OREANDA-NEWS. July 26, 2016. J & J Snack Foods Corp. (NASDAQ:JJSF) today announced sales and earnings for the third quarter ended June 25, 2016.

Sales for the third quarter decreased about 1/4 of one percent to \\$278.0 million from \\$278.7 million in last year’s third quarter. Net earnings increased ­­10% to \\$26.8 million in the current quarter from \\$24.5 million last year.  Earnings per diluted share increased to \\$1.43 for the third quarter from \\$1.30 last year. Operating income increased 4% to \\$40.4 million in the current quarter from \\$38.8 million in the year ago quarter.

For the nine months ended June 25, 2016, sales increased 2% to \\$730.5 million from \\$716.5 million in last year’s nine months.  Net earnings increased 10% to \\$55.4 million this year from \\$50.4 million last year for the nine months.  Earnings per diluted share increased to \\$2.95 from \\$2.68 last year.  Operating income increased 6% to \\$82.1 million this year from \\$77.2 million last year for the nine months.

Effective with this release, our earnings press release will contain detailed financial statements and commentary relating to our quarterly results of operations.  In connection with this change in practice, we expect to file our quarterly reports on Form 10-Q on the third business day following our quarterly press release.

Gerald B. Shreiber, J & J’s President and Chief Executive Officer, commented, “Although we are pleased that our earnings for the third quarter and nine months are higher than last year, we are disappointed with our lack of sales growth.”

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, PHILLY SWIRL, 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, CALIFORNIA CHURROS and TIO PEPE’S churros, PATIO Burritos and other handheld sandwiches, THE FUNNEL CAKE FACTORY funnel cakes, and several cookie brands within COUNTRY HOME BAKERS.  For more information, please visit us at 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 25, June 27, June 25, June 27,
   2016
 2015
 2016
 2015
          
Net Sales  \\$277,981  \\$278,724  \\$730,541  \\$716,484 
          
Cost of goods sold   185,895   188,328   505,871   498,037 
Gross Profit   92,086   90,396   224,670   218,447 
          
Operating expenses         
Marketing   23,721   23,201   63,714   62,674 
Distribution   19,006   20,429   54,784   55,583 
Administrative   8,530   7,910   23,857   22,897 
Other general expense   392   45   239   67 
    51,649   51,585   142,594   141,221 
          
Operating Income   40,437   38,811   82,076   77,226 
          
Other income (expense)         
Investment income (loss)   981   (53)  3,118   2,579 
Interest expense & other   (31)  (34)  (94)  (88)
          
Earnings before         
income taxes   41,387   38,724   85,100   79,717 
          
Income taxes   14,596   14,262   29,743   29,362 
          
NET EARNINGS  \\$26,791  \\$24,462  \\$55,357  \\$50,355 
          
Earnings per diluted share  \\$1.43  \\$1.30  \\$2.95  \\$2.68 
          
Weighted average number         
of diluted shares   18,705   18,823   18,765   18,815 
          
Earnings per basic share  \\$1.44  \\$1.31  \\$2.97  \\$2.70 
          
Weighted average number of         
basic shares   18,615   18,691   18,646   18,683 
          

 

 J & J SNACK FOODS CORP. AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS
 (in thousands, except share amounts)
 
  June 25, September 26,
  2016 2015
  (unaudited)  
Assets    
Current assets    
Cash and cash equivalents \\$104,321  \\$133,689 
Marketable securities held to maturity  9,667   - 
Accounts receivable, net  114,543   102,649 
Inventories  94,906   82,657 
Prepaid expenses and other  5,109   6,557 
Deferred income taxes  3,332   3,266 
Total current assets  331,878   328,818 
     
Property, plant and equipment, at cost    
Land  2,496   2,496 
Buildings  26,741   26,741 
Plant machinery and equipment  225,055   210,728 
Marketing equipment  274,371   266,047 
Transportation equipment  7,490   6,866 
Office equipment  21,739   20,586 
Improvements  34,529   28,725 
Construction in progress  4,919   9,486 
Total Property, plant and equipment, at cost  597,340   571,675 
Less accumulated depreciation    
and amortization  414,872   399,621 
Property, plant and equipment, net  182,468   172,054 
     
