J & J Snack Foods(JJSF) - 2022 Q3 - Quarterly Report

Part I. Financial Information Item 1. Consolidated Financial Statements This section presents the unaudited consolidated financial statements for the three and nine months ended June 25, 2022, including balance sheets, statements of earnings, comprehensive income, changes in stockholders' equity, and cash flows, along with detailed notes explaining significant accounting policies and events, such as the acquisition of Dippin' Dots Consolidated Balance Sheets The balance sheet as of June 25, 2022, shows total assets of $1.29 billion, an increase from $1.12 billion at September 25, 2021, primarily driven by the Dippin' Dots acquisition, which also increased goodwill and other intangible assets, while total liabilities rose mainly due to $125 million in long-term debt to finance the acquisition | Balance Sheet Items (in thousands) | June 25, 2022 | September 25, 2021 | | :--- | :--- | :--- | | Total Current Assets | $523,739 | $584,769 | | Property, plant and equipment, net | $318,574 | $267,187 | | Goodwill | $188,467 | $121,833 | | Other intangible assets, net | $196,407 | $77,776 | | Total Assets | $1,291,242 | $1,122,219 | | Total Current Liabilities | $198,991 | $167,629 | | Long-term debt | $125,000 | $- | | Total Stockholders' Equity | $855,899 | $845,654 | | Total Liabilities and Stockholders' Equity | $1,291,242 | $1,122,219 | Consolidated Statements of Earnings For the third quarter ended June 25, 2022, net sales increased to $380.2 million from $324.3 million year-over-year, but net earnings declined significantly to $15.6 million from $28.9 million, with diluted EPS falling to $0.81 from $1.51, driven by higher cost of goods sold and a sharp increase in operating expenses, particularly distribution costs | Metric (in thousands, except EPS) | Q3 2022 | Q3 2021 | 9 Months 2022 | 9 Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $380,227 | $324,344 | $980,230 | $821,519 | | Gross Profit | $109,076 | $96,174 | $253,799 | $207,195 | | Operating Income | $21,260 | $38,144 | $40,193 | $45,952 | | Net Earnings | $15,563 | $28,893 | $29,925 | $36,732 | | Diluted EPS | $0.81 | $1.51 | $1.56 | $1.92 | Consolidated Statements of Cash Flows For the nine months ended June 25, 2022, net cash used in operating activities was $29.6 million, a significant decrease from the $73.6 million provided in the prior year, primarily due to increases in accounts receivable and inventories, while net cash used in investing activities was $272.9 million, dominated by the $221.3 million payment for acquisitions, and financing activities provided $100.5 million, largely from $125 million in new borrowings | Cash Flow Activity (in thousands) | Nine Months Ended June 25, 2022 | Nine Months Ended June 26, 2021 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(29,647) | $73,568 | | Net cash (used in) provided by investing activities | $(272,859) | $21,856 | | Net cash provided by (used in) financing activities | $100,494 | $(15,589) | | Net (decrease) increase in cash and cash equivalents | $(201,909) | $80,459 | | Cash and cash equivalents at end of period | $81,283 | $276,268 | Notes to the Consolidated Financial Statements The notes provide crucial details on the company's financial statements, including the acquisition of Dippin' Dots for approximately $223.6 million, segment performance data showing strong sales growth across all divisions but profit pressure in Food Service and Retail, and details on a new $125 million long-term debt facility used to fund the acquisition - On June 21, 2022, the company completed the acquisition of Dippin' Dots for a purchase price of approximately $223.6 million in cash. The acquisition is reported as part of the Food Service segment[25][27] - The preliminary purchase price allocation for the Dippin' Dots acquisition includes $66.6 million in goodwill and $120.4 million in intangible assets[31][32] - The company amended its credit agreement, increasing available borrowings by $175 million. As of June 25, 2022, $125 million was outstanding under the facility to fund the acquisition[73][74] | Segment Operating Income (in thousands) | Q3 2022 | Q3 2021 | 9 Months 2022 | 9 Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Food Service | $2,640 | $17,644 | $12,177 | $29,879 | | Retail Supermarket | $2,341 | $9,080 | $8,416 | $20,167 | | Frozen Beverages | $16,279 | $11,420 | $19,600 | $(4,094) | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial results, highlighting a 17% increase in net sales for the third quarter, driven by recovery in the food service and frozen beverage segments, but profitability was significantly impacted by cost inflation in raw materials, packaging, fuel, and higher distribution expenses, with the recent acquisition of Dippin' Dots funded by drawing $125 million from an expanded credit facility Liquidity and Capital Resources The company's liquidity is sourced from cash, investments, and operating cash flow, supplemented by a credit facility that was amended in June 2022 to increase available borrowings by $175 million, from which the company drew $125 million to fund the Dippin' Dots acquisition, and a quarterly cash dividend of $0.633 per share was declared - The company amended its credit agreement on June 21, 2022, increasing available borrowings by $175 million[115] - As of June 25, 2022, $125 million was outstanding under the amended credit agreement, classified as long-term debt[116] - A quarterly cash dividend of $0.633 per share was declared, payable on July 11, 2022[110] Results of Operations Net sales grew 17% in Q3 and 19% in the first nine months of FY2022, with all segments reporting sales growth, and Frozen Beverages showing the strongest recovery, however, consolidated operating income fell 44% in Q3 due to significant margin pressure from inflation in raw materials and packaging, as well as sharply higher distribution costs and M&A expenses - Food Service sales increased 16% in Q3, but operating income decreased by 85% due to significant increases in ingredients, production, and distribution costs[120][123] - Retail Supermarkets sales increased 13% in Q3, while operating income decreased by 74%, primarily due to higher cost of goods sold and shipping costs[125][127] - Frozen Beverages sales increased 23% in Q3, with operating income rising to $16.3 million from $11.4 million YoY, driven by strong demand and operating leverage[128][129] - Consolidated gross profit margin decreased to 28.7% in Q3 from 29.7% YoY due to inflation. Operating expenses as a percentage of sales increased from 17.9% to 23.1%, driven by higher distribution costs and $3.1 million in M&A expenses[131][132][133] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company reports that there has been no material change in its assessment of sensitivity to market risk since the disclosures made in its 2021 annual report on Form 10-K - There has been no material change in the Company's assessment of its sensitivity to market risk since its 2021 annual report on Form 10-K[139] Item 4. Controls and Procedures The company's CEO and CFO concluded that disclosure controls and procedures were effective as of June 25, 2022, and the assessment of internal control over financial reporting excluded the recently acquired Dippin' Dots business, an omission permitted by SEC guidance for up to one year post-acquisition - The CEO and CFO concluded that the company's disclosure controls and procedures are effective as of the end of the period[139] - The company excluded the recently acquired Dippin' Dots from its interim evaluation of internal controls over financial reporting, as permitted by SEC guidance[140] Part II. Other Information Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, which include CEO and CFO certifications as required by the Sarbanes-Oxley Act of 2002, and financial statements formatted in inline XBRL - The report includes certifications from the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[143][144] - Financial information is provided in inline XBRL (eXtensible Business Reporting Language) format as required[145]