J & J Snack Foods Corp. (NASDAQ:JJSF) Q4 2019 Earnings Conference Call November 8, 2019 10:00 AM ET Corporate Participants Gerry Shreiber - Chief Executive Officer Jerry Law - Senior Vice President Dennis Moore - Senior Vice President of Accounting and Administration Dan Fachner - President, ICEE Conference Call Participants Jon Andersen - William Blair Debra Manche - Lakewood Capital Operator Good morning. And welcome to the J&J Snack Foods Fourth Quarter Earnings Conference Call. My name is Cheryl and I w ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the period ended June 29, 2019 or Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number: 0-14616 J & J SNACK FOODS CORP. (Exact name of registrant as specified in its charter) New Jersey 22-1935537 (State or other jurisdiction of (I.R.S. Employer incorporation or org ...

Financial Data and Key Metrics Changes - Net sales increased by 7% for the quarter and 4% for the nine months [6] - Net earnings rose by 18% to $30.9 million or $1.63 per share for the quarter, compared to $26.1 million or $1.39 per share a year ago [6] - Operating income increased by 12% for the quarter and 8% for the nine months [7] - EBITDA reached a record $175 million for the past 12 months [7] Business Line Data and Key Metrics Changes - Foodservice sales were up 4% for the quarter and 3% for the nine months, driven by strong sales in soft pretzels, churros, funnel cakes, and frozen juice bars [8] - Retail supermarket sales decreased by 5% for the quarter and 2% for the nine months, with soft pretzel sales remaining flat [9] - Frozen beverages sales increased by 20% for the quarter and 13% for the nine months, with beverage-related sales up 16% for the quarter [10] - Service revenue grew by 14% for the quarter and 7% for the nine months [11] Market Data and Key Metrics Changes - Gross profit as a percentage of sales improved to 31.02% from 30.85% year-over-year [12] - Total operating expenses as a percentage of sales decreased to 19.1% from 19.5% year-over-year [12] Company Strategy and Development Direction - The company is actively looking for acquisitions as a use of its cash balance of $314 million, which is the highest in recent years [13][35] - Capital spending for the year is estimated to be about $60 million, focusing on plant efficiencies and business growth [13] - The company has made significant inroads in convenience stores and continues to focus on the restaurant channel for growth [27] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the pricing strategy implemented earlier in the year, indicating that they remain competitive [23] - The company is optimistic about the growth of churros, which have seen double-digit growth across major chains [25] - Management acknowledged challenges in the co-packing agreement but noted that the financial impact has been mitigated [30][31] Other Important Information - The company declared a cash dividend of $0.50 per share, paid on July 3, 2019 [13] - The effective tax rate for the quarter was 28.1%, in line with expectations [17] Q&A Session Summary Question: Pricing Strategy - Inquiry about the recent pricing strategy and consumer response [22] - Management confirmed a slight increase in pricing and noted that they remain competitive [23] Question: Food Service Strength - Question regarding the growth drivers for churros [24] - Management attributed growth to increased consumer awareness and demand [25] Question: Convenience Stores and Restaurants - Inquiry about efforts in convenience stores and restaurant channels [26] - Management confirmed significant progress in convenience stores and ongoing efforts in restaurants [27][28] Question: Co-Packing Agreement Impact - Question about the financial impact of a co-packing agreement cancellation [30] - Management clarified that the revenue loss was offset by a reimbursement for capital outlay [31] Question: Cash and Investments Plans - Inquiry about plans for the cash balance [34] - Management indicated intentions to use cash for acquisitions and business improvements [35][36] Question: Manufacturing and Capital Spend - Question about manufacturing plans and capital spending [40] - Management confirmed the closure of an undersized plant and ongoing investments in larger projects [41] Question: Bakery Capital Costs - Inquiry about the cost to establish a large-scale bakery [43] - Management estimated the cost at around $40 million [43] Question: Weather Impact on Sales - Question regarding the impact of weather on sales [44] - Management noted that warm weather positively affected the ICEE business [44] Question: M&A Environment - Inquiry about the current M&A environment and asset valuations [50] - Management acknowledged that while valuations can be high, they remain confident in finding suitable acquisition targets [50] Question: Innovation and New Products - Question about expectations for new product contributions [51] - Management indicated ongoing efforts in R&D and new product development [52][54]

