Market Overview

J & J Snack Foods Reports Third Quarter Sales and Earnings

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PENNSAUKEN, N.J., July 30, 2018 (GLOBE NEWSWIRE) -- J & J Snack Foods Corp. (NASDAQ:JJSF) today announced sales and earnings for the third quarter ended June 30, 2018.

Sales increased 4% to $306.2 million from $295.4 million in last year's third quarter. Net earnings increased 3% to $26.1 million in the current quarter from $25.3 million last year.  Earnings per diluted share increased 4% to $1.39 for the third quarter from $1.34 last year. Operating income decreased 8% to $34.9 million in the current quarter from $37.8 million in the year ago quarter.

For the nine months ended June 30, 2018, sales increased 9% to $837.5 million from $767.5 million in last year's nine months.  Net earnings increased 46% to $80.2 million in the nine months from $54.8 million last year.  Earnings per diluted share increased 47% to $4.27 from $2.91 last year.  Operating income decreased 2% to $79.6 million this year from $81.2 million last year.

Net earnings for the current year quarter benefited from a $3.5 million, or $0.18 per diluted share, reduction in income taxes related primarily to the lower corporate tax rate enacted under the Tax Cuts and Jobs Act in December 2017.   Our effective tax rate in the quarter decreased to 28.1% from 35.4% last year.

Net earnings for the current year nine months benefited from a $20.9 million, or $1.11 per diluted share, gain on the re-measurement of deferred tax liabilities and a $7.4 million, or $0.40 per diluted share, reduction in income taxes related primarily to the lower corporate tax rate enacted under the Tax Cuts and Jobs Act in December 2017.  Net earnings were impacted by a $1.2 million, or $.06 per diluted share, provision for the one-time repatriation tax required under the new tax law.  Excluding the deferred tax gain and the one-time repatriation tax, our effective tax rate decreased to 28.4% from 35.0% in the prior year nine months reflecting the reduction in the federal statutory rate to 21% from 35% for the last three quarters of fiscal 2018. The gain on the re-measurement of deferred tax liabilities and the one-time repatriation tax are preliminary estimates. 

Gerald B. Shreiber, J & J's President and Chief Executive Officer, commented, "While our ICEE business continues to perform well and although we continue to be impacted by higher costs and other challenges throughout our businesses,  we are determined to improve our operations and margins going forward."

J&J Snack Foods Corp. is a leader and innovator in the snack food industry, providing nutritional and affordable branded niche snack foods and beverages to foodservice and retail supermarket outlets.  Manufactured and distributed nationwide, our principal products include SUPERPRETZEL, BAVARIAN BAKERY and other soft pretzels, ICEE and SLUSH PUPPIE frozen beverages, LUIGI'S, MINUTE MAID* frozen juice bars and ices, WHOLE FRUIT sorbet and frozen fruit bars, MARY B'S biscuits and dumplings, DADDY RAY'S fig and fruit bars, TIO PEPE'S and CALIFORNIA CHURROS, PATIO Burritos and other handheld sandwiches, THE FUNNEL CAKE FACTORY funnel cakes, and several bakery brands within COUNTRY HOME BAKERS and  HILL & VALLEY. For more information, please visit http://www.jjsnack.com.

*MINUTE MAID is a registered trademark of The Coca-Cola Company

 
  J & J SNACK FOODS CORP. AND SUBSIDIARIES
  CONSOLIDATED STATEMENTS OF EARNINGS
  (Unaudited)
  (in thousands, except per share amounts)
               
  Three months ended   Nine months ended
  June 30,   June 24,    June 30,   June 24,
  2018   2017   2018   2017
               
Net Sales $   306,239     $   295,415     $  837,550     $   767,498  
               
Cost of goods sold   211,764       200,651       592,518       534,022  
Gross Profit   94,475       94,764       245,032       233,476  
               
Operating expenses              
Marketing    25,589       25,571       69,672       67,435  
Distribution    24,325       21,865       67,901       58,537  
Administrative    9,654       9,588       28,014       26,404  
Other general expense (income)   38       (60 )     (193 )     (138 )
Total operating expenses   59,606       56,964       165,394       152,238  
               
