J&J Snack Foods Corp. — FY2012 Form 10-K
Reporting period: Fiscal year ended September 29, 2012 (53 weeks), compared with 52-week fiscal 2011. This is an annual filing, not a standalone fourth-quarter filing; quarterly figures below are unaudited.
Business context
The company manufactures and distributes snack foods and frozen beverages through Food Service, Retail Supermarkets, and Frozen Beverages segments. Key brands include SUPERPRETZEL, ICEE, LUIGI’S, and SLUSH PUPPIE.
Financial performance
| Metric | FY2012 | FY2011 | Change |
|---|---|---|---|
| Net sales | $830.8 million | $744.1 million | +12%; approximately +10% excluding the extra week |
| Gross profit | $250.2 million | $229.8 million | +9% |
| Gross margin | 30.11% | 30.88% | Down 0.77 percentage points |
| Operating income | $85.0 million | $76.6 million | +11% |
| Net earnings | $54.1 million | $55.1 million | Down 2% |
| Diluted EPS | $2.86 | $2.93 | Down 2% |
| Operating cash flow | $89.4 million | $80.5 million | Up $9.0 million |
Net sales increased approximately 5% excluding the extra week and post-acquisition sales from the ConAgra handheld business and Kim & Scott’s. FY2012 operating margin was approximately 10.2%; net margin was approximately 6.5%.
Segment sales / operating income: Food Service $521.3 million / $49.8 million; Retail Supermarkets $109.9 million / $13.3 million; Frozen Beverages $199.7 million / $21.9 million. Sales grew 12%, 21%, and 5%, respectively.
FY2012 fourth quarter: Sales were $242.2 million versus $219.4 million; net earnings were $19.5 million versus $16.0 million; diluted EPS was $1.03 versus $0.85.
Cash, debt, and liquidity
- Cash and cash equivalents were $154.2 million at year-end; marketable securities totaled $26.2 million, for combined cash and securities of approximately $180.4 million.
- Operating cash flow was $89.4 million. Investing activities used $9.3 million and financing activities used $13.8 million.
- No long-term debt was outstanding. The company had a $50 million revolving credit facility, undrawn at year-end, with financial covenants; management reported compliance.
- Current assets were $308.1 million and current liabilities $81.5 million. Capital expenditures were $42.8 million, including facility and pretzel-line investments.
Changes, outlook, and risks
- Gross margin declined primarily due to approximately $10 million of higher ingredient and packaging costs and the lower gross margin of acquired handheld products. Management expected higher flour, packaging, and other ingredient costs during portions of FY2013; no quantified earnings guidance was provided.
- FY2011 net earnings included a $6.6 million bargain-purchase gain from the ConAgra handheld acquisition. Excluding that gain, FY2011 net earnings were $48.5 million, versus $54.1 million in FY2012.
- Kim & Scott’s Gourmet Pretzels was acquired in June 2012 for $7.9 million; it contributed approximately $1.8 million of FY2012 sales from the acquisition date.
- FY2012 repurchases were $8.2 million; the board later authorized repurchase of an additional 500,000 shares. Dividends declared were $0.52 per share, up from $0.47.
- Key risks include volatile commodity and energy costs, competitive pressure, customer concentration (top ten customers generated 41% of sales), seasonal demand, manufacturing or distribution disruptions, and acquisition integration. One customer represented 8% of sales.
- The company reported no material pending legal proceedings and no goodwill impairment. Management and the auditor reported effective internal control over financial reporting.
Important facts for investors to verify
- How much future growth is organic versus attributable to acquisitions, added selling days, and new products.
- Whether pricing and operating efficiencies can offset expected ingredient, packaging, and fuel cost pressure without harming volume or margins.
- Handheld-product profitability and the integration and performance of the ConAgra and Kim & Scott’s businesses.
- Cash deployment, including capital spending, dividends, share repurchases, and potential acquisitions, alongside the revolving-credit covenants.
- Exposure to major customers and the reliability of management’s estimates for customer allowances, receivables, insurance reserves, and goodwill or intangible-asset valuations.