Other assets    
Goodwill  86,442   86,442 
Other intangible assets, net  41,895   45,819 
Marketable securities held to maturity  96,197   66,660 
Marketable securities available for sale  29,440   39,638 
Other  2,913   3,504 
Total other assets  256,887   242,063 
Total Assets \\$771,233  \\$742,935 
     
Liabilities and Stockholders' Equity    
Current Liabilities    
Current obligations under capital leases \\$363  \\$273 
Accounts payable  65,866   59,206 
Accrued insurance liability  10,705   10,231 
Accrued liabilities  5,587   5,365 
Accrued compensation expense  14,608   15,318 
Dividends payable  7,257   6,723 
Total current liabilities  104,386   97,116 
     
Long-term obligations under capital leases  1,327   1,196 
Deferred income taxes  43,657   43,789 
Other long-term liabilities  813   915 
     
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    
18,618,000 and 18,676,000 respectively  21,756   31,653 
Accumulated other comprehensive loss  (13,426)  (10,897)
Retained Earnings  612,720   579,163 
Total stockholders' equity  621,050   599,919 
Total Liabilities and Stockholders' Equity \\$771,233  \\$742,935 
     
J & J SNACK FOODS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)  (in thousands)
     
  Nine months ended
  June 25, June 27,
  2016
 2015
Operating activities:    
Net earnings \\$55,357  \\$50,355 
Adjustments to reconcile net    
earnings to net cash    
provided by operating activities:    
Depreciation of fixed assets  25,526   24,013 
Amortization of intangibles    
and deferred costs  4,304   4,445 
Share-based compensation  1,735   1,625 
Deferred income taxes  (172)  (131)
Loss on sale of marketable securities  582   1,904 
Other  493   (255)
Changes in assets and liabilities    
net of effects from purchase of companies    
Increase in accounts receivable  (11,984)  (15,821)
Increase in inventories  (12,478)  (8,052)
Decrease (increase) in prepaid expenses  1,419   (511)
Increase in accounts payable    
and accrued liabilities  6,566   8,980 
Net cash provided by operating activities  71,348   66,552 
Investing activities:    
Payment for purchases of companies, net of cash acquired  -   (615)
Purchases of property, plant    
and equipment  (37,221)  (34,180)
Purchases of marketable securities  (41,786)  (16,126)
Proceeds from redemption and sales of    
marketable securities  11,008   39,968 
Proceeds from disposal of property and    
equipment  1,578   1,322 
Other  308   (167)
Net cash used in investing activities  (66,113)  (9,798)
Financing activities:    
Payments to repurchase common stock  (15,265)  (2,114)
Proceeds from issuance of stock  3,634   2,174 
Payments on capitalized lease obligations  (265)  (176)
Payment of cash dividend  (21,267)  (19,425)
Net cash used in financing activities  (33,163)  (19,541)
Effect of exchange rate on cash    
and cash equivalents  (1,440)  (2,425)
Net (decrease) increase in cash    
and cash equivalents  (29,368)  34,788 
Cash and cash equivalents at beginning    
of period  133,689   91,760 
Cash and cash equivalents at end    
of period \\$104,321  \\$126,548 
     
          
   Three months ended Nine months ended
   June 25, June 27, June 25, June 27,
   2016
 2015
 2016
 2015
   (unaudited)
   (in thousands)
Sales to External Customers:         
Food Service         
Soft pretzels  \\$44,410  \\$42,920  \\$125,943  \\$124,737 
Frozen juices and ices   18,564   19,331   37,850   38,604 
Churros   15,819   14,979   43,452   42,568 
Handhelds   7,047   5,853   20,371   16,055 
Bakery   74,475   79,643   221,500   224,865 
Other   8,833   4,522   15,507   9,242 
Total Food Service  \\$169,148  \\$167,248  \\$464,623  \\$456,071 
          
Retail Supermarket         
Soft pretzels  \\$7,136  \\$7,431  \\$25,611  \\$27,460 
Frozen juices and ices   26,038   29,421   48,009   52,298 
Handhelds   3,813   4,667   11,121   14,115 
Coupon redemption   (826)  (811)  (1,911)  (2,811)
Other   852   420   2,143   986 
Total Retail Supermarket  \\$37,013  \\$41,128  \\$84,973  \\$92,048 
          