Financial Data and Key Metrics Changes - Net sales increased by 4% for the quarter and 3% for the six months [5] - Net earnings rose by 14% to $20.4 million or $1.08 per share from $17.8 million or $0.95 per share a year ago [5] - Operating income increased by 5% for both the quarter and the six months [6] - EBITDA for the past 12 months was $168 million [6] - Gross profit as a percentage of sales decreased to 28.7% from 29.04% last year [11] - Total operating expense as a percentage of sales decreased to 19.7% from 20.2% last year [11] Business Line Data and Key Metrics Changes - Food Service sales increased by 1% for the quarter and 2% for the six months, driven by soft pretzels, churros, and funnel cakes [7][8] - Retail Supermarkets sales decreased by 1% for the quarter but remained unchanged for the six months, with soft pretzel sales up 7% for the quarter [9] - ICEE and Frozen Beverages sales increased by 15% for the quarter and 8% for the six months, with beverage machine sales up significantly [10] Market Data and Key Metrics Changes - Sales of frozen juice bars and ices were down 5% for the quarter and up 3% for the six months [9] - Sales of handhelds were down 14% for the quarter [7] - Operating income in the Food Service segment increased from $18.5 million to $19.6 million due to lower marketing and distribution expenses [14] Company Strategy and Development Direction - The company is focused on acquisitions as a use of cash, with $287 million in cash and investment securities [12] - Management is optimistic about the Food Service segment, particularly soft pretzels, and is exploring ways to grow sales in this area [19][21] - The company is continuously developing new products and has several projects in the pipeline [54] Management's Comments on Operating Environment and Future Outlook - Management expects a good performance in the third and fourth quarters, benefiting from warmer weather and increased outdoor activities [67] - The company has not experienced a down earnings quarter historically and does not expect one in the near future [68] Other Important Information - Capital spending was $15 million in the quarter, with an estimated total of about $50 million for the year [12] - A cash dividend of $0.50 per share was declared and paid [12] Q&A Session Summary Question: Insights on Food Service business growth - Management noted that while soft pretzel sales have stabilized, they remain bullish on growth opportunities in the restaurant sector [19][21] Question: Bakery business performance - The bakery business was flat due to tough comparisons and co-packing opportunities shifting [22][23] Question: Frozen Beverages machine sales - Management acknowledged the unpredictability of machine sales but emphasized the importance of influencing customers to use their brands [29][30] Question: Pricing impact - Management expects pricing changes to have a more significant impact in the second half of the fiscal year [31] Question: Distribution costs - Management reported a decrease in distribution costs, attributing it to a plateauing effect [38] Question: Cash and securities management - Management confirmed that cash reserves are primarily intended for acquisitions rather than special dividends [45] Question: Supply chain improvements - Management provided an update on ongoing projects aimed at improving margins through better logistics and production capacity [62][64]

[Part I. Financial Information](index=3&type=section&id=Part%20I.%20Financial%20Information) This section presents the company's financial statements and management's analysis of its financial condition and results of operations [Consolidated Financial Statements](index=3&type=section&id=Item%20l.%20Consolidated%20Financial%20Statements) This section presents the unaudited consolidated financial statements for J & J Snack Foods Corp. as of March 30, 2019, and for the three and six-month periods then ended, with comparative data for the prior year [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) The company's total assets increased to $952.7 million as of March 30, 2019, from $932.0 million at September 29, 2018 Consolidated Balance Sheet Highlights (in thousands) | Account | March 30, 2019 | September 29, 2018 | | :--- | :--- | :--- | | **Total Current Assets** | $407,095 | $382,797 | | **Total Assets** | $952,712 | $932,013 | | **Total Current Liabilities** | $112,203 | $117,899 | | **Total Liabilities** | $167,800 | $172,922 | | **Total Stockholders' Equity** | $785,115 | $759,091 | [Consolidated Statements of Earnings](index=5&type=section&id=Consolidated%20Statements%20of%20Earnings) For the three months ended March 30, 2019, net sales grew 4% year-over-year to $276.3 million, and net earnings increased 14% to $20.4 million Quarterly Performance (Three Months Ended, in thousands, except per share) | Metric | March 30, 2019 | March 31, 2018 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $276,302 | $266,101 | +3.8% | | Gross Profit | $79,248 | $77,278 | +2.5% | | Operating Income | $24,771 | $23,541 | +5.2% | | Net Earnings | $20,354 | $17,833 | +14.1% | | Diluted EPS | $1.08 | $0.95 | +13.7% | Semi-Annual Performance (Six Months Ended, in thousands, except per share) | Metric | March 30, 2019 | March 31, 2018 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $547,914 | $531,311 | +3.1% | | Gross Profit | $156,111 | $150,557 | +3.7% | | Operating Income | $46,853 | $44,769 | +4.7% | | Net