J&J Snack Foods Corp. — Q1 FY2024 Form 10-Q
Reporting period: Three months ended December 30, 2023; comparisons are with the three months ended December 24, 2022. Dollar amounts below are in millions unless stated otherwise. The company manufactures and distributes snack foods and frozen beverages through Food Service, Retail Supermarkets, and Frozen Beverages segments.
Financial results
| Metric | Q1 FY2024 | Prior-year quarter | Change |
|---|---|---|---|
| Net sales | $348.3 | $351.3 | (0.9%) |
| Gross profit / margin | $94.6 / 27.2% | $90.9 / 25.9% | +4.1%; +130 bps |
| Operating income / margin | $9.7 / 2.8% | $9.3 / 2.7% | +3.8%; +10 bps |
| Net earnings | $7.3 | $6.6 | +9.8% |
| Diluted EPS | $0.37 | $0.34 | Up $0.03 |
| Operating cash flow | $49.0 | $21.4 | +$27.5 |
| Capital expenditures | $19.9 | $30.9 | Down $11.0 |
Cash and cash equivalents were $50.0 at December 30, 2023, versus $49.6 at September 30, 2023. Long-term debt was $7.0, down from $27.0; $208.2 of additional borrowing capacity remained, net of letters of credit. The company reported compliance with credit agreement covenants. Total current assets were $397.3 and current liabilities $165.3. Operating lease liabilities were $139.6, compared with $94.1 at fiscal year-end.
Operating cash flow benefited mainly from a $32.4 decrease in accounts receivable, partly offset by a $10.6 decrease in accounts payable and accrued liabilities. Financing cash flow was a $29.8 outflow, including $14.2 of dividends paid and net credit-facility repayments. The filing states that cash, borrowing capacity, and expected operating cash flow are sufficient for requirements over the next 12 months and beyond.
Material changes and segment performance
- Food Service: Sales fell 4.1% to $228.6 and operating income declined 5.8% to $6.0. Management cited lower consumer traffic and purchases in several categories, including bakery and soft pretzels; churro sales grew 8.9%. New products generated approximately $3.6 of sales in their first 12 months after introduction.
- Retail Supermarkets: Sales rose 1.6% to $43.8, but operating income fell 59.3% to $0.5. Soft pretzels and handhelds grew, while frozen novelties declined 28.4%; management cited mix and distribution-center costs as factors pressuring segment income.
- Frozen Beverages: Sales increased 8.5% to $75.9 and operating income rose 75.7% to $3.2. Beverage sales increased 8.5%, although gallon sales were down approximately 1%; repair and maintenance revenue rose 3.1% and machine revenue 26.8%.
Consolidated sales were slightly lower, while gross profit and earnings improved. Management attributed the gross-margin improvement to product mix, pricing, productivity, and easing inflation across much of the business. Key ingredients including flour, oils, dairy, and eggs declined in cost, while sugar/sweeteners, mixes, chocolates, and meats continued to experience double-digit inflation. Marketing expense increased 15.9%, reflecting brand and product-launch promotion and trade-show costs; administrative expense increased 11.0%. Distribution expense declined 4.2%, supported by a more favorable cost environment and logistics initiatives.
Outlook, risks, and notable items
The filing provides no specific numerical earnings or revenue guidance. Management identifies future performance as subject to consumer demand and traffic, raw-material and labor costs, insurance costs, customer consolidation, execution in manufacturing and distribution, acquisitions, tax law, and interest rates. Frozen beverage and frozen novelty sales are typically higher in the fiscal third and fourth quarters due to warmer weather, so first-quarter results are not necessarily indicative of full-year results. Management also discusses expected effects of product innovation and investments in production capacity and logistics, without quantifying them.
Operating expenses include costs associated with new regional distribution centers. The company began leasing a New Jersey center in October 2023 and disclosed a February 2024 lease commencement for a Glendale, Arizona center, with a $21.1 operating right-of-use asset recorded. A Texas distribution center is leased from NFI Industries, whose CEO and owner is also a company director; the company paid NFI $14.5 in the quarter and reported $3.2 of related-party trade payables at quarter-end. The company states the agreements have terms it believes are consistent with arm’s-length terms.
The company reported no material change in risk factors or market-risk assessment. It said pending legal proceedings are not expected to have a material adverse effect. Disclosure controls were deemed effective, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether Food Service volume and consumer traffic stabilize, and whether Frozen Beverages growth continues despite slightly lower gallon sales.
- Whether gross-margin gains persist as input-cost trends, pricing, product mix, and productivity change.
- How distribution-center investments affect operating costs, lease obligations, and cash generation as additional sites commence operations.
- Whether the Q1 operating-cash-flow improvement, driven substantially by receivables collection, is sustained in later quarters.
- Related-party payments and lease arrangements with NFI, as well as compliance with credit-agreement covenants and remaining borrowing availability.