Frozen Beverages         
Beverages  \\$44,352  \\$44,990  \\$102,966  \\$99,278 
Repair and maintenance service   18,398   17,270   53,105   48,303 
Machines sales   8,942   7,696   23,911   19,771 
Other   128   392   963   1,013 
Total Frozen Beverages  \\$71,820  \\$70,348  \\$180,945  \\$168,365 
          
Consolidated Sales  \\$277,981  \\$278,724  \\$730,541  \\$716,484 
          
Depreciation and Amortization:         
Food Service  \\$5,777  \\$5,267  \\$16,846  \\$15,782 
Retail Supermarket   288   283   862   849 
Frozen Beverages   4,095   4,052   12,122   11,827 
Total Depreciation and Amortization  \\$10,160  \\$9,602  \\$29,830  \\$28,458 
          
Operating Income:         
Food Service  \\$24,619  \\$20,479  \\$59,041  \\$51,621 
Retail Supermarket   4,266   6,406   7,825   9,607 
Frozen Beverages   11,552   11,926   15,210   15,998 
Total Operating Income  \\$40,437  \\$38,811  \\$82,076  \\$77,226 
          
Capital Expenditures:         
Food Service  \\$5,961  \\$9,315  \\$19,470  \\$20,065 
Retail Supermarket   140  \\$-   339   62 
Frozen Beverages   7,385  \\$6,932   17,412   14,053 
Total Capital Expenditures  \\$13,486  \\$16,247  \\$37,221  \\$34,180 
          
Assets:         
Food Service  \\$563,571  \\$541,314  \\$563,571  \\$541,314 
Retail Supermarket   26,110   26,711   26,110   26,711 
Frozen Beverages   181,552   174,901   181,552   174,901 
Total Assets  \\$771,233  \\$742,926  \\$771,233  \\$742,926 
          

Results of Operations

Net sales decreased \\$743,000 or about 1/4 of 1% to \\$277,981,000 for the three months and increased \\$14,057,000 or 2% to \\$730,541,000 for the nine months ended June 25, 2016 compared to the three and nine months ended June 27, 2015. 

FOOD SERVICE

Sales to food service customers increased \\$1,900,000 or 1% in the third quarter to \\$169,148,000 and increased \\$8,552,000 or 2% for the nine months.  Soft pretzel sales to the food service market increased 3% to \\$44,410,000 in the third quarter and increased 1% to \\$125,943,000 in the nine months with sales increases and decreases in the third quarter spread among our customers and with sales of \\$1.2 million under an already ended limited time offer program to a new restaurant chain customer.  Soft pretzel sales to restaurant chains were 13% higher compared to last year’s quarter primarily due to the above mentioned sales and for the nine months, soft pretzel sales to restaurant chains were marginally higher than last year.

Frozen juices and ices sales decreased 4% to \\$18,564,000 in the three months and were down 2% to \\$37,850,000 in the nine months with lower sales to one customer accounting for the entire decrease in both periods. Churro sales to food service customers increased 6% to \\$15,819,000 in the third quarter and were up 2% to \\$43,452,000 for the nine months with sales increases and decreases spread among our customers.  

Sales of bakery products decreased \\$5,168,000 or 6% in the third quarter to \\$74,475,000 and decreased \\$3,365,000 or 1% for the nine months.  Sales to one customer were down \\$4.4 million in the quarter compared to last year as the customer added a secondary supplier.  We expect sales to this customer to be down approximately \\$1 million a month through January 2017. 

Sales of handhelds increased \\$1,194,000 or 20% in the quarter with the sales increase split among two customers and \\$4,317,000 or 27% for the nine months with 90% of the increase coming from sales to one customer.  Sales of funnel cake increased \\$4,463,000 or 109% in the quarter to \\$8,570,000 and \\$6,559,000 or 81% to \\$14,651,000 for the nine months primarily due to increased sales to school food service and to sales of \\$3.8 million in the third quarter to a new restaurant chain customer.  We do not expect additional funnel cake sales to this customer until the second quarter of our fiscal year 2017.

