J&J Snack Foods Corp. 10-Q Summary
Business Context and Reporting Period
This filing is a Quarterly Report (Form 10-Q) for J&J Snack Foods Corp. for the period ended June 26, 2010. The company operates four reportable segments: Food Service, Retail Supermarkets, The Restaurant Group, and Frozen Beverages. The company is an accelerated filer based in Pennsauken, NJ.
Key Financial Metrics
| Metric | Three Months Ended June 26, 2010 |
Nine Months Ended June 26, 2010 |
Nine Months Ended June 27, 2009 |
|---|---|---|---|
| Net Sales | $189,729,000 | $496,192,000 | $470,255,000 |
| Gross Profit | $65,031,000 | $160,847,000 | $147,093,000 |
| Gross Margin | 34.3% | 32.4% | 31.3% |
| Operating Income | $26,062,000 | $52,373,000 | $43,091,000 |
| Net Earnings | $15,861,000 | $31,952,000 | $26,492,000 |
| Diluted EPS | $0.85 | $1.71 | $1.42 |
| Cash & Equivalents | $54,293,000 | $54,293,000 (End of Period) | $59,116,000 (End of Period) |
| Operating Cash Flow | N/A | $47,238,000 | $54,530,000 |
| Debt | $309,000 (Capital Leases) | $309,000 (Capital Leases) | N/A |
Note: All figures in thousands except per share amounts and percentages. Debt consists of current and long-term capital lease obligations; no outstanding balances on the $50M revolving credit facility.
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 6% for both the three-month and nine-month periods compared to the prior year. Excluding acquisitions, organic sales growth was 5%.
- Acquisitions: The company acquired Parrot Ice (Feb 2010) and California Churros (June 2010). California Churros contributed approximately $11 million in annual sales.
- Segment Performance:
- Food Service: Sales up 3% (quarter) and 4% (nine months). Growth driven largely by funnel cake fries sales to Burger King (approx. 97% of Q3 increase).
- Retail Supermarkets: Sales up 14% (quarter) and 16% (nine months), driven by frozen juices and ices.
- Frozen Beverages: Sales up 8% (quarter) and 6% (nine months). Beverage sales increased 12%.
- Restaurant Group: Sales declined 35% (quarter) and 30% (nine months) due to store closures.
- Profitability: Net earnings increased 6% for the quarter and 21% for the nine months. Gross margin improved due to lower ingredient/packaging costs in the nine-month period, though costs were higher in the quarter.
- Cash Flow: Operating cash flow decreased to $47.2M (nine months) from $54.5M (prior year), primarily due to increases in accounts receivable and inventory. Investing activities used $42.8M, largely for acquisitions ($25.2M) and capital expenditures ($21.3M).
Outlook, Risks, and Management Commentary
- Cost Volatility: Management notes that ingredient and packaging costs are extremely volatile. While costs were lower in the nine-month period, they were higher in the quarter. Future projections are uncertain.
- Gasoline Costs: Higher gasoline costs impacted the Frozen Beverages segment by approximately $281,000 in the quarter and $826,000 in the nine months. Management expects this to impact operating income for the balance of the fiscal year.
- Customer Concentration: A significant portion of recent sales growth is tied to specific customers (e.g., Burger King for funnel cake fries). Management cannot estimate the sustainability of these specific sales.
- Seasonality: Sales of frozen beverages and juice bars are typically higher in the third and fourth quarters due to warmer weather.
- Liquidity: The company maintains a $50M revolving credit facility with no outstanding balance. Cash and investment securities are deemed sufficient to fund future growth.
- Dividends: A quarterly cash dividend of $0.1075 per share was declared, payable July 7, 2010.
Key Investor Verification Points
- Acquisition Integration: Verify the revenue contribution and integration progress of the California Churros and Parrot Ice acquisitions.
- Input Cost Trends: Monitor future quarters for the impact of volatile ingredient and packaging costs on gross margins.
- Customer Concentration Risk: Assess the sustainability of sales growth driven by the Burger King funnel cake fries contract.
- Restaurant Group Decline: Review the strategy regarding the declining Restaurant Group segment and store closures.
- Capital Allocation: Track the remaining balance of the share buyback authorization ($260,576 shares remaining) and future capital expenditure plans.