J&J Snack Foods Corp. — Form 10-Q Summary
Reporting period: Second quarter and first six months of fiscal 2012, ended March 24, 2012; comparisons are to the periods ended March 26, 2011. Dollar amounts below are in millions unless otherwise stated.
Financial performance
| Metric | Three months | Six months |
|---|---|---|
| Net sales | $189.6, up 16% | $362.2, up 14% |
| Gross profit / margin | $54.0 / 28.5%, versus 30.1% | $100.4 / 27.7%, versus 29.9% |
| Operating income | $16.3, up 17% | $24.7, down less than 1% |
| Net earnings | $10.4, up 20% | $15.9, up 1% |
| Diluted EPS | $0.55, versus $0.46 | $0.84, unchanged |
| Cash from operations | Not separately reported | $30.1, versus $29.5 |
| Capital expenditures | Not separately reported | $21.1, versus $10.6 |
For the quarter, sales growth excluding the acquired frozen handheld business was 8%; for the first half it was 6%. Gross margin was pressured by higher ingredient and packaging costs and the acquired handheld products’ lower margin. Excluding handhelds, gross margin was approximately 29.8% for the quarter and 29.2% for the first half.
Segments and material changes
- Food Service: Sales rose 15% in the quarter and 11% in the first half. Segment operating income increased to $12.7 million for the quarter but fell to $20.0 million for the first half. Higher costs and sharply lower funnel cake sales weighed on results; handheld sales contributed $7.6 million in the quarter.
- Retail Supermarkets: Sales increased 36% in the quarter and 41% year to date, primarily including handheld sales. Operating income decreased to $1.7 million for the quarter and $3.5 million for the first half, reflecting higher trade spending and product costs.
- Frozen Beverages: Sales rose 11% in the quarter and 9% in the first half. Segment operating income was $1.9 million for the quarter and $1.3 million for the first half, compared with a first-half loss of $2.1 million a year earlier. Service revenue and beverage sales increased.
- Price increases contributed approximately $4.1 million of second-quarter sales and $8.1 million for the first half. Higher ingredient and packaging costs were approximately $4 million for the quarter and $8.5 million for the first half.
Liquidity, debt and capital allocation
- At March 24, 2012, cash and cash equivalents were $91.7 million and marketable securities totaled $69.9 million, including $2.5 million current and $67.5 million long-term. Current assets were $243.5 million versus current liabilities of $76.7 million.
- The company had no borrowings under its $50 million revolving credit facility, which expires in December 2016. Capital lease obligations totaled approximately $0.7 million.
- Operating cash flow was $30.1 million. Investing activities used $24.0 million, including $21.1 million of capital spending; financing activities used $2.3 million, including $4.6 million of dividends paid.
- The company completed a St. Louis bakery building expansion and a Carrollton production-line expansion during the quarter at a combined cost of approximately $12 million. Management expects these expansions to generate an additional $50–$60 million of net sales over time.
- The board declared a regular quarterly dividend of $0.13 per share, payable April 4, 2012.
Outlook, risks and other items
- Management anticipated further increases in ingredient and packaging costs during the remainder of fiscal 2012 and warned that higher costs could reduce net earnings versus the prior-year period despite pricing actions. It said the future cost impact could not be reliably projected.
- Higher gasoline costs affected frozen beverage operating income by approximately $0.2 million in the quarter and $0.5 million in the first half; management expected the pressure to continue through at least the rest of fiscal 2012, with the extent not estimable.
- Management estimated a full-year effective tax rate of 37.5%–38.5%. Prior-year tax refunds reduced the current-quarter tax rate by approximately one percentage point.
- Funnel cake sales fell 58% in the quarter and 63% in the first half, largely due to lower purchases by two customers. Management expected sales to those customers to decline by about $1.3 million over the balance of fiscal 2012.
- Sales of frozen beverages and frozen juice bars are generally higher in the third and fourth quarters due to warmer weather; interim results may not indicate full-year performance.
- Gross unrecognized tax benefits were $0.93 million, with $0.33 million accrued for related interest and penalties. The company disclosed no material change in its assessment of market risk and stated that disclosure controls were effective.
Important facts for investors to verify
- The MD&A states quarterly sales increased by $26.283 million, while the reported sales figures imply an increase of $26.823 million. The six-month increase is stated as $43.887 million in the MD&A, while the financial statements imply $43.877 million.
- The segment table reports prior-year first-half Food Service operating income of $22.920 million; the MD&A refers to $22.290 million. Confirm the intended comparable figure.
- Assess whether pricing can offset continuing ingredient, packaging, fuel and other operating-cost inflation, and whether the expansion sales expectations and handheld integration deliver as planned.
- Consider the concentration of the funnel cake decline in two customers and the seasonal nature of frozen beverage sales when evaluating near-term results.