Sales of new products in the first twelve months since their introduction were approximately \\$14 million in this quarter and \\$24 million in the nine months. Price increases accounted for approximately \\$900,000 of sales in the quarter and \\$6.8 million in the nine months and net volume increases, including new product sales as defined above, accounted for approximately \\$1.0 million of sales in the quarter and \\$1.7 in the nine months.

Operating income in our Food Service segment increased from \\$20,479,000 to \\$24,619,000 in the quarter and increased from \\$51,621,000 to \\$59,041,000 in the nine months.  Operating income for both periods benefited from lower marketing expenses, lower ingredient costs, significantly increased volume of our handhelds and funnel cake products, pricing and more favorable product mix and was hurt by higher group health insurance costs and lower volume of our frozen juices and ices and bakery products. 

RETAIL SUPERMARKETS

Sales of products to retail supermarkets decreased \\$4,115,000 or 10% to \\$37,013,000 in the third quarter and decreased \\$7,075,000 or 8% to \\$84,973,000 in the nine months.  Soft pretzel sales for the third quarter were down 4% to \\$7,136,000 with sales increases and decreases spread over our customer base and products and were down 7% to \\$25,611,000 for the nine months.  About one third of the pretzel sales decline in the nine month period was due to the discontinuance of SUPERPRETZEL BAVARIAN Soft Pretzel Bread and lower sales to two customers accounted for roughly 90% of the balance of the decline.  Sales of frozen juices and ices decreased \\$3,383,000 or 11% to \\$26,038,000 in the third quarter and were down 8% to \\$48,009,000 for the nine months.   Increased trade spending to introduce WHOLE FRUIT Organic juice tubes and new PHILLY SWIRL products and general declines in sales of our existing PHILLY SWIRL products accounted for all of the sales decline in frozen juices and ices in the nine months and over 80% of the decline in the third quarter.  PHILLY SWIRL sales were down in both periods primarily because of lower sales to a customer in Canada due to the stronger US dollar, lower sales to one warehouse club store which carried fewer SKUS this year and decreased sales to one retail supermarket customer of a product that is being discontinued.  We expect a significant improvement of sales of PHILLY SWIRL products in our fourth quarter compared to last year.  Coupon redemption costs, a reduction of sales, which were higher in the first six months a year ago supporting the introduction of the SUPERPRETZEL BAVARIAN Soft Pretzel Bread, were essentially unchanged for the quarter at \\$826,000 and decreased 32% to \\$1,911,000 for the nine months.  Handheld sales to retail supermarket customers decreased 18% to \\$3,813,000 in the quarter and decreased 21% to \\$11,121,000 for the nine months.  Roughly 25% of the handhelds sales decline in the quarter and 40% for the nine months resulted from increased trade spending to introduce PILLSBURY mini dessert pies.  The balance of the sales decline was spread over our customer base.

Sales of new products in the third quarter were approximately \\$2.5 million and were \\$4.5 million for the nine months.  Price increases accounted for approximately \\$300,000 of sales in the quarter and \\$1.5 million in the nine months and net volume decreases including new product sales as defined above and net of decreased coupon costs, lowered sales by approximately \\$4.4 million in this quarter and \\$8.6 million in the nine months.  Operating income in our Retail Supermarkets segment decreased from \\$6,406,000 to \\$4,266,000 in the quarter primarily because of approximately \\$600,000 of increased trade spending related to the introduction of WHOLE FRUIT Organic juice tubes, OREO churros, PILLSBURY mini dessert pies and other new  products and sharply lower frozen juices and ices sales volume and decreased from \\$9,607,000 to \\$7,825,000 in the nine months primarily because of increased trade spending of \\$1.8 million for the introduction of new products as mentioned above and lower sales volume offset by \\$900,000 of lower coupon expenses.

FROZEN BEVERAGES

Frozen beverage and related product sales increased 2% to \\$71,820,000 in the third quarter and increased 7% to \\$180,945,000 in the nine month period.  Beverage related sales alone were down 1% to \\$44,352,000 in the third quarter and were up 4% to \\$102,966,000 in the nine month period.    Gallon sales were essentially unchanged for the three months and were up 5% for the nine month period primarily due to higher sales to movie theaters.  Service revenue increased 7% to \\$18,398,000 in the third quarter and increased 10% to \\$53,105,000 for the nine month period with sales increases and decreases spread throughout our customer base.