Earnings | $37,880 | $54,082 | -30.0% | | Diluted EPS | $2.00 | $2.88 | -30.6% | - The significant decrease in net earnings for the six-month period is primarily due to a **$20.9 million** gain on the remeasurement of deferred tax liabilities in the prior year following the 2017 Tax Cuts and Jobs Act[54](index=54&type=chunk)[105](index=105&type=chunk) [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended March 30, 2019, net cash provided by operating activities increased to $50.3 million from $41.9 million in the prior year Cash Flow Summary (Six Months Ended, in thousands) | Activity | March 30, 2019 | March 31, 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $50,259 | $41,897 | | Net cash used in investing activities | ($22,074) | ($42,422) | | Net cash used in financing activities | ($12,066) | ($13,467) | | **Net increase (decrease) in cash** | **$15,176** | **($15,757)** | | **Cash at end of period** | **$126,655** | **$75,205** | [Notes to the Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20the%20Consolidated%20Financial%20Statements) The notes detail key accounting policies, including the adoption of new revenue recognition guidance in fiscal 2019, which did not have a material impact - The company adopted new revenue recognition guidance (ASC 606) in fiscal 2019 using a modified retrospective approach, which did not materially impact the financial statements[26](index=26&type=chunk)[56](index=56&type=chunk) - The company's three reportable segments are Food Service, Retail Supermarkets, and Frozen Beverages. The Chief Operating Decision Makers review performance based on sales and operating income for each segment[60](index=60&type=chunk)[65](index=65&type=chunk) - Goodwill remained unchanged at **$102.5 million** as of March 30, 2019, allocated across Food Service (**$61.7 million**), Frozen Beverages (**$37.2 million**), and Retail Supermarket (**$3.7 million**) segments[71](index=71&type=chunk) - The company expects the adoption of new lease accounting guidance in fiscal 2020 to have a material impact, requiring the recognition of right-of-use assets and lease liabilities on the balance sheet[57](index=57&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Net sales increased 4% in Q2 and 3% in the first six months of fiscal 2019, driven by a 15% sales increase in the Frozen Beverages segment in Q2 Consolidated Sales Performance (YoY) | Period | Net Sales (in thousands) | Growth | | :--- | :--- | :--- | | Q2 2019 | $276,302 | +4% | | H1 2019 | $547,914 | +3% | - The company maintains a **$50 million** revolving credit facility, which was unused as of March 30, 2019, and believes its liquidity is sufficient for future growth[79](index=79&type=chunk)[83](index=83&type=chunk) - The Board of Directors declared a quarterly cash dividend of **$0.50 per share**[80](index=80&type=chunk) [Food Service Segment Analysis](index=27&type=section&id=Food%20Service%20Segment%20Analysis) Food Service sales grew 1% in Q2 and 2% in the first half, with operating income increasing due to lower marketing expenses and improved operations Food Service Sales Performance (YoY) | Period | Sales (in thousands) | Growth | | :--- | :--- | :--- | | Q2 2019 | $181,425 | +1% | | H1 2019 | $369,315 | +2% | - Bakery sales growth of **4%** for the six months was primarily driven by one co-pack customer and increased sales to warehouse club stores and schools[88](index=88&type=chunk) - Handheld sales decreased **14%** in the quarter and **19%** in the six months due to lower sales to co-pack customers after unsuccessful product launches[89](index=89&type=chunk) - Segment operating income increased to **$19.6 million** in Q2 (from **$18.5 million**) and to **$38.0 million** in H1 (from **$34.4 million**), benefiting from price increases and improved facility operations[91](index=91&type=chunk) [Retail Supermarkets Segment Analysis](index=29&type=section&id=Retail%20Supermarkets%20Segment%20Analysis) The Retail Supermarkets segment saw sales decrease by 1% in Q2 and remain flat for the first half, with operating income declining over six months due to higher costs Retail Supermarkets Sales Performance (YoY) | Period | Sales (in thousands) | Growth | | :--- | :--- | :--- | | Q2 2019 | $27,809 | -1% | | H1 2019 | $51,224 | 0% | - Soft pretzel sales grew **7%** in Q2, driven by the AUNTIE ANNE'S brand[93](index=93&type=chunk) - Operating income decreased in the six-month period to **$4.1 million** from **$5.1 million** in the prior year, attributed to increased product and distribution costs[95](index=95&type=chunk) [Frozen Beverages Segment Analysis](index=29&type=section&id=Frozen%20Beverages%20Segment%20Analysis) The Frozen Beverages segment experienced strong sales growth of 15% in Q2 and 8% in the first half, primarily driven by a significant increase in machine revenue Frozen Beverages Sales Performance (YoY) | Period | Sales (in thousands) | Growth | | :--- | :--- | :--- | | Q2 2019 | $67,068 | +15% | | H1 2019 | $127,375 | +8% | - Machine revenue was the primary growth driver, increasing by **$7.3 million** in Q2 and **$8.7 million** in H1, with increases concentrated among three customers[97](index=97&type=chunk) - Core beverage sales were up **1%** in Q2 but down **2%** in H1. Service revenue increased **4%** in both periods[96](index=96&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=31&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company states that there has been no material change in its assessment of sensitivity to market risk since the disclosure in its 2017 annual report on Form 10-K - There have been no material changes to the company's market risk disclosures[107](index=107&type=chunk) [Controls and Procedures](index=31&type=section&id=Item%204.