Q4 2023 J&J Snack Foods Corp Earnings Call

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Okay.

Good day, and thank you for standing by welcome to the J&J snack foods.

2023 fourth quarter conference call.

At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need a press star one one on your telephone.

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Thank you operator, and good morning, everyone.

Thank you for joining the J&J snack foods fiscal 2023 fourth quarter conference call.

Justin regimens comments and your questions.

But before doing so let me take a minute to read the safe Harbor language.

This call contains forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.

All statements made on this call do not relate to matters.

Oracle facts should be considered forward looking statements, including statements regarding management's plan strategies goals expectations and objectives as well as our anticipated financial performance.

These statements are neither promises or guarantees that involve known and unknown risks uncertainties and other important factors that may.

They cause results performance or achievements to be materially different from any future results performance or achievements expressed or implied by the Florida looking statements factor.

Factors discussed in our annual report on Form 10-K for the year ended September 32023.

There are other filings with the Securities Commission.

Actual results may differ materially.

<unk> indicated by the forward looking statements made on this call today.

Any such forward looking statements represent managements estimates after the date of this call.

16th 2023.

While we may elect to update forward looking statements at some point in the future. We disclaim any obligation to do so even if subsequent events cost expectations to change. In addition, we may also reference certain non-GAAP measures on the call today.

Turning adjusted EBITDA operating income earnings per share all of which are reconciled to the nearest GAAP measures in the company's earnings press release.

It can be found in the Investor Relations section of our website.

Joining me on the call today is Dan <unk>, our Chief Executive Officer, along with Mr. Ken <unk>, our Chief Financial Officer.

Following managements prepared remarks, we will go ahead and open the call for a question and answer session.

With that I would now like to turn the call over to Mr. Dan Fastener J&J snack foods Chief Executive Officer. Please go ahead Dan.

Thank you Norberto and good morning, everyone. We appreciate you joining us this morning to discuss the J&J snack foods fiscal 2023 fourth quarter and full year results.

J&J had a great ending to our fiscal year, we delivered record high net sales and profitability for both the three and 12 month periods with improved gross profit margins our results underscore the tremendous progress, we're making across the organization thanks to that.

Dedicated efforts of our employees and the positive impact of the strategic initiatives undertaken over the past two years.

Our topline results Mark the sixth consecutive quarter and the third consecutive year of double digit net sales growth.

$443 9 million up 10, 8% for the quarter and 1.56 billion up 12, 9% for the year.

Reflecting a $178 million and incremental sales.

More importantly, our results were driven by continued growth across all three of our business segments on both a quarterly and full year basis, highlighting the health of our business.

Consumer appeal for our products and brands I.

I am pleased with the success of our work to improve margins and drive profitability.

Gross margin improved to 32, 8% and 31% for the quarter and year, respectively, and we had lower distribution expense as a percentage of revenue for both periods. This led to operating income and adjusted EBITDA increasing by 93%.

And 55, 2%, respectively for the fourth quarter, and 77, 2% and 46, 3% respectively for the full year.

Ken will review our financial performance in more detail in just a few minutes as.

As I reflect on the year, our company has never been more aligned than its vision and strategy.

We ended this year with strong momentum across our business segments guided by five core strategies grow and protect our brands dominate core categories sell across the portfolio.

Invest in our future and embraced our culture.

We are collaborating better than ever in finding new sales opportunities across our portfolio.

This strategy is aligned to our financial goals to grow sales above the market, great expense leverage and grow profits faster than sales I.

I would like to highlight a few of the successes from the fourth quarter that support our strategy.

Let me start with our focus on our strategies to grow our core brands and products and how we are collaborating and cross selling across the organization.

We increased our marketing investment and added new production lines to support growing opportunities with Super Pretzel.

In the fourth quarter, we launched field Hell opinion, not nationwide with a major theater customer and introduced a private label Bavarian Pretzel with a major food service distributor.

In retail.

I'm pleased to report that we gained super pretzel availability with Walgreens, while also expanding pretzel dogs with new retail customers.

In addition, we launched frozen Super Pretzel, but varian sticks with major grocery and mass merchant customers. Looking ahead to fiscal 2024, we are planning to launch a systemwide pretzel croissant.

With a strategic convenience customer.

We also expect to be able to further expand frozen super pretzel products among major retailers throughout the year and have plans to add fresh baked super pretzel, Bavarian sticks and buns to the in store bakery category of several strategic customers.

Moving onto our ICEE brand.

I am so proud of our frozen beverage team for delivering a record quarter and year of sales and profitability.

We continue to make progress growing consumption and.

