Q1 2021 J & J Snack Foods Corp Earnings Call
Ladies and gentlemen, thank you for holding your conference will begin shortly thank you for your patience.
[music].
Okay.
Welcome to the J&J snack foods first quarter earnings call. My name is Richard and I'll be your operator for today's call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session. During the question and answer session. If you have a question. Please press Star then one on you touched on the phone please.
This conference is being recorded I will now turn the call over to Gerry Shreiber. Mr. Shreiber, you may begin.
Thank you Richard good morning to everybody and welcome to our <unk>.
First quarter conference call.
The J&J snack foods.
And I am Gerry Shreiber I should be familiar with you should be familiar with my name and whatnot as I've been in this same position now close to 50 years.
Much to my pleasure privilege.
We have two new attendees here.
And Dan Fastener, who has been running our ICEE business and I say, it very very well and has not been and the foremost.
Shareholders' meeting he recently located on the West Coast and is now living in Tennessee and.
And as you May know Dennis Moore, who was our CFO for 30, some odd years has retired and and plant.
Who is certainly well qualified at a stellar career with.
Hey, Mark I'm, sorry, with Walmart and.
And tenants.
And has been with US now is again four months roughly yeah.
Okay.
Alright, let me begin with.
Some commentary for the first quarter.
And I'll begin with our.
Forward looking statements.
We're looking statements contained herein are subject to certain risks and uncertainties that could cause actual results differ materially from those projected and our forward looking statements you.
You are cautioned not to place undue reliance on these statements, which reflect management's analysis only as of the date hereof.
We undertake no obligation to publicly revise or update these forward looking statements to reflect events or circumstances that arise after the date hereof.
Results of operations.
Net sales were $241 million for the quarter a decrease of 15%.
Sales continue to be challenged by the impacts of COVID-19, especially on our foodservice and frozen beverage business segments.
Spike this environment, we are seeing gradual improvements in sales trends since quarter, four 2020, where sales were 19% worse than last year.
Our retail business responded well driving 33% growth.
Operating income was $578000 for the quarter, a decrease of $21 $1 billion as declining sales pressured production efficiency and expense leverage.
Now I'd like to review the results of each of our business segments and let me add just one comment.
Our foodservice business, which represents about 70% of our total sales.
<unk> significantly impacted during the past year because of the sports and leisure.
Cancellations and sales reduction and movie theaters and to a lesser extent schools.
Food service sales to food service customers decreased 13% for the quarter and improving trend when compared to quarter, four 2020 and declined 21% versus the prior year.
Key customer and venues and channels like theme parks.
And <unk> restaurants sports and leisure and theaters continue to operate at limited capacity and packing foodservice sales.
Soft pretzel sales decreased 35% and frozen juices and ices decreased 11%.
Sure ill and funnel cake sales were down 30%, 49% respectively.
Sales of bakery products declined 8% as the virus impacted traffic purchased choices and frequency and this part of our business our.
Our handheld business had a strong sales quarter exceeding last year by $10 4 million or 100.
45%.
And was driven by a new price develops and one of our wholesale club customers.
Operating income and our foodservice segment decreased $11 $9 million on a quarter due to the sales shortfall and lower growth.
Retail supermarkets.
Retail gross business continues to perform well as sales increased 33% for the quarter sales were led by our Super Pretzel brands with an increase of 41% and the quarter.
Frozen juice and ice and sales were up 52% and sales of biscuits increased 10%.
Handheld sales were up 1% for the quarter.
Operating income increased $2 $5 billion were on.
On a 13% and the quarter driven by higher sales and operating income margins of 12% over 400.
Points better than last year.
Sales for our frozen beverage business segment were down 41% kind of quarter.
The average related sales were down 55% driven entirely by a 56% decline and gallons has traffic and theaters and amusement park and retailers face continued impacts.
From COVID-19.
These venues rely on incremental seasonal sales and December which were significantly affected by reduced operating capacity and consumers staying home.
Service revenue declined 16% almost entirely from cancellation of our key customers and maintenance program.
Machine revenue decreased 46%.
Due mainly from lapping a $5 million non recurring sales from last year.
Our frozen beverage segment incurred an operating loss for the quarter of $10 $3 million as.
As the COVID-19 restrictions continue to pressure sales.
These sales challenges impacted gross margin mix and efficiency.
Consolidated.
Gross profit as a percentage of sales was 28% this quarter down from 27, 5% last year growth.
Profit percentage has decreased because of the previously mentioned COVID-19 sales sales pressure on our foodservice and frozen beverage.
