J&J Snack Foods Corp. — FY2015 Form 10-K
Reporting period: 52 weeks ended September 26, 2015; comparable fiscal year ended September 27, 2014. The filing is an annual report, not a quarterly filing. J&J manufactures and distributes snack foods and frozen beverages through Food Service, Retail Supermarkets, and Frozen Beverages segments.
Financial performance and liquidity
| Metric | FY2015 | FY2014 | Change |
|---|---|---|---|
| Net sales | $976.3 million | $919.5 million | +6% |
| Gross profit / gross margin | $300.9 million / 30.82% | $287.6 million / 31.28% | Margin down 0.46 percentage points |
| Operating income / operating margin | $110.9 million / 11.36% | $106.8 million / 11.62% | Operating income +4% |
| Net earnings | $70.2 million | $71.8 million | −2% |
| Diluted EPS | $3.73 | $3.82 | −2% |
| Cash from operating activities | $105.3 million | $106.5 million | −$1.3 million |
Net sales excluding PHILLY SWIRL through April increased approximately 5%, according to management. Annual segment sales and operating income were: Food Service $616.6 million and $75.3 million; Retail Supermarkets $123.4 million and $11.0 million; Frozen Beverages $236.2 million and $24.6 million.
At year-end, cash and cash equivalents were $133.7 million; marketable securities totaled $106.3 million; current assets were $326.8 million and current liabilities $97.1 million. The company had no long-term debt and no borrowings under its $50 million revolving facility, which was scheduled to mature in November 2016. Capital lease obligations were $1.5 million. Capital expenditures were $50.1 million. Cash dividends paid were $26.2 million, and $8.0 million was spent repurchasing shares.
Material changes and unusual items
- Frozen Beverages sales rose 10%, with segment operating income up to $24.6 million, supported by growth across beverages, service, and machine sales and lower fuel costs.
- Food Service sales increased 4% and operating income increased to $75.3 million. Bakery sales grew 7%, while handheld sales declined 10%; management cited higher manufacturing and egg costs.
- Retail Supermarkets sales increased 10%, but excluding PHILLY SWIRL through April, rose approximately 1%. Segment operating income slipped to $11.0 million, partly due to higher coupon and advertising costs and PHILLY SWIRL off-season losses.
- Gross margin declined despite higher sales. Management attributed pressure principally to lower-margin school food-service mix, handheld declines, manufacturing costs, and higher egg costs.
- Investment income fell to $1.2 million from $4.5 million. Sales of mutual funds generated a realized loss of about $4.3 million; the company substantially reduced mutual-fund holdings and invested in preferred stock and corporate bonds.
- Quarter four sales were $259.8 million versus $253.5 million; net earnings were $19.8 million versus $22.2 million, and diluted EPS was $1.05 versus $1.18.
Outlook, risks, and contingencies
- Management expected elevated egg costs to continue into FY2016 following the avian flu outbreak and said it had raised selling prices with the aim of recovering a significant portion of the increase.
- Management expected a FY2016 effective tax rate of 36%–36.5%.
- Key risks include volatile commodity and energy costs, intense competition, seasonal demand, and dependence on major customers. The top ten customers represented 43% of sales; the largest represented 8%. Customers generally do not have long-term purchasing contracts.
- Foreign currency translation reduced equity by $5.4 million in FY2015. Foreign operations generated $25.3 million in sales and held approximately $28 million of assets.
- Other exposures include self-insured claims, operating leases and purchase commitments. Purchase commitments were approximately $68 million, principally for raw materials and packaging; management said these were in the normal course of business and did not exceed projected requirements. Letters of credit supporting insurance arrangements totaled $9.1 million.
- No material pending legal proceedings were reported. The auditor gave unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective.
Most important facts for investors to verify
- Whether price increases offset the ongoing egg-cost pressure without materially weakening volume or margins.
- How much of reported sales growth reflects organic demand versus acquisitions, especially PHILLY SWIRL, and whether Retail Supermarkets performance improves.
- Whether Frozen Beverages’ strong growth and higher service revenue are sustained, and how machine sales—which management says fluctuate—develop.
- The performance, liquidity, and valuation of the remaining investment securities, including the corporate bonds and preferred stock; FY2015 included realized mutual-fund losses.
- Customer concentration, major-customer receivables, and the remaining availability and terms of the revolving credit facility.