%20Controls%20and%20Procedures) The company's CEO and CFO concluded that as of March 30, 2019, the disclosure controls and procedures were effective - Management has concluded that the company's disclosure controls and procedures are effective as of the end of the reporting period[108](index=108&type=chunk) - No material changes to internal control over financial reporting occurred during the quarter ended March 30, 2019[109](index=109&type=chunk) [Part II. Other Information](index=32&type=section&id=Part%20II.%20Other%20Information) This section includes exhibits and certifications required for regulatory filings [Exhibits](index=32&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications as required by the Sarbanes-Oxley Act and the financial statements formatted in XBRL - Exhibits filed include certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[111](index=111&type=chunk) - Financial information is also provided in XBRL format[111](index=111&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the period ended December 29, 2018 or Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number: 0-14616 J & J SNACK FOODS CORP. (Exact name of registrant as specified in its charter) New Jersey 22-1935537 (State or other jurisdiction of (I.R.S. Employer incorporation or ...

Financial Data and Key Metrics Changes - Net sales increased by 2% for the quarter, with EBITDA for the past 12 months at $164.3 million [7] - Consolidated gross profit as a percentage of sales rose to 28.3%, up from 27.6% last year, attributed to improved operations and efficiency [11] - Operating income in the foodservice segment increased to $18.5 million from $17.1 million in the previous quarter [12] - Cash and investment securities balance reached $288 million, up $12 million from the previous year-end [13] Business Line Data and Key Metrics Changes - Food Service sales increased by 3%, driven by frozen juice bars and ices up 5%, churros up 4%, funnel cakes up 3%, and bakery sales up 8% [7] - Retail supermarket sales were up 1%, with soft pretzel sales down 3% and frozen juice bars and Italian ices up 13% [8] - Frozen beverage and related product sales increased by 1%, while beverage-related sales decreased by 5% compared to the previous year [9] Market Data and Key Metrics Changes - Machine sales for beverage machines increased by $7.7 million, indicating future growth potential in beverage sales [10] - Service revenue for other categories grew by 4%, continuing a trend of quarter-over-quarter growth [9] Company Strategy and Development Direction - The company is focused on improving operational efficiencies and exploring acquisitions as a use of cash [13] - New product rollouts are expected to contribute positively to sales, particularly in the fast food and casual dining segments [29] - The company is maintaining a disciplined approach to M&A, looking for opportunities that align with its product offerings [31][102] Management's Comments on Operating Environment and Future Outlook - Management believes that the worst of logistics cost pressures is over, with expectations for stabilization moving forward [24] - The company anticipates continued improvements in margins due to operational efficiencies and pricing strategies [15][73] - Management expressed optimism about the growth potential in the bakery segment, although some recent gains may not be sustainable [64] Other Important Information - A cash dividend of $0.50 per share was declared, marking an 11.1% increase [14] - The company experienced unrealized investment losses due to new accounting regulations, but half of these losses have already reversed [17] Q&A Session Summary Question: Pricing realization and expectations for future quarters - Management indicated that pricing has been well received and expects stronger pricing in Q2, Q3, and Q4 compared to Q1 [22] Question: Logistics cost pressures and future expectations - Management believes that the worst is over regarding logistics costs, with expectations for leveling off [24] Question: Overview of the product pipeline and M&A - Management is optimistic about new product rollouts and is actively looking for acquisition opportunities, although recent targets have been put on hold [30][31] Question: Margin improvements and operational efficiencies - Management expects continued margin improvements from ongoing projects and operational efficiencies [33][74] Question: Commodity feedstock pressures - Commodity feedstock pressures are currently flat to moderately up, not significantly impacting costs [90] Question: Success of new product launches - New product launches have performed better than projections, with ongoing evaluations to enhance future performance [91]