Total operating expense as a percentage of sales was 26% and the quarter up from last year's 19, 9%.
Total expenses were $6 $6 million below last year, but still de leveraged against the significant drop and sales.
Net earnings for the quarter was $1 $8 million down from $17 1 million last year.
Our cash and investment Securities balance was $285 million as of December 26, 2020, and increase of $7 million from our September year end.
We continue to drive positive cash flow and on.
Balance sheet and liquidity remains strong.
And this challenging environment.
We continue to look for acquisition opportunities and remain focused on the long term growth opportunities of our business.
Our capital spending was $9 $7 million and a quarter as we continue to invest and plant efficiencies and growing our business.
We estimate our spending for the year to be about consistent with prior years.
A cash dividend of 57, 5% 57%.
57, five cents per share was declared by our board of directors and paid on January 12 2021.
We did not buyback any shares of our thoughts on the quarter.
Our investment income this year was $116000 less and last year due to decreases and the amount of investment interest.
Great.
I want to thank you again for your continued interest.
I'll now turn the meeting over to Dan <unk>, who was named President of the J&J snack Foods total group.
About six months ago and day.
And we will have a few additional comments before we open up.
The meeting for Q&A, great. Thank you good morning, and thank you for joining us on our first quarter conference call and we are.
Thrilled to have you listening in and we thank you for your interest and J&J snack foods.
With us today and the room and.
And the addition to myself and Kent Walker were announced earlier, we also have Margery Ross cough, our vice President General Counsel.
We have Bob Pape on the line, our senior Vice President of sales and we have Bob <unk>, Our senior Vice President and COO and I'd like to make just a few more additional comments before we open it up for questions, but as many of you know we are living in unprecedented times.
Our lives have been impacted not to mention our business this past year.
How we work how we communicate our shopping habits, how we entertain ourselves and and just simply how we stay connected with one another such as the zoom calls, we're all going through.
I believe our company has done an excellent job working through the challenges it's been a consistent daily focus on the basics of our operating and our business I have to tell you I am so proud of our employees and their unwavering commitment to serve our customers each and every day.
We continue to make progress despite the challenges of COVID-19, and this first quarter traffic and key foodservice revenues.
Comprised of two thirds of our sales continue to operate at substantially reduced our unlimited capacity.
This was even more pronounced during the holiday season, where many of these venues rely on seasonally higher traffic and sales consumers just separately stated help during this time.
Our retail business continues to thrive with another 33% growth this quarter.
And so and that wasn't quite enough to overcome the impact on our foodservice and frozen beverages, but we're just delighted with the way that group is performing.
As Jerry mentioned, we still improved our sales relative to prior year, we were down 19% and the fourth quarter down 15% the prior year and the first quarter.
And really proud again of what we are doing considering the environment. We're in.
Even with the COVID-19 sales headwinds our balance sheet is strong and we have the funds and resources to invest and growing this business, we will remain aggressive and making strategic capital investments and driving innovation and efficiencies. We appreciate your interest and our company and I'll now turn it over to any questions that you might have.
Thank you very much.
And thank you we will now begin the question and answer session. If you have a question. Please press Star then one on your Touchtone phone if you wish to be removed from the queue. Please press the pound sign or the hash key there will be a delay before the first question and as announced and if youre using a speakerphone you may need.
Need to pick up the handset first before pressing the numbers. Once again, if you have a question. Please press Star then one on your Touchtone phone and we're standing by for questions.
And our first question online comes from Rob Dickerson. Please go ahead. Your line is open.
Alright, great. Thank you Sandra and good morning.
Good morning, Rob.
Good morning.
So I.
And I guess my first question I guess around.
Cadence of the quarter I think last quarter, you had said.
And maybe any kind of let's say the first four weeks it.
It looks like sales were down approximately 25%.
But maybe they improved a little bit and November December given the total Q4 result, however, you are saying there is some pressure and the holidays during the holidays and just curious if you could just provide some color you know if you saw things maybe improve a little bit and maybe improve black and you had thought and kind of where things stand now.
Now versus kind of where you thought they could have stood on.
Just a few months ago right.
Alright, Robert your stay.
<unk> was really accurate.
Did see a continual improvement as we came into the quarter and October and November held up pretty strong and then we got into the holiday season, and some of our key customers that we have that really count on that holiday time, such as theaters or some of the mass merchandisers just.
And did not perform as well as we anticipated.
And that budget for time and of course as you know we also had another spike in Covid during these times as well and that didn't help and anyway.