Placement of our IC and slush puppy brands in amusement mass merchandisers and restaurants.

Also the theater industry continues to gain momentum and our Mexico team delivered another stellar quarter and year.

As we look forward our team is rolling out a self serve program to a major club store customer in early fiscal 2024.

And we continue to have positive momentum with tests in <unk> and family Entertainment channels.

Turning to old lot Churros, we are really pleased with the success of this brand in its first year sale.

Sales grew over 23% for the year and 8% for the fourth quarter with.

With the production capacity, we added this year, we have a strong pipeline of growth opportunities. This quarter. We commenced the retail rollout of all our brand churros in the northeast with several regional grocery retailers. We also successfully completed a market test with a major <unk> sandwich.

For Churros that will begin to roll out system wide in early calendar 2024.

The Best example of how we are executing product development and leveraging cross selling opportunities is independence. You may recall, we closed the acquisition of <unk> in June 2022.

The first year under <unk> ownership, the brand achieved all time record high sales and profitability growing over 13% and 80% respectively.

We are bringing new flavors to the market like the recently launched Ic's Cherry and Blu rays ice flavor, the best new flavor launch in <unk> history.

And we are looking forward to next year's launch of a new cookie dough offering called <unk>.

Our rollout to Regal theaters is almost complete and we are adding test locations for two other major theater chains and expect to continue building our presence in the theater channel in 2024.

Also we are testing a building program and amusement parks clubs theaters and entertainment venues and have an in store freezers test with a major convenience store.

We also remain laser focused on improving our go to market strategies, including finding added cross selling opportunities securing new client wins and entering in growing in new geographic markets. We are excited about the opportunities ahead of us in the international markets such as Mexico.

We have recently added an international business development leader to identify opportunities to expand key product and brand like Super Pretzel, Oli, Churros and dip and dots into new markets.

Our product portfolio extends across over a dozen product categories from soft pretzels, churros and handhelds to bakery goods dog treats Italian ice and frozen beverages.

We also sell into more than a dozen distinct venues, including school cafeterias theaters.

Amusement parks airports stadiums and supermarkets, as well as restaurants and convenience stores.

Our team is aligned and focused on driving plan to leverage our portfolio of products to add growth across our many channels and customers.

As we've discussed for the last couple of years, one of our core strategies is to build capability and invest in our future.

Let me begin with our warehousing network.

I am pleased to report that we now have two new regional distribution centers opened one in Texas and the other in New Jersey, we are on track to open the third RTC in Arizona in early calendar 2024.

The three <unk> will be used to store and distribute most of our products as we decrease our points of distribution from over 30, so less than 10.

This will include added freezer storage capacity for <unk>, which is really the key to our growth plans for that brand.

It will also result in improved customer service and lower distribution costs. We expect this initiative to provide at least $10 million in annual cost savings as we ramp up over the next few years.

As you know we are partnered with NFIB over a year ago to manage our logistics and transportation network and are seeing the efficiency improvements that are lower than shipping handling and storage costs.

And if I now manages all of our transportation network, improving truck capacity and routing and enhancing customer service.

We are also just beginning to leverage the six recently added state of the art production lines as we add production capacity to our core products, such as pretzels, Churros and frozen novelties.

And not only do these lines provide more capacity they are creating production efficiencies and higher output metrics through better automation.

Transitioning to M&A.

We continue to be highly disciplined in our approach.

We are evaluate opportunities that complement our brand portfolio and business model and that offer attractive shareholder returns.

Financially, we have the resources and the balance sheet to invest in growth when opportunities aligned.

In summary, our momentum is strong and we are aligned on our strategy that positions us well for continued success in fiscal 2024 and beyond.

I am so proud of the J&J teams and their relentless focus on satisfying the consumer every time they enjoy one of our products. Our focus on cross selling is opening up new opportunities in channels, which creates new selling opportunities across our portfolio.

The diverse nature of our business along with the power of our brands and the affordable price point of our products is something that we are confident will continue to serve us well we.

We believe this momentum together with improved operational efficiencies position J&J to deliver long term value to our employees partners and shareholders.

Our success is anchored by a winning culture and I want to thank our J&J employees for their efforts to deliver a record 2023 year.

With that I would now like to pass the call over to Ken to review, our financial performance in more detail Ken.

Thank you Dan to Echo Dan's comments J&J ended fiscal 2023 on a strong note including record <unk>.

Fourth quarter and annual net sales and profitability.

I'd like to take a few minutes to walk you through the results.

Net sales for the quarter totaled $443 9 billion, a 10, 8% increase versus the prior year.

