smaller customers and at this point today, we don't have we haven't seen any of that.
So most of our customer almost all of our customers continue to path and normal course.
We do have.
A handful of nice youre.
Not.
Shutdown now who have asked or extended term and but again it is relatively small quarter surprisingly small portion.
And what I would have expected in a month ago have effort and time.
Got it makes sense and did you take last question for me did you take a bad debt reserve against US customers that you are anticipating will have problems did you take well like I say viewers that let me discuss well well we did not we did not and like I say, yes, I when I say it is I'm talking about really small customer so.
So at this point at least we're not anticipating any thing of significant.
Okay, what helped a lot thank you and.
Benefits the dominant brands is that we had dominant shares. So there is a continuous relationship between.
Uh huh.
And a customer and everybody realizes what we have that 80% share or whatnot, there's not many alternatives.
For the other guys, it's certainly not many alternatives up equal value add economy.
We're satisfied with our receivables management and our.
And our card positions.
Okay. Thank you stay safe and appreciate the update.
Thank you.
And thank you once again for any questions at Star then one with a question on line from Howard Bryerman. Please go ahead.
Yes, Thank you for taking my Michael.
But I don't think there's any doubt that.
You have a very solid business model excellent brands and a very solid management team in my humble opinion. This is a liquidity exercise and I apologize if you if you.
Data set at the beginning of the call I couldn't get on so quickly.
Did you have you disclosed what a monthly what a monthly burn rate is at this point and that would be all inclusive of use thinking through.
Inventory spoilage Hello.
Yes.
And as you want to answer that that is because yes.
Well, what we said.
Is that we.
We may have a operating loss in the quarter.
With with also mean that we may not.
When you look at that and you you know you consider that AD demand of depreciation that we haven't capital spending.
You, we see that that pretty much as an offset so at this point.
We do not have added found them and we haven't in the beginning of this.
Bakken back in the middle of March.
So so that's great. So.
Looking forward going six month, assuming things go the way. They are you should be breakeven for the next for the foreseeable future and then I wasn't able to finish my question. What is what is your cash balance and your availability on your revolver.
We have a revolver that can go from 50 million to 100 million down.
But we had cash and investment of $267 million. So we anticipate no liquidity issues at.
Now going forward unless things go mascara dramatically different from like everyone is anticipating we don't expect.
And then just finally, we would there be other levers that you could pull I mean, it sounds like.
Liquidity is is very very strong which comes back to your point of a strong balance sheet should you need to go into the the revolver endorsed the cash balance or the other levers you can pull for additional liquidity.
If we needed to it.
There are bags that would line up.
Bush money towards us and Dennis has done a good job Matt that over the years, but were not far different financial condition that we were two years ago five years ago 20 years ago.
So we have plenty of resources.
Available to us.
And we're glad to have that but we don't expect to have to extend.
Okay very good.
So it seems like it shouldn't be it.
I mean, we eventually we'll see the light at the end of the tunnel I agree with you guys could be six months before before therapeutic comes out at a year before a vaccine comes out which would be the ultimate safety nets. If you wouldn't have any problem running for 12 months coming out the other the other side adults with data look on it.
Very good excellent.
Thank you. Thank you very much.
And our final question comes from Robert Castello. Please go ahead.
Hi.
Hi, Bob how are you doing at Wawa.
Some of the convenience stores of change where your products are made available now like the pretzels and obviously, the the IC and new shrink wrap the bakery products those costs. They added anything to what your your manufacturing costs are.
One last one of our premier customers that we have a great relationship with them. We're in contact them regularly both of those projects.
Particularly the wrap it came to US a few months ago and our people worked it out we charge them.
Well the wrapping and.
The only problem, we've had with wild why is that the.
The self service machines have been jot down at least temporarily.
While they managed through their issues, but we worked with them closely and not.
We don't have any significant.
Downturns.
Right what about the pretzel business in the convenience stores have been impacted plus or minus by this or is it just stayed away.
Actually it's off the cost fee wrap the rexel them at their request.
Wrap them, two or three at a time and they're selling and units now which gives us a little bit of benefit on individual sale right no long and cannot aid Gretel I'll have the.
The Brasil.
Right.
You talked about 18 facilities is there any talk in the near future given what's going on with consolidation of more.
Going forward into say half that number.
Or is that cost stock trouble right now that youre.
Not half.
But but we are closing one in the Midwest.
And.
We'll probably do that at some point is third quarter.
Right.
The 260 million of cash.
Could you said right could you break that out like how much is liquid how much has invested in who manages it.
Is it had done internally or extra week is well. It. This is Dennis I mean in terms of investment we essentially man hit our town, but we do use brokers and who who do advise us a lot with daily.
In terms of liquidity, if we not that we would have to but if we if we needed to weekly.
Liquidate all of it.
Probably add very close to what with carrying into on our books work.
But under the normal course of time, we have the bad at 99 nine about post $900 million have corporate bonds that mature within next two years.
What are we already on those bonds that is about 3% roughly to rapidly 2.8% based on there are good price, which essentially is what it.
You know trading at today.
Right.
Last question, Jerry a couple of years ago, you on a coal talked about the growth rate in the different industry segments that you service that you mentioned the.
Food services being your best opportunity at the time.
For growth percentage wise is that you still hold to that as your industry segment.
That offers the best upside.
While mortara, yes, short term, probably retail where we seem to be getting nice little boost.
One because we're.
Our our core products pretzels on and I see and whatnot.
Shares.
Most of the 35 40000 retail grocery supermarkets are packaging is good the product is good.
As price growth.
Right, let last question how come the tourist product is not sold in the supermarket category.
Like it was a b.
And we and we keep addressing that amongst ourselves every quarter.
That has plenty of opportunity for growth.
Sometimes it's a matter of space and.
Just getting it in there we don't want to lose that.
Features space in there.
I think also this is Bob the other thing that we're looking at is you know is foodservice is that as it continues to grow and be popular within foodservice venues, usually the axiom is that.
The retail at home consumption will follow so more and more consumers are becoming aware the product. It's a very strong product category for us on the foodservice side and as that continues to happen. We would anticipate that we will look at the viability of retail product and.
Recreating experience for people are having in foodservice environment.
Alright, thank you.
Thank you gentlemen, and ladies.
And we have no further questions at this time I'd like to turn the call over to our presenters for closing comments.
I want to thank everybody for participating in and this are.
Second quarter conference call.
We're not happy that we have that goes through these kind of.
Adjustment.
As they are but long term our business is wrong condition.
We have plenty of cash reserves, we have popular brands.
Some of our brands are 80% of the category. The long term outlet outlook is good and we expect it will be continue to be good or perhaps even get better. Thank you very much.
And thank you ladies and gentlemen, this concludes todays conference. Thank you for participating you may now disconnect.
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