Q1 2023 J & J Snack Foods Corp Earnings Call
Speaker 3: Good day, ladies and gentlemen, and thank you for standing by. Welcome to the J&J Snack Foods Fiscal 2023 First Quarter Conference Call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question-and-answer session.
Speaker 4: To ask a question during the conference, you will need to press star 1 1 on your telephone keypad.
Speaker 5: At this time, I would like to turn the conference over to Mr. Norberto Aja, investor relations. Please begin.
Speaker 6: Thank you operator and good morning everyone. Thank you for joining the J&J Snack Foods fiscal 2023 first quarter conference call. We'll start in just a minute with management's comments and your questions, but before doing so let me take a minute to read the state barber language.
Speaker 7: This call will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements made on this call that do not relate to the matters of historical fact should be considered forward-looking statements, including statements regarding management's plans, strategies, goals, and objectives.
Speaker 8: in our anticipated financial performance, industry-wide supply constraints, and the expected impact of COVID-19 on our business.
Speaker 9: These statements are neither promises nor guarantees that involve known and unknown risks, uncertainties, and other important factors that may cause results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the four looking statements.
Speaker 10: Facts are discussed in our annual report in Form 10-K for the year-ended September 24, 2022, and other filings with Securities and Exchange Commission.
Speaker 11: Could cause actual results to defer materially from those indicated by the four looking statements made on this call today. Any such four looking statements represent management's estimates as of the date of this call January 31, 2023.
Speaker 12: While we may elect to update the board-looking statements at some point in the future, we disclaim any obligation to do so, even if subsequent events cause reviews to change.
Speaker 13: In addition, we may also reference certain non-GAAP metrics on the call today, including adjusted EBITDA, operating income, or earnings per share, all of which are reconciled to the nearest GAAP metric in the company's earnings press release, which can be found in the investor relations section of our website.
Speaker 14: Joining me on the call today is Dan Sashner, Archive Executive Officer, as well as Ken Flunk, Archive Financial Officer.
Speaker 15: Following management, prepare for March. We will go ahead and open the call for a question and answer session.
Speaker 16: With that, I would now like to turn the call over to Mr. Dan Pashner, J&J Snack Foods Chief Executive Officer. Please go ahead, Dan.
Speaker 17: Thank you, Roberto, and good morning, everyone. We appreciate you joining us this morning to discuss our fiscal 2023 fiscal quarter results.
Speaker 18: We are pleased to report the seventh consecutive quarter of double-digit top-line growth and remain confident in our plans to continue growing sales.
Speaker 19: We are investing in our brands, accelerating the cross-selling strategy with our customers and across our channels, expanding our production capacity, and building a strong pipeline of product innovation.
Speaker 20: We have hit the ground running with our Dippin' Dots business.
Speaker 21: having already gained placement at Regal Theaters, the second largest movie theater chain in the United States.
Speaker 22: In fact, we increased unit sales in our Dippin' Dots business over 14% in the first quarter.
Speaker 23: Also, we recently launched Olaturo brand and are seeing strong momentum, including over 30% sales growth in the first quarter.
Speaker 24: This positions us well to grow our chiro business, including the introduction of new products and entry into new channels.
Speaker 25: These are just a couple of examples of the opportunities ahead of us.
Speaker 26: In the first quarter, our industry experienced some softness in spending and traffic across retail, restaurants, and food service as consumers adapt to the changing economy. Also, the historic winter storm that hit most of the country during two key selling weeks in 2019.
Speaker 27: Prior to Christmas, did in fact volume sales, especially in theaters and outdoor venues.
Speaker 28: Despite these challenges, many of our strategic categories, including I.C., Diffendots, and Ola Churros grew volume during the quarter.
Speaker 29: As it relates to our income performance.
Speaker 30: ongoing inflationary pressures, and the softening
Speaker 31: consumer environment impacted our year-over-year bottom line results.
Speaker 32: Our recent pricing actions help deliver improved gross margins of approximately 100 basis points above Q1 last year. And we are confident that this will continue throughout the year.
However, we continue to manage cost pressures on the expense side when compared to prior most noticeably our distribution expense.
We expect to see improvement in distribution expenses as we cycle through these high inflationary periods later in the year.
in distribution expenses as we cycle through these high inflationary periods later in the year.
Also, Dippin' Dots is a seasonal business, and as expected, it negatively impacted our results in the first quarter. This business will drive most of its profitability in the second half of the year. Ken will provide some more insights to our financial performance in just a few moments.
Switching to our three business segments, starting with food service.
