J&J Snack Foods - 10-Q quarterly report FY2013 Q2

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 March 30, 2013

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)

 

6000 Central Highway, Pennsauken, NJ 08109

(Address of principal executive offices)

Telephone (856) 665-9533

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

X           Yes                                                                No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

X           Yes                                                                No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

Large Accelerated filer (X)                                                                               Accelerated filer ( )

Non-accelerated filer (  )                                                                                   Smaller reporting company (  )

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes                                                      X           No

As April 22, 2013 there were 18,808,926 shares of the Registrant’s Common Stock outstanding.

INDEX

The accompanying notes are an integral part of these statements

J & J SNACK FOODS CORP. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Note 8            Inventories consist of the following:

Food Service

Frozen Beverages

Amortized intangible assets are being amortized by the straight-line method over periods ranging from 3 to 20 years and amortization expense is reflected throughout operating expenses. No intangible assets were acquired in the six months ended March 30, 2013.  Aggregate amortization expense of intangible assets for the three months ended March 30, 2013 and March 24, 2012 was $1,113,000 and $1,114,000, respectively and for the six months ended March 30, 2013 and March 24, 2012 was $2,232,000 and $2,246,000 respectively.

Estimated amortization expense for the next five fiscal years is approximately $4,500,000 in 2013, $4,400,000 in 2014 and 2015 and $4,200,000 in 2016 and $1,700,000 in 2017. The weighted average amortization period of the intangible assets is 10.1 years.

Goodwill

The carrying amounts of goodwill for the Food Service, Retail Supermarket and Frozen Beverage segments are as follows:

Marketable securities held to maturity and available for sale values are derived solely from level 1 inputs.

The amortized cost, unrealized gains and losses, and fair market values of our investment securities held to maturity at March 30, 2013 are summarized as follows:

The amortized cost, unrealized gains and losses, and fair market values of our investment securities available for sale at March 30, 2013 are summarized as follows:

The mutual funds seek current income with an emphasis on maintaining low volatility and overall moderate duration.

All of the certificates of deposit are within the FDIC limits for insurance coverage.

The amortized cost, unrealized gains and losses, and fair market values of our investment securities held to maturity at September 29, 2012 are summarized as follows:

All of the certificates of deposit are within the FDIC limits for insurance coverage.

The amortized cost and fair value of the Company’s held to maturity securities by contractual maturity at March 30, 2013 and September 29, 2012 are summarized as follows:

Proceeds from the redemption and sale of marketable securities were $23,238,000 and $23,478,000 in the three months and six months ended March 30, 2013, respectively; and $26,713,000 and $60,023,000 in the three months and six month ended March 24, 2012, respectively, with no gain or loss recorded.  We use the specific identification method to determine the cost of securities sold.

The purchase price allocation for the handhelds acquisition is as follows:

The purchase price allocation resulted in the recognition of a gain on bargain purchase of approximately $6,580,000 which is included in other income in the consolidated statement of earnings for the three and nine months ended June 25, 2011.  The gain on bargain purchase resulted from the fair value of the identifiable net assets acquired exceeding the purchase price.

Acquisition costs of $546,000 for the handhelds acquisition are included in other general expense in the consolidated statements of earnings for the year September 24, 2011.

The purchase price allocation for the Kim and Scott’s acquisition is as follows:

Acquisition costs of $155,000 for the Kim & Scott’s acquisition are included in other general expense in the consolidated statements of earnings for the year ended September 29, 2012.

The goodwill and intangible assets acquired in the business combinations are recorded at fair value.  To measure fair value for such assets, we use techniques including discounted expected future cash flows (Level 3 input).

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 $.16 per share of its common stock payable on April 3, 2013, to shareholders of record as of the close of business on March 11, 2013.

In our fiscal year ended September 29, 2012, we purchased and retired 142,038 shares of our common stock at a cost of $8,167,125.  All of the shares were purchased in the fourth quarter.  Subsequent to September 29, 2012 and through October 31, 2012, we purchased and retired 48,255 shares of our common stock at a cost of $2,762,602.  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.