Sales for the full year totaled $1 $5 6 billion, a 12, 9% increase versus full year fiscal 2022.

Our sales results this quarter.

In fiscal year included an extra week compared to the prior year and contributed an estimated six 8% and 2% to sales growth respectively.

Foodservice, our largest segment saw Q4 'twenty three sales exceed Q4, 'twenty two by $13 5 million to $273 million or an increase of five 3%, including approximately $35 2 million in sales from the recent acquisition of different types.

We saw continued strong sales across all of our product lines, including a 14 six.

We're seeing increase in pretzels, nine 7% increase in frozen novelties and eight 1% increase in Churros.

And a two 2% increase in bakery.

<unk> sales increased almost 12% in the quarter.

Handheld sales decreased 21, 8% driven primarily by contractual cost true up agreement.

Volume for core foodservice handhelds increased for the quarter.

This led to Q4 'twenty three foodservice segment operating income of $17 5 million or an increase of 175, 8% versus the prior year period, reflecting top line growth as well as improvement in margins and added leverage from lower distribution expenses.

Moving to our retail segment Q4, 'twenty three retail sales increased 21, 2% to $64 8 million compared to Q4 'twenty two.

Retail sales were driven by a 205, 5% growth in handheld sales.

A 32% increase in biscuit sales and a 16, 7% increase in frozen novelty sales led by Luigi dogs jurors in IC Stakes.

Soft pretzel sales grew by six 7% versus the prior year period led by the expanded placement of Super Pretzel Bavarian Stakes by too many dogs with several retail customers.

This resulted in Q4 23 retail segment operating income of $3 6 million or an increase of 237%.

First as the prior year period, driven by top line growth as well as improvements in margin and lower distribution expenses.

As it relates to our third segment frozen beverages segment sales were $108 7 million in Q4 22 sales by 26%.

Beverage sales grew 24, 8% or $14 2 million higher than Q4, 'twenty, two led by double digit volume growth and healthy consumer trends.

Cross Creek across key channels, including convenience amusement parks mass merchants restaurants and theaters.

The Barbara and Hymer effect drove strong theater performance of growth above pre pandemic levels as well as higher food and beverage consumption per visit.

We're seeing service revenues increased 6% versus the prior year period, reflecting strong maintenance call volumes, while equipment sales increased 33, 2%.

Representing our second largest year ever and was driven by strong growth from new clients.

Unions customers.

Q4, 'twenty three operating income in the frozen beverage segment also improved to a record 26 million a six 4 million increase compared to Q4 2002.

Overall, we've made significant progress improving gross margins and distribution expenses, our focus on improving gross margins through.

Through an improved mix of core products, better calibration of cost and price and cost of goods efficiencies is clearly benefiting our results.

For the quarter gross profit totaled $145 7 million, a 25, 8% increase compared to Q4 'twenty two.

This led to a gross margin of 32, 8% favorably comparing to 28, 9% in Q4 22.

This allowed us to reach our goal of 30% gross margin for the full year.

Marked improvement from 26, 8% for the full year in 2022.

Overall, we experienced slight deflation for the quarter.

Cost of key ingredients, including flower oils, dairy and meat have decline, though we are still experiencing double digit inflation in sugar sweeteners, which continues to impact products, such as frozen novelties and baked goods.

Looking at expenses total operating expenses increased $9 8 million or.

10, 4%.

Representing 23, 4% of sales for the quarter compared to 23, 5% in Q4 22.

Distribution cost was 10, 8% of sales in the quarter much improved compared to 12, 4% in the prior year period.

Marketing and selling expenses represented 7% of sales versus six 4% in the prior period, driven primarily by incremental promotional and marketing support on core brands and new products.

Administrative expenses were 5% of sales in Q4 hundred 23 compared to four 3% in Q4 22 attributable to higher performance based bonus payments compared to the prior year and investments in capability.

This led to an operating income of $41 7 million for a 93% increase compared to $21 6 million in Q4 22.

Adjusted operating income was $45 8 million or a 77, 8% increase compared to Q4 'twenty two.

For the quarter and the year of the extra week contributed an estimated $2 million in operating profit.

After the impact of income taxes of $11 3 million compared to $3 9 million in Q4 of fiscal 'twenty two.

Net earnings increased to $34 million, resulting in reported earnings per share of $1 57.

Or $4 eight for the full year.

This compares to 90 and $2 40 in the prior year periods.

Adjusted Diluting earnings per share were $1 73 for the quarter and $4 50 for the full year compared to $1 five and $2 76 in the prior year periods.

Adjusted EBITDA increased 55, 2% to 62 point.