Q1 revenue was up 13 percent, even as we managed through the challenging winter weather events in December .
This combined with a weaker slate of movie releases had some impact on our sales.
Soft pretzel sales increased 4% this quarter.
We see expanded growth opportunity throughout the year as we introduce Pimento Knots and Pretzel Bytes focused on the entertainment, theater, QSR, and convenience channels.
We also saw continued strong momentum in our chiro business with sales increasing 32% as we introduced our new Ola Chiro brand of food service.
The sales team expanded placement of churros with major distributors, large regional QSRs, and fast casual restaurants.
We are confident that there are still significant growth opportunities across QSR, fast casual, convenience channels, and with major distributors, including a significant opportunity with a major QSR burger chain going into test in the first half of 2023.
OLOT heroes will have a full selling and marketing support plan throughout the year.
Frozen novelties was relatively flat in Q1 excluding sales from different dots.
The first quarter is a slow seasonal period for this category and was further impacted by the challenging weather conditions.
We have strong incremental sales plans in place starting in the second quarter and remain very confident in growing this category throughout the year in theme parks, healthcare, and convenience channels.
We have also added two new production lines to support these growth opportunities.
Transitioning to our bakery business.
Sales increased 1%, driven by strong growth of handhelds and cookies with a major club customer, and we expanded business with a strategic convenience store customer as well.
Looking forward, we see additional growth opportunities for our icy cookies and our frozen cookie dough.
Our strategy to improve margins in the bakery business is working as we shift mix to more profitable products and customers and rationalize less productive items in our portfolio. Very pleased with our bakery group.
Lastly, we continue to forecast added gains in key items such as handhelds and funnel fries.
Moving to our retail segment.
Sales increased 1% for the quarter as the industry started to experience softness and macroeconomic spending for consumables.
In our salt pretzel segment, we saw continued strength in our flagship super pretzel brand driven by distribution gains in organic growth. However, overall pretzel sales declined 11% in the quarter, primarily in licensed and private brand products.
As we executed planned SKU rationalization of lower margin items.
At the year progresses, our strong focus on SuperPretzel brand, including new SuperPretzel pretzel bite flavors.
Launch of Super Pretzel Knots and Super Pretzel Bavarian Pretzel Sticks is expected to lead a full year revenue growth in the Soft Pretzel category.
In Frozen Novelties, we saw a 1% sales increase for the quarter. As we enter the second quarter, we are planning for incremental growth in this category, including the launch of Icy and Slush Puppy Pops.
Whole fruit and the Weedee distribution games and further expansion of our dogsters brand in grocery.
We are also confident with our plans to bring Ola Turo to retail later this year. We added capacity. This will be a big growth opportunity for this category.
Regarding our third segment, frozen beverages, Q1 revenue was up 9%.
driven by a 15% increase in beverage sales and an 8% increase in service sales.
This was partially offset by 11% decline in equipment revenue due to the timing of customer installations between years. However, we are excited to communicate that we have secured a contract with Checkers to buy approximately 800 machines, and these will be installed over the second half of the year.
This business also includes a service contract as well.
IC branded tests continue with large QSR customers and we are in the process of rolling out IC across most stores nationwide.
In regard to Dippin'Dots business, our pipeline is strong.
Not only has it performed very well thus far, including a 14% increase in unit sales in the first quarter, but it holds significant potential for added growth.
both in food service where it's predominantly today, as well as in expanding into the retail sector.
As an example, we recently signed a deal with Regal Theaters, which as some of you know is the second largest theater chain in the United States with over 540 locations.
The initial placement will cover over 230 locations, with the rest to come thereafter.
The initial sales results are really encouraging.
We also recently introduced IC Cherry and Blueraz Dip and Dot flavors, a new product launch with promising Q1 sales, which demonstrates our ability to leverage our strong brand portfolio across business channels.
I would now like to spend a few moments reviewing our strategic priorities as we remain focused on transforming the business.
We have taken aggressive measures to offset the challenges facing us as we operate under this historic backdrop of inflationary pressures and to position the company for long-term success.
We are aggressively focused on improving operational efficiencies through initiatives like implementing a new ERP system.
adding seven new, more automated production lines.
Outsourcing our shipping logistics.
and building a more geographically optimized distribution network.
In addition, we have now fully implemented various price increases across our portfolio, which will continue to drive improved gross margins.
Let me start with our supply chain strategy priorities.
We communicated last quarter that our logistics and distribution management responsibility have now been fully outsourced to NFI, a recognized expert in the industry.