But.
We're confident that debt that shopper will come back as those locations opened back up and and we think that this quarter, we will continue to improve again.
Yeah.
Alright, great. Thanks, and then I guess secondly.
I'll bet.
And in movie theaters this past weekend.
Thank you.
Yeah and.
And Rob the Dubai, and IC and perhaps so that's all I wanted to know yeah.
Yeah actually well that was my question.
The average.
Kind of pop up and that's in the store now so it's easier to actually order and you can buy these massive ICEE frozen drink and.
And I was just thinking okay, well, obviously, we've seen the news coming out of AMC.
Over the past couple of days in terms of financing, there's still demand for movie theaters and overall kind of longer term, but that I think is there any way.
And that you can adjust and strategy in terms of your offerings not just in some of these higher traffic areas, but just kind of overall right like hopefully moving here as tobacco free traffic picked back up right and that's the expectation.
And kind of across the board, but we've been and that's got a long enough that I would assume.
Sit down and think about kind of go forward strategy on what some of your product offerings could be you have to ask yourself the question.
They're a way to adjust the offering them Howard just on strategy somehow so I don't know maybe not.
Just curious as you think about that.
Are there ways that you can either adjusted strategy, maybe you can do bolt on acquisitions to kind of position you win more diverse way or maybe it just they just sit it out basically a wait for the traffic come back so that right and then there's a lot of respect.
No.
Reading from our playbook, Rob you're absolutely right we are adjusting.
And to look at other avenues outside of the theaters and are having some success with that that's not it's not a particularly quick fix because theres a period of time, where you've got to sell and then and.
Install and test, but we have some really good test going on in the IC business right now and that group and that sales group R. R.
Really focused on other channel to grow our business with them and we think that we'll have success doing that and along the way. We believe these theaters will continue to open but you're right. We can't sit back and wait for that we have to go do something about it and that's exactly what we're doing.
Alright, great. Thank you so much I'll pass it on.
Thank you.
And thank you once again for any questions that start on one on your Touchtone phone. Our next question on line comes from Ryan Bell. Please go ahead.
Hi.
Good morning, Ryan Hey, everyone. Good morning.
Could you, maybe a little bit more color.
<unk> assumptions and thoughts as the cadence of the improvement.
The improvement for the foodservice.
As we see the vaccine being distributed more.
And then also is there any way you could give.
To beat sense for the performance and improvement.
Did you hear this Ryan and I didn't quite understand the last section of your question.
And it out a little bit can you can you repeat that.
Sure.
The last part that I was asking was.
Quarter to date, how how are the parts of your business doing and is there maybe any number.
Could provide it.
About the actual size of.
The improvement or how the decline is doing quarter to date for the foodservice and IC business.
Quarter to date, meaning quarter too.
Yes through January <unk>.
And when I touch on it.
Interesting question I think probably the right answer to that Ryan is.
Yeah, it's about the same.
Think about food service was about 13% less than last year.
That was an improvement versus Q4, where Q4 was 21% below last year.
So early in Q2.
I think in terms of your the way to think about it and your modeling.
Probably still think around that 13% to 15% below the base year and.
Till we start to see more widespread.
Access to the vaccine.
And recovery of that but it's still a bit early.
<unk> entire quarter right now.
This is Jeff.
Comment on.
I assume a lot of you and maybe most of you are sports fans, but do you remember the year $19 94 and such.
All of the baseball went on strike and it did not recover.
Two years later.
We're not having quite the impact and there, but basically so many of our venues where it completely.
And now they are opening up and we fully expect that we will be back.
Last year's level of and next year or so.
Okay. That's helpful.
And would you maybe builds and provide some broad guidance or insights about the expectations for cost management throughout the balance of the year.
I know that we're going to be lapping some significant decline last year.
The closures were being sales are poignantly. So is there is there any way we can think about the trajectory.
Gross margins throughout the year.
Yeah, you know I mean, we pointed this out and I think and the press release.
Particularly around gross margin.
And those margins get challenge one of the biggest contributors to yourselves declines are soft pretzels and.
AC beverages, both of which have some of the healthier gross margin, so and that mix changes.
That that has an impact on gross margin until we see.
Those businesses turn around and that will continue to have a similar mix impact.
On the other thing, particularly as you look at Q1 Ryan is.
Again, as we think about the magnitude and the impact of Covid.
Obviously, the more of that heightened and so more of that impact our labor force.
And when it does that and people are concerned about coming to work.
We have to often look at ways to.
