J+J Snack Foods: Reports Q2-2022 Sales and Earnings

Pennsauken / NJ. (jj) J+J Snack Foods Corporation reported financial results for the second quarter, that ended in Camden County on March 26, 2022.

Second Quarter
Actuals percent versus LY
Net Sales USD 281.5 million 9.9%
Operating Income USD 4.1 million (43.5%)
Net Earnings USD 3.3 million (46.0%)
Earnings per Diluted Share (EPS) USD 0.17 (46.3%)

Dan Fachner, J+J Snack Foods President and CEO, commented, «J+J Snack Foods’ record second quarter net sales increased 10 percent year-over-year and by 2 percent versus the same period in fiscal 2019, exceeding pre-Covid levels for the third consecutive quarter. We had a number of accomplishments throughout the quarter including new customer wins, successful product launches and expanding product distribution. We delivered our best second quarter sales in company history despite the unexpected challenges related to the early-February implementation of a new enterprise resource planning (ERP) system. This system implementation only affected our Food Service and Retail segments and was intentionally planned at this time since it’s our slowest volume quarter. This investment is a critical step in our long-term strategy to automate our business establishing the foundation for transforming our supply chain. It provides a seamless, integrated process from raw materials through production, warehousing, inventory management, and electronic order fulfillment. We did experience operational and supply chain challenges due to this implementation and estimate that these issues had a negative, one-time impact on fiscal second quarter sales of approximately USD 20 million and on fiscal second quarter operating income of approximately USD 4.5 million. I am proud of how the team worked tirelessly to resolve these issues and already see our business bouncing back in April. We do not anticipate any further material impact going forward.»

«Consumer spending remains healthy despite macroeconomic challenges, and we continue to see strong demand for our products as a growing number of consumers return to their favorite amusement parks, restaurants, retailers and outdoor venues. Second quarter net sales in our Frozen Beverages segment, which was not impacted by the ERP transition, increased 50 percent year-over-year, driven by over 90 percent growth in frozen beverage sales, which is an indirect indicator of the demand opportunity we are experiencing across our core products.»

«As was the case last quarter, sustained significant inflationary pressures continue driving up prices across the entire supply and production chain, including raw materials, packaging, and distribution. We are taking aggressive measures to offset these cost challenges, including strategic cost reduction initiatives in procurement, R+D, production and distribution. We are confident these actions, combined with our most recent price increases, which became effective in early April, will begin to help offset the impact of these costs increases in the back half of the year.»

«These initiatives will strengthen our operating infrastructure and standardize processes across key business functions resulting in increased efficiencies, reduced costs and improved margins. Our commitment to driving operational excellence across the business is a key part of our long-term growth strategy and will deliver meaningful benefits to our customers and shareholders today and for many years to come.»

«In summary, we are grateful to our customers for their patience and loyalty as we worked to resolve the ERP transition issues in the second quarter. The experience of our team, investments in our operating discipline and the strength of our brands, have us well positioned in the snack food marketplace to accelerate growth and continue enhancing shareholder value. Looking ahead, the overall industry environment and consumer spending remain very strong despite rising prices, and we expect the operating and financial benefits of our recent initiatives will become more visible as we move into the second half of fiscal 2022.»

Total Company Second Quarter Highlights

Net sales increased 10 percent to USD 281.5 million in Q2 of fiscal 2022, compared to Q2 of fiscal 2021, and by 1.9 percent, compared of Q2 of fiscal 2019. Key highlights:

  • Sales were driven by growth in core products including pretzels, churros and frozen beverages.
  • Food Service sales exceeded Q2-2021 by 4 percent and by 1 percent, versus Q2-2019.
  • Retail segment sales declined versus Q2-2021 by 7 percent, but grew by 19 percent, compared to Q2-2019.
  • Frozen Beverage segment sales beat Q2-2021 sales by 50 percent, led by frozen beverages growing over 90 percent, but declined by 4 percent, versus Q2-2019.