They are now managing 100% of our business and we expect to generate approximately 4 million annualized benefits as we improve management of carriers, improve truckload efficiencies. We expect to generate approximately 4 million annualized benefits as we improve management
minimize miles through better network
We are further investing in our supply chain process through the build-out of three geographically located distribution centers across the country.
These RDCs will enable better location of inventory and simplify our warehouse network moving from managing over 30 plants to 3PL locations to approximately 6.
Two of these new RDCs will have a box in a box where we'll be able to store dipendods products adding capacity for growing this business and getting product closer to the customer.
Our first RDC will open up in June at a facility just outside of Dallas, and the second RDC should open up later in the fiscal year. The third RDC is still in development and expected to be opened in fiscal 2024.
On the operations side,
We have committed investments to add seven new production lines that will add capacity and drive efficiency through better automation.
To date, we have opened two new Frozen novelty lines and one additional churro line.
Over the next six months, we will activate three additional lines focused on expanded pretzel production.
As it relates to M&A.
We are currently working on integrating Dippin'Dots into the J&J systems, processes, customer channels, and operations.
At the same time, we continue to evaluate potential M&A opportunities that complement our brand portfolio and our business model.
In summary, we will remain focused on building this business for the long-term growth.
strategically we are transforming the business, investing in our brands and capacity to grow while implementing initiatives to help us operate more efficiently.
Our leadership team is aligned and the organization is excited about the opportunities ahead of us to continue building on the great history of J&J snack foods.
I would now like to turn the call over to Ken Plunk, CFO , to review our financial performance. Ken? Ken Plunk, CFO , to review our financial performance.
Thank you, Dan, and good morning, everyone. Dan mentioned earlier, we continue to experience double-digit sales flow across our business. We remain optimistic about the balance of the year given that the median issue is we have underway and they're expected impact on our business from top line to the bottom line. Next, sales for the quarter for 351.3 million going by 10.3% versus the prior year period.
Starting with food service. Our largest segment representing approximately 68% of our total sales.
Revenue of $238.3 million exceeded Q1 2022 by $26.6 million, or an increase of 13%. That included approximately $13.4 million in dip and dot sales.
The Healthy Performance in Food Services.
was driven by a 157% increase in frozen nobody cells.
benefiting from our dip and up business as well.
32% increase in churro cells.
and 27% increase in handheld cells.
We also saw growth in soft pretzels in our bakery business of 4% and 1% respectively.
The retail segment posted sales of $43.1 billion are an increase of 1%.
compared to the same period in fiscal 2022.
Handhelds continued their strong performance with a 127% increase in sales, while frozen technologies increased 1%.
So, pretzels and biscuits decreased 11% and 4%, respectively, versus the prior year.
Frozen beverages cells were 70 million and grew 9% versus Q1 2022, led by beverage cells growth of 15%, as well as repairs and maintenance service revenue growth of 8%.
Equipment sales declined 11%.
due to the timing and installation between years.
Gross profit for the quarter was $90.9 million, or an increase of over 14% compared to the previous year period.
Gross margin was 25.9% in the quarter, favorably comparing to 24.9% in Q1 of fiscal 2022.
Moving down the income statement, total operating expenses increased to 81.5 million representing 23.2 percent sales.
for the quarter compared to 20.3% in Q1 of 2022.
These results largely reflect the persistent inflationary pressures across all our expense lines, in particular distribution expenses.
Distribution expenses were 12% of sales compared to 10.5% in fiscal 2022, but did improve compared to Q3 and Q4 of 2022 when they were 12.7% and 12.4% respectively.
The 150 basis points higher distribution costs as a percent of sales.
contributed approximately $5 million additional expense for the quarter on an equivalent basis.
when compared to a year ago.
Marketing and selling expenses represented 6.7% of sales versus 6.6% in prior year period, while administrative expenses were 4.7% of sales in Q1 2023 compared to 3.3% in Q1 of 2022.
Also, Dippin' Dots is a seasonal business and as expected, negatively impacts our results in the first quarter.
This business will drive most of its profitability in the second half of the year. It's higher sales, better leverage expenses in those quarters.
This led to an operating income of $9.3 million compared to $14.8 million in Q1 2022, or a year-over-year decline of 37%.
Adjusted operating income was $11.2 million and adjusted earnings per diluted share was 42 cents.
After considering income tax of $2.3 million compared to $4 million in Q1 of fiscal 2022, net earnings decreased to $6.6 million resulting in reported diluting earnings per share of $0.34.
That compares to 58 cents in the prior period.
Adjusted EBITDA decreased 8% to 25.3 million.
Our effective tax rate was 26% for the first quarter.
