J&J Snack Foods Corp. — FY2020 Form 10-K
Reporting period: Fiscal year ended September 26, 2020 (52 weeks). This is an annual report, not a standalone quarterly filing; fiscal fourth-quarter data are summarized below. The company manufactures and distributes snack foods and frozen beverages through Food Service, Retail Supermarkets and Frozen Beverages segments.
Key financial results
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Net sales | $1,022.0 million | $1,186.5 million | Down 14% |
| Gross profit / margin | $238.4 million / 23.33% | $350.4 million / 29.53% | Margin down 6.20 percentage points |
| Operating income / margin | $17.2 million / 1.68% | $117.0 million / 9.86% | Down 85% |
| Net earnings | $18.3 million | $94.8 million | Down 81% |
| Diluted EPS | $0.96 | $5.00 | Down 81% |
| Cash from operations | $92.1 million | $147.5 million | Down $55.4 million |
| Capital expenditures | $57.8 million | $57.1 million | Up $0.7 million |
Operating cash flow less capital expenditures was approximately $34.3 million. Cash and marketable securities totaled $277.9 million at year-end, down 19% from $342.7 million a year earlier. Total assets were $1.06 billion and stockholders’ equity was $809.5 million. The company reported no long-term debt and no borrowings under its $50 million revolving facility; finance lease liabilities were $0.7 million. Current assets of $499.6 million compared with current liabilities of $134.1 million.
Fiscal fourth quarter
Fourth-quarter sales were $252.5 million, gross profit was $53.9 million and net earnings were $6.6 million ($0.35 diluted EPS), compared with sales of $311.9 million, gross profit of $92.9 million and net earnings of $26.1 million ($1.36 diluted EPS) in the prior-year quarter. Management said sales improved to approximately 19% below the prior year, from a 34% decline in the third quarter, as some venues reopened. The unaudited quarterly table reports full-year diluted EPS of $0.95, while the audited annual statements report $0.96; the filing notes quarterly EPS amounts may not sum to the annual amount because of separate weighted-average share calculations.
Segments and material changes
| Segment | FY2020 sales | FY2020 operating income (loss) | Reported year-over-year trend |
|---|---|---|---|
| Food Service | $618.9 million | $6.5 million | Sales down 16%; operating income fell from $76.5 million |
| Retail Supermarkets | $177.2 million | $23.2 million | Sales up 23%; operating income rose from $10.5 million |
| Frozen Beverages | $226.0 million | $(12.5) million | Sales down 26%; operating income fell from $30.0 million |
COVID-19 sharply reduced food-service demand: approximately two-thirds of company sales were tied to venues that closed or curtailed operations. Food Service sales declined across most product lines; retail supermarket sales benefited from increased grocery demand. Frozen beverage sales fell 38%, excluding acquired business sales, while beverage gallons declined 41% on the same basis. The company acquired ICEE Distributors and BAMA ICEE for a combined $57.2 million; their FY2020 sales were $13.1 million in aggregate.
Outlook, unusual items and risks
- Management expected COVID-19 to continue reducing sales in the immediate future, but said it did not anticipate liquidity problems or material asset impairments, citing $277.9 million of cash and marketable securities at year-end. No quantified sales or earnings guidance was provided.
- Operating results included $6.4 million of plant-shutdown impairment costs, approximately $6 million of employee safety and increased COVID-related compensation costs, and about $4.5 million of inventory write-down and disposal costs. Food Service also cited approximately $3.5 million of increased expense for receivable allowances and inventory losses. Frozen Beverages incurred $2.5 million of headquarters relocation costs.
- A manufacturing plant closure is expected to reduce annual manufacturing overhead and distribution costs by approximately $7–8 million.
- Other material risks include prolonged pandemic disruption, customer concentration (top ten customers represented 43% of sales; the largest represented 13%), customer credit losses, commodity and labor costs, competition, supply and distribution interruptions, food safety and product recalls, foreign currency exposure, and completion of the company’s multi-year ERP implementation.
- The allowance for doubtful accounts increased to $1.4 million from $0.6 million; bad-debt expense rose to $1.1 million from $0.4 million. The company identified estimation of rebates, promotions and other revenue adjustments as a critical audit matter. Goodwill impairment testing found reporting-unit fair values above carrying values; no goodwill impairment was recorded.
Important facts for investors to verify
- Whether food-service venues recover and how that affects segment sales, margins and cash generation.
- Whether the stated $7–8 million annual plant-closure savings are achieved and offset the one-time shutdown costs.
- Customer receivable collectability, the adequacy of credit-loss and revenue-adjustment reserves, and exposure to the largest customers.
- Acquisition performance and the carrying values of acquired distribution rights, customer relationships and goodwill.
- Capital spending needs, dividend sustainability, and cash and marketable securities available after commitments and operating requirements.
- The quarterly EPS table’s $0.95 annual total versus $0.96 in the audited annual statements; the filing attributes the difference to separate quarterly share calculations.
Grant Thornton issued unqualified opinions on the financial statements and internal control over financial reporting. The filing states that disclosure controls and internal controls were effective as of September 26, 2020.