J & J Snack Foods Reports Dip in Fourth Quarter Earnings
J & J Snack Foods Corp. (NASDAQ:JJSF) today reported record sales and earnings for its 2007 fiscal year.
Sales for the fiscal year ended September 29, 2007 (52 weeks) increased 11% to $568.9 million from $514.8 million in the fiscal year ended September 30, 2006 (53 weeks). Net earnings increased 9% to $32.1 million in fiscal 2007 from $29.5 million in fiscal 2006. On a per diluted share basis, earnings increased 8% to $1.69 from $1.57. Operating income increased 8% to $48.6 million this year from $45.1 million in the year ago period.
For the fourth quarter ended September 29, 2007 (13 weeks), sales increased 5% to $162.2 million from $154.1 million in the fourth quarter ended September 30, 2006 (14 weeks). Net earnings decreased 9% to $10.5 million in the current year quarter from $11.5 million. Earnings per diluted share were $.55 this year compared to $.61 last year. Operating income decreased 9% to $16.4 million from $18.1 million in the year ago period.
Gerald B. Shreiber, J & J’s President and Chief Executive Officer, commented, “Although our ICEE and Frozen Beverages group did contribute both increased sales and earnings in the quarter, our other business’ segments were impacted by sharply increasing raw material and packaging costs.”
J & J Snack Foods Corp.’s principal products include SUPERPRETZEL, PRETZEL FILLERS and other soft pretzels, ICEE, SLUSH PUPPIE and ARCTIC BLAST frozen beverages, LUIGI’S, MAMA TISH’S, SHAPE UPS, MINUTE MAID* and BARQ’S** and CHILL*** frozen juice bars and ices, WHOLE FRUIT sorbet, FRUIT-A-FREEZE frozen fruit bars, MARY B’S biscuits and dumplings, DADDY RAY’S fig and fruit bars, TIO PEPE’S churros, THE FUNNEL CAKE FACTORY funnel cakes, and MRS. GOODCOOKIE, CAMDEN CREEK, COUNTRY HOME and READI-BAKE cookies. J & J has manufacturing facilities in Pennsauken, Bridgeport and Bellmawr, New Jersey; Scranton, Hatfield and Chambersburg, Pennsylvania; Carrollton, Texas; Atlanta, Georgia; Moscow Mills, Missouri; Pensacola, Florida and Vernon and Newport, California.
*MINUTE MAID is a registered trademark of The Coca-Cola Company.
**BARQ’S is a registered trademark of Barq’s Inc.
***CHILL is a registered trademark of Wells Dairy, Inc.
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Consolidated Statements of Operations
Three Months Ended
Â
Fiscal Year Ended
Sept. 29,
Â
Sept. 30,
Sept. 29,
Â
Sept. 30,
2007
2006
2007
2006
(13 weeks)
(14 weeks)
(52 weeks)
(53 weeks)
(in thousands)
Â
Net sales
$
162,209
$
154,084
$
568,901
$
514,831
Cost of goods sold
Â
108,995
Â
100,741
Â
382,374
Â
342,412
Gross profit
53,214
53,343
186,527
172,419
Operating expenses
Â
36,770
Â
35,218
Â
137,947
Â
127,355
Operating income
16,444
18,125
48,580
45,064
Other income
Â
664
Â
863
Â
2,578
Â
3,008
Earnings before income taxes
17,108
18,988
51,158
48,072
Income taxes
Â
6,631
Â
7,471
Â
19,046
Â
18,622
Net earnings
$
10,477
$
11,517
$
32,112
$
29,450
Â
Earnings per diluted share
$
.55
$
.61
$
1.69
$
1.57
Earnings per basic share
$
.56
$
.62
$
1.72
$
1.60
Weighted average number of diluted shares
19,056
18,850
19,005
18,807
Weighted average number of basic shares
18,731
18,505
18,635
18,421
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Consolidated Balance Sheets
September 29, 2007
Â
September 30, 2006
(in thousands)
Â
Cash & cash equivalents
$
15,819
$
17,621
Marketable securities available for sale
41,200
59,000
Other current assets
108,345
95,623
Property, plant & equipment, net
93,222
85,447
Goodwill
60,314
57,948
Other intangible assets, net
58,333
22,669
Other
Â
3,055
Â
2,500
Total
$
380,288
$
340,808
Â
Current liabilities
$
64,601
$
58,306
Long-term obligations under capital leases
474
–
Deferred income taxes
19,180
18,211
Other long-term liabilities
451
635
Stockholders’ equity
Â
295,582
Â
263,656
Total
$
380,288
$
340,808
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Consolidated Statements of Cash Flows
