J & J Snack Foods(JJSF) - 2024 Q3 - Quarterly Results

Executive Summary & Financial Highlights J&J Snack Foods Corp. reported record fiscal third-quarter revenue of $440.0 million, marking the second-highest quarterly net sales performance in company history, driven by top-line growth and improved operating efficiencies, with the CEO highlighting strong new business and optimism for future growth Q3 2024 Financial Performance Overview J&J Snack Foods Corp. achieved record fiscal third-quarter revenue of $440.0 million, a healthy gross margin of 33.6%, and record quarterly earnings per diluted share, driven by top-line growth and improved operating efficiencies Q3 2024 Financial Performance (Millions of Dollars) | Metric | Q3 2024 (Actuals) | Q3 2023 (Actuals) | Change ($M) | Change (%) | | :-------------------------------- | :---------------- | :---------------- | :---------- | :--------- | | Net Sales | $440.0M | $425.8M | $14.2M | 3.3% | | Operating Income | $50.1M | $48.3M | $1.8M | 3.8% | | Net Earnings | $36.3M | $35.0M | $1.3M | 3.8% | | Earnings per Diluted Share | $1.87 | $1.81 | $0.06 | 3.3% | | Adjusted Operating Income | $53.1M | $51.1M | $2.0M | 3.9% | | Adjusted EBITDA | $70.9M | $66.6M | $4.2M | 6.3% | | Adjusted Earnings per Diluted Share | $1.98 | $1.92 | $0.06 | 3.1% | | Gross Margin | 33.6% | 33.6% | 0.0% | 0.0% | - Net sales increased 3.3% to $440.0 million in Q3 of fiscal 2024, compared to Q3 of fiscal 2023, representing the second-highest quarterly net sales performance in the Company's history[1][3][6] - Gross profit as a percentage of sales was 33.6% in Q3 '24, flat versus Q3 '23, reflecting positive impacts from improved product and pricing mix along with ongoing productivity improvements[1][3][8] CEO Commentary & Strategic Outlook CEO Dan Fachner highlighted excellent Q3 results driven by higher volumes, strong new business in Food Service and Retail, and improved operating efficiencies, expressing optimism for future growth despite challenges in the theater channel - Top-line growth was driven by higher volumes across most core products and brands, as well as strong new business performance in Food Service and Retail segments[3] - The effect of the 2023 actors strike on the summer film slate resulted in a significant year-over-year decline in movie theater attendance, impacting fiscal third-quarter sales of frozen beverages, soft pretzels, and churros[4] - The recent churros launch with one of the three largest QSR customers is exceeding expectations, partially offsetting softer churros sales in theater and club channels. Dippin' Dots sales increased 5.3% and are being rolled out at major theaters, with expectations for improved sales as attendance recovers[5] - The company is executing its strategy to drive record sales and leverage expenses to grow profits faster than sales, maintaining a strong portfolio, robust balance sheet, and liquidity position for long-term value creation[6] Segment Performance Analysis The company's segments show mixed performance, with strong Retail growth and moderate Food Service gains, while Frozen Beverages faced declines due to theater channel weakness Food Service Segment The Food Service segment reported a 3.7% sales increase to $264.4 million, driven by strong growth in Handhelds, Bakery, and Frozen Novelties, including a 5.3% increase in Dippin' Dots sales, though operating income decreased by 2.6% due to product mix Food Service Segment Performance (Millions of Dollars) | Metric | Q3 2024 ($M) | Q3 2023 ($M) | Change ($M) | Change (%) | | :---------------------- | :----------- | :----------- | :---------- | :--------- | | Food Service Sales | $264.4 | $255.0 | $9.4 | 3.7% | | Food Service Operating Income | $20.2 | $20.8 | $(0.6) | (2.6%) | - Bakery and Frozen Novelties sales increased by 6.8% and 9.1% respectively, with Dippin' Dots sales up 5.3%. Handheld sales saw a significant 25.3% increase[11] - Churros sales were relatively flat, down 0.7% to $30.3 million, as new business growth with a major QSR customer partially offset lower theater and club channel sales[11] - Soft Pretzel sales decreased by 6.3%, primarily driven by soft theater sales[11] Retail Segment The Retail segment experienced robust growth, with sales increasing 12.4% to $68.7 million, fueled by a substantial 69.9% increase in Handheld sales and strong performance in Frozen Novelties and Soft Pretzels, leading to an 86.0% increase in operating income Retail Segment Performance (Millions of Dollars) | Metric | Q3 2024 ($M) | Q3 2023 ($M) | Change ($M) | Change (%) | | :---------------------- | :----------- | :----------- | :---------- | :--------- | | Retail Sales | $68.7 | $61.2 | $7.5 | 12.4% | | Retail Operating Income | $7.8 | $4.2 | $3.6 | 86.0% | - Handheld sales grew by 69.9% due to expanded product placement with a major mass merchant[12] - Frozen Novelties sales increased 10.9%, led by growth of Dogsters and Icee novelties, and Soft Pretzel sales increased 8.2% due to continued expansion of Superpretzel products[12] - Biscuit sales decreased 5.8% in the quarter[12] Frozen Beverages Segment The Frozen Beverages segment experienced a 2.6% sales decline to $106.8 million, primarily due to weakness in the theater channel and a 15.4% decrease in Machine sales, resulting in a 5.5% decline in operating income Frozen Beverages Segment Performance (Millions of Dollars) | Metric | Q3 2024 ($M) | Q3 2023 ($M) | Change ($M) | Change (%) | | :-------------------------- | :----------- | :----------- | :---------- | :--------- | | Frozen Beverages Sales | $106.8 | $109.6 | $(2.8) | (2.6%) | | Frozen Beverages Operating Income | $22.1 | $23.3 | $(1.2) | (5.5%) | - Beverage sales were down 1.1% ($0.8 million) below Q3'23, primarily due to weakness across the theater channel as the industry recovers from the impacts of last year's actors strike[13] - Machine sales were down 15.4% in the quarter, a result of lapping a significant QSR rollout in the prior year[14] - Repair and Maintenance revenues declined 1.6% reflecting weaker maintenance call volumes[14] Consolidated Financial Performance Details The company maintained a strong gross profit margin of 33.6% with stable operating expenses, leading to increased GAAP net earnings and diluted EPS for the quarter Gross Profit and Operating Expenses The company maintained a strong gross profit margin of 33.6% in Q3 2024, flat compared to the prior year, benefiting from improved product and pricing mix and ongoing productivity enhancements, with total operating expenses remaining flat at 22.2% of sales Gross Profit (Millions of Dollars) | Metric | Q3 2024 ($M) | Q3 2023 ($M) | Gross Margin Q3 2024 | Gross Margin Q3 2023 | | :------------- | :----------- | :----------- | :------------------- | :------------------- | | Gross Profit | $147.8 | $142.9 | 33.6% | 33.6% | - Gross margin was flat year-over-year, reflecting positive impacts from improved product and pricing mix along with ongoing productivity improvements[8] - Net low-mid single-digit inflationary increases in raw materials (cocoa/chocolate, sugar/sweeteners) were somewhat offset by deflationary trends in flour, cheese, dairy, mixes, and eggs[8] Operating Expenses (Millions of Dollars) | Operating Expense Category | Q3 2024 ($M) | % of Sales Q3 2024 | Q3 2023 ($M) | % of Sales Q3 2023 | | :------------------------- | :----------- | :----------------- | :----------- | :----------------- | | Total Operating Expenses | $97.7 | 22.2% | $94.6 | 22.2% | | Distribution