News Column

J&J SNACK FOODS CORP - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

April 28, 2014

Liquidity and Capital Resources

Our current cash and cash equivalents balances and cash expected to be provided by future operations are our primary sources of liquidity. We believe that these sources, along with our borrowing capacity, are sufficient to fund future growth and expansion. See Note 11 to these financial statements for a discussion of our investment securities.

The Company's Board of Directors declared a regular quarterly cash dividend of $.32 per share of its common stock payable on April 3, 2014, to shareholders of record as of the close of business on March 14, 2014.

In our fiscal year ended September 28, 2013, we purchased and retired 204,397 shares of our common stock at a cost of $14,500,215. We did not purchase any shares in the six months ended March 29, 2014. On November 8, 2012 the Company's Board of Directors authorized the purchase and retirement of an additional 500,000 shares of the Company's common stock; 343,858 shares remain to be purchased under this authorization.

19 --------------------------------------------------------------------------------



In the three months ended March 29, 2014 and March 30, 2013 fluctuations in the valuation of the Mexican and Canadian currencies and the resulting translation of the net assets of our Mexican and Canadian subsidiaries caused an increase of $172,000 in accumulated other comprehensive loss in the 2014 second quarter and an decrease of $570,000 in accumulated other comprehensive loss in the 2013 second quarter. In the six month period, fluctuations in the valuation of the Mexican and Canadian currencies and the resulting translation of the net assets of our Mexican and Canadian subsidiaries caused an increase of $276,000 in accumulated other comprehensive loss in the 2014 six month period and a decrease of $447,000 in accumulated other comprehensive loss in the 2013 six month period.

Our general-purpose bank credit line which expires in December 2016 provides for up to a $50,000,000 revolving credit facility. The agreement contains restrictive covenants and requires commitment fees in accordance with standard banking practice. There were no outstanding balances under this facility at March 29, 2014.

Results of Operations



Net sales increased $3,995,000 or 2% to $205,321,000 for the three months and $16,110,000 or 4% to $408,844,000 for the six months ended March 29, 2014 compared to the three and six months ended March 30, 2013.

We believe our sales, and to a lesser extent, our costs, were impacted by the severe weather which occurred in many parts of the country during the current three month period; although we are unable to quantify the impact on our operating income. Most of our product sales are to consumers at snack bar and food stand locations, restaurants and schools so to the extent that traffic was reduced at these locations because of weather, our sales were affected.

FOOD SERVICE



Sales to food service customers increased $2,936,000 or 2% in the second quarter to $138,329,000 and increased $11,529,000 or 4% for the six months. Excluding sales resulting from the acquisition of New York Pretzel in October 2013, food service sales increased approximately 1.5% for the second quarter and increased 4% for the six months. Soft pretzel sales to the food service market increased 10% to $38,815,000 in the second quarter and increased 15% to $78,123,000 in the six months due to increased sales to restaurant chains, warehouse club stores, school food service and throughout our customer base. Increased sales to one customer accounted for approximately 1/2 of the increase in pretzel sales in the quarter and 40% in the six months. Without New York Pretzel, pretzel sales increased about 7% for the second quarter and 13% for the six months. Frozen juices and ices sales increased 17% to $11,857,000 in the three months and 14% to $20,086,000 in the six months resulting from sales increases primarily to warehouse club stores. Churro sales to food service customers decreased 5% to $13,430,000 in the second quarter and were down 2% to $27,381,000 for the six months which was net of a decline in sales of $465,000 in the quarter and $1,229,000 in the six months to one restaurant chain which rolled out a churros product in the year ago period.

20 --------------------------------------------------------------------------------



Sales of bakery products decreased $915,000 or 1% in the second quarter to $66,169,000 and were essentially unchanged at $135,245,000 for the six months as sales increases and decreases were spread throughout our customer base.

Sales of new products in the first twelve months since their introduction were approximately $2.1 million in this quarter and $4.6 million in the six months. Price increases accounted for approximately $1.3 million of sales in the quarter and $2.2 million in the six months and net volume increases, including new product sales as defined above and sales resulting from the acquisition of New York Pretzel, accounted for approximately $1.6 million of sales in the quarter and $9.3 million in the six months.

Operating income in our Food Service segment increased from $15,363,000 to $17,562,000 in the quarter and increased from $27,960,000 to $32,713,000 in the six months. Operating income for the quarter and six months benefited from increased sales volume, price increases and lower ingredient costs.

RETAIL SUPERMARKETS



Sales of products to retail supermarkets decreased $503,000 or 2% to $23,050,000 in the second quarter and decreased $1,042,000 or 2% to $43,214,000 in the six months. Soft pretzel sales for the second quarter were up 3% to $10,309,000 and were up 3% to $19,224,000 for the six months on a unit volume increase of 2% for the quarter and 2% for the six months. Sales of frozen juices and ices decreased $596,000 or 7% to $8,402,000 in the second quarter and were down 4% to $14,825,000 for the six months on a unit volume decrease of 8% in the quarter and 7% in the six months. Lower sales to one customer accounted for all of the sales decrease in both periods. Coupon redemption costs, a reduction of sales, decreased 9% or about $65,000 for the quarter and decreased 11% to $1,369,000 for the six months. Handheld sales to retail supermarket customers decreased 6% to $4,815,000 in the quarter and decreased 12% to $10,102,000 for the six months with sales increases and decreases throughout our customer base; however, sales to one customer were down over $700,000 for the second quarter and sales to two customers were down about $1.7 million for the six months as products introduced in the year ago period have not been successful.