$2 million from $40 1 million in the prior year period, and our effective tax rate was 27% in the fourth quarter.

Looking at our liquidity position I am pleased with our ability to quickly delever on the back of the <unk> acquisition, we were able to reduce our debt.

From approximately $125 million, when we acquired <unk> to $27 million at the end of fiscal Q4.

Our focus will continue to be on maintaining a healthy balance sheet and prudent leverage positioning.

Which positions us to continue investing in the growth of our business and returning value to our shareholders.

Our cash and marketable securities at the end of the quarter were $49 6 million.

In addition, we have ample availability under our revolver of approximately $188 million in additional borrowing capacity.

In summary, we are confident that the decisions, we're making and the steps we are taking to transform our company are driving results and laying the foundation for future success.

I would now like to turn the call over to the operator for Q&A.

Thank you as a reminder to ask a question at this time. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile our Q&A roster.

Okay.

And our first question is going to come from the line of Jon Andersen with William Blair. Your line is open. Please go ahead.

Hi, good morning, everybody congrats on the quarter. Thank.

Thank you very much John Thanks, John.

I wanted to.

You mentioned in the prepared comments that.

I think it was kind of a.

Forward looking.

Thought around maybe an algorithm longer term algorithm.

You mentioned sales growth above.

That of your principal end markets expense leverage.

And earnings growth as a result above.

The rate of sales could you talk a little bit more about that as did I read that right.

Maybe kind of a new.

Way to communicate how you think about the growth.

The business top and bottom line going forward and perhaps then.

You know kind of narrow.

On 2024.

Using that as a framework and how youre thinking about end market growth your own growth.

And perhaps margin expansion. Thank you.

Yeah, Hey, John This is Ken great Great question.

We've been operating kind of under this what I call financial Formula for really last couple of years.

And probably haven't stated as clearly as we as we did in in this script, but it really gets.

What I've talked about before is we're focused on the entire P&L.

And we've kind of foundational set the goal of that sales wise, we want to drive our business to grow sales faster than the market as we're doing that and as we're investing in capabilities and efficiencies. Our job is really to leverage the P&L as those sales grow at that pace that obviously provide you better.

Our ability to do that at the same time a lot of the initiatives that we've undertaken have been done to improve say distribution expenses as a rate to sales.

To figure out how we can operate more efficiently in our plans.

Day in and day out we can operate under that kind of financial formula to think about.

How we should kind of hold ourselves accountable.

To managing this business, both now and yes going forward.

And then that's helpful.

As we look ahead to fiscal 'twenty four.

It sounds like you have a.

Tremendous amount of new.

New business activity.

A lot of a lot of cross selling going on.

A lot of.

New distribution for I guess new items.

Both in foodservice and in <unk>.

And at retail.

IC placements and food away from home venues et cetera.

<unk>.

Okay.

How should we be thinking broad strokes about.

What are your growth expectations for 2024, given just kind of the.

What seems like a really strong pipeline and then.

Could you talk also about maybe pricing and volume are you still benefiting from price right now.

And.

Would you expect going forward that the.

Growth is going to largely be be volume driven.

Very good questions John.

We're feeling good about and you saw that in my comments really good about the momentum that we have going into 2024, we've talked a lot about the different areas of our business that we're working on and one of those is the cross selling effect across our businesses, we have such great relationships.

In different areas that we're able to bring other sides of our businesses and then introduce the products and we really see that worker.

And as I talked about we have a really nice pipeline coming into 2024, so we're feeling pretty good about that.

From a price and volume standpoint.

We were fortunate in this past quarter to see volume really increase across our categories just about all of them and.

And we think that there is an opportunity for us to continue to do that I'll, let Ken talk about the pricing, but I think we've pretty well lapped that pricing effect now.

Looking at some additional pricing in some of the areas in in 2024 as well.

John If you recall from prior calls the last price increase we took was last.

Kind of call. It September October so we lap.

The other two we have certainly lapped and we lap portions of that but there was a little bit of.

Price increase benefited in the past in this quarter Q4.

But they're really good sign as Dan said is.

Much more of that growth is coming from volume, particularly in retail and frozen beverages had really nice volume quarters.

And yes, you are correct given.

Where the kind of the inflation deflationary environment is right now as we look forward, we would expect probably more of our growth to be from volume and from price as we look to the next year.

Okay.

One more for me.

I'll get back in the queue.

You were able to achieve kind of your gross margin I guess near term or medium term gross margin objective of getting.

It's a 30% in this fiscal year.

And you finish really strong in the back half.

North of I guess in the second half of the fiscal probably north of 33%.