Costs | $45.1 | 10.2% | $44.5 | 10.4% | | Marketing and Selling | $32.6 | 7.4% | $31.3 | 7.4% | | Administrative Expenses | $19.9 | 4.5% | $18.7 | 4.4% | Net Earnings and EPS J&J Snack Foods reported GAAP net earnings of $36.3 million for Q3 2024, an increase from $35.0 million in Q3 2023, leading to diluted EPS of $1.87, with adjusted operating income growing by 3.9% Net Earnings and EPS (Millions of Dollars) | Metric | Q3 2024 ($M) | Q3 2023 ($M) | Change ($M) | Change (%) | | :-------------------------------- | :----------- | :----------- | :---------- | :--------- | | Net Earnings | $36.3 | $35.0 | $1.3 | 3.8% | | Earnings per Diluted Share | $1.87 | $1.81 | $0.06 | 3.3% | | Adjusted Operating Income | $53.1 | $51.1 | $2.0 | 3.9% | - The effective tax rate for Q3 2024 was 27.9%[10] Financial Statements This section presents the detailed Consolidated Statements of Earnings, Balance Sheets, and Cash Flows, offering a comprehensive view of the company's financial position and performance Consolidated Statements of Earnings The Consolidated Statements of Earnings provide a detailed breakdown of the company's revenues, cost of goods sold, gross profit, operating expenses, and net earnings for the three and nine months ended June 29, 2024, and June 24, 2023 Consolidated Statements of Earnings (Thousands of Dollars) | | Three months ended June 29, 2024 | Three months ended June 24, 2023 | Nine months ended June 29, 2024 | Nine months ended June 24, 2023 | | :-------------------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Net sales | $439,957 | $425,769 | $1,147,999 | $1,114,966 | | Cost of goods sold | 292,191 | 282,887 | 797,405 | 790,845 | | Gross profit | 147,766 | 142,882 | 350,594 | 324,121 | | Operating expenses | | | | | | Marketing | 32,598 | 31,308 | 87,720 | 79,024 | | Distribution | 45,074 | 44,485 | 129,626 | 124,722 | | Administrative | 19,880 | 18,740 | 56,600 | 53,050 | | Other general expense | 98 | 55 | (1,055) | (490) | | Total operating expenses | 97,650 | 94,588 | 272,891 | 256,306 | | Operating income | 50,116 | 48,294 | 77,703 | 67,815 | | Other income (expense) | | | | | | Investment income | 783 | 633 | 2,265 | 1,719 |\ | Interest expense | (543) | (1,314) | (1,532) | (3,697) | | Earnings before income taxes | 50,356 | 47,613 | 78,436 | 65,837 | | Income tax expense | 14,057 | 12,632 | 21,526 | 17,352 | | NET EARNINGS | $36,299 | $34,981 | $56,910 | $48,485 | | Earnings per diluted share | $1.87 | $1.81 | $2.93 | $2.51 | | Weighted average number of diluted shares | 19,456 | 19,327 | 19,423 | 19,299 | | Earnings per basic share | $1.87 | $1.82 | $2.94 | $2.52 | | Weighted average number of basic shares | 19,396 | 19,257 | 19,373 | 19,239 | Consolidated Balance Sheets The Consolidated Balance Sheets present the company's financial position, detailing assets, liabilities, and stockholders' equity as of June 29, 2024 (unaudited) and September 30, 2023 Consolidated Balance Sheets (Thousands of Dollars) | Assets | June 29, 2024 (unaudited) | September 30, 2023 | | :------------------------------------------------------------------------------------------------------------------------------------------------- | :------------------------ | :----------------- | | Current assets | | | | Cash and cash equivalents | 64,047 | $49,581 | | Accounts receivable, net | 208,665 | 198,129 | | Inventories | 179,696 | 171,539 | | Prepaid expenses and other | 8,736 | 10,963 | | Total current assets | 461,144 | 430,212 | | Property, plant and equipment, at cost | | |\ | Land | 3,684 | 3,684 | | Buildings | 54,996 | 45,538 | | Plant machinery and equipment | 471,235 | 445,299 | | Marketing equipment | 313,103 | 296,482 | | Transportation equipment | 15,737 | 14,367 | | Office equipment | 48,454 | 47,393 | | Improvements | 67,565 | 51,319 | | Construction in progress | 28,986 | 56,116 | | Total Property, plant and equipment, at cost | 1,003,760 | 960,198 | | Less accumulated depreciation and amortization | 609,601 | 574,295 | | Property, plant and equipment, net | 394,159 | 385,903 | | Other assets | | | | Goodwill | 185,070 | 185,070 | | Other intangible assets, net | 184,203 | 183,529 | | Operating lease right-of-use assets | 152,712 | 88,868 | | Other | 3,387 | 3,654 | | Total other assets | 525,372 | 461,121 | | Total Assets | 1,380,675 | $1,277,236 | | Liabilities and Stockholders' Equity Current Liabilities | | | | Current finance lease liabilities | 221 | $201 | | Accounts payable | 108,642 | 90,758 | | Accrued insurance liability | 18,084 | 15,743 | | Accrued liabilities | 20,956 | 14,214 | | Current operating lease liabilities | 19,104 | 16,478 | | Accrued compensation expense | 21,919 | 23,341 | | Dividends payable | 14,264 | 14,209 | | Total current liabilities | 203,190 | 174,944 | | Long-term debt | 12,000 | 27,000 | | Noncurrent finance lease liabilities | 441 | 600 | | Noncurrent operating lease liabilities | 140,724 | 77,631 | | Deferred income taxes | 81,652 | 81,310 | | Other long-term liabilities | 4,752 | 4,233 | | Stockholders' Equity | | | | Preferred stock, $1 par value; authorized 10,000,000 shares; none issued | - | - | | Common stock, no par value; authorized, 50,000,000 shares; issued and outstanding 19,408,000 and 19,332,000 respectively | 129,054 | 114,556 | | Accumulated other comprehensive loss | (12,429) | (10,166) | | Retained Earnings | 821,291 | 807,128 | | Total stockholders' equity | 937,916 | 911,518 | | Total Liabilities and Stockholders' Equity | 1,380,675 | $1,277,236 | Consolidated Statements of Cash Flows The Consolidated Statements of Cash Flows detail the cash generated and used by operating, investing, and financing activities for the nine months ended June 29, 2024, and June 24, 2023 Consolidated Statements of Cash Flows (Thousands of Dollars) | | Nine months ended June 29, 2024 | Nine months ended June 24, 2023 | | :--------------------------------------------------------------------------------------------------- | :------------------------------ | :------------------------------ | | Operating activities: | | | | Net earnings | $56,910 | $48,485 | | Adjustments to reconcile net earnings to net cash provided by operating activities | | | | Depreciation of fixed assets | 47,141 | 41,319 | | Amortization of intangibles and deferred costs | 5,244 | 5,065 | | (Gain) from disposals of property & equipment | (23) | (255) | | Share-based compensation | 4,841 | 3,935 | | Deferred income taxes | 310 | (937) | | (Gain) on marketable securities | - | (105) | | Other | 268 | (237) | | Changes in assets and liabilities, net of effects from purchase of companies | | | | (Increase) in accounts receivable | (10,949) | (7,680) | | (Increase) decrease in inventories | (7,264) | 4,875 | | Decrease in prepaid expenses | 2,187 | 8,487 | | Increase in accounts payable and accrued liabilities | 28,081 | 2,992 | | Net cash provided by operating activities | 126,746 | 105,944 | | Investing activities: | | | | Payments for asset acquisitions | (7,014) | - | | Purchases of property, plant and equipment | (56,371) | (76,472) | | Proceeds from redemption and sales of marketable securities | - | 5,300 | | Proceeds from disposal of property and equipment | 484 | 774 | | Net cash (used in) investing activities | (62,901) | (70,398) | | Financing activities: | | | | Proceeds from issuance of stock | 9,657 | 6,289 | | Borrowings under credit facility | 57,000 | 102,000 | | Repayment of borrowings under credit facility | (72,000) | (74,000) | | Payments on finance