Q3 2021 J & J Snack Foods Corp Earnings Call

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Welcome to the J&J snack foods third quarter earnings call. My name is Danielle I'll be your operator for today's call. At this time all participants are in a listen only mode. Later we.

We will conduct a question and answer session. During the question and answer session. Do we have a question. Please press Star then 1 on your Touchtone phone. Please note that this conference is being recorded I will now turn the call over to Dan Fashioner you may begin.

Good morning, Dan Fastener and welcome to our third quarter earnings call.

We are delighted to have you listening in with US let me start with our obligatory comments. The forward looking statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected in the forward looking statements.

Are cautioned not to place undue reliance on these forward.

Statements, which reflect management's analysis only as of the date hereof, and we undertake no obligation to publicly revise or update these forward looking statements to reflect events or circumstances that arise after the date hereof.

Again I'd like to welcome you and thank you for your interest in J&J snack foods.

Bookings were thrilled to take you to talk today about our Q3 performance wed like to begin by thanking our employees across the business for helping deliver a strong strong quarter. Our business performance is really starting to benefit from an economy that is moving much closer to pre COVID-19 activities.

The strength.

Our product and brand portfolio enables us to quickly leverage consumer traffic across multiple foodservice and retail customers.

Consumers are embracing the opportunities they missed over this past year, whether that is enjoying a super pretzel at the game are simply an idea at the beach with their family.

Financially, we continue to strengthen our balance sheet and invest in our growing business.

I remain extremely confident in our business and future growth opportunities. So joining me today are Ken Plunk, Senior Vice President and CFO.

Mercury Ross cough, Vice President and General Counsel.

Bob Pape Senior Vice President of sales, Bob Kramer, Vice President operations, and James Hamill, Vice President corporate controller.

Take a few minutes to review our exciting results.

Results of operations.

Net sales were $324.3.

And for the quarter, an increase of 51%.

Our business improved across all 3 segments led by our core soft pretzels, churros, ICEE and frozen novelty product categories.

Our foodservice and retail segments return to pre Covid sales volume.

Beating fiscal 2019 sales by 1% and 30% respectively.

Frozen beverage sales improved significantly beating.

Beating prior year same quarter by 83%.

Operating income was $38.1 million for the quarter, an increase of 50 <unk>.

<unk> million dollars 6 million when compared to last year.

Improved sales volume favorable product mix and a strong focus on cost efficiencies helped drive improved gross margins and profitability when compared to last quarter.

Now I'd like to review the results of each of our business segments.

Even pointless, just an outstanding quarter for them.

Sales to food service customers increased 68% for the quarter and exceeded the pre Covid 2019, Q3 sales by 1%.

Traffic in our key customer venues returned to pre COVID-19 levels as anxious consumers.

<unk> activities they had missed over this past year.

Sales accelerated through our key channels led by schools amusement recreation.

Restaurants C stores and theaters consumers are also spending more and many of these venues driving improved average ticket sales.

Soft pretzel.

And <unk> increased to 138% and frozen juices and ices increased 60%.

<unk> sales and bakery products increased to 174% and 24% respectively or.

Our handheld business had a strong sales quarter exceeding last year by $11.5 million.

Or 155% and was driven by our new product developed for 1 of our wholesale club customers.

Operating income in our foodservice segment increased $35.9 million in the quarter driven by higher sales volume product mix.

And cost of goods efficiencies.

Gross margin rate improved 380 basis points over the last quarter.

Retail supermarkets continue the strong showing.

Our retail supermarket business remains strong even as consumers enter back out into the foodservice venues.

While our sales for the quarter were.

Percent below last year. This was against a 38% growth in last year's third quarter also sales for the quarter were 30% better than the same quarter of 2019, which is probably a better comparison of true performance.

Our frozen novelty business continues to perform well growing at 11.

<unk> <unk> over last year.

Soft pretzels decreased 12% biscuits, 44% and handhelds, 63% in the quarter as retail traffic decline compared to 2020.

Operating income, however, increased $1.2 million or 15% in the quarter driven by improved.