And I know theres, some seasonality in there et cetera, but.

I guess not to put you under the gun, but what what's the.

Is there is there kind of a new.

Interim targets or should we.

Is there more room to move.

The constructive direction in terms of gross margin I am just thinking about your commentary around six new production lines that are scaling and more efficient.

Our focus on core brands in the mix.

Of your business and that being beneficial it would just seem theres more room for improvement on that gross margin line, but I don't want to get ahead of myself and thinking about that thanks.

Alright.

Another good question and you know we've been talking about this now for over a couple of years and our goal is that Ken and I had wanted to drive the business to and to get to that 30% gross profit margin really proud of the teams to have followed the strategy is to allow us to get there.

And yes John.

We might be a little even more bullish there we think our strategies are working we think some of the newer lines allow us to make products more efficiently.

We think our teams are working hard in every facet.

And are starting to look at that 30% as a floor, which we can grow from.

How quickly again, we have some seasonality to it we're coming off the back end of the summer months, where different dots and IC are a big part of our sales and as you get into the winter months that isn't as strong.

But we think we can continue to grow from where we landed this year for sure.

Great. Thanks. Thanks.

Thanks, you guys and congrats again good luck.

John.

Thank you and one moment as we move on to our next question.

And our next question is going to come from the line of Connor <unk> with consumer edge. Your line is open. Please go ahead.

Hey, guys. Good morning, Thanks for taking our question.

Good morning, Good morning, John.

Yes, so Dan.

I just heard you mentioned that you were expecting some pricing next year and.

So if I'm not mistaken you guys are pretty much back to pre pandemic margins without deflation on commodities.

I guess, just how do you go to customers and sort of push that pricing through while they know youre experiencing deflation and I guess, maybe could you provide a little color into your visibility into your input costs for next year, maybe any hedging you have in place and I guess should we kind of expect that.

Deflation to.

Two are continuing next year. Thanks.

Good question, Ghana, and we are experiencing deflation in some of the areas that we are having double digit inflation in others like sugars and sweeteners and.

And that impacts some of our business pieces like the IC side or the <unk> side or pieces of our.

Frozen novelties and so.

There will be some areas that we will be able or will be taken price increases in and probably need to maybe have needed two already.

Yet there will be other areas that will be taken a look at and I'm sure we'll be challenged and we're prepared for those areas as they come.

So there will be some pricing that will base ICEE is pretty consistent about doing that at the first of the year.

And I believe that were scheduled for that again.

And.

Ken do you want to mentioned the other piece of that.

Yes, Connor in terms of China covered or contracts.

I Couldnt say enough good things about the procurement organization, so whether it's flower whether its sweeteners, whether it's something like eggs or whatever.

I think they're managing that very well in some cases, we've got contracts out for the next.

Three months some cases, it would be six to nine months.

I think we're really well positioned.

Kind of maintain and manage and minimized.

Any other inflation or maximize deflation in that and how we buy.

In terms of the outlook.

It's always hard to say you've seen.

Different political and.

International things happen that can drive things pretty quickly.

Whether it's the Ukraine situation so.

Those those wildcards I think are still out there, but absent any of that.

I think it's going to be a pretty stable environment.

I don't see a lot of significant more deflation, but I think most of these categories.

Pretty well.

Don't expect to see a lot of inflation.

CPI I think came out yesterday at around 2%.

Production.

CPI is generally about 100 to 150 basis points higher than that because there's a bit of a trail there.

As we look forward I think the forecast on inflation is in that.

One 5% to 2% range so.

That's probably how we kind of feel about it and how we're trying to manage what we do in terms of.

Procuring materials and how we do that.

Okay, perfect very thorough.

And then I guess, just just one more for me so.

Dan in your prepared remarks, you mentioned targeting international growth, especially down in Mexico. I guess first can you remind I think you currently have any international operations and I guess just is this more of an exploratory project at or should we expect this to be a tangible 2020 impact and then I guess, just kind of stepping back as well.

We've seen a lot of cpg's.

That our U S focused kind of attempt to migrate to international markets only to really run into issues, gaining distribution and also experiencing some profitability challenges given the skew to more true.

Additional retail and also just the lack of scale.

I guess just sort of what is the plan in place to sort of drive that distribution growth, maybe and maybe minimize those profitability headwinds.

Yes, it's down in Mexico, our operation is really centered around IC to date and they really had a tremendous year. They had a record year in both sales and profits and proud of what that team is doing down there we want to be able to expand.

On some of their business, we wanted to be able to maybe take some of our products.

They are.