Manage that labor and a different way and sometimes that's a little bit more expensive temp labor overtime, just because of.
The concerns the virus is creating.
And that certainly had an impact and our first quarter and it's something that we're working really hard at the remainder of the year to get a better handle on but just as Ken has said.
The labor shortage as we're all aware of out there and then when Covid spikes again that increases we're still certainly dealing with that issue and hope that some of those issues will go away as the vaccine gets more and more and place.
Yeah, Thank you and I think.
And I mean, we spent 730000 roughly on.
Various health and safety matters around Covid.
And it actually heightened.
For mid November and December with the virus getting worse.
So that's what three and a half cent a share impact on expenses and.
And if you were to take that 730 out of our expenses compared to last year.
And we're much closer to leveraging so I'm actually quite proud of the way we pull.
Pull back on expenses as sales have come back we actually took $6 6 million of expenses.
And Q1.
Neither to take roughly 7 million out to stay and leveraged with with the prior year and.
So you look at that as kind of a COVID-19 impact.
You know I think a way to think forward is as long as the virus and the state is that we're going to continue to.
It's been probably roughly 150 to 200 K a month.
On all of the health and safety matters, so that will be kind of a lingering impact on expenses until we kind of move past that.
Otherwise, we're always sharpening our pencil Ryan and we look at.
And other way business comes in and the margins come in and Dan and I and the team and.
You are talking about kind of every rock that we can pull open to continuing to get precise on where we can dial expenses back a bit more but it gets complicated when you have sales loss of that magnitude.
To calibrate down still try and stay true to our long term.
<unk> vision for the company and the us.
And now with the virus.
And that perfectly as a challenge but.
So I'd say short term for Q2.
I expect us to get better expenses, but it's going to be marginal I think as we continue to.
Figure out how to you know.
And how to manage through this COVID-19 period.
Thanks, Charles and public color and I think one one last one for me when you're thinking about capital allocation how.
And if anything changed maybe thoughts about acquisition and foodservice versus retail.
And then maybe just a broader thought process about the M&A landscape now versus prior to Covid.
That's a great question, Ryan we are working really hard at.
Understand and capital allocation, probably I think better than we ever have and we've put together a good group that is a.
Evaluating each one of our plants and where we can best invest and ourselves to get the right kind of return.
And the right kind of savings from it and so we're going to continue to do that and have done some things this past quarter that again and I'm really really pleased with and I'm pleased with this group that we have put together and the way that we go about looking at it.
In regards to M&A, we're going to continue to look at.
And today, we've had several conversations with different people, we're going to be careful about how we do it but when we find the right. One we're going to be ready and prepared that's that's part of the advantage we have with the strong balance sheet and and cash that we have is that we can be and are positioned to do that and yet we want to do it wisely.
And so we're doing that and then there has been some opportunities brought to us and we're going to continue to look and so we find the right one.
It may cause us and the second half of your question and May cause us to take another look at retail where in the past maybe we wouldn't look at that is strong and we might look at that even closer now.
With some of the opportunities are being brought to us but.
We're going to continue to be aggressive there.
But I might add it's part of the retail surge was due to the closures across the board and the Foodservice group. When you consider there was no sports leisure and music.
Basically just force slimmed down.
Movie theaters, so that was a major major impact.
Fortunately some of that spills over because our brands and franchises with Super Pretzel and.
And IC and whatnot on not only the leading brands.
Leading brands with significant barriers to entry against anything that might be considered.
<unk>.
We're going to continue to emphasize that and build on it.
Yes.
Great. Thanks for the question.
And it for me thank.
Thank you Ryan Thanks, Ryan.
Thank you. Our next question on line comes from Jon Anderson. Please go ahead. Your line is open and Blair.
Hey, John Good morning, John.
Hey, good morning, everybody Gerry and.
Congratulations Dan and Ken it's good to hear your voices on the call.
Thanks, John and likewise yours too.
Yeah.
A few questions.
Start with just the sales cadence I know, it's been asked a couple of times, but I'll come at it.
From a different angle I guess.
As you look to the balance of fiscal 2021.
And.
We've had two quarters now both the fourth quarter of 2020, and the first quarter of 2021, where we've seen some.
<unk> showed improvement.
And the the downtrend has gotten more moderate.
And.
As you look.
Forward through the balance of the year do you expect that trend to kind of continue at.
At the same kind of pace kind of where do you where do you expect maybe to cut it and the fiscal year coming out of the year at any kind of color you can help us with there and I know, it's a very difficult question and some ways and unfair question, but just looking for your impressions right now how is the.