Taking a look at our liquidity position, even with the Dippin' Dots acquisition, we continue to have a healthy balance sheet, an overall strong liquidity position, with $61.2 million in cash and marketable securities, and approximately $92 million in debt.
In addition, we have ample availability under our revolver with approximately 123 million of additional borrowing capacity.
In summary, we are excited about the opportunities ahead and remain confident that our portfolio, brands, investments in our business, and strategic initiatives will continue to fuel growth.
Our efforts to gain added efficiency and effectiveness has placed J&J in a position of added strength and improved our ability to leverage opportunities ahead of us.
With 55 million cash and ample available liquidity, we have the means to adequately support the invest in the growth drivers of the business.
I would now like to open the call to questions. Operator.
Ladies and gentlemen, if you have a question or comment at this time, please press star 1 1 on your telephone keypad.
Again, if you have a question, please press star 1 1 on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, you may press star 1 1 again.
Please stand by while we compile the Q&A roster.
Our first question or comment comes from the line of Andrew Wolf from CL King. Mr. Wolf, your line is open.
Hi, thank you. Good morning. I want to start off with, you know, morning, gentlemen, on the kind of your volume results and maybe what you saw with consumer behavior, elasticity and demand.
You know, I think, you know, CMBike you are kind of outperforming most on the elasticity in particular.
And then this quarter you reference the industry slowing and seems like, you know, to some extent perhaps the business itself kind of caught up to the industry and experienced some negative consumer behavior. Could you just kind of give us a qualitative sense of that or in a quantitative sense to like
where your volumes are maybe adjusted for the skew rationalization as well so you don't get penalized by that. That'd be great.
Right, I'll talk to some of that Andrew. Thanks for your question. Yeah, it's much like what you said, you know when we when we entered our last quarter our volumes were strong And even as we entered into this quarter they were strong and then as the quarter went on they trailed off And so we're watching that really closely I
I tend to personally think, and we do as a company, that we were affected pretty greatly in the December month and mainly as we got into the, you know, really two or three weeks of cold weather. We never like to blame anything on weather and I won't allow our people to do that, but it does have an effect. w scr
especially as you're in the holiday shopping season. And we experienced that as we got late into the quarter. And so now we're watching it really closely as we move into a new quarter and are gonna be mindful and watching it with a close eye to see what happens from there on out. I don't personally think that we have hit the...
issue of elasticity. I think the pricing that we took was well within line of what others in our categories might have taken and maybe even slightly below that. So, I don't think that that's the issue. I really believe that we hit into a period of time where...
you know, there's threats of a recession and you got cold weather and people are now shopping as much as they might have done under different conditions.
Thanks, very helpful. And Ken, I alluded to the skew rationalization where you got out of some unproductive skews. I think it's off pretzels. Is that a pretty significant number worth calling out or just a rounding error?
I wouldn't call it significant Andrew, you know, in certain categories. You know, it had a bigger impact than others. Again, was some of the trail off of...
volume and other places that we didn't expect because of some of the things Dan said, you know, it kind of magnified that a little bit more but it's not the key driver. I think as we try to comment, we really were taking that corner to sharpen the pencil a bit, you know, there's places in.
So anyway, the answer to your question is...
Yeah, it had an impact on a couple of categories, but I wouldn't call it significant on the quarter in total.
Got it. And just one other question.
really on capital allocation.
First of all, you reported a pretty big increase in
reported a pretty big increase in
cash capital expenditures kind of seems to comport with you know your pretty aggressive plans for seven new lines but can you kind of express to us what your capital budget is for the year and how you you know what you think you might be spending to invest in back in the business.
The other side is the M&A that you alluded to. I guess my question here is more balanced sheet related. How much debt leverage is the board and the executive committee willing to take on to execute a deal? Thank you.
Yeah, I mean, appreciate the question Andrew. You know, again, we felt really good about where we're at in terms of the ability to continue investing the business, but to your point as it relates to changes in debt. Yeah, you saw on the balance sheet. Yeah, I think.
almost double capital spend for the quarter versus a year ago. We've been very clear that we're investing close to a hundred million dollars in seven new lines and in these new RDCs, so obviously that's going to drive.
increases in capex versus two, three years ago.
You know, you'll see that I think the number was just south of 90 million that we spent in fiscal 2022, CAPEX.
As we continue to execute these investments that we're making, you know, the 2023 number is going to be probably in that range, I would say 90 to...
105 million somewhere in there and it's really all focused on
completing the execution of those keys.
you know, production lines and RDC investments that we're making.