Operating with today and expand them down there such as different dots or some of our snack food items and think that theres, a real opportunity for us to grow we do do a little business internationally today and and feel like there is an opportunity for growth for us.

So we're kind of really the first time, we brought on our international business leader to help us identify that.

And to do some steps along that way I don't see that being.

Impactful to our 2024 year I think it will build over a period of time.

And we have enough experience to know to be careful about how we do that and so we're excited about the opportunity that we're excited about the opportunity of bringing on this business leader.

I've had some experience with them in the past and think that he will hit the ground running for us.

I, probably would caution not to be overly optimistic about that in 2024.

Okay got it sounds good to me thanks, guys. Thank you garner.

And one moment as we move on to our next question.

And it looks like our next question is going to come from the line of Todd Brooks with the benchmark Company. Your line is open. Please go ahead.

Thank you.

Perhaps on a strong quarter to end a strong year.

Thank you very much Todd it's a great way to end the year for sure yes.

Thank you Todd good morning.

Good morning.

Dan I wanted to start off when you started rattling off new opportunities for 'twenty, four and John kind of hit on this.

Quite the laundry list I don't necessarily remember that much internal.

Momentum that change could you maybe highlight for us.

The two or three most impactful opportunities as you see it for 24 that investors should be most focused on.

We really do have a great pipeline.

Our snack foods side led by Bjorn Liza is doing such a good job identifying opportunities as we are building capabilities to be able to grow within.

Some of our core markets, you've heard that talked about in our core strategies and so some of the some of the great opportunities. We have are right within our core I love, what we're doing we released our Super Pretzel sticks, this past quarter and they sold really really well.

Surprised by that either Todd.

New that was going to be a good hit and it was and I think we have some great opportunities there within the retail environment also within the retail environment, We released the <unk> chosen.

Early readings on that are strong and I think that will continue to grow alongside the growth of the.

Super Pretzel Hotdogs that we make that I think have a real opportunity. So some really good things inside resale.

On the foodservice side, you heard me touch on a.

Tests that we had over this past quarter with a large sandwich chain that is going to rollout come January of 2024 think that has a really big impact that can make a difference for us in this coming year again able to do those things because we built that capacity out there on.

The bakery side I'd love, what they're doing there.

We've been reshaping that piece of our business, but we're going to be able to release some of our core products.

The sticks and the bonds inside the bakery and think that has some real opportunities for growth in 2024, and an ICP chugging alone IC has an opportunity with a club store.

To move our machines from a crew served through a self serve and early tests on that and we've been in the test mode for a while are really strong.

A great impact on those sales and they are in test with a couple of <unk> change that I think have the opportunity to come through for this coming year. So I love, where we're heading the pipeline looks good the sales teams.

Led by Europe on snack foods, and Erin will come in the IC side.

<unk> on <unk> side are all kind of hitting on all cylinders. We had a sales meeting last week and had the three of them on stage. It was really impressive to see the kind of pipeline. They have built and so it gives us good confidence going into 2024.

That's great. Thanks, Dan a follow up you talked about the six new lines that had been put in place for the core products over the course of this year I don't think you've ever size the revenue unlock.

<unk> lines could represent for J&J, but can you maybe.

Just talk from a percentage basis, how much of the benefit was realized.

Fiscal 'twenty three versus how much of that benefit you could see harvested and $24 25, just looking at the overall opportunity Jay yes.

Yes, 23, not so much humane, we're kind of building those out during 2023 and it really was much of it came in in the back half of the year, so not too not too impactful in the 2023 year.

Bill like we have the chance for it to grow in 2024 with the pipeline that I just talked about some of those opportunities required those investments that we've made and the six new lines.

And so happy happy with where they're at there I think what we have said before Todd is that the opportunity of those six new lines.

Allows us to grow sales by $150 million or above right and so I think that's where we're really shooting for and.

And I think that we need.

A piece of that come through in 2024 with those opportunities that I just talked about.

Great 91 for Ken and I will jump back in queue.

John kind of pointed out the seasonal nature of <unk>.

Gross margins. So I just wanted to see if we could maybe less.

Level set.

For our modeling purposes, I know last year, we saw basically.

A 300 basis points.

Gross margin.

In the first half of the fiscal year.

Second half of fiscal 'twenty, two we're obviously working off a higher base would you expect that magnitude of retrenchment in the first half of <unk>.

<unk> 24 for our modeling so kind of down to that 30% level from the 33% you put up in the back half year.

Yes, that's a good question Todd I think the way to think about that is you are right as we got towards the end of this year.

We got our mix humming and we got price caught up.

Inflationary was a bit more.