The next two or three quarters go with respect to sales trends.
John It's a great question.
And I'm glad you asked it.
Our sales have continued to grow.
ROE even during this COVID-19 time.
As a percentage against prior year, and we did that during this quarter as well and and I would expect.
At this point.
Youll see similar to where we're at right now on.
On a go forward basis, we have a lot of really good things going on.
Underneath that I believe will continue to grow and and boost up those sales and then if we can get a lift from COVID-19, which is that great crystal ball, but.
But if we can get a lift from that.
The vaccination and some of the locations are foodservice, both on the IC and the J&J side to open back up.
And we might even beat where we're at today, but.
We feel good about I mean, and we obviously feel good about where we're at right now.
And what we think the rest of the year could look like.
Okay.
I'm, sorry, John I would I would second that.
I think we're very optimistic on.
Improvements and I think part of it is.
You know customers and consumers are figuring out as best they can survive and manage and.
Entertain themselves in this environment. So I think part of what we all see is people figuring out whether it's the mask wearing or the shelves or whatever and people fighting for business, you see people gradually getting better and better and better at managing within that environment. So even as.
The virus doesn't respond quickly and I still think that people are going to continue to do that because I think theyre tired and stay at home and they're trying to figure out ways to do that and you know.
And you still got schools at the local and 50%.
Who are still studying from home, but that is better than it was a few weeks ago. So more kids are going to school, but still a number relative is still not even 50% and there really is that pent up demand for people to get out and.
And they are learning how to do that and we saw that even.
Down at Universal studios over the over the holidays, where they had to shut the doors down because they maxed out there people three or four different days during that time of the year.
So there is a pent up demand and people are learning how to do it and we think that will get better throughout the year.
Makes sense.
You mentioned, Dan earlier, some of the things you're doing to maybe reorient the portfolio and.
And take advantage of some opportunities.
Given the kind of the backdrop.
ICEE being one of them and finding new use occasions.
And for IC can you talk a little bit more about that specifically what youre doing there and then also more broadly.
Some of the new product activity that youre seeing and excited about there is the handheld product, which sounds like it's performing quite well as one example, but just talk a little bit about some of the repositioning youre doing and maybe some new product activity or white space that youre going after and channels like health care or other areas and you can see it might be.
Focused on it.
Yes, I'd be happy to do that.
So a.
A few different angles, there first I just want to reiterate how proud we are of the retail group that again had sales increase of 33% and.
And one of the really promise promising things about that is you've kind of recalibrate a little bit.
Our Super Pretzel brand increased 41% and a quarter in the retail side. So that was just good to see as well as our frozen juice and ices up 52%.
So we're doing some things within those areas that are growing to continue to see that growth.
Continue to grow I guess.
And then on the IC side when you ask about that so certainly we have concerns about how long does it take for the theater group to open back up we've had lots of conversations with them.
We believe that it will open back up but it's going to be slow and we believe there is a pent up demand just like Ryan, saying earlier that he went this weekend and I think there's people who want to get out there and see the movies. We just don't know how quickly that will happen and so we really have tried to shift and put our focus on new sales and new channels.
And one of the areas that we believe is a natural for IC that is in my opinion, a little bit underdeveloped is.
The whole fast casual on <unk> side and.
So our guys are out there knocking on doors, each and every day and we have some tests in place that we hope that will will come through we have a lot of really good things going on on that side, we're making sure that we're redeploying any equipment that we have trying to trying to keep our capital down there. So that we can use that capital.
The gain efficiencies on the J&J side and so those are just some of the things when you ask about how we are pivoting and those are some of the things that we're doing to pivot there. We've also on.
Our work and extra hardware you've seen our service on the IC side growth quarter after quarter for a long long time.
And much of that is just through word of mouth and reputation and so we're actively now going out and knocking on doors and trying to grow that business and we have a couple of really good things and the hopper there too so so.
So it'll be a long haul with that but we're going to get there.
Product activity as you mentioned.
Happy with some of the new things that we have going on we have that.
That growth with the handhelds that was.
$10 4 million or a 145% growth and the quarter.
See that continuing and in fact, that's exceeding our expectations. We have a couple of other products that are going to be coming out and a couple places we've seen.
Good.
Good activity around the ICEE brand and our frozen novelty piece, we had talked about that before where we now have the ICEE brand nationwide and so how can we leverage that we're able to now leverage that and the frozen novelties and we think that will continue to grow.
We've had some.