Sales of beverage machines, which tend to fluctuate from year to year while following no specific trend, were \\$8,942,000, an increase of 16% from last year’s third quarter and were \\$23,911,000, or 21% higher than last year, in the nine month period. The approximate number of company owned frozen beverage dispensers was 55,500 and 53,100 at June 25, 2016 and September 26, 2015, respectively.  Operating income in our Frozen Beverage segment decreased to \\$11,552,000 in this quarter and \\$15,210,000 for the nine months compared to \\$11,926,000 and \\$15,998,000 in last years’ periods, respectively.  Higher group health insurance costs of about \\$500,000 and flat gallons volume contributed to the lower operating income for the third quarter and higher group health insurance costs of about \\$1.1 million and a bad debt write off of \\$200,000 contributed to the lower operating income in the nine months.

CONSOLIDATED

Gross profit as a percentage of sales was 33.13% in the three month period this year and 32.43% last year.  For the nine month period, gross profit as a percentage of sales was 30.75% this year and 30.49% a year ago.  For both periods, gross profit percentage benefited from lower ingredient costs, pricing, increased handhelds and funnel cake business and more favorable product mix in our food service business offset by higher costs in our frozen beverages business and increased trade spending related to the introduction of WHOLE FRUIT Organic juice tubes, OREO churros, PILLSBURY mini dessert pies and new PHILLY SWIRL products in our retail supermarket business, as well as by sharply lower volume in our retail supermarket business.

Total operating expenses were essentially unchanged at \\$51,649,000 in the third quarter and as a percentage of sales increased from 18.51% percent to 18.58%.  For the nine months, operating expenses increased \\$1,373,000, and as a percentage of sales decreased from 19.71% to 19.51%.  Marketing expenses increased to 8.5% of sales in this year’s quarter from 8.3% last year and were 8.7% of sales in both years’ nine months.  Distribution expenses were 6.8% of sales in this year’s quarter and were 7.3% of sales in last year’s quarter, and were 7.5% in this year’s nine month period and 7.8% of sales last years’ nine month period.  Distribution expenses benefited this quarter and nine months from lower fuel costs and shipping efficiencies.    Administrative expenses were 3.1% of sales this quarter and 3.3% for the nine month period as compared to 2.8% of sales last year in the third quarter and 3.2% for the nine months.

Operating income increased \\$1,626,000 or 4% to \\$40,437,000 in the third quarter and increased \\$4,850,000 or 6% to \\$82,076,000 for the nine months as a result of the aforementioned items.

Investment income of \\$981,000 this year compared to a loss of \\$53,000 last year and was higher by \\$539,000 in the nine months.  Last year’s investment income was reduced by realized losses of \\$1.4 million and \\$1.9 million in the three and nine months periods which compares to realized losses of \\$176,000 and \\$582,000 in this year’s three and nine months.

The effective income tax rate has been estimated at 35% and 37% for the quarter this year and last year, respectively and 35% and 37% for the nine months this year and last year, respectively.  The effective income tax rate for the three months ended December 26, 2015 has been revised to 33.4% as a result of our early adoption in the March 2016 quarter of Accounting Standards Update NO. 2016-09, Improvements to Employee Share-Based Payment Accounting. Under this new standard, \\$499,000 of first quarter income tax benefit was recognized via a reduction of amounts previously recorded as additional paid in capital upon exercise of stock options. In the March 2016 and June 2016 fiscal quarters, we have realized a tax benefit of \\$89,000 and \\$163,000; respectively, upon similar exercises of stock options.  We are estimating an effective income tax rate of approximately 35 1/4-35 1/2% for the year, which includes approximately 3/4 of 1 percentage point decrease because of the above referenced change in accounting. 

Net earnings increased \\$2,329,000 or 10% in the current three month period to \\$26,791,000 and were \\$55,357,000 for the nine months this year compared to \\$50,355,000 for the nine month period last year, an increase of 10%.

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.