<unk> per <unk> and operating expense management.

Operating income margins were 16, 9% over 300 basis points better than last year.

Frozen beverages, we're seeing some great momentum here.

Sales for the frozen beverages business segment increased 83% this quarter compared.

Gross <unk> year.

Beverage related sales increased 157%.

Driven primarily by increase in traffic and gallons.

This was led by our amusement channel that experienced sales above pre COVID-19.2019 levels and a continued traffic increase in our mass merchandisers.

Our day, <unk> and theater channels there.

The theater channel continue to improve this quarter, but still lags 2019 sales by over 50%. This.

This is a big improvement from our prior Q2 with expectations that this will continue as consumers return to the movies.

Service revenue increased.

<unk>, 32% as customers accelerated equipment maintenance in the quarter to support the post Covid recovery.

Machine revenue also increased 32% as customers started to invest more heavily in growth and replacement opportunities.

Our frozen beverage segment realized an operating profit for the quarter.

Of 11.4 million led by strong sales increases gross margin improvement and operating efficiencies operating margins improved to 15, 4% in the quarter.

Consolidated.

Gross profit as a percentage of sales was 29.

7% this quarter.

Most of 600 basis points improvement compared to our second quarter.

Gross profit performance was driven by improved sales volume and a higher margin product categories. The overall efficiency benefit of higher sales and continued focus on managing costs.

9 point total operating expense as a percentage of sales was 17, 9% in the quarter, leveraging 850 basis points when compared to last year's 26, 4%.

As sales volume accelerates the business is doing a great job managing marketing and SG&A expenses.

<unk>, even below pre COVID-19 spending.

Net earnings for the quarter were $28.9 million, that's up $41.5 million when compared to last year.

Capital spending and cash flow.

Our cash and investment securities balance was $305 million.

As at June 26, 2021, an increase of $27 million from September as year end led by our strong earnings growth.

Our balance sheet remains strong and we are well positioned to drive growth for our shareholders.

We continue to look for acquisition opportunities and remain.

As we focused on our long term growth opportunity for our business.

We spent $34.5 million in capital expenditures through the 9 months ended June 26.2021 as.

As we continue to invest in plant efficiencies and growing our business.

We estimate our spending from the year to be about consistent with prior years.

A cash dividend of <unk> 63, a share was declared by our board of directors and paid on July 12.2021.

Net cash dividend represents an increase of 10% from the previous quarterly dividend rate of 57.5 cents per share.

We did not buy back any shares.

Remained stock during this quarter.

Our investment income this year.

Was <unk> 5 million.

$8 million less than prior year's second quarter as market stabilized and more money was held in cash reserves.

I want to thank you for your continued interest in J&J snack snack foods and I'm excited to deliver these.

These great numbers to year to day I will now open up the meeting for any questions. Thank you.

Thank you we will now begin the question and answer session.

A question. Please press Star then 1 on your Touchtone phone.

I wish to be removed from the queue. Please press the pound sign are the hash key.

If youre using a speakerphone.

You may need to pick up the handset first before pressing the numbers. Once again, if you have a question. Please press Star then 1 on your Touchtone phone.

And we have a question from Ryan Bell. Please go ahead.

Hey, Brian.

Hey, congrats on a good quarter.

So the question around the frozen beverage business would.

Could you provide a bit of color about how much of the base has reopened.

We appreciate that the business is that it seems more consistent structural pressures on.

Some of your other business units.

Amusement channel seem to be doing well.

Well the.

The commentary was that traffic was up and mass merchandise USR in theater.

At this point is the primary detractor to getting back to normalized levels, just the theater channel.

You know Ryan it really is most of all the other channels have come back to normal levels for us.

The biggest piece that we are waiting on is the theater business remember the theater business for FCB or for the IC business is about 25%.

And so we are waiting on that coming back, but we feel really strong about all the all the rest of the business and we've had some great.

It's a business that we've added if you remember a couple.

Quarters ago, we talked about some diversification and we've been able to see some of that diversity diversification into accounts come through.