Some some good interest and our core brand like <unk> that we think might continue to have.
Boost throughout this year and so we're seeing some really good things John.
And I look forward to it and then you asked your final question was on the health side and our foodservice and J&J is heavily focused on debt I think we had mentioned that we.
Shifted from several brokers to one broker on the foodservice side of the J&J business and and a call that out within just two weeks ago kind of getting a recap that.
Area that we identified as a potential.
Growth.
And the J&J foodservice side and so we're working really hard on that helps Bob Pape, you're on the line do you want to touch on that for a minute.
Yes, I think really I mean, we've been working on.
Data that we're now receiving to be able to pinpoint where our biggest opportunities are and as a result, and the healthcare segment. For instance, we are now targeting and the places that we know through our new information net.
We have the highest.
Degree of success or volume that we can secure and.
We've already had products that are tailored to that business.
And also on health care.
Setting depending on what it is a hospital there are multiple opportunities within those hospitals.
Sell our products. So we feel very comfortable about our healthcare business grew by 10% last year, and we think that that can continue to grow.
Great that's terrific color. Thanks, both of you.
Last question.
I have is.
With the Covid impacting earnings over the last.
Year or so.
The dividend has gone flat after a long history of growth.
So im just wondering.
Do you think you're happy the board is the board is the board and management and the board at a point where.
They will feel comfortable raising the dividend again.
Will it be a year will it be sooner do you have any thoughts on the dividend and when we could see hikes again, yes.
Yes, John I think that's a fair question, we had lots of conversation about it.
And when we when we kept it at $57.05 and weighted.
And a lot of ways, we are proud to even keep it at that number as opposed to <unk>.
Lower and it and some ways there was discussion about whether we should continue to increase it and and I am sure that there'll be more discussion around that I don't know that we have.
Drawn and a line in the sand that that's where it's going to stay.
The potential for that to happen and increase yes.
Can I predict exactly what the board will will think on that no, but I do know there'll be lots of discussion around it and if thats. If we end up tick and that's the right thing for us to do as a company Thats, what we will do we're continuing to build cash and so thats certainly a weighted to use some of that.
But would it be would it be fair to say and I don't know Gary might have a thought on this too that as your business recovers from Covid.
Our earnings recover that your dividend policy, which has been to increase the dividend consistently year to year debt that policy is.
Still intact.
Yeah, I'll, let Gary comment on that nothing is certain of course, but.
First.
Started on dividends about 10, or 11 years ago and we.
Increased and every year for nine straight years, and I would use that as a benchmark for the future. We believe we're going to.
Recapturing the sales loss and we believe that in accordance with that our earnings will.
<unk> growth.
<unk>.
You guys are smart and you guys have been following us.
Well you know debt, we generally do well.
Wanted to do so I would put that in and your.
Sure.
And your models.
It's not a for certain but it's something that you can relax with.
Okay, and I kind of lied I have one more question if I could squeeze it in.
Okay.
I think there's been some inflation and kebab and certain input costs, maybe certain AG inputs maybe distribution.
Yeah.
What are you seeing and and how are you thinking about that and and is is.
Pricing going to be necessary if so.
Are you and are positioned to get pricing that kind of thing.
I'll touch on the pricing and then I'll, let Ken and touch on the commodity.
City pricing.
And regards to the pricing we are watching it really closely and what we can and can't do with their customers.
And of course, we're and this COVID-19 environment. So in some cases, you can take some price and some cases, it's really difficult it's never an easy thing.
<unk> taken some pricing on the IC side of our business and feel that we can do that we're evaluating it really closely on the J&J side and.
And we will continue to work on it and then again, we're watching commodity as closely we've put together a group to do that and and now you can't just reviewed that and Ken I'll, Let you just touch on that zone.
Yeah, I mean, I'm sure you're seeing the same thing.
John.
And to Dan's point.
And it's something you have to monitor very closely and really look at.
And I would say consistency.
And then back down so it's something we monitor overtime and.
And yes, there's areas where we're seeing.
And those increases were.
We're also trying to look forward out even the next quarter.
And depending on kind of the.
The trend and how that plays out.
We will have to step back and decide what's the right thing to do in terms of <unk>.
Passing that on.
But we've got teams and resources that that's what they do every day.
So I would just say, yes, there are some increases and we're monitoring it closely and I think and.
And we're gonna have to kind of make a call on it and based on what we think is going to be the more longer term trend and some of that.
Okay. Thanks, so much for all the time and we'll talk soon and good luck. Good luck guys. Thank you John Thanks, John.