Of our friend than it was earlier in the year you start to see us get to those marks that we said were goals of ours, we ended up finishing.

The full year at 31% gross margin.

I think Dan and I've talked about.

That was kind of a floor, we have to get back there.

And I think we expect to be able as this goes forward.

Beyond that number.

But yes, there is a seasonal impact so as you look at <unk>.

Q1, and Q2 I think the way to think about that is the trajectory of being better than the prior year will should continue.

But we're not all of a sudden you're going to do 30% and in Q1.

Is it the.

Slowdown in those winter months of some of those high margin areas like <unk> and IC.

But we should <unk>.

Kind of an equivalent on a prudent basis would be better than Q1, a year ago in Q2, a year ago.

And then probably as we get into the back half of the year.

You, probably see gross margins, probably pretty similar to what they were in Q3 and Q4 this year.

Yes.

Okay perfect. Thanks, Ken.

Thank you and one moment as we move on to our next question.

And our next question is going to come from the line of Andrew Wolf with C. L. King. Your line is open. Please go ahead.

Good morning, Andy.

And Dan Congratulations on your election.

As chairman of the board. Thank you very much Andrew and good morning to you as well thanks for joining us.

So I wanted to ask.

Given the current grocery environments.

You guys are having good volume growth, particularly.

Particularly shipping.

And on the shelf I assume but.

As you look to the current planning year fiscal 'twenty four.

Is it fair to say the predominant or maybe even all of the planned volume is going to come from new doors and new distribution.

Maybe line extensions or are you guys planning any velocity gains as you kind of ramp up the marketing spend as well.

I think we will have a little bit of both I do think we have some great opportunities.

Our continued expansion on some of our core products like what we talked about the pretzel sticks I believe that will continue to grow.

I think luigi's is continuing to grow our ICEE frozen novelty is growing well.

So I think we will we'll have that continued dog sitters is doing really well dogs, whose did well in the fourth quarter and think that we have some good opportunities for new outlets with that but I also think that we'll see a little bit of increase in some of our core products too I think.

I think we fit a niche and in the area that allows us to be able to do that where watson that consumer really closely and watching what others are saying and doing and we'll be prepared for whatever headwind comes our way, but we think we have some good opportunities for continuing to not just grow.

Volume with what we have today, but but by Garnishing new outlets as well.

Okay and I also wanted to kind of follow up to Todd's question on the unlock.

When you get the third RTC open on <unk>, you've referenced a few times.

You really that big.

This needs national frozen capability to be fully distributed.

Any chance you could help us.

A feeling for how much the addressable market increases are or what it really what it does for the business either quantitatively or qualitatively in terms of how much more of the market. You can you can go after.

I love what the team is doing a different dots we had.

The best year sales and profit in its history.

We feel like we're still just scratching the surface.

Really gelling together fit really nicely synergies from their organization to ours is.

It's just really good at.

What they have in test today I talked about this in the opening the Regal theater now is pretty much completely rolled out a couple of other big theater chains expanding their tests.

And the team is out there knocking on a lot of doors and having some great success I think I think that will continue to grow nicely for us.

They're doing really happy with that acquisition, Ken I don't know if you want to add any color to that at all.

Yes, I think Dan summarized it well I think the thing to think about what <unk> is one we just came out of having them for a full year, we will have.

I think we even mentioned this double digit growth in that business, we would expect to be able to grow that business next year double digits.

Production capacity, we have plenty of capacity to hit those numbers and produce that it was really the freezer and storage space.

That we.

We had to address to be able to move faster.

Keep up with that growth and where the added freezer space.

At Taro and it will edge.

The two facilities that are now then we feel really good about really meet and any kind of opportunity in the foreseeable future I don't have an exact number on what that means.

All I can tell you is as a part of the enablement of helping US continue to grow this business double digits.

Okay.

Fair enough.

Last thing is for your account as well.

Can you just size up the true up expense that you had to record against sales and.

And tell us if that was also a full flow through as a reduction to earnings as well.

The cost plus arrangement and handhelds.

Oh yeah.

Yes, the way to speak to that I think we may have said this before Andrew is.

We have an agreement with a customer that we make.

<unk> four where we pass on.

Any cost increases or decreases it's a it's a quarterly true up with that customer as you can probably appreciate.

It really benefited US let me go into 20% inflation.

But now that we've had deflation we pass those cost reductions back to that customer.

But the profit of that stays hole. So we continue to make the same profit because we're kind of locked into.

Profit margin.

Contract.

And the volume of those core Skus continues to grow.

Okay. So that was all intra quarter it wasn't for previous accrual rates that were too high.

No that was inter quarter.

