J&J Snack Foods [JJSF] Conference call transcript for 2021 q4
2022-02-01 16:09:05
Fiscal: 2022 q1
Disclaimer*: This transcript is designed to be used alongside the freely available audio recording on this page. Timestamps within the transcript are designed to help you navigate the audio should the corresponding text be unclear. The machine-assisted output provided is partly edited and is designed as a guide.:
Operator: 00:07 Welcome to the J&J Snack Foods First Quarter Earnings Call. My name is Annette, and I’ll be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] Please note that this conference is being recorded. 00:37 I will now turn the call over to Norberto Aja. Mr. Aja, you may begin.
Norberto Aja: 00:45 Thank you, operator and good morning everyone. Thanks for joining the J&J Snack Foods fiscal 2022 first quarter conference call. We’ll get started in just a minute with management’s comments and your questions, but before doing so, let me take a minute to read the Safe Harbor language. 01:01 This call will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements made on this call that do not relate to matters of historical facts should be considered forward-looking statements, including statements regarding management’s plans, strategies, goals and objectives, anticipated financial performance, industry-wide supply constraints, and the expected impact of COVID-2019 on our business. 01:28 These statements are neither promises nor guarantees, but involve known and unknown risks, uncertainties, and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. 01:47 Factors discussed in our Annual Report on Form 10-K for the year-ended September 25, 2021 and other filings with the Securities and Exchange Commission could cause actual results to differ materially from those indicated by the forward-looking statements made on this call. Any such forward-looking statements represent management’s estimates since of the date of this call, February 1, 2022, while we may elect to update such forward-looking statements at some point in the future, we disclaim any obligation to do so even if subsequent events cause our views to change. 02:20 In addition, we may also reference certain non-GAAP metrics, including adjusted EBITDA, which is reconciled to the nearest GAAP metrics in the company’s earnings release, which can be found in the Investor Relations section of our website at jjsnack.com. 02:35 With us on the call today are Dan Fachner, Chief Executive Officer; Ken Plunk, Chief Financial Officer; Steve Every, Chief Operations Officer; and Lynwood Mallard, Chief Marketing Officer. Joining remotely are Marjorie Roshkoff, our General Counsel; and James Hamill, Corporate Controller. Following management’s prepared remarks, we will open the call for question-and-answer session. 03:08 With that, I would now like to turn the call over to Dan Fachner, J&J Snack Foods’ Chief Executive Officer. Please go ahead, Dan.
Dan Fachner: 03:16 Thank you, Norberto, and good morning, everyone. We appreciate you joining us to discuss our first quarter results, which reflect the continued strength across our businesses driven by a healthy growth in all three of our segments. Before doing so, I’d like to take this opportunity to thank the entire J&J Snack Foods team, as always none of our achievements would be possible without the hard work of our world-class team of employees. The dedication of this group ensures that we deliver for all of our stakeholders and I am truly grateful for their efforts and commitments. 03:55 Taking a look at the results for the first quarter of fiscal 2022, we are pleased with the strong start to the year and the continuation of many of the positive trends we saw in the prior quarter. Net sales increased by 32% year-over-year to $318.5 million and by 17%, when compared to our fiscal Q1 2019. These top line results represent the highest fiscal first quarter revenue in the company’s 50-year history. 04:30 Our improving sales performance was led by a 54% jump in the Frozen Beverage segment, followed by a 32% increase in foodservice, and 9% growth in our retail segment. This led to earnings of $11.1 million or $0.58 per share, compared to $1.8 million or $0.09 per share in the first quarter of fiscal 2021. 04:59 Walking through each of these three segments, let me begin with our largest group foodservice. This segment represents over 60% of our total sales. We have strong customer relationships with snack and food businesses; leading retailers; warehouse clubs; and convenience stores. 05:20 Our portfolio also includes malls and shopping centers, as well as many of the most popular QSR and casual dining chain restaurants. And many of the largest stadiums and sports arenas. This segment also sells in the leisure and theme parks across the country and of course, just about every movie theater there is. 05:43 The foodservice segment is a great example of what we mean when we say J&J Snack Foods is everywhere. Our Food Service sales grew 32%, compared to the same quarter last year and 18% above Q1 2019 and continues to reflect the healthy demand for our soft pretzels, frozen novelties, churros, and handheld products across the consumer touch points. 06:11 Soft pretzel sales increased 54%, and frozen novelties increased 34%, churros sales and bakery products increased 69% and 21% respectively. In addition, we are seeing growth of 5% in the handheld’s as this category continues to be a greater contributor. 06:34 Moving to our retail segment, revenue grew by 9% year-over-year and by 36% versus fiscal Q1 2019. Growth was driven by a 17% rise in soft pretzel sales helped by our increasingly popular filled pretzel bites. Frozen novelties are also continuing to perform well, posting a 16% year-over-year increase. 