In terms of leverage with the board, you know, I wouldn't say there was an exact
number that we've kind of landed on with the board of what we're willing to do. We're evolving as a company. We move from really no debt to start and see that we can leverage our balance to health to go and grow this business and invest. And I think the board is
supportive of that, but I can't say that there's a specific leverage number that we've kind of got in mind at this point.
Okay, thank you all. Pass it on.
Thank you.
Thank you. Our next question or comment comes from the line of Todd Brooks from Benchmark Company. Mr. Brooks, your line is now open.
Word of God.
Thank you.
A few quick questions for you.
First of all, on
Dipping dots.
Obviously with the seasonality of the business, is there a way that you can size for us so that we can gauge kind of the operating income trend outside of the different dots impact what the
What the drag on operating income was in the first quarter from given notes.
Yeah. Hey, Todd, this is Ken. I think in last quarter's we had
kind of tried to guide the group that, you know, almost all, you could even call it 100% of the
Probability of Dippin' Dots is in Q3 and Q4.
Again, no surprise given the seasonality of that business.
Q1 is the slowest and it has a
negative impact, you know, I think you'll see this spelled out in the 10-2, just south of a million dollars, negative impact in this quarter from Dippin' Dots. and that...
Diffin does actually have a great quarter and performed above expectations, but that's...
the weight of fixed expenses and high SG&A based on a low sales base.
CREF, the D-Leveraging and Q1 that was certainly expected in our side.
But that gives you a little bit of a round idea of kind of what that impact was in this quarter.
Thanks, Ken. Is that the right type of number to use for the March quarter as well as we're going into the June and September ramp?
Slightly better than that time. I would probably.
kind of guide you that you know it should be positive but less than a million dollars positive.
Okay, that's helpful. Thank you. Secondly, just wanted to get back to a little follow up on Andy's question about volumes. I was wondering two things. One, did you see any and this would be outside of the consumer, did you see de stocking of inventories from your retail or obviously you got the clubs and various gaining Septemberapping
and mass in the food service business. Were those customers working down inventories at all at the end of the year? Is that part of why the volume may have dipped later in the quarter?
Yeah, Todd, that's a good question and a good observation and we absolutely believe that. We did feel that a little bit as what I discussed with our own business. I think many of the retailers out there found themselves in the same situation.
and our smart retailers and started to drive inventories down. And so yes, I think that was a portion of what came into play in that December month.
I was just going to add, there's data out there, and there's a lot of data. I'm sure you guys are reading the same thing, but I did read one that said spending at grocery stores was slightly down. So I think you're starting to see people be a bit more frugal on the back.
hiring grocery stores.
So I think there's something in there where...
Some of that on the retail side is impacting
you know, buying of our products and then to your first question, does start to kind of
drive different decisions on inventory. You know, we've got too much for now. They push back on us. We slow down production and all that. As you're trying to calibrate it, you know, can create a little bit of inefficially.
Okay, and this is just, I was wondering if this was part of the volume compare as well. Obviously you had the ERP conversion in the March quarter of fiscal 22. Did any of any customers kind of preload?
inventory in advance of the conversion that would have benefited the December quarter last year but made for a tougher volume compared this year.
No, I thought that's a great question, but that really did not happen. Maybe in 2020, hindsight at this point, we might have encouraged that last year, but I can't say that that's what happened.
Okay, great. And the final question I'll pass it along. The Strength and Churros.
Was the Olin launch at food service, was that in place for the
Was it for the full quarter? Did it roll out over the quarter? So actually that strength when you have a full quarter of selling it into the food service channel could actually accelerate a bit going forward.
We believe it can continue to be accelerated. We're putting a lot of push behind it, much like what we've talked about separately. All of the turos have really come of age. We love the new brand. We love the opportunity sale there, not just with average sale, but they remind us of you.
Large customers out there, but even through the distribution network and we're you know, we've got a lot of marketing behind it We feel really good about it. So I think it can continue to build momentum throughout the year
Although the
Was it available for the full quarter Dan or did it roll out over the quarter?
it really rolled out throughout the quarter, but it would have been started early. And so it would have been early in the quarter, so I'm not sure how to guide you on that. It was a good quarter, we had 32% increase and 30 plus 30% increase. So it was a good quarter, I expect the same thing, if not greater, in the coming quarter. both rear and rear.
Okay, great. Thanks.
There's even stronger promotional plans around that brand. I wouldn't say we've kind of...
you know, really hit and executed every part of our marketing plan around that. There's more to come and we're really excited about it. And we've got some really good things in test with it as well.
Excellent. Thanks, guys.
Thank you, Todd.