lease obligations | (120) | (150) | | Payment of cash dividend | (42,693) | (40,389) | | Net cash (used in) financing activities | (48,156) | (6,250) | | Effect of exchange rates on cash and cash equivalents | (1,223) | 1,166 | | Net increase in cash and cash equivalents | 14,466 | 30,462 | | Cash and cash equivalents at beginning of period | 49,581 | 35,181 | | Cash and cash equivalents at end of period | $64,047 | $65,643 | Non-GAAP Financial Measures The company provides non-GAAP financial measures like Adjusted EBITDA and Adjusted Operating Income, with detailed reconciliations, to offer clearer insights into core business performance Non-GAAP Definitions and Rationale The company utilizes certain non-GAAP financial measures, including Adjusted EBITDA, Adjusted Operating Income, and Adjusted Earnings per Diluted Share, to provide additional insights into its core business performance by excluding specific non-recurring or non-operational items - Adjusted EBITDA consists of net earnings adjusted to exclude income taxes, investment income, interest expense, depreciation and amortization, share-based compensation, net (gain) loss on sale or disposal of assets, impairment charges, restructuring costs, merger and acquisition costs, acquisition related inventory adjustments, strategic business transformation costs, and integration costs[18] - Adjusted Operating Income consists of operating income adjusted to exclude impairment charges, restructuring costs, merger and acquisition costs, acquisition related amortization expenses and inventory adjustments, strategic business transformation costs, and integration costs[18] - Adjusted Earnings per Diluted Share consists of net earnings adjusted to exclude impairment charges, restructuring costs, merger and acquisition costs, acquisition related amortization expenses and inventory adjustment, strategic business transformation costs, and integration costs, with the income tax effect of pre-tax adjustments determined using statutory tax rates[19] - These non-GAAP measures are used by management to evaluate business performance and profitability by excluding items not indicative of recurring core business operating results, providing additional clarity for investors[22] Non-GAAP Reconciliations Detailed reconciliations are provided to bridge GAAP financial measures to their non-GAAP counterparts, including Adjusted EBITDA, Adjusted Operating Income, and Adjusted Earnings per Diluted Share, for both the three and nine months ended June 29, 2024, and June 24, 2023 Reconciliation of GAAP Net Earnings to Adjusted EBITDA (Thousands of Dollars) | Reconciliation of GAAP Net Earnings to Adjusted EBITDA | Three months ended June 29, 2024 | Three months ended June 24, 2023 | Nine months ended June 29, 2024 | Nine months ended June 24, 2023 | | :--------------------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Net Earnings | $36,299 | $34,981 | $56,910 | $48,485 | | Income Taxes | 14,057 | 12,632 | 21,526 | 17,352 | | Investment Income | (783) | (633) | (2,265) | (1,719) | | Interest Expense | 543 | 1,314 | 1,532 | 3,697 | | Depreciation and Amortization | 18,193 | 15,763 | 52,385 | 46,384 | | Share-Based Compensation | 1,634 | 1,383 | 4,842 | 3,935 | | Strategic Business Transformation Costs (2) | 295 | 951 | 4,848 | 951 | | Net (Gain) Loss on Sale or Disposal of Assets | (6) | 99 | (23) | (255) | | Acquisition Related Inventory Adjustment | 183 | - | 183 | - | | Merger and Acquisition Costs | 250 | - | 250 | - | | Integration Costs | 205 | 153 | 205 | 570 | | Adjusted EBITDA | $70,870 | $66,643 | $140,393 | $119,400 | Reconciliation of GAAP Operating Income to Adjusted Operating Income (Thousands of Dollars) | Reconciliation of GAAP Operating Income to