In the three months ended March 30, 2013 and March 24, 2012, 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 a decrease of $570,000 in accumulated other comprehensive loss in the 2013 second quarter and a decrease of $931,000 in accumulated other comprehensive loss in the 2012 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 a decrease of $447,000 in accumulated other comprehensive loss in the 2013 six month period and a decrease of $775,000 in accumulated other comprehensive loss in the 2012 six month period.

Results of Operations

Net sales increased $11,772,000 or 6% for the three months to $201,326,000 and $30,494,000 or 8% to $392,734,000 for the six months ended March 30, 2013 compared to the three and six months ended March 24, 2012.

In the March quarter, January sales increased 13.5% over the sales of the prior year while the sales increase for February and March was 3.5%.  The lower sales increase in February and March resulted primarily from lower sales compared to a year ago in February and March of frozen juices and ices, handhelds and bakery products in our foodservice segment.      

         

Excluding sales resulting from the acquisition of Kim & Scott’s Gourmet Pretzels in June 2012, sales increased approximately 5% for the three months and 8% for the six months.

FOOD SERVICE

Sales to food service customers increased $11,069,000 or 9% in the second quarter to $135,393,000 and increased $28,187,000 or 12% for the six months.  Excluding Kim & Scott’s sales, food service sales increased approximately 8% for the second quarter and increased 11% for the six months.  Soft pretzel sales to the food service market increased 29% to $35,337,000 in the second quarter and increased 28% to $67,931,000 in the six months due to increased sales to restaurant chains, warehouse club stores and throughout our customer base. Increased sales to three customers accounted for approximately 50% of the increase in pretzel sales in the quarter and six months. Without Kim & Scott’s, pretzel sales increased about 24% for the three months and 24% for the six months.  Frozen juices and ices sales decreased 13% to $10,122,000 in the three months and 9% to $17,649,000 in the six months resulting from lower sales to school food service accounts. Churro sales to food service customers increased 22% to $14,067,000 in the second quarter and were up 27% to $27,874,000 in the six months with sales to one restaurant chain accounting for over 90% of the increase in both periods.

Sales of bakery products increased $2,720,000 or 4% in the second quarter to $67,084,000 and increased $10,205,000 or 8% 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 $6.9 million in the six months. Price increases accounted for approximately $3.5 million of sales in the quarter and $6.5 million in the six months and net volume increases, including new product sales as defined above and sales resulting from the acquisition of Kim & Scott’s, accounted for approximately $7.6 million of sales in the quarter and $21.7 million of sales in the six months.

Operating income in our Food Service segment increased from $12,748,000 to $15,363,000 in the quarter and increased from $20,002,000 to $27,960,000 for the six months. Operating income for the quarter and six months benefited from increased sales volume, price increases and lower ingredients and packaging costs.

RETAIL SUPERMARKETS

Sales of products to retail supermarkets increased $119,000 or less than 1% to $23,553,000 in the second quarter and were essentially unchanged at $44,256,000 in the first half. Excluding Kim & Scott’s sales, sales decreased 1% for the second quarter and 1% for the six months.  Soft pretzel sales for the second quarter were up 19% to $10,046,000 and were up 12% to $18,624,000 for the six months on a unit volume increase of 18% for the quarter and 11% for the six months. Excluding Kim & Scott’s sales, soft pretzel sales increased about 15% for this quarter and 9% for the six months. Soft pretzel sales benefited from increased distribution of our sweet cinnamon variety and perhaps from additional advertising.  Sales of frozen juices and ices decreased $497,000 or 5% to $8,998,000 in the second quarter and were down 7% to $15,468,000 in the first half on a unit volume decrease of 14% in this quarter and 14% for the six months.  Reduced trade spending, a reduction of sales, accounted for the difference between the case decline and the sales decline. Frozen juices and ices sales were impacted by lost distribution and perhaps by unseasonably cold weather.  Coupon redemption costs, a reduction of sales, increased 33% or about $185,000 for the quarter and 16% to $1,543,000 for the six  months. Handheld sales to retail supermarket customers decreased 12% to $5,117,000 in the quarter and 2% to $11,430,000 for the six months due primarily to lower sales to one customer.