Thank you. Our next question or comment comes from the line of Connor Radigan from.
Consumer Edge Mr. Radigan your line is now open.
Hey guys, good morning.
Good morning, Connor.
So just quickly, on Dippin'Dots, it sounds like the $13.4 million in sales generated were decently ahead of your expectations. So by my math, it's about 13% of historical sales in the first quarter. That puts the brand on about a $100 million or so run rate, or about 10% higher than last quarter. So just quickly on Dippin'Dots, it sounds like the $13.4 million in sales generated
Could you quantify your expectations for the brand over the year? Just trying to get a sense of how big we should expect this thing to be given planned distribution rollouts.
I think your math is good, Connor. Good job with that. I'm not going to be at like exact number, but I think our expectations are in that ball park that you just came out with. We feel really, really good about what we're doing.
with Dippin' Dots, you know, and we just mentioned one example in the release and the script, but operationally things we're doing, other things in the pipeline. So, yeah, we're aligned with you on kind of what we think we can do with that business this year.
We are, that's good math on your part and really excited about the team and what they're doing. In fact, the whole sales team is here in the office this week at a sales meeting and we're just really thrilled with the way that they're responding.
Awesome. That's great, guys. And then also just quickly on some of the efficiency efforts that you mentioned. So that $4 million figure, is that expected to be fully realized this year or is that more of a fiscal 24 goal? And also on the automation efforts, just to be clear, are these fully new automated lines replacing manual lines or are these...
that are obviously more modern and with better automation than existing so expect to be more efficient in how we move product.
to those lines.
I'm sorry, what was your first question?
Just on the $4 million in incremental savings from the Richardson distribution outsourcing is that I expected to be fully realized this year or then more of a fiscal 24 goal.
Yeah, I think the way we've spoken about it before, it really took us until around September , October to get all of our business on NFI. And kind of a key to managing all this is for them to be kind of pulling the strings on how we manage product and distribution across our entire network.
Secondarily, their job gets even easier as we execute this RDC strategy.
So on an annualized basis, yeah, I had to make a guess for 2023.
Given what we've got in motion, yeah, I probably say it's gonna care some of that for me is gonna carry into 24 but I think we should realize a good portion of that in this fiscal period
And Connor, let me just touch on the lines question that you had. They are in addition to the lines that we have today, but it also allows us to do some shifting of where we make some products to become much more efficient in different areas.
Our intention is not to shut down the former line, but to be able to use that for more capacity.
All right, that's great, guys. Thank you so much. I'll go ahead and pass it on.
Thank you, Gunnar.
Thank you. Our next question of comment comes from the line of John Anderson from William Blair. Mr. Anderson, your line is now open.
Great, thanks. Hi everybody, good morning.
Good morning John .
20 maybe just I'll stick with that last question since we're on it on the new production lines How much capacity in aggregate will these seven new lines kind of unlock and Are there also
you know, margin benefits associated with it. I guess that second part of the question, Dan, gets to some of your comments around shifting or optimization of production. But again, how much capacity are you unlocking with these seven new lines and are there productivity benefits as well?
You know, I don't have the exact number to give you on the capacity, but it does allow us to grow our core products, right? And one of the things we really experienced was outgrowing our core, which is our churros and pretzels and pros and novelties.
and even our pretzel dog side of the business. And so we have addressed that to be able to have enough capacity to get our sales team back out there and really selling new lines and new opportunities. It does help on the margin side because we are...
that we think that we can realize as we open these up.
That's helpful. Thank you.
organic growth in the first quarter was about 6%. Can you help us kind of gauge how much of that?
6% organic growth was volume-based and how much was price.
And then you've kind of laid out a lot of very interesting.
demand generation initiatives, you know, that are kind of kicking in through the year. The cross selling opportunities, the new account, new channel opportunities that seem to be kind of lining up.
How should we kind of think about organic growth?
accelerating through the balance of the year or you know kind of maintaining at a level in this mid single-digit range? I know it's a difficult question but just trying to get a sense for for your confidence in some of the the the initiatives that you have lined up and what that might do to the organic growth profile of the company during coming quarters.
I'm going to let Ken talk a little bit about the numbers, if he can. But I just want to say this about our sales teams. We talked about it for two or three quarters now about cross-selling and getting people engaged in the different companies on selling the products across channels.
and across companies and it couldn't be more proud of the way that they're responding to that. That is happening more and more and I get to see it firsthand and that will be helpful. It's certainly helpful as we're starting to look at the Dippin' Dots business, being able to leverage our relationships.
and our customer contacts that we have to accelerate that growth. And so just really pleased with the progress that is happening on that side led by our sales teams. Just really happy with that.
