J&J Snack Foods Corp. — FY2021 Form 10-K
Reporting period: Fiscal year ended September 25, 2021 (52 weeks). Although the request specifies “2021 Q4,” this is an annual filing; the figures below are for the full fiscal year, not standalone fourth-quarter results. J&J manufactures and distributes snack foods and frozen beverages through Food Service, Retail Supermarkets and Frozen Beverages segments.
Financial performance and position
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales | $1,144.6 million | $1,022.0 million |
| Gross profit / margin | $298.9 million / 26.1% | $238.4 million / 23.3% |
| Operating income / margin | $71.2 million / 6.2% | $17.2 million / 1.7% |
| Net earnings | $55.6 million | $18.3 million |
| Diluted EPS | $2.91 | $0.96 |
| Operating cash flow | $101.5 million | $92.1 million |
| Capital expenditures | $53.6 million | $57.8 million |
Cash and cash equivalents were $283.2 million; marketable securities totaled $22.1 million, for combined cash and securities of approximately $305.3 million. Current assets were $584.8 million and current liabilities $167.6 million. The company reported no long-term debt and no borrowings under its $50 million revolving facility at year-end. Operating lease liabilities were $60.0 million; undiscounted operating lease payments totaled $66.3 million. Operating cash flow less capital expenditures was approximately $47.9 million, calculated from reported figures.
Accounts receivable increased 29% to $162.9 million, largely reflecting higher September sales and collection timing; inventory increased 13% to $123.2 million. Property, plant and equipment purchases were directed toward manufacturing improvements and expansion.
Segments and changes versus FY2020
- Food Service: Sales rose 17% to $725.0 million; operating income increased to $39.2 million from $6.5 million. Recovery in venues and locations previously closed or operating at reduced capacity lifted sales across product lines.
- Retail Supermarkets: Sales increased 4% to $184.9 million; operating income rose to $25.9 million from $23.2 million, primarily on higher volume.
- Frozen Beverages: Sales increased 4% to $234.7 million, and the segment returned to operating income of $6.1 million from a $12.5 million loss. Beverage sales and gallon volumes rose 16%; service revenue fell 3%, and machine revenue declined to $27.0 million.
Consolidated sales increased 12%, operating income rose 314%, and net earnings increased 204% from FY2020. Management attributed improved gross margin to higher sales, favorable product mix and margin efficiencies. Operating expenses rose in dollars but fell to 19.9% of sales from 21.6%; distribution expenses as a share of sales increased to 9.5% from 9.1%, reflecting higher freight and fuel costs. FY2021 included $1.3 million of intangible-asset impairment charges; FY2020 included $6.4 million of plant-shutdown impairment costs.
Outlook, risks and unusual items
Management provided no specific revenue or earnings guidance. It said most venues affected by COVID-19 had reopened, but the pandemic’s future effects remained uncertain; approximately two-thirds of company sales go to venues and locations whose food-service operations had previously been curtailed. Management stated it did not expect liquidity issues, citing cash and marketable securities of approximately $305 million.
- Risks include renewed COVID-19 disruption, volatile commodity and energy costs, labor availability and expense, freight and fuel costs, competitive pricing, customer concentration, production or distribution interruptions, food safety and product recalls, and information-technology/cybersecurity exposure. The filing also identifies risks in completing the late stages of a multi-year ERP implementation.
- The top ten customers represented 43% of sales; the largest represented 11%. These customers generally do not have long-term contracts. No vendor supplied more than 10% of ingredients and packaging.
- The company had approximately $78 million of raw-material purchase commitments, generally covering one to twelve months of projected manufacturing needs. It also reported $14.5 million of recorded self-insurance liabilities and $9.3 million of letters of credit supporting insurance arrangements.
- Annual impairment testing identified two trade names whose carrying values exceeded fair value, resulting in a $1.3 million charge. Goodwill impairment testing resulted in no goodwill charge. The auditor identified estimation of certain net-revenue-adjustment reserves as a critical audit matter; related recorded allowances, end-user pricing adjustments and trade spending were approximately $14.6 million at year-end.
- Quarterly dividends declared increased to $0.633 per share from $0.575. The company repurchased no shares in FY2021. The $50 million revolver’s maturity was extended after year-end, on November 16, 2021, to December 16, 2021.
The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting; management also reported effective controls. Routine litigation was disclosed, with no material pending legal proceedings identified.
Important facts for investors to verify
- Whether venue recovery and segment profitability continued after FY2021, particularly in Food Service and Frozen Beverages.
- How inflation in ingredients, labor, fuel and freight affected costs, pricing and margins after year-end.
- Whether receivables and collections normalized following the year-end increase, and whether major-customer exposure changed.
- Whether the revolving credit facility was renewed beyond its December 16, 2021 extended maturity and whether its covenant terms changed.
- Whether the ERP rollout, capacity investments and new-product launches were completed as planned, and their effects on costs and returns.
- The assumptions and subsequent settlement experience underlying revenue-adjustment reserves, impairment estimates and self-insurance liabilities.