07:00 We continue to gain placements and new selling opportunities at major grocery retailers through products like: Luigi’s Flavored Ice, Whole Fruit bars, Dogsters and Icee branded novelties. The retail segment continues to reflect sustained consumer-at-home consumption, given the increase in remote work and evolving consumer preferences. We believe these trends will continue to benefit our retail business going forward. 07:31 Let’s move on to the Frozen Beverage segment. Our business is now starting to produce results consistent with pre-COVID sales, as the theater industry continues to improve and consumers enjoy travel and outdoor activities. Our sales for the quarter exceeded the same period last year by 54% and were 6% above a very strong Q1 2019. These results were led by strong performances in amusement, convenience, and restaurants as traffic returns to these outlet, and as we gain new QSR and convenience customers. 08:11 In the amusement channel, we continue to see strong growth in the indoor focus venues, as that business segment continues to expand. I’m also really excited to see theater sales improve steadily throughout the quarter, including a December, where sales were just slightly above or below pre-COVID 2019 levels. The segment growth was once again led by our Icee beverage lineup, which grew 113% versus the prior year and 8% above fiscal Q1, 2019. 08:49 Service revenue increased 16%, the strongest first quarter in our service history, led by an acceleration in our preventative maintenance calls. Equipment sales increased 21%, driven mainly from a large QSR and convenience customers. With all three of our major business lines posting strong sales growth, we remain optimistic that these positive consumer trends will continue as we move further away from the impact of the pandemic and the recent challenges the variants have brought to all of us. 09:26 As was the case last quarter, our industry continues to experience unprecedented inflationary pressures and higher-than-expected cost increases across many facets of the business. From raw materials and ingredients to transportation, packaging, and labor. These costs escalated in the back half of the quarter with the onset of the Omicron variant resulting in first quarter fiscal 2022 gross margins of 25%, favorably compared to 21% the prior year, but below the 28% gross margin generated in the comparable 2019 period. 10:08 Like many of our competitors and customers, we are seeing double-digit levels of inflation across a number of areas. Ingredient costs increased over 10% on average, compared with the same period last year. In distribution, expenses were 10.5% of sales in the quarter, compared to 9.5% in the same period last year. 10:33 Our organization continues to focus on specific actions to offset these short-term challenges, and we have identified a number of opportunities to reduce expenses across the business, including procurement, R&D, production and distribution. In addition, we have four new production lines scheduled to be activated in fiscal 2022, that will leverage automation to improve efficiencies. 11:01 Finally, we are also implementing additional price increases for our products across nearly all of the categories. Collectively, we expect these initiatives to improve our gross profit margins progressively over the second quarter of fiscal 2022 and really into the back half of the fiscal year. 11:20 And while we’re being proactive and taking necessary steps to best navigate the current inflationary environment, the work we are doing to build and evolve our brands also continues. We have over 10 iconic brands that are leaders in their respective segments, and in some cases, these brands even define this segment. So there are a number of significant opportunities to leverage these brands and grow organically. 11:48 Within Food Service, we are very bullish on Churros and expect to launch a new branded Churros product to target major Food Service customers in fiscal 2022. We are also expanding our powerful SuperPretzel and Bavarian Pretzel brands with individually wrapped salted pretzels and filled pretzels. 12:10 In Retail segment, we are leaning on the super brands, including SuperPretzel, Luigi’s and Dogsters, to both create and grow market share through new products, flavor extensions and improved packaging. 12:26 Finally, in our Frozen Beverage segment, we remain focused on expanding our Icee brand and have recently introduced Icee products into QSRs and fast casual dining. As previously reported, we have seen great success on this front in places like crystal’s restaurants and Golden Corral. 12:46 We have a good pipeline with customers testing the Icee products and I am pleased to report that our customers are already seeing marked upticks and beverage consumption. 12:58 As it relates to inorganic growth, we continue to be very vigilant on the front and remain disciplined in our criteria and approach. We will not do acquisitions that are not accretive to our business, overpay for assets or buy something outside of our area of expertise. We have a long and successful track record on the acquisition front, and we intend for that to continue to be the case. 13:24 In closing, an important aspect of our business that has shown through more than ever before during the past 18 months to 24 months has been the resilience and power of our products and brands. The changes brought on by the pandemic have created tailwinds for many of our brands as people have sought to create moments of enjoyment, comfort and even companionship during these unprecedented times. Challenges create opportunities for strong brands to get even stronger and that is what I firmly believe is happening here. 14:00 On the back of various initiatives, I mentioned earlier in the strong demand environment we continue to experience, we are in a much stronger competitive position today. We are well positioned to continue to drive long-term growth and shareholder value for the company. 14:18 I would now like to turn the call over to Ken Plunk, CFO to review our financial performance. Ken?