Ken, I don't know if you have some members who can help them with that.
Well, I would just add this, John , I'm glad you picked up on it, but we were very intentional to really go maybe even a little bit deeper on highlighting.
What we see is a lot of growth opportunity when we sprinkled in examples, but it was from dip and dyes to super pretzel.
to the Frozen novelties, to churros.
So, you know, yes, we still remain very, very confident in our body, you know, in the next three quarters.
to grow the organic cyber business if you just take out Dippin' Dots for a second. You know, like every other...
Company out there, I mean we're watching things like GDP and
data on consumption and you see a little of that being dialed back. You see savings rates going up. So there's some consumer things that we're watching, which obviously impacts our business as consumers.
pull back, but aside from that, I don't know a time at J&J where we haven't felt more confident about what we're doing in innovation and with our brands and cross-selling. So we remain very confident in what we're going to be able to do for the rest of the year.
Okay, that's helpful. One more.
kind of a similar question, but more from an earnings perspective when I look at.
at EBITDA or adjusted EBITDA in the first quarter and even adjust I guess for a bit of the impact of Dippin' Dots, the deleverage. It looks like EBITDA came in around 15% or so of
what the street anticipates full gear EBITDA to be. And then if I kind of look back
pre-pandemic to some more typical years. It looks like first quarter EBITDA might have trended more in the 20 to 22 percent of the year range. So just kind of optically it would look like maybe you're starting the year a little bit slower this year from an EBITDA perspective at least relative to what the street is modeling for the full year.
about it right that hey you know we're in a pretty good position you know exiting Q1 and entering Q2 despite those metrics I mentioned to kind of you know deliver on a full-year expectation.
Yeah, yeah, again, we tried to explain this a little bit. Two headwinds right off the bat in terms of comparing a year ago, EBITDA, or even if you went back to 19. I don't have this number in my head, but I think the number will be even bigger.
you've got roughly 5 million of impact on distribution expenses if you just on an equal basis.
that would impact profitability this year versus a year ago. Then I mentioned the impact when you bring on the Dippin' Dodge business.
that has a loss in the quarter and again expected, then that starts to create a, you know, a six million dollar kind of bogey right there just from two things. And then I do think as we enter the quarter we expected to do a little bit better than that because we weren't expecting
volumes to tell off in December with some of the weather challenges that we talked about. And it's in a quarter.
where if you don't create the cells, then you deliver it pretty quickly. Keep in mind that even for total J&J, you can't do it without a cell.
75 percent.
of the sales and really profitability for J&J is going to be in Q3Q4. And that should play out if you go years back that's just kind of the seasonality of the business.
Thanks so much, guys. Appreciate it.
OK, thanks so much, guys. Appreciate it. Thanks, John .
Thank you. I next question a comment comes from a line of Robert Dickerson from Jeffries. Mr. Dickerson, your line is now open.
Great. Thanks so much.
Great, thanks so much. Can you hear me okay?
We can. Good morning, Rob. All right. Great. Thanks a lot. Yeah, I guess.
You know, kind of follow up to the last question that was asked, we just have to ask it a little differently.
You know, Ken, to your point, right, there's a little volume leverage that comes through. Input cost inflation is still a little bit high. On the COG side, it sounds like there could be other pricing offsets and then, as you keep mentioning, good innovation, distribution opportunities as you get through the back half.
Q1, understand the drivers behind what happened, not just in the bottom margin, but speaking more specifically to the gross side. You go back a couple quarters, right? The feel was, as we got into Q2 this year, maybe more back half-ish.
we could kind of get back a little bit more of those pre-pandemic margins, and it seems like you were making pretty decent progress.
on that goal in the back half of last year. And then in December kind of hit maybe a little softer volume, maybe some consumer behavior shifts to some extent. I guess as you sit here now, right? If we're thinking about Q2-1, right? Just.
be contingent obviously on consumer behavior as we get into the summer, right, which is still kind of a far way away. Sounds like some pricing might come through to offset some of the cost inflation and then maybe there's also some incremental distribution innovation that could help offset.
maybe some consumer weakness. So a lot in there, I'm just trying to gauge kind of where, how you want the market to be thinking about kind of that margin of recovery potential this year, or is it something that maybe we're kind of, we're just pushing it forward a little bit kind of because maybe there's a little less clarity.
That's all I have. This is a lot. Thank you. Thank you, Rob. You just did my job for me. You did it pretty well though. Yeah, you know we've been clear, you know, we had these meetings even going back to last quarter. We're on a trajectory to get this business.
you know up to those 30% margins. As I said here now, you know, I still feel confident in our ability to do that, particularly as we get to.