Operating Income   34,869       37,800       79,638       81,238  
               
Other income (expense)              
Investment income    1,705       1,422       4,687       3,824  
Interest expense & other   (209 )     (80 )     267       (651 )
               
Earnings before               
income taxes   36,365       39,142       84,592       84,411  
               
Income taxes   10,236       13,838       4,381       29,580  
               
NET EARNINGS $   26,129     $   25,304     $   80,211     $   54,831  
               
Earnings per diluted share $   1.39     $   1.34     $   4.27     $   2.91  
               
Weighted average number               
of diluted shares     18,822         18,846       18,801       18,818  
               
Earnings per basic share $   1.40     $   1.35     $   4.29     $   2.93  
               
Weighted average number of               
basic shares     18,698         18,727       18,683       18,708  
               


       
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
 
  June 30,   September 30,
  2018    2017 
  (unaudited)    
Assets      
Current assets      
Cash and cash equivalents $   95,628     $   90,962  
Marketable securities held to maturity     30,271         59,113  
Accounts receivable, net   131,776       124,553  
Inventories   116,194       103,268  
Prepaid expenses and other   6,857       3,936  
Total current assets   380,726       381,832  
       
Property, plant and equipment, at cost      
Land   2,494         2,482  
Buildings   26,582         26,741  
Plant machinery and equipment   279,077         257,172  
Marketing equipment   285,689         278,860  
Transportation equipment     8,648         8,449  
Office equipment     27,948         25,302  
Improvements     38,657         38,003  
Construction in progress     13,174         16,880  
Total Property, plant and equipment, at cost   682,269       653,889  
Less accumulated depreciation       
and amortization   445,001       426,308  
Property, plant and equipment, net   237,268       227,581  
       
Other assets      
Goodwill   102,511       102,511  
Other intangible assets, net   58,646       61,272  
Marketable securities held to maturity   103,548       60,908  
Marketable securities available for sale   28,908       30,260  
Other    2,625       2,864  
Total other assets   296,238       257,815  
Total Assets $ 914,232     $ 867,228  
       
Liabilities and Stockholders' Equity      
Current Liabilities      
Current obligations under capital leases $   336     $   340  
Accounts payable   79,489       72,729  
Accrued insurance liability   11,929       10,558  
Accrued liabilities   7,770       7,753  
Accrued compensation expense   15,147       19,826  
Dividends payable   8,415       7,838  
Total current liabilities   123,086       119,044  
       
Long-term obligations under capital leases   833       904  
Deferred income taxes   50,228       62,705  
Other long-term liabilities   2,010       2,253  
       
Stockholders' Equity      
Preferred stock, $1 par value; authorized      
10,000,000 shares; none issued    -         -   
Common stock, no par value; authorized,      
50,000,000 shares; issued and outstanding      
18,697,000 and 18,705,000 respectively   23,047       17,382  
Accumulated other comprehensive loss   (13,770 )     (8,875 )
Retained Earnings    728,798       673,815  
Total stockholders' equity   738,075         682,322  
Total Liabilities and Stockholders' Equity $ 914,232     $   867,228  
       


 
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)     (in thousands)
       