Gross profit as a percentage of sales was 23.2 percent in Q2-2022, compared to 23.8 percent in Q2-2021, reflecting the significant cost headwinds our industry continues to face. Inflation continued to build over the quarter increasing over 10 percent from our recent Q1, and further pressuring margins. This impact was especially pronounced in key raw material purchases like flour, oils, eggs, dairy, chocolates, and meats, as well as packaging and fuel. We have pricing and cost initiatives in place to offset these cost pressures, though we do not expect to see most of the benefits on our margins until Q3 and beyond.

Total operating expenses were 21.8 percent of sales for the quarter, an increase of 81 bps, compared to Q2-2021. Expenses continued to be negatively impacted by industry-wide freight and distribution cost increases. Distribution costs were 10.1 percent of sales in the quarter, versus 9.9 percent in the prior year period, while marketing and selling expenses remained at 7.5 percent of sales. Administrative expenses were 4.2 percent of sales in Q2-2022, compared to 3.6 percent in Q2-2021.

Operating income was USD 4.1 million in the second quarter of fiscal 2022, compared to USD 7.2 million in the prior year period, largely driven by the ERP conversion challenges and the continued historic inflationary environment. Net earnings in Q2-2022 was USD 3.3 million, compared to USD 6.1 million in Q2-2021. Our effective tax rate was 22 percent in Q2-2022.

Food Services Segment Second Quarter Highlights

  • Q2-2022 food service sales exceeded Q2-2021 by USD 7.0 million, or an increase of 4 percent.
  • Theaters, stadiums, amusement parks as well as schools and restaurants and strategic accounts continued to experience an increase in foot traffic and visitation driving strong sales in our core products, including 18 percent increase in soft pretzel sales to USD 43.3 million, churro sales growth of 19 percent to USD 17.4 million led by customer expansion and growing menu penetration, while frozen novelties sales declined 31 percent due to short term production and shipping delays. Handheld and bakery sales both remained relatively flat at USD 20.5 million and USD 84.0 million, respectively.
  • Sales of new products were approximately USD 2 million driven primarily by a new empanada product with a major convenience customer and expanded bakery items.
  • Q2-2022 operating income declined 91 percent to USD 0.5 million reflecting the significant increase in ingredients, production and shipping costs as well as by the impacts from the Company’s ERP implementation.

Retail Segment Second Quarter Highlights

  • Q2-2022 retail sales decreased 7 percent, compared to Q2-2021.
  • Soft pretzels remained relatively flat, compared to Q2-2021, while frozen novelty sales decreased 2 percent lapping a 22 percent increase in the same quarter last year. Biscuit and handheld sales decreased 12 percent and 52 percent, respectively, versus the prior year period.
  • New product innovation contributed approximately USD 0.5 million in the quarter driven by three new Luigi’s gelato items.
  • Operating income decreased 83 percent to USD 1.1 million, versus the prior year period driven by higher cost of goods sold and inefficiencies created by the delays in the Company’s ERP implementation.

Frozen Beverages Segment Second Quarter Highlights

  • Frozen beverage segment sales beat Q2-2021 sales by 50 percent led by beverage sales.
  • Beverage sales grew over 91 percent, or USD 16.8 million higher than in Q2-2021 reflecting the growing momentum across theaters, amusement parks, convenience, and restaurant channels. In the amusement parks channel, we continue to see strong growth as visitation numbers continue to exceed pre-Covid levels. Theater sales are improving as better content is released and consumers are spending more for snacks but continues to lag 2019 volumes.
  • Service revenues increased 15 percent, led by an acceleration in maintenance calls and additional growth in one of our larger customers. Equipment sales increased 33 percent driven mainly by growth from large QSR and convenience customers.
  • Q2-2022 operating income improved to USD 2.5 million, compared to a Q2-2021 operating loss of USD 5.2 million, as strong sales drove leverage across the business.
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