Fiscal Year Ended
September 29, 2007
Â
September 30, 2006
(52 weeks)
(53 weeks)
(in thousands)
Â
Operating activities:
Net earnings
$
32,112
$
29,450
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization of fixed assets
22,451
22,848
Amortization of intangibles and deferred costs
4,557
1,760
(Gains) losses from disposals and write-downs of property & equipment
(49
)
1,062
Other
(150
)
–
Share-based compensation
1,740
1,586
Deferred income taxes
557
(96
)
Changes in assets and liabilities, net of effects from purchase of companies:
Increase in accounts receivable
(569
)
(4,223
)
Increase in inventories
(5,722
)
(2,160
)
Increase in prepaid expenses and other
(65
)
(167
)
Increase in accounts payable and accrued liabilities
Â
2,981
Â
Â
4,905
Â
Net cash provided by operating activities
Â
57,843
Â
Â
54,965
Â
Â
Investing activities:
Purchases of property, plant and equipment
(22,765
)
(19,739
)
Payments for purchase of companies, net of cash acquired
(52,747
)
(26,264
)
Purchase of marketable securities
(60,875
)
(40,825
)
Proceeds from sales of marketable securities
78,882
36,050
Proceeds from disposal of property & equipment
592
1,046
Other
Â
(921
)
Â
(897
)
Net cash used in investing activities
Â
(57,834
)
Â
(50,629
)
Â
Financing activities:
Proceeds from issuance of common stock
4,369
2,809
Payments of cash dividend
(6,123
)
(5,273
)
Payments on capitalized lease obligations
Â
(15
)
Â
–
Â
Â
Net cash used in financing activities
(1,769
)
(2,464
)
Â
Effect of exchange rate on cash and cash equivalents
Â
(42
)
Â
(46
)
Â
Net (decrease) increase in cash & cash equivalents
(1,802
)
1,826
Â
Cash and cash equivalents at beginning of year
Â
17,621
Â
Â
15,795
Â
Â
Cash and cash equivalents at end of year
$
15,819
Â
$
17,621
Â
Â
Segment Reporting
Fiscal Year End
September 29, 2007
Â
September 30, 2006
(in thousands)
Â
Sales to external customers:
Food Service
$
355,764
$
320,167
Retail Supermarket
52,131
46,948
The Restaurant Group
2,766
3,897
Frozen Beverages
Â
158,240
Â
Â
143,819
Â
$
568,901
Â
$
514,831
Â
Â
Depreciation and Amortization:
Food Service
$
16,176
$
13,992
Retail Supermarket
–
–
The Restaurant Group
60
102
Frozen Beverages
Â
10,772
Â
Â
10,514
Â
$
27,008
Â
$
24,608
Â
Â
Operating Income (Loss):
Food Service
$
33,417
$
32,083
Retail Supermarket
(2
)
1,945
The Restaurant Group
31
(253
)
Frozen Beverages
Â
15,134
Â
Â
11,289
Â
$
48,580
Â
$
45,064
Â
Â
Capital Expenditures:
Food Service
$
12,755
$
11,111
Retail Supermarket
–
–
The Restaurant Group
102
3
Frozen Beverages
Â
9,908
Â
Â
8,625
Â
$
22,765
Â
$
19,739
Â
Â
Assets:
Food Service
252,843
$
218,834
Retail Supermarket
–
–
The Restaurant Group
690
838
Frozen Beverages
Â
126,755
Â
Â
121,136
Â
$
380,288
Â
$
340,808
Â
RESULTS OF OPERATIONS
Fiscal 2007 (52 weeks) Compared to Fiscal 2006 (53 weeks)
Net sales increased $54,070,000 or 11% to $568,901,000 in fiscal 2007 from $514,831,000 in fiscal 2006. Adjusting for sales related to the acquisitions of ICEE of Hawaii in January 2006, SLUSH PUPPIE in May 2006, DADDY RAY’S in January 2007, HOM/ADE Foods in January 2007, and WHOLE FRUIT Sorbet and FRUIT-A-FREEZE Frozen Fruit Bar brands in March 2007, sales increased approximately 2%, or $9,236,000.
We have four reportable segments, as disclosed in the accompanying notes to the consolidated financial statements: Food Service, Retail Supermarkets, The Restaurant Group and Frozen Beverages.
The Chief Operating Decision Maker for Food Service, Retail Supermarkets and The Restaurant Group and the Chief Operating Decision Maker for Frozen Beverages monthly review and evaluate operating income and sales in order to assess performance and allocate resources to each individual segment. In addition, the Chief Operating Decision Makers review and evaluate depreciation, capital spending and assets of each segment on a quarterly basis to monitor cash flow and asset needs of each segment.