Yes.

Each quarter give or take if things stay stable then you wouldn't see much of any movement there.

So our handheld sales down this quarter and last quarter basically because of deflation.

And the contract arrangement or is there other reasons.

The sales dollars were down the sales dollars are mainly down because of the contractual pass through of those cost back to the.

To the customer.

Got it thank you.

Thank you and one moment as we move on to our next question.

And our next question is going to come from the line of Robert Dickerson with Jefferies. Your line is open. Please go ahead.

Great. Thanks, so much.

So.

I'm just curious.

I mean, maybe it told me, but I didn't really realize there was going to be a 50 <unk> week. So once we back out the 50, <unk> week, and you'll get to sales growth of 4% per quarter.

So while I respect at all.

We break out kind of price and volume.

Relative to other companies I am just curious if I can maybe add some color would you say of the 4% like most of that still is pricing I'm just trying to gauge.

Higher volume trajectory, especially as these will be kind of your overall backdrop, we're seeing right now and kind of.

Much of food in the U S.

Yes.

Yeah, well, let me kind of explain it this way.

Theres a lot into that in terms of really trying to <unk>.

<unk> down to the puts and takes of one extra week and so we summarize that.

In the release based on.

Our business overall, but if you take two parts of our business retail.

In frozen beverages, both up over 20% you back out the extra week both of those businesses were up.

Double digits in both would have been.

At or near double digit volume growth.

So very healthy quarters. There if you look at foodservice came in at five 3%, but you've got the handheld.

<unk> negative against that that I, just explained to Andrew which was really more of a cost.

As through not a volume thing you start to break that out foodservice would have grown.

Eight 5% without that effect, if you focus on the core categories in foodservice pretzels, Churros and frozen novelty those were up 11, 5%.

So you start to see even peeling back the extra week, a very strong quarter.

And really volumes up across the board.

Other than bakery, and Thats really a part of what we've been talking about in bakery, we've been dialing in on Skus and getting out of some skus that weren't profitable.

So thats, probably the best way to kind of think about each of those segments.

And the 50 <unk> week.

Okay, great. So.

Okay, net net still positive volume growth curve.

Pricing, you've taken kind of overall.

Yes, Sir absolutely.

And then.

That's great.

Then I guess just kind of more broadly.

<unk> speaking.

Just.

Kind of want to get.

You feel around kind of current consumption behavior like what you've been seeing right. We've heard from let's say some confection companies that might say well.

We've seen a little recent pressure in consumer's Mercury shop in the perimeter of the store maybe they're looking for products that are more satiating, a quality everyone's kind of shopping for more value there and channel shifts right lot Walmart This morning.

Last couple of weeks of the quarter definitely saw some pressure.

But it sounds like kind of given the positive volume growth consumers.

We're still kind of.

Walking into a worldwide.

BARDA snack or one movie theater getting.

And ICEE drink, so I'm just kind of curious.

What your feel is.

Around consumption behavior with your product.

Why.

Are you still able to generate this volume referenced because.

The value proposition right that take you guys appreciate it.

Anything anything you have what would be very helpful.

Good morning, Rob How're you doing.

Great. Thank you good.

I think it's a great question.

Kind of expected anticipated to get something along that lines Watson.

The.

The customer and the consumer really really closely and watching that behavior.

We faced a lot of headwinds since we've been in this position we're prepared as a company to kind of be able to pivot in any direction that we need to pivot.

Talked a lot about the resiliency of the J&J portfolio.

Partly we sell across a lot of different channels with a lot of products many of them with tremendous brand.

People follow in and use as a treat or a reward.

And I really believe its that diversification.

That we have across channels across brands that allows us to be resilient during times like this you watch that even as we've been in charge here in and lead the organization. There's been times when the theater business is down but the retail is way up right and then we go through.

A year like last year, where theaters are way up and we're challenged in other areas. We're really proud of the diversification that we have and the products that we have in the following that the brands are and I think that allows us to withstand.

Periods like this.

Alright Super Fair enough. Thank you guys. Thank you Rob Thanks, Rob.

And I would now like to turn the conference back over to Dan <unk> for any closing remarks.

Thank you very much in closing in 2023, we delivered the strongest year in the history of the company. It took tremendous hard work perseverance and agility from every one of our employees and partners and I could not be prouder of what we've accomplished or more excited about what lies ahead.

We expect to deliver another year of strong sales and earnings growth in fiscal 2024, as we invest in our amazing portfolio of brands additional capacity and capabilities. We look forward to updating you on our progress in the new year have a wonderful Thanksgiving and holiday season.

Thank you very much.

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

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