Thank you. Our next question online comes from Todd Brooks. Please go ahead.
Good morning, John and good morning, everyone. Good morning, everybody great to talk to you I appreciate that and one of them. Likewise Todd This is Jerry.
And with.
And with CL King and associates.
Alright.
Closely and I wanted to congratulate you on not only.
And understanding our business, but developing some other storylines too.
Well Jerry I appreciate that thank you for that few questions. This morning, if I could.
One I was pleasantly surprised by the sequential improvement in the Foodservice segment and you did speak about.
Some of the foodservice and customers and what is traditionally a strong holiday period seeing a drop off in December as Covid.
And as Covid flared and I'm wondering if we could look at foodservice and talk about.
The growth or the sequential improvement that you saw day is this a sign that you're gaining.
Market share with your existing customers or is it more a function of what Bob was kind of highlighting as far as.
And as new verticals, new customer doors being opened or a combination of both I think its a good combination of both Todd and I.
I think we are seeing I know, we are seeing some good new customers come on and.
And you highlighted it was it was.
<unk> to see us at 13% as opposed to 20, 21% before.
And so we're.
And we're hopeful what that piece of the business that it's coming back maybe quicker than what might the IC side become a back because it's not as heavily related into the theater groups.
And so yes, we're seeing we're seeing an uptick and the business that we're doing business in and we're also gaining some ground and other areas.
And Dan just to follow up there, where you are seeing market share gains with existing customers.
Is there any function of survivor bias that youre seeing and your interest you or maybe smaller players or are falling by the wayside or couldnt keep the service levels and <unk>.
Hi is the traditionally seen and and you guys are swooping in and grabbing that share.
You know what I think thats.
Keeping up with the demand as the mix change is a challenge for everybody I do like to think that our company might be stronger on that and then others.
And we were fortunate and I was just going to highlight this one more time, we're fortunate enough that the business had been run so so carefully and the path that we have a strong balance sheet debt. We didn't have to cut so deep that we're not able to keep up with the demands that are out there and so I think that does play to our advantaged on.
Okay great.
Question I had is.
Since we've all.
Gotten together on an earnings call, we've obviously had the announcements and approvals to vaccines.
The pace that they are giving and arms, we can all debate that but.
Once you once you got some color on your customers got some color around the.
And the certainty of vaccines and the approval.
Was there any change and you.
Discussions with your customers as far as Okay. We don't know if this is going to be six months or eight months, but this is what we want you to be ready to do did you see a change and kind of customer behavior and their ability to look forward planning wise once the vaccines were released.
Yes, sure we did it and again.
Fortunate that.
And that we didn't have to cut so deep that we couldnt have these salespeople out in front of customers and they've been really good at doing that and getting in front of the customers and having strong conversation.
And sure as the as the vaccine and starts to get an ounce and people start to see some hope that gives everybody some encouragement.
Which is exactly why we're where we're at today.
Want to be careful that we don't.
Make steps that prevent us from being able to gain that market share that we are doing today and in the future.
And so.
Yeah, we're encouraged by it.
Okay, Great and then two questions on IC to wrap up my.
And my queries for the day, one if we can talk about the you called out the loss of a service customer.
And the quarter and that that was the majority of the.
The decline in revenues year over year on the repair and maintenance side is that a is it a.
Just a periodic loss where you lost.
Business for this one quarter or was this a customer where that loss will carrying forward now and we need to and we probably to account for the guidance.
Alright.
No I'm, sorry, I interrupted you, but I'll just repeat it I'll just go forward and how we probably didn't define that well and if it was really the loss of a preventative maintenance program with a customer.
So as we go through this COVID-19 time.
On our service side of the IC business. Some of our service is preventative maintenance contracts that we have and one of the ways that customers have saved.
Saved some.
Some costs. During this time is to cut back on that preventative maintenance now at some point I think that will pick back up and I also think that at some point.
They'll build potentially get more service work because of the.
The non.
Service business RPM being maintenance.
And Dan just to follow up there sorry go ahead, Ken I was just Todd just to add.
And the predominant impact of that was in the Florida region for this.
Customer.
Not nationwide, it's really in the Florida region, and they've made those decisions.
And not on a national impact.
And these.
These preventative maintenance contracts or are they annual contracts. So all of that impact hit here in the December quarter.
They are typically a quarterly preventative maintenance program right and.
One of our major customers have shifted to a biannual.
Preventative maintenance program.
And then.
We also add on.