Adjusted Operating Income | Three months ended June 29, 2024 | Three months ended June 24, 2023 | Nine months ended June 29, 2024 | Nine months ended June 24, 2023 | | :----------------------------------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Operating Income | $50,116 | $48,294 | $77,703 | $67,815 | | Strategic Business Transformation Costs (2) | 295 | 951 | 4,848 | 951 | | Acquisition Related Amortization Expenses | 2,012 | 1,679 | 5,244 | 5,037 | | Acquisition Related Inventory Adjustment | 183 | - | 183 | - | | Merger and Acquisition Costs | 250 | - | 250 | - | | Integration Costs | 205 | 153 | 205 | 570 | | Adjusted Operating Income | $53,061 | $51,077 | $88,433 | $74,373 | Reconciliation of GAAP Earnings per Diluted Share to Adjusted Earnings per Diluted Share (Dollars) | Reconciliation of GAAP Earnings per Diluted Share to Adjusted Earnings per Diluted Share | Three months ended June 29, 2024 | Three months ended June 24, 2023 | Nine months ended June 29, 2024 | Nine months ended June 24, 2023 | | :--------------------------------------------------------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Earnings per Diluted Share | $1.87 | $1.81 | $2.93 | $2.51 | | Strategic Business Transformation Costs (2) | 0.02 | 0.05 | 0.25 | 0.05 | | Acquisition Related Amortization Expenses | 0.10 | 0.09 | 0.27 | 0.26 | | Acquisition Related Inventory Adjustment | 0.01 | - | 0.01 | - | | Merger and Acquisition Costs | 0.01 | - | 0.01 | - | | Integration Costs | 0.01 | 0.01 | 0.01 | 0.03 | | Tax Effect of Non-GAAP Adjustments (1) | (0.04) | (0.04) | (0.15) | (0.09) | | Adjusted Earnings per Diluted Share | $1.98 | $1.92 | $3.33 | $2.76 | Additional Information This section provides details on the upcoming conference call, an overview of J&J Snack Foods Corp., and a cautionary statement regarding forward-looking information Conference Call Details J&J Snack Foods Corp. will host a conference call to discuss its Q3 2024 financial results and business outlook on August 6, 2024, at 10:00 a.m. Eastern Time - A conference call to discuss results and business outlook will be held on August 6, 2024, at 10:00 a.m. Eastern Time. Participants must register via a provided link to receive dial-in information[15] About J & J Snack Foods Corp. J&J Snack Foods Corp. is a leading innovator in the snack food industry, offering a diverse portfolio of branded snack foods and beverages to foodservice and retail markets nationwide, including popular brands like SUPERPRETZEL, ICEE, DIPPIN' DOTS, and LUIGI'S Real Italian Ice - J&J Snack Foods Corp. is a leader and innovator in the snack food industry, providing innovative, niche, and affordable branded snack foods and beverages to foodservice and retail supermarket outlets[16] - Key brands include SUPERPRETZEL, ICEE, SLUSH PUPPIE, DIPPIN' DOTS, LUIGI'S Real Italian Ice, MINUTE MAID frozen ices, WHOLE FRUIT sorbet and frozen fruit bars, HOLA! CHURROS, and THE FUNNEL CAKE FACTORY funnel cakes[16] Cautionary Statement Regarding Forward-Looking Information This section provides a standard cautionary statement regarding forward-looking statements, highlighting that actual results may differ materially from expectations due to various factors, and the company does not undertake to update such statements - The press release includes forward-looking statements regarding future financial position, results of operations, revenue growth, profit levels, cash flows, business strategy, and other objectives[17] - Readers are cautioned that actual results may differ materially from expectations due to inherent uncertainties and various factors, including consumer spending, price competition, raw material pricing, transportation costs, and competitive marketplace changes[17]