Business Context and Reporting Period
Company: J & J Snack Foods Corp.
Filing Type: Form 10-K (Annual Report)
Period Ended: September 26, 2009 (52 weeks)
Business Overview: The Company manufactures nutritional snack foods (primarily soft pretzels under the SUPERPRETZEL brand) and distributes frozen beverages (ICEE, SLUSH PUPPIE). Operations are divided into four segments: Food Service, Retail Supermarkets, The Restaurant Group, and Frozen Beverages. The Company is the largest manufacturer of soft pretzels in the U.S., Mexico, and Canada.
Key Financial Metrics
| Metric | Fiscal 2009 | Fiscal 2008 |
|---|---|---|
| Net Sales | $653,047,000 | $629,359,000 |
| Gross Profit | $208,844,000 | $186,907,000 |
| Gross Margin | 32.0% | 29.7% |
| Operating Income | $66,938,000 | $43,336,000 |
| Net Earnings | $41,312,000 | $27,908,000 |
| Earnings Per Share (Diluted) | $2.21 | $1.47 |
| Operating Cash Flow | $80,633,000 | $54,897,000 |
| Total Assets | $439,827,000 | $408,408,000 |
| Long-Term Debt | $0 | $0 |
| Cash & Equivalents | $60,343,000 | $44,265,000 |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 4% ($23.7 million) driven by a 4% increase in Food Service sales and a 14% increase in Retail Supermarket sales. This was partially offset by a 23% decline in The Restaurant Group due to store closings and a 1% decline in Frozen Beverages.
- Profitability Expansion: Operating income surged 54% ($23.6 million) and Net Earnings increased 48% ($13.4 million). Gross margin improved by 2.28 percentage points to 32%.
- Cost Drivers: Lower commodity costs (over $11 million savings) and higher pricing offset increased workers' compensation and health insurance expenses. Operating expenses decreased 1.08 percentage points of sales due to controlled marketing and distribution spending.
- Segment Performance:
- Food Service: Bakery products (biscuits/dumplings) and churros saw significant volume growth.
- Retail Supermarkets: Frozen juice bars and ices sales increased 19% on a 25% case volume increase.
- Restaurant Group: Sales declined significantly due to the reduction of retail outlets to four stores.
Guidance, Outlook, Risks, and Unusual Items
- Capital Allocation: The Company repurchased and retired 450,597 shares of common stock for $12.5 million in 2009, including a block purchase of 400,000 shares from the Chairman/CEO. Dividends declared were $0.39 per share.
- Liquidity: The Company maintains a $50 million revolving credit facility with no outstanding balance. Cash and marketable securities totaled approximately $119 million.
- Key Risks:
- Customer Concentration: Top 10 customers accounted for 43% of sales; the largest single customer represented 9%.
- Commodity Prices: Exposure to raw material costs (flour, sugar, shortening) and energy prices.
- Seasonality: Sales are higher in warmer months due to frozen beverage demand.
- Control: Founder Gerald B. Shreiber holds 22% of stock and has voting control of the Board.
- Unusual Items: No material acquisitions were made in fiscal 2009. The Company resolved the auction market preferred stock (AMPS) holdings by selling them at carrying value with no gain or loss recorded.
Investor Verification Checklist
- Customer Concentration: Verify the stability of the top 10 customers, which represent 43% of total revenue.
- Restaurant Group Strategy: Assess the long-term viability of the Restaurant Group segment following the reduction to only four stores and a 23% sales decline.
- Commodity Hedging: Review the effectiveness of forward purchasing strategies in mitigating raw material cost volatility.
- Capital Structure: Confirm the Company's ability to maintain zero long-term debt while funding growth and share repurchases.
- Goodwill Valuation: Monitor the $60.3 million goodwill balance for potential impairment triggers given the competitive landscape.