We have some preventative maintenance that we do through the theater groups and.
And one of the larger theater groups are on.
<unk> shut down at this point.
Yes.
And then Paul Charron.
Yeah.
And if we're providing service to our customer on a non contractual basis, they're going to pay and allergy rates plus the time basically when we enter into a service agreement.
It has to meet their needs and that they can project with their cash flows and whatnot.
Okay, Great and then the final question on how you see and thanks for letting me get foreign and here.
And you've been obviously COVID-19 impacted and that business and.
And running it and a tough volume environment I guess.
And efficiencies or.
Ways to run the business, where as you think about.
And what it takes from a revenue base to rebound back to kind of breakeven is it still on that kind of mid $60 million range or what are you thinking for breakeven and.
Frozen beverage business.
And I don't know if we haven't defined quite like that I will tell you, we're continuing to find efficiencies and <unk>.
And <unk>.
Create reductions wherever we can and that piece of business, we're heavily focused on it.
And Ken and I sat down with that group last week, and and went through the numbers with a fine tooth comb and we're going to continue to do that we are operational people I will just say that I'm really proud of our operational people because they're working hard at.
At reducing every spot that they can and I think theyre doing a nice job with it its hard to keep up with the sales decline on that side and so we're we're continuing to.
And to watch that very very closely I don't know if we've defined the exact dollar amount, though and switches to breakeven and.
And.
And when we do I hope that I can lower right. So yes.
And we really look at that from a P&L standpoint.
Across the business.
I mean, it's not just us.
IC isolated thing I mean, we've got to look at the way our business model is structured.
How do we kind of leverage expenses and manage those.
And efficient level.
Cross the board and I would just go back to the point I made Wow.
We're continuing to kind of dig into everything we can we did bring expenses down just under $7 million.
And that included an incremental 730000 of Covid expenses. So.
Yeah, the team responded and.
And as long as sales stay where they're at we got to continue to work that muscle, but I'm actually quite proud of.
Some of the responses lasting.
Okay, great. Thank you all on and I look forward to getting to the back side of this pandemic.
As we do as do we Todd Thank you.
And thank you our last question on line comes from Robert Castello. Please go ahead. Your line is open.
Hello.
And you already have you been good good.
I have a couple of questions on the manufacturing facilities.
Your one of your Big C store customers as building down in Florida are we any closer to service and then with on the bakery side.
We are not we're servicing and I'm up here in the northeast for all their bakery and needs plus <unk> plus frozen beverages, we're on.
Constant communication with the group and that.
Yeah.
East region in there and we're looking forward to thank you and can.
And those discussions and basically what do we do we can we grow our sales relative to the products. So we expect that area to fall and lines and things.
A couple of years right on the number of facilities you'd talked about rationalizing your cost and you got 18 warehouse and your annual report and 177 on the frozen foods frozen beverage side.
Going forward is that number expected to go down as you do this.
<unk> or you think it's going to stay pretty much the same.
I think it's pretty much the same as it is today Bob.
And we shut down a plant and the Chicago area earlier in 2020.
And.
We've consolidated much of that into the plants that we're making today. So we're still making the same product that we were making before but and the plants that we have now.
I would not see that.
Changing much in the near future.
Alright.
Other question on your retail customers is there any.
Closures there any that you can highlight or are you just not name, but in general with the driving to work today and one pizza chain announced bankruptcy.
Is there anything out there that we have to be aware of with regards to the customers' financial situation.
And that nothing other than what you would be aware of already we feel pretty comfortable with the customers and and who we've talked to and if there was one channel that we have our biggest concerned about that would be the theaters and you're probably reading the same thing I am AMC you got some additional funding and.
And I know their CEO was announcing last night that they believe that they are good through 2021, and so that would have been our biggest concern.
And it feels like Thats cleaning up.
Alright, and last question on the bakery side I saw the pricing went up like on the doughnuts about 11% and 10%.
And the last three to six months.
Is that something you feel comfortable going forward with higher commodity costs, you still have flexibility if the costs go up.
Yes.
And as Jerry, saying and I agree with debt.
It's typically the retailer who makes that decision not us.
And so I can't really speak for them, we've talked to commodities earlier, and we're watching that really closely.
And we'll continue to do that but but what you are referring to there was not our decision that was the retailers' alright. Thanks again.
Thank you.
And we have no further questions at this time.
Thank you very much Richard and thank you everybody for joining our call today, we really appreciate your interest and our company and and.
And look forward to getting back together with you and another three months.
Take care everybody.
And thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.