I think we mentioned that we're we're rolling out a program within crystals hamburgers in the South and we're rolling out a program.

Great New Golden Corral.

Restaurants, and seeing some really great.

Potential new businesses in the pipeline. So we feel really good about it as the theater business is starting to return.

That's helpful and then for foodservice it actually grew relative to 2019 level.

At.

What's the primary driver of bad debt in Houston, as well restaurants, if you could provide a little bit more context.

Yeah again, the amusement park channel is really strong.

In addition to that and maybe it picked up to this in my comments earlier.

Level.

The per ticket price is up in a lot of these locations too. So so we're we're selling that theatres that particular prices up where we're selling and amusement parks are particularly prices up and even in the ballparks as they come back we're seeing that average per ticket price up.

And a lot of new.

Earlier.

Well in that foodservice channel.

Great. Thank you.

And then.

If you can comment on what Youre seeing in terms of input cost inflation and how you can balance that over the coming months again.

Huge increases in efficiencies that youre seeing is more of the volumes.

Come back online for the foodservice.

As in beverage business.

Well, we're working really hard at that certainly.

Like everybody, we we've taken on some increases from commodities and things like that but we've also been busy out there passing on some price increases that we're hoping.

<unk> will offset much of that in the fourth quarter.

So we're working really hard at that at the same time, we have some great.

<unk> improvement initiatives going on within the plants that.

We're also hoping will help offset most of that.

Great. Thanks, that's it from me.

Thank you.

As a reminder, if you have a question. Please press Star then 1 on your touch Touchtone phone. Our next question comes from Robert Costello. Please go ahead.

Hello.

On the production.

Close to plan I guess about a year ago and you have a pickup in demand. So how are you balancing the 2.

Ian fluid that you the in the quarter I saw that the inventories went down by $6 million.

So are you with this pickup in business are you having to increase production beyond your expected sales growth just to make up for this pickup.

Yeah.

Yes, there is a lot into that question.

And then Robert and good morning, good talking with you.

Did close down that plant in Chicago and are making most of those products internally now in a different plant.

And you're right like a lot of manufacturers out there today, we're challenged with.

With the labor industry.

And the way that it is in being able to keep up with the heavy demand but to date, we've been able to do that and so we're continuing to shuffle the.

The different products to different plants to be able to best produce the way that we can and keep up with the heavy demand out there.

Now is it help it is.

You know a lot of manufacturers.

<unk>.

How do you think you've been able to see.

Standout from the problems that the other manufacturers have been mentioning repeatedly.

Is it because of your flexible work force that you're not all full time.

Can you give us some idea of what's what's helped you here.

It had been.

I don't know if I have the magic bullet there to give you except that we have a great management team in place who is watch that really closely.

Done a pretty good job with forecasting and working with our plant managers to to do the best that we can to keep up with the heavy demand.

And.

Like a lot of other manufacturers that labor shortage as I mentioned earlier has been 1 of those things that we've had to deal with them and so we've had to pass on some salary increases out there to keep up with the Labor force.

But we meet on that weekly and try to stay ahead of it the best we can and I guess.

If I was going to give it a magic bullet I think there's some just really good managers in place who are watching that closely for US right..1 last question on the <unk>.

You're big in the.

Donut manufacturing here in the mid Atlantic your big customers down in there, they're larger store base now in Florida than they do in Pennsylvania when.

So there.

Is there any any possibility in the near term of building a plant down there or is it still a couple of years away.

Well, it's something that we talk about often and we talk about it with that important customer.

And it's something that we've considered but I would I wouldn't expect it to happen in the <unk>.

Real short term.

Thanks.

Yeah.

And once again, if you have a question. Please press Star then 1 on your Touchtone phone.

Yeah.

And we have no further questions at this time.

Well I want to thank everybody for listening and we appreciate your interest in J&J snack foods, and we look forward to getting back together with you at our next earnings call you'll have a wonderful day. Thank you very much bye bye. Thank.

Thank you ladies and gentlemen.

This concludes today's conference. Thank you for participating you may now disconnect.

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