Food Service
Sales to food service customers increased $35,597,000 or 11% to $355,764,000 in fiscal 2007. Excluding the benefit of Hom/Ade sales of $22,409,000, DADDY RAY sales of $15,468,000, and WHOLE FRUIT and FRUIT-A-FREEZE sales of $1,781,000, sales increased approximately 1%. Soft pretzel sales to the food service market decreased $722,000, or 1%, to $98,859,000 for the year. Sales of bakery products excluding Hom/Ade and DADDY RAY’S, increased $3,648,000, or 3%, for the year. Churro sales were essentially unchanged for the year with $22,069,000 of sales in 2007. Frozen juice bar and ices sales increased $3,235,000 or 7% to $47,571,000 for the year. Without WHOLE FRUIT and FRUIT-A-FREEZE, sales increased 3% for the year with sales to school food service customers accounting for most of the increase. Sales of our funnel cake products were down $1,198,000, or 15%, as sales declined to one customer. The changes in sales throughout the Food Service segment were from a combination of volume changes and price increases.
Retail Supermarkets
Sales of products to retail supermarkets increased $5,183,000 or 11% to $52,131,000 in fiscal 2007. Total soft pretzel sales to retail supermarkets were $24,867,000, an increase of 10% from fiscal 2006 due to volume and pricing. Sales of frozen juice bars and ices increased $3,626,000 or 14% to $29,426,000 in 2007 from $25,800,000 in 2006 due to volume and pricing. Coupon costs, a reduction of sales, were up $687,000, or 33%, for the year, because of increased distribution of coupons.
The Restaurant Group
Sales of our Restaurant Group, which operates BAVARIAN PRETZEL BAKERY and PRETZEL GOURMET retail stores in the Mid-Atlantic region, declined by 29% primarily due to closings or licensings of stores in the past year. At September 29, 2007, we had 9 stores open. Sales of stores open for both years were down 8% for the year.
Frozen Beverages
Frozen beverage and related product sales increased $14,421,000 or 10% to $158,420,000 in fiscal 2007. Excluding the benefit of sales from the acquisitions of ICEE of Hawaii and SLUSH PUPPIE, frozen beverages and related product sales would have been up 2% for the year. Beverage sales alone were up 9% for the year. Excluding sales from the acquisitions, beverage sales alone would have been up 1% for the year. Gallon sales were down 3% for the year in our base ICEE business. Service revenue increased $5,831,000, or 23%, to $31,249,000 for the year as we continue to emphasize growing this part of our business. Frozen carbonated machine sales decreased $1,111,000 to $16,473,000 for the year.
Consolidated
Gross profit as a percent of sales decreased .71 of a percentage point in 2007 from 2006 although it remained at 33% of sales for both 2007 and 2006. Excluding the lower gross profit margin of the acquired DADDY RAY’S business, gross profit percentage would have declined only .26 of a percentage point for the year.
We were impacted by higher commodity costs of over $8,000,000 for the year with over $3,500,000 impacting us in the fourth quarter. Reduced trade spending in our retail supermarket segment, other pricing and lower utility and insurance costs of approximately $1,100,000 helped to offset some of the commodity costs increase.
We expect to continue to be impacted by higher commodity costs going forward.
Total operating expenses increased $10,592,000 to $137,947,000 in fiscal 2007 but as a percentage of sales decreased .49 of a percentage point to 24% of sales in 2007. An impairment charge last year of $1,193,000 in the Food Service segment for the writedown of robotic packaging equipment and an increase of other general income of $1,312,000 this year accounted for virtually all of the .49 percentage point decrease. Other general income of $1,388,000 this year primarily consists of $495,000 and $321,000 insurance gains in the Frozen Beverages and The Restaurant Group segments, respectively and a royalty settlement of $569,000 in the Food Service segment reduced by other general expense items. Marketing expenses increased .38 of a percentage point but stayed at 12% of sales. Marketing expenses this year include $1,940,000 of costs for a TV/Internet advertising campaign for our retail SUPERPRETZEL product.
Operating income increased $3,516,000 or 8% to $48,580,000 in fiscal 2007 as a result of the aforementioned items. Excluding the writedown of robotic packaging equipment last year, operating income increased $2,323,000, or 5%. Excluding the impact of the writedown of the robotic packaging equipment last year and the increase in other general income this year, operating income was up $1,011,000, or 2%, this year.
Investment income decreased by $417,000 to $2,720,000 primarily due lower investable balances of cash and marketable securities.
The effective income tax rate decreased to 37% in fiscal year 2007 from 39% in 2006 due primarily from the resolution of state and foreign tax matters.
Net earnings increased $2,662,000 or 9% in fiscal 2007 to $32,112,000 or $1.69 per fully diluted share as a result of the aforementioned items.
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.