J & J Snack Foods Reports Third Quarter Sales and Earnings

| Source: J & J Snack Foods Corp. J & J Snack Foods Corp.

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