Sales of new products in the first twelve months since their introduction were approximately $800,000 in the second quarter and $2.0 million in the six months. Price increases accounted for approximately $700,000 of sales in the quarter and $900,000 in the six months and net volume decreases, including new product sales as defined above and Kim & Scott’s sales and net of increased coupon costs, reduced sales by  approximately $600,000 in this quarter and $900,000 in the six months. Operating income in our Retail Supermarkets segment increased from $1,658,000 to $2,404,000 in the quarter and from $3,482,000 to $3,974,000 in the six months primarily because of reduced allowances for the introduction of products into retailers, reduced trade spending in general and improved margins.

FROZEN BEVERAGES

Frozen beverage and related product sales increased 1% to $42,380,000 in the second quarter and increased $2,319,000 or 3% to $82,898,000 in the six month period.  Beverage related sales alone decreased 5% to $25,183,000 in the second quarter and were essentially unchanged at $50,480,000 in the six months.   Gallon sales were down 10% for the three months and 4% for the six months with over 2/3 of the drop in gallons in both periods concentrated in four customers.  Service revenue increased 6% to $12,710,000 in the second quarter and 5% to $24,552,000 for the six months 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 $923,000 or 31% higher in  the three month period and $1,058,000 higher in the six months.  The approximate number of company owned frozen beverage dispensers was 43,100 and 42,500 at March 30, 2013 and September 29, 2012, respectively.  Operating income in our Frozen Beverage segment decreased $475,000 to $1,392,000 in the second quarter and increased to $2,286,000 from $1,252,000 in the six months. The decrease in operating income in the quarter resulted from lower beverage sales.  For the six months, the increase in operating income was primarily from a reduction in operating expenses.

CONSOLIDATED

Gross profit as a percentage of sales increased to 28.88% in the three month period from 28.48% last year and increased to 28.59% in the six month period from 27.71% a year ago.  Higher volume in our food service segment was the primary reason for the improved gross profit margin in the three and six month periods and the second quarter also benefitted by lower ingredient and packaging costs of approximately $700,000.  Ingredient and packaging costs can be extremely volatile and may be significantly different from what we are presently expecting and therefore we cannot project the impact of ingredient and packaging costs on our business going forward.

Total operating expenses increased $1,278,000 in the second quarter but as a percentage of sales decreased .53 percentage points from 20% percent to 19%.  For the first half, operating expenses increased $2,409,000, but as a percentage of sales decreased 1.01 percentage points  from 21% to 20%. The drop in percentages was generally because of increased sales in our food service segment and lower expenses in our frozen beverage segment and the overall reduction of $800,000 in expense because of the management and sales meeting we had in last year’s first quarter.  Marketing expenses decreased from 9% to 8% of sales in the quarter and decreased from 10% to 9% of sales in the six months also because of higher sales and reduction of expenses.  Distribution expenses were 7.80% of sales in this year’s quarter and were 7.50% of sales in last year’s quarter, and were 8% of sales in both years’ six months.  Administrative expenses were 3% of sales in all periods.

Investment income increased by $516,000 and $937,000 in the second quarter and six months, respectively, due primarily to increased investments of marketable securities.  We invested $80 million in the first quarter in mutual funds that seek current income with an emphasis on maintaining low volatility and overall moderate duration.  We estimate yield from these funds to approximate 3.5 – 4.0%.  US Government Agency debt of $23.0 million held at September 29, 2012 which was yielding 2.0% has been called in the six months ending March 30, 2013.

Net earnings increased $2,237,000 or 21% in the current three month period to $12,660,000 and increased 44% to $22,886,000 for the six months this year from $15,908,000 last year 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.

Based upon review of the above results of voting, the Board of Directors plans to submit Proposal Two for a shareholder vote at its Annual Meeting of Shareholders to be held in February 2014.

The Company had 18,774,966 shares outstanding on December 11, 2012, the record date.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.