  Nine months ended
  June 30,   June 24,
   2018    2017
Operating activities:      
Net earnings $   80,211     $   54,831  
Adjustments to reconcile net       
earnings to net cash      
provided by operating activities:      
Depreciation of property, plant and equipment    31,929       28,060  
Amortization of intangibles       
and deferred costs   2,639       3,336  
Share-based compensation   2,874       2,240  
Deferred income taxes   (12,502 )     (347 )
Loss(gain)on sale and redemption of marketable securities    32       (13 )
Other   (3 )     712  
Changes in assets and liabilities       
net of effects from purchase of companies      
Increase in accounts receivable   (7,530 )     (23,385 )
Increase in inventories   (13,020 )     (12,154 )
(Increase)decrease in prepaid expenses   (2,949 )     10,035  
Increase in accounts payable       
  and accrued liabilities   3,606       20,023  
Net cash provided by operating activities   85,287       83,338  
Investing activities:      
Payment for purchases of companies, net of cash acquired     -       (42,058 )
Purchases of property, plant       
and equipment   (43,344 )     (57,151 )
Purchases of marketable securities   (65,227 )     (27,269 )
Proceeds from redemption and sales of       
marketable securities   51,417       14,681  
Proceeds from disposal of property, plant and       
equipment   1,895       1,385  
Other    171       (404 )
Net cash used in investing activities   (55,088 )     (110,816 )
Financing activities:      
Payments to repurchase common stock     (2,794 )       (3,374 )
Proceeds from issuance of stock   5,561       4,745  
Payments on capitalized lease obligations   (278 )     (273 )
Payment of cash dividend   (24,652 )     (22,992 )
Net cash used in financing activities   (22,163 )     (21,894 )
Effect of exchange rate on cash       
and cash equivalents   (3,370 )     1,334  
Net increase (decrease) in cash       
and cash equivalents   4,666       (48,038 )
Cash and cash equivalents at beginning       
of period   90,962       140,652  
Cash and cash equivalents at end       
of period $   95,628     $   92,614  
       


               
  Three months ended   Nine months ended
  June 30,   June 24,   June 30,   June 24,
   2018    2017    2018    2017
  (in thousands)
                 
Sales to External Customers:              
Food Service              
Soft pretzels $ 53,880     $ 45,069     $ 151,649     $ 129,556  
Frozen juices and ices     12,825         16,281         29,448         33,453  
Churros     16,739         17,536         46,603         46,693  
Handhelds     9,974         8,574         30,667         24,155  
Bakery   93,082       89,712       278,828       248,795  
Other     5,201         5,938         16,235         14,833  
Total Food Service $ 191,701     $ 183,110     $ 553,430     $ 497,485  
               
Retail Supermarket              
Soft pretzels $   7,332     $   7,496     $   27,925     $   25,626  
Frozen juices and ices     28,785         27,317         53,950         50,359  
Handhelds     2,960         3,548         8,749         10,374  
Coupon redemption     (1,278 )       (1,092 )       (2,647 )       (3,246 )
Other     733         873         1,715         2,260  
Total Retail Supermarket $   38,532     $   38,142     $   89,692     $   85,373  
               
Frozen Beverages              
Beverages $ 50,343     $ 48,714     $ 118,932     $ 108,812  
Repair and               
maintenance service     19,693         18,549         58,005         54,327  
Machines sales     5,644         6,496         16,652         20,547  
Other     326         404         839         954  
Total Frozen Beverages $ 76,006     $ 74,163     $ 194,428     $ 184,640  
               
Consolidated Sales $ 306,239     $ 295,415     $ 837,550     $ 767,498  
               
Depreciation and Amortization:              
Food Service $   6,237     $   6,028     $   19,376     $   18,155  
Retail Supermarket     332         221         980         859  
Frozen Beverages     4,860         4,437         14,212         12,382  
Total Depreciation and Amortization $   11,429     $   10,686     $   34,568     $   31,396  
               
Operating Income:              
Food Service $   19,663     $   22,005     $   54,098     $   58,695  
Retail Supermarket     3,203         4,890         8,295         8,390  
Frozen Beverages     12,003         10,905         17,245         14,153  
Total Operating Income $   34,869     $   37,800     $   79,638     $   81,238  
               
Capital Expenditures:              
Food Service $   10,172     $   16,923     $   25,872     $   35,536  
Retail Supermarket     273         15         376         228  
Frozen Beverages     6,618         7,230         17,096         21,387  
Total Capital Expenditures $   17,063     $   24,168     $   43,344     $   57,151  
               
Assets:              
Food Service $ 672,861     $ 631,131     $ 672,861     $ 631,131  
Retail Supermarket     24,215         25,212         24,215         25,212  
Frozen Beverages   217,156       209,441       217,156       209,441  
Total Assets $ 914,232     $ 865,784     $ 914,232     $ 865,784  
               