Price increases accounted for approximately $300,000 of sales in the quarter and $1.0 million in the six months and net volume decreases, net of decreased coupon costs, accounted for approximately $800,000 of the sales decrease in this quarter and $2.0 million in the six months. Operating income in our Retail Supermarkets segment increased from $2,404,000 to $2,602,000 in the quarter and from $3,974,000 to $4,566,000 in the six months primarily because of higher gross margins because of product mix and lower coupon expense.

21 --------------------------------------------------------------------------------

FROZEN BEVERAGES



Frozen beverage and related product sales increased 4% to $43,942,000 in the second quarter and increased 7% to $88,521,000 in the six month period. Beverage related sales alone were up 6% to $26,713,000 in the second quarter and were up 3% to $51,902,000 in the six month period. Gallon sales were up 5% for the three months and were up 2% for the six month period. Service revenue increased 3% to $13,135,000 in the second quarter and increased 9% to $26,744,000 for the six month period with sales increases and decreases spread throughout our customer base.

Sales of beverage machines, which tend to fluctuate from year to year while following no specific trend, were $186,000 or 5% lower in the second quarter and were $2,289,000 or 33% higher in the six month period. The approximate number of company owned frozen beverage dispensers was 46,500 and 44,700 at March 29, 2014 and September 28, 2013, respectively. Operating income in our Frozen Beverage segment was $168,000 in this quarter and $1,024,000 for the six months compared to $1,392,000 and $2,286,000; respectively, last year as higher operating expenses in these seasonally low periods offset the benefits of increased sales. Group health insurance and liability insurance costs were higher by about $900,000 in the quarter and $800,000 in the six months compared to last year due primarily to an unusually high level of medical claims under our self-insured group health insurance program.

CONSOLIDATED



Gross profit as a percentage of sales increased to 29.76% in the three month period from 28.88% last year and increased to 29.60% in the six month period from 28.59% a year ago. Higher volume in our food service segment was the primary reason for the improved gross profit margin in the six month period while lower ingredients costs benefitted both the three and six month periods.

Total operating expenses increased $1,789,000 in the second quarter and as a percentage of sales increased from 19.37% percent to 19.86%. About 1/3 of the increase in total operating expenses were higher group health insurance costs due primarily to an unusually high level of medical claims under our self-insured group health insurance program. For the first half, operating expenses increased $4,650,000, and as a percentage of sales increased from 19.88% to 20.23%. Operating expenses in the six months this year include $800,000 of other general expenses for shutdown costs of our Norwalk, CA manufacturing facility as well as about $500,000 of higher group health insurance costs. Marketing expenses increased from 8.3% to 8.5% of sales in the quarter and increased from 8.6% to 8.7% of sales in the six months. Distribution expenses were 8.0% of sales in this year's quarter and were 7.8% of sales in last year's quarter, and were 7.9% of sales in both years' six month period. Administrative expenses were 3.3% of sales this quarter and 3.4% for the six month period as compared to 3.2% of sales last year in the second quarter and 3.3% for the six months.

Operating income increased $1,173,000 or 6% to $20,332,000 in the second quarter and increased $4,083,000 or 12% to $38,303,000 in the first half as a result of the aforementioned items.

22 --------------------------------------------------------------------------------



Investment income increased by $80,000 and $442,000 in the second quarter and six months, respectively, due primarily to increased investments of marketable securities. We have investments of $128.7 million in mutual funds that seek current income with an emphasis on maintaining low volatility and overall moderate duration. We estimate the annual yield from these funds to approximate 3.5 - 3.75%.

The effective income tax rate has been estimated at 36.5% and 36.8% for the quarter this year and last year, respectively and 35.7% and 36.1% for the six months this year and last year, respectively. We are estimating an effective income tax rate of approximately 36% for the year.

Net earnings increased $861,000 or 7% in the current three month period to $13,521,000 and increased 13% to $25,947,000 for the six months this year from $22,886,000 as a result of the aforementioned items.

There are many factors which can impact our net earnings from year to year and in the long run, among which are the supply and cost of raw materials and labor, insurance costs, factors impacting sales as noted above, the continuing consolidation of our customers, our ability to manage our manufacturing, marketing and distribution activities, our ability to make and integrate acquisitions and changes in tax laws and interest rates.


For more stories on investments and markets, please see HispanicBusiness' Finance Channel



Source: Edgar Glimpses


Story Tools






HispanicBusiness.com Facebook Linkedin Twitter RSS Feed Email Alerts & Newsletters