Ken Plunk: 14:26 Thank you, Dan, and good morning everyone. Our fiscal 2022 first quarter results reflect the continued success of our operating strategies and the power of our unique brands, as well as improving trends in the macroeconomic environment and across the majority of the customer segments we serve. 14:48 Like Dan mentioned, they also reflect some of the challenges and headwinds, we continue to experience as it relates to our supply chain in cost of goods. Revenues for the first quarter of fiscal 2022 increased by a healthy 32% to $318.5 million versus the prior year period, and compares favorably versus the first quarter of fiscal 2019, with an increase of 17% in sales. 15:18 Breaking revenue down, Food Service revenue grew 32% to $211.7 million or 67% of our total sales. It was led by a 69% growth in churros, bakery and soft pretzels enjoyed 21% and 54% growth, respectively versus Q1 of fiscal 2021. And frozen novelties grew 34% for the quarter and handheld’s grew in mid-single-digits. 15:50 Retail increased over 9% to $42.7 million or 13% of total sales and soft pretzels frozen novelties and biscuit sales increased 17%, 16%, and 8% respectively. Handheld’s in our retail segment declined 54%, driven by proactive discontinuations of margin dilutive products. I would like to point out that retail was lapping a 33% sales growth in last year’s first quarter as consumers stayed at home. 16:27 Regarding our third segment, Frozen Beverages, revenues increased 54% to $64.1 million or 20% of total sales versus Q1 of fiscal 2021, reflecting healthy sales growth across all sub-segments, including 113% increase in beverage sales and 16% and 21% increase in maintenance and machine sales respectively. This led to a gross profit of $79.4 million or an increase over 58%, compared to the previous year period and a gross margin rate of 24.9%, an improvement of over 400 basis points above Q1 of fiscal 2021. 17:14 As Dan pointed out, our industry continues to face historic inflationary challenges and it certainly impacted our cost and margin expectations for the quarter. As Dan discussed, we are confident in our plans to manage these headwinds as we move forward. 17:31 Moving down the income statement, total operating expenses increased from $49.5 million to $64.5 million and were 20.2% of sales for the quarter. This compares favorably to the same quarter of fiscal 2021, even while distribution costs continue to escalate. Distribution expenses were 10.5% of sales, compared to 9.5% of sales in fiscal 2021. Marketing expenses and administrative expenses were well managed for the quarter and below prior year. 18:09 Overall, operating income improved from $0.6 million to $14.8 million for the quarter, compared to the prior year. With income taxes of $4 million, compared to $0.2 million in Q1 of fiscal 2021. Net earnings increased by over 524% to $11.1 million, resulting in diluted earnings per share of $0.58 a share, compared to $0.09 in the prior period. And on an adjusted EBITDA basis, we saw an improvement of 77% to $27.5 million in Q1 of fiscal 2022 versus Q1 of fiscal 2021. 18:55 Taking a look at our balance sheet and liquidity position, we are pleased that even on the back of these challenging last few quarters that we continue to have a healthy balance sheet and overall liquidity was a $283 million in cash and marketable securities and zero debt. Our company is well-positioned for continued investment and growth. 19:17 In closing, our first quarter results reflect the diversification strength of our brands and products. Financially, we’re confident in the short-term plans to manage through the current environment and excited about our long-term strategy to grow sales and profits. We have an incredible portfolio of brands and products and a proven team committed to continue the growth legacy of the company. 19:42 I would now like to open the call to questions. Operator?
Operator: 19:48 Thank you. [Operator Instructions] And we have some people in the queue already. Okay, this call is from Rob Dickerson, and please excuse if I’m mispronouncing your name. Please go ahead, please.
Operator: 28:34 All right. Excuse me. Our next question is from Todd Brooks. Your line is open.
Operator: 39:23 And our next question comes from Ryan Bell. Go ahead please.
Operator: 45:48 Okay. Give me a minute here, I have to name this line. Okay, and this call is from Robert Costello. Go ahead please.
Operator: 51:00 Okay. And we have Todd Brooks again. Did you have another question?
Operator: 51:08 Okay, go ahead.
Operator: 57:00 Okay. And at this time there are no more questions in the queue.
Dan Fachner: 57:06 Great. Well thank you everyone for joining us on the call today. We appreciate your interest and continued support and look forward to updating you on our progress during our second quarter call. Thank you very much and look forward to speaking with you soon. Have a great afternoon.
Operator: 57:23 Thank you. Ladies and gentlemen, this concludes today’s conference. Thank you for participating. You may now disconnect.