Results of Operations

Net sales increased $10,824,000 or 4% to $306,239,000 for the three months and $70,052,000 or 9% to $837,550,000 for the nine months ended June 30, 2018 compared to the three and nine months ended June 24, 2017.  Excluding first twelve months' sales from Hill & Valley, Inc., acquired in January 2017, an ICEE distributor located in the Southeast acquired in June 2017 and Labriola Bakery which was acquired in August 2017, sales for the three months increased $6,329,000 or 2% from last year and sales for the nine months increased $38,365,000, or 5% from last year.

FOOD SERVICE

Sales to food service customers increased $8,591,000 or 5% in the third quarter to $191,701,000 and increased $55,945,000 or 11% for the nine months.  Excluding first twelve months' sales of Hill & Valley and Labriola, sales increased $4,596,000 or 3% for the third quarter and $26,161,000 or 5% for the nine months.  Soft pretzel sales to the food service market increased 20% to $53,880,000 in the three months and 17% to $151,649,000 in the nine months and about 11% and 10% in the three and nine months without Labriola sales.  In addition to Labriola sales, soft pretzel sales increased significantly due to increased distribution to restaurant chains and movie theatres and we had strong sales of our recently introduced BRAUHAUS pretzels.

Frozen juices and ices sales decreased 21% to $12,825,000 in the three months and decreased 12% to $29,448,000 in the nine months due entirely to lower sales to warehouse club stores because of a loss of a promotion and because of reduced distribution.

Churro sales to food service customers were down 5% in the third quarter to $16,739,000 and were essentially unchanged at $46,603,000 in the nine months, with sales increases and decreases across our customer base but with particularly lower sales to one warehouse club store in the third quarter which last year had sales of a new product since discontinued. 

Sales of bakery products increased $3,370,000 or 4% in the third quarter to $93,082,000 and increased $30,033,000 or 12% for the nine months. Excluding sales of Hill & Valley and Labriola, bakery sales were up 3% for the quarter and 4% for the year primarily due to increased sales to several customers.

Sales of handhelds increased $1,400,000 or 16% in the third quarter and $6,512,000 or 27% for the nine months with the increase in both periods coming primarily from sales to two customers.  Sales of funnel cake decreased $535,000 or 10% in the quarter to $5,094,000 and increased $1,512,000 or 11% for the nine months to $15,435,000 as we continue to increase sales to school food service. Sales of a limited time only funnel cake sold for distribution into independent fast food restaurant chains were down approximately $350,000 in both periods compared to a year ago and lower sales to one fast food restaurant chain accounted for the balance of the decrease in this year's quarter's sales.

Sales of new products in the first twelve months since their introduction were approximately $4 million in this quarter and $17 million in the nine months.  Price increases accounted for approximately $2.4 million of sales in the quarter and $6.0 million of sales in the nine months and net volume increases, including new product sales as defined above and Hill & Valley and Labriola sales, accounted for approximately $6 million of sales in the quarter and $50 million of sales in the nine months.

Operating income in our Food Service segment decreased from $22,005,000 to $19,663,000 in the third quarter and decreased from $58,695,000 to $54,098,000 in the nine months.  Last year's operating income in the third quarter and nine months benefited from a $1.8 million gain on an insurance recovery related to product quality issues in our 2016 fiscal year which was recorded as a reduction of cost of goods sold.  This year's quarter and nine months was impacted by approximately $1.3 million and $3.3 million, respectively, of higher distribution expenses primarily due to higher fuel costs and the recent implementation of the electronic logging device mandate. Additionally, lower sales of our MARY B's biscuits and related costs due to our recall in early January impacted our operating income by approximately $500,000 in the third quarter and $1.0 million in the nine months. Hill & Valley contributed improved operating income of $364,000 in the third quarter and $2.1 million in the nine months.  For the third quarter and nine months, operating income in the balance of our food service business was impacted by generally higher costs for payroll and insurance, added personnel in the selling function, product mix changes and significantly lower volume concentrated in specific facilities and higher ingredients costs. Operating income in the first quarter was impacted by inefficiencies at our recently acquired Labriola production facility (compounded by the integration of products previously manufactured at other facilities) and shutdown costs of our Chambersburg facility; both of which had little impact beyond the first quarter.