30% margins. As I said here now, I still feel confident in our ability to do that, particularly as we get to Q3 and Q4.
Because I believe the things we're doing the initiatives
the getting all this inflationary stuff behind us.
getting into peak season when I think we'll start to see volumes really kick back in and some of these new products and new ideas and new innovations are going to.
Drive Grove so I still sit here seeing that as you know a pretty good benchmark rub You know we manage this business
long term and if I can emphasize anything as we come together each quarter, our jobs are to continue to demonstrate from an investment standpoint from
where we're driving growth, the long-term aspects of what we're doing are going to pay dividends for us.
the long-term aspects of what we're doing are going to pay dividends for us. We then occasionally get into a quarter like this.
you know, where you get into some economic challenges and weather and that pulls back on volume and then you have to kind of recalibrate you know, inventory and production a little bit and so that that can hit a quarter but still feel really good about the back half of the year. Yeah, Rob, I would echo that as well and and I would just also add to it that we still have some pricing coming on the IC side.
amongst all of our groups in all of our conversations.
Perfect. Super. Thank you so much.
Thank you. Thanks Rob.
Thank you. Our next question or comment is a follow up from Mr. Andrew Wolf from CL King. Mr. Wolf, your line is now open.
Hello. My first is on your outlook for
commodity cost inflation
slowing, which I think you said in the release. Could you be a little more specific on what you're thinking the cadence is going to be? Maybe what percent of your costs are locked in through forged contracts and things like that.
slowing. Could you be a little more specific on what you're thinking the cadence is going to be? Maybe what percent of your costs are locked in through Ford contracts and things like that? I think a lot of...
know, folks in the supply chain, manufacturers, and others are looking to the June quarter to really, you know, when the relief really comes in on the Eurovere comparisons where pricing is on ambiguously a lot better than cost and, you know, cogs inflation.
Give us your sense of that for the business.
sense of that for the business. And then the other...
The second follow-up is very straightforward. It's just like, you know, there's been five full weeks and, you know, a couple more days since quarter ended. Have you seen any changes either way in the volume trends pretty much in January ? Thank you.
We're going to handle the commodity costs. Yeah, on the commodities, I look at so much data on that Andrew and I think we said this.
Trends are getting better. Sometimes they seem too gradual, but...
you know, they are getting better. Just give you a couple of examples.
you know, wheat, you know, while it's 16 percent higher than it was a year ago.
quarter over quarter it went up just 40 basis points. So it did go up, but it only went up 40 basis points. And the outlook on wheat is that we do expect that to continue to decline, I think, as we look at the second quarter and this pick on wheat because it's...
our biggest commodity. We think it may go down, you know, 3 to 4 percent is kind of our best guess right now as we look at Q2. But you kind of go across to the eggs. Obviously we use a lot of eggs.
Exes up triple digits year over year it went up
43% quarter versus quarter. Eggs continue to go up.
So, you know, it's kind of depending on what commodity you're talking about. It's a different answer.
Collectively, we do expect them to continue to go down. I don't have a crystal ball. I think our best guess next quarter is maybe somewhere in that, you know, three to five percent range. And then as we look further out, you know, hopefully better than that.
I think lead, diesel, are two big ones that are supposed to continue to go down quite a bit. Sugar.
It's not as high as it was, but it's still not.
showing signs of heavy decline at this point.
Then, Andrew, on the weeks ahead, we're watching that cautiously being careful about what's happening out in the industry. We do have some really bright spots. One of those bright spots would be where the theater business was really off in the December month. They've come back pretty strong in the January month. And so we're encouraged.
by what we're saying so far. Great, thank you guys.
so far. Great, thank you guys. Thank you, Andrew.
Thank you. I'm sure no additional questions in the queue at this time. I'd like to turn the conference back over to Mr. Dan Fashner for any closing remarks.
All right, thank you, operator. In closing, we want to assure you that more than ever, our teams are focused on effectively managing through these dynamic market conditions while serving our customers and partners. Thank you.
As we have outlined on the call today, we've taken aggressive measures to offset these various challenges and to position the company for long-term success.
Our momentum remains strong with our core brands and new products, continuing to resonate with customers. As we progress through 2023, we are confident that our strategies will have a marked and positive impact on our business and our results. We want to also take this opportunity to acknowledge the hard work and dedication that the American Heart Association is providing in the first day of March.
at 212-835-8500. Thank you very much.
Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day. Speakers, stand by.
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