RETAIL SUPERMARKETS

Sales of products to retail supermarkets increased $390,000 or 1% to $38,532,000 in the third quarter and increased $4,319,000 or 5% in the nine months.  Soft pretzel sales for the third quarter were down 2% to $7,332,000 and up 9% to $27,925,000 for the nine months.  The nine month increase was primarily due to sales of AUNTIE ANNE'S* soft pretzels under a license agreement entered into in 2017.  Sales of frozen juices and ices increased $1,468,000 or 5% to $28,785,000 in the third quarter and were up $3,591,000 or 7% to $53,950,000 for the nine months primarily due to sales of SOUR PATCH KIDS** frozen novelties under a new license agreement.  Handheld sales to retail supermarket customers decreased 17% to $2,960,000 in the third quarter and decreased 16% to $8,749,000 for the nine months as the sales of this product line in retail supermarkets continues their long term decline.

Sales of new products in the third quarter were approximately $3 million and were $7 million for the nine months.  Price increases had no impact on sales in the quarter and nine months and net volume increases, including new product sales as defined above accounted for $390,000 of sales in the quarter and $4.3 million of sales in the nine months.

Operating income in our Retail Supermarkets segment was $3,203,000 in this year's third quarter compared to $4,890,000 in last year's quarter and was $8,295,000 in this year's nine months compared to $8,390,000 in last year's nine months.  Contributions to the lower operating income in this year's quarter were lower sales of soft pretzels and LUIGI'S Real Italian Ice and increases in trade spending, coupon redemptions and distribution costs. 

* AUNTIE ANNE'S is a registered trademark of Auntie Anne's LLC.
** SOUR PATCH KIDS is a registered trademark of Mondelez International Group

FROZEN BEVERAGES

Frozen beverage and related product sales increased 2% to $76,006,000 in the third quarter and increased 5% to $194,428,000 in the nine month period.  Excluding sales of the acquired ICEE distributor, frozen beverages and related product sales were up about 2% for the third quarter and 4% for the nine month period.  Beverage sales alone were up 3% to $50,343,000 in the third quarter and up 9% to $118,932,000 for the nine months.  Without the acquired ICEE distributor, beverage sales alone were up about 2% for the quarter and 8% for the nine months.  Gallon sales were up 7% for the third quarter and 7% for the nine months with higher sales to movie theatres and across our customer base.  Service revenue increased 6% to $19,693,000 in the third quarter and 7% to $58,005,000 for the nine months with sales increases concentrated to several customers.

Sales of beverage machines, which tend to fluctuate from year to year while following no specific trend, were $5,644,000, a decrease of 13% for the quarter, and $16,652,000, a decrease of 19% for the nine month period. 

Operating income in our Frozen Beverage segment increased to $12,003,000 in this year's quarter and to $17,245,000 for this year's nine months compared to $10,905,000 and $14,153,000 in last years' quarter and nine months, respectively, as a result of higher beverage sales and service revenue.

CONSOLIDATED

Gross profit as a percentage of sales was 30.85% in the third quarter and 32.08% last year.  Gross profit as a percentage of sales was 29.26% in the nine month period this year and 30.42% last year.  Without the gain on insurance recovery of $1.8 million recorded in last year's third quarter related to certain product quality issues in our 2016 fiscal year, gross profit as a percentage of sales would have been 31.48% in last year's third quarter and 30.19% in the nine months last year.  For the nine months, the decrease was caused by higher costs for payroll and insurance, inefficiencies in our recently acquired Labriola production facility (compounded by the integration of products previously manufactured at other facilities), product mix changes, significantly lower volume concentrated in specific facilities, lower sales of our MARY B'S biscuits and related costs due to our recall in early January, shutdown costs of our Chambersburg, PA production facility and higher ingredients costs. Of these, the inefficiencies at Labriola and shutdown costs of our Chambersburg facility had little impact in our third quarter.

Total operating expenses increased $2,642,000 in the third quarter and as a percentage of sales increased to 19.5% from 19.3% last year.  For the nine months, operating expenses increased $13,156,000, and as a percentage of sales decreased from 19.8% to 19.7%.  Marketing expenses decreased to 8.4% of sales in this year's quarter from 8.7% last year primarily because of lower spending to support warehouse club store sales in our foodservice business and lower marketing expenses of the acquired Labriola business. Marketing expenses were 8.3% in this year's nine months compared to 8.8% of sales in last year's nine months primarily because of lower media spending in our retail supermarket business in the first six months of the year, lower spending to support warehouse club store sales in our foodservice business and lower marketing expenses of the acquired Hill & Valley and Labriola businesses.  Distribution expenses were 7.9% of sales in the third quarter and 7.4% of sales in last year's quarter and were 8.1% in this year's nine months compared to 7.6% of sales in last year's nine months.  Distribution expenses have increased due to higher fuel costs and the recent implementation of the electronic logging device mandate. We expect distribution expenses to remain higher for at least the remainder of our 2018 fiscal year.  Administrative expenses were 3.2% of sales in the third quarter compared to 3.2% of sales last year in the third quarter and were 3.3% in this year's nine months compared to 3.4% of sales in last year's nine months.

Operating income decreased $2,931,000 or 8% to $34,869,000 in the third quarter and decreased $1,600,000 or 2% to $79,638,000 in the nine months as a result of the aforementioned items.

Investment income increased by $283,000 and $863,000 in the third quarter and nine months, respectively, resulting from higher amounts invested and higher interest rates.

Other income for this year's nine months includes a $520,000 gain on a sale of property; other expense in last year's quarter and nine months includes $53,000 and $567,000, respectively, of acquisition costs for the Hill & Valley and ICEE distributor purchases.

Net earnings increased $825,000, or 3%, in the current three month period to $26,129,000 and were $80,211,000 for the nine month period this year compared to $54,831,000 for the nine month period last year.

Net earnings for the nine months ended June 30, 2018 benefited from a $20.9 million, or $1.11 per diluted share, gain on the remeasurement of deferred tax liabilities and a $7.4 million, or $0.40 per diluted share, reduction in income taxes related primarily to the lower corporate tax rate enacted under the Tax Cuts and Jobs Act in December 2017.  Net earnings for the nine months were impacted by a $1.2 million, or $.06 per diluted share, provision for the one time repatriation tax required under the new tax law.  For the three months ended June 30, 2018, net earnings benefited by a $3.5 million, or $.18 per diluted share, reduction in income taxes primarily related to the lower corporate tax rate.  Excluding the deferred tax gain and the one-time repatriation tax, our effective tax rate decreased to 28.1% from 35.4% in the prior year quarter and to 28.4% from 35.0% in prior year nine months reflecting the reduction in the federal statutory rate to 21% from 35% on January 1, 2018.  Last year's nine months' effective tax rate benefited from an unusually high tax benefit on share based compensation of $2,060,000 which compares to this year's nine month's tax benefit of $909,000. We are presently estimating an effective tax rate of 28-29% for the last quarter of our fiscal year 2018 and 26-27% for our fiscal year 2019. 

There are many factors which can impact our net earnings from year to year and in the long run, among which are the supply and cost of raw materials and labor, insurance costs, factors impacting sales as noted above, the continuing consolidation of our customers, our ability to manage our manufacturing, marketing and distribution activities, our ability to make and integrate acquisitions and changes in tax laws and interest rates.

The forward-looking statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements.  Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date hereof.  The Company undertakes no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances that arise after the date hereof.

         
Contact:       Dennis G. Moore
        Senior Vice President
        Chief